Can Europe remain intact?

Last week we looked at diversity in Europe, citing a Stratfor article titled 'A War Between Two Worlds' that examined the conflict between diversity and nationality in European nations.  Now Stratfor has followed it with another, equally thought-provoking article titled 'The European Union, Nationalism and the Crisis of Europe'.  With Stratfor's permission, here's an excerpt examining the European Union's adoption of quantitative easing to ease the supranational economy.

The plan is an attempt to spur economic activity in Europe by increasing the amount of money available. It calls for governments to increase their borrowing for various projects designed to increase growth and decrease unemployment. Rather than selling the bonds on the open market, a move that would trigger a rise in interest rates, the bonds are sold to the central banks of eurozone member states, which have the ability to print new money. The money is then sent to the treasury. With more money flowing through the system, recessions driven by a lack of capital are relieved. This is why the measure is called quantitative easing.

The United States did this in 2008. In addition to government debt, the Federal Reserve also bought corporate debt. The hyperinflation that some had feared would result from the move never materialized, and the U.S. economy hit a 5 percent growth rate in the third quarter of last year. The Europeans chose not to pursue this route, and as a result, the European economy is, at best, languishing. Now the Europeans will begin such a program — several years after the Americans did — in the hopes of moving things forward again.

The European strategy is vitally different, however. The Federal Reserve printed the money and bought the cash. The European Central Bank will also print the money, but each eurozone country's individual national bank will do the purchasing, and each will be allowed only to buy the debt of its own government. The reason for this decision reveals much about Europe's real crisis, which is not so much economic (although it is certainly economic) as it is political and social — and ultimately cultural and moral.

The recent leaks have made it clear the European Central Bank is implementing quantitative easing in this way because many eurozone governments are unable to pay their sovereign debt. European countries do not want to cover each other's shortfalls, either directly or by exposing the central bank to losses, a move that would make all members liable. In particular, Berlin does not want to be in a position where a series of defaults could cripple Europe as a whole and therefore cripple Germany. This is why the country has resisted quantitative easing, even in the face of depressions in Southern Europe, recessions elsewhere and contractions in demand for German products that have driven German economic growth downward. Berlin preferred those outcomes to the risk of becoming liable for the defaults of other countries.

. . .

The European Central Bank is providing the mechanism for stimulating Europe's economy, while the eurozone member states will assume the responsibility for stimulating it — and living with the consequences of failure. It is as if the Federal Reserve were to print money and give some to each state so that New York could buy its own debt and not become exposed to California's casual ways. The strangeness of the plan rests in the strangeness of the European experiment. California and New York share a common fate as part of the United States. While Germany and Greece are both part of the European Union, they do not and will not share a common fate. If they do not share a common fate, then what exactly is the purpose of the European Union? It was never supposed to be about "the pursuit of happiness," but instead about "peace and prosperity." The promise is the not right to pursue, but the right to have. That is a huge difference.

There's more at the link.

It's sobering to realize that issues of diversity, tolerance, etc. can be completely overwhelmed by social and economic turmoil.  Remember what hyperinflation did to the Weimar Republic?  It was one of the factors that led to the rise of Adolf Hitler and the Nazi Party.  Concurrent economic turmoil in Italy gave rise to Benito Mussolini and the Fascist Party.  In Greece, rocked by economic chaos for the past five years, a radical far-Left coalition is expected to win elections on Sunday, with right-wing opponents already saying darkly that they're not to be trusted.  In Germany and France anti-immigrant sentiments have led to an increase in support for extremist parties on both the left and the right wings of politics.

Who's to say that economic issues might not spark another decade like the 1930's in Europe?  And if so, what's to prevent them from (God forbid) segueing into another decade like the 1940's?

Peter