Washington Post | May 2, 2010 | Sunday
When European leaders laid the foundations of the European Union with the 1957 Treaty of Rome, they spoke optimistically of an "ever-closer union," a "pooling" of resources and "concerted action" to bring the diverse nations together. The problem is that the Europeans have never, to this day, been willing to accept the consequences of this assertion of unity. They wanted a single currency but refused a common fiscal policy that could keep the books balanced; they wanted a common flag but rejected a Europe-wide constitution; they desired the benefits of community but not its limitations or responsibilities. This tapestry of European integration, woven so nobly by the post-World War II generation, has been fraying over the past decade. Last week you could hear it begin to rip at the seams as Germany and other financially strong nations struggled to decide whether to rescue Greece, their weakest and most profligate member.
The seriousness of the European crisis is illustrated by the fact that there are no good solutions to the Greek mess. The short-term fixes that investors are clamoring for would carry significant long-term costs. What’s worse is that the institutions that could create a framework for long-term stability don’t exist and aren’t likely to be created now. What makes sense, in theory, is to let the Greeks default on their debts, decouple from the European monetary union for long enough to restructure their economy, and then rejoin the union on a more honest and sustainable basis. As one hedge fund manager warns: "Investors had always regarded the euro as a de jure German deutsche mark; it is dawning on the world that it is becoming, de facto, a Greek drachma." The one-size euro obviously doesn’t fit all members.