Can the European Union survive the debt crisis?
As differences persist over how to handle the debt crisis, momentum builds among European Union nations to either drop the euro or form new currency alliances.
A woman makes a transaction at an automated teller machine in Athens, while riot police monitor a protest. Greece has had to implement tough austerity measures, due to its debt crisis. European Union nations, such as Germany, are loaning money to keep Greece afloat.
John Kolesidis/Reuters
London
Its origin is rooted in the idea of building a Europe that wouldn't go to war with itself – of easing French fears of German troops storming across the Rhine and, later, of preventing Soviet tanks from rolling into West Berlin. More recently, the organization that became the European Union (EU) overcame national differences to create one of the world's most potent economic blocs.
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Graphic: How a nation's default on its debt would affect foreign banks
(Source: Bank for International Settlements, Research: Leigh Montgomery, Graphic: Rich Clabaugh/Staff)
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Now, as the debt crisis gnaws at Europe's balance sheets, the EU faces another test of its cohesiveness: stabilize the Continent's economies and prevent the disintegration of the 11-year-old euro currency – perhaps the Union's crowning achievement.
By all accounts, Europe today stands at a crossroads. The enduring fragility of several nations' treasuries could end up pulling members of the EU closer together. But if the fiscal problems continue to require bailouts and major economic reforms – as experts say they will – it will more likely lead to a fracturing of one of Europe's boldest attempts at unity.
"Essentially, you can't have a single currency without a single economy," says Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank. "For it to work, there needs to be much greater political and economic integration."
The hope of the unifiers is that crisis breeds comity. Inside the 27-country EU, some believe the need to surmount a debt problem that threatens not only the survival of 16 members of the eurozone, but also the social-welfare model that has been an integral part of Europe's economic identity, will draw the disparate states together.
Reluctantly, they took common action to rescue Greece and contain the crisis with a 750 billion euro fund, though that was as much out of necessity as choice. The fear was, and still is, that a default by Athens could topple the other debt-laden members of the eurozone "Piigs" club – Portugal, Ireland, Italy, and Spain.
In the wake of the Greek crisis, European governments have been taking action to live within their means. Spain and Portugal, for instance, have cut public-sector wages and welfare subsidies, setting up the next battles with labor unions.
Where the EU goes from here will be crucial for Europe's future. One option is for increased fiscal discipline among eurozone members and tighter economic unity. Greater coordination is backed by France and EU technocrats. Yet it won't be an easy sell. Listen to what Sweden's prime minister, Fredrik Reinfeldt, said the day after an EU executive suggested that union members could coordinate national budgets.
