The Monitor's View

From crisis, a more unified Europe?

The recession is exacerbating splits within Europe, but its severity may change that.

By

Recent weeks show how tough it may be for America to unite behind an economic fix-it plan. Some governors differ with the president, while in Congress, Republicans and Democrats bicker. In Europe, though, a financial crisis pits nation against nation, East against West. The crisis threatens a decades-long drive toward unity. Or does it?

It may yet happen that the economic challenge in Europe becomes so acute that, in the end, the crucible of crisis actually forces stronger financial and political bonds between countries.

But so far, European governments mostly talk financial brotherhood while acting in a harmful every-man-for-himself manner. As World Bank chief Robert Zoellick recently told the Financial Times of London, "There is a disconnect between some of the rhetoric of leaders calling for global this and global that and their own policies."

French President Nicolas Sarkozy serves as Exhibit A.

This week, he and other West European leaders endorsed a global doubling of contributions to the International Monetary Fund. The IMF can surely use the infusion as it tries to catch tumbling economies in Eastern Europe.

On the other hand, Mr. Sarkozy will only magnify hardship in Central and Eastern Europe with his plan to reward French automakers if they retreat from countries like the Czech Republic and boost production at home.

As Mr. Zoellick rightly observed, it would be a "tragedy" if Europe split again, 20 years after the fall of the Berlin wall. Of particular concern is the move by some Western European countries to aid their banks at the expense of the East. The banks got an infusion of government capital, but only on the condition that they repatriated capital from Eastern Europe to domestic markets.

Now Eastern economies can't get financing for exports. Their currencies are falling sharply, which makes it next to impossible to repay debt owed to West European banks. The rapid deterioration east of Berlin has caused a run on banks in Ukraine and protests in Riga that last week brought down the Latvian government.

A sharp divide is also appearing in the 16 European Union countries that use the euro. Greece, Spain, and Ireland, for instance, are in such bad shape that they're blowing the fiscal standards that allow them to participate in the EU currency. The strain threatens to break up the euro- zone, formed just 10 years ago.

While exposing divisions, the financial and economic crisis in Europe also reveals how connected and interdependent all of these countries are. It points to the need for pan-European solutions, not a retreat to nationalism.

Encouragingly, such solutions are starting to be voiced. The idea of a euro-bond has been raised as an economic burden-sharing tool to support weaker countries. Austria, whose banks have the largest exposure to Eastern Europe, is pushing for a broad effort to help the East.

Most remarkable is Germany's recent about-face to support a joint bailout should a eurozone country default on debt. That could be turned to an even greater advantage if structural reform were made a condition of rescue.

Now, crisis is tearing Europe apart by the seams. In the long run, it could stitch it closer together.

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