Is the European Union doomed?

Greece is leading the charge toward collapse, and Italy, Slovenia, Slovakia, Estonia are also struggling.

By DOUGLAS GOLDSTEIN
Euro symbol near European flags 311 (photo credit: REUTERS/Francois Lenoir)
Euro symbol near European flags 311
(photo credit: REUTERS/Francois Lenoir)
Economic crises seem to be the order of the day in Europe. Greece is leading the charge toward collapse, and Italy, Slovenia, Slovakia, Estonia and other countries are also struggling. Meanwhile, stalwart Germany stands by, hoping not to have to continue picking up the pieces and pay for the whole mess.
A serious question shadows Europe: will the European Union fail?
Not yet 20 years old, the EU faces perhaps the most challenging circumstances since its birth. While many people feel that the Union’s dissolution is inevitable, others believe equally strongly that it will not only survive, but emerge all the stronger for having weathered the storm.
Let’s take a look at the rationale behind each of these opinions.
First, what is the main reason for believing that the European Union will dissolve within the next few years?
One popular opinion hinges on the idea that the European Union is the “United States of Europe.” This “United States,” the theory goes, was doomed to failure from the beginning because of the historical bad feelings and difficult relationships between the countries of Europe over the past 2,000 years.
These animosities, the theory goes, may be buried under the surface of “civilized, modern” government, but they remain alive, simmering and smoldering. Even modern education and a profoundly interdependent global economy cannot erase age-old ingrained nationalism and patriotism (think Arab-Israeli conflict). This may explain the posturing by France and Germany as each strives to be the leader of Europe.
A second factor as to why the EU might collapse deals with its newest members. The newly admitted eastern bloc NATO nations pose a challenge to the European Union. Their admittance requires them to follow the EU’s constitution and laws. According to some opinion leaders, countries that are new to democracy and capitalism may not be ready for free elections, free markets and free trade.
These intra-European conflicts and challenges form the basis of one opinion about the European Union: European nations simply cannot get along well enough to form a union, even an imperfect one. On the other side of the coin is the belief that despite current turmoil, the EU will not fail.
In part, this belief is based on the “too big to fail” concept applied to American banks. According to this argument, the national interests of the countries involved will finally come into play, and the European Union will be saved. In most scenarios, Superhero Angela Merkel and Germany will save the day, simply because that country is the only one capable of saving the EU and the euro due to its relatively massive economy.
But why, in the minds of these thinkers, will Germany step up to save the EU and the Euro? In some ways it is a matter of “too big to fail,” but the primary reason is the euro itself.
The general consensus is that the individual European countries want to hold onto the Euro. Returning to individual national currencies would devalue all of those currencies. Some countries, such as Greece and Portugal, would see a complete collapse of their financial systems, far worse than the difficulties they currently face.
In fact, the comparative strength of the euro may be the superglue holding the EU together. Though it has weakened compared to other world currencies, compared to how the individual European nations’ currencies would look if they became independent again, the euro seems like a better bet.
What’s more, a breakup of the euro and a return to national currencies might rip the global economy apart. Stock markets around the world would crater, a global banking crisis would ensue, and the United States and Europe would plunge into recession. And that, according to the opinion of a large number of people, is why the euro will survive. It must survive, therefore it will.
Which of these opinions is correct remains to be seen, but both deserve careful consideration.
The writer is an international investment adviser, financial planner, and president of Profile Investment Services, Ltd. He can be reached at doug@profile-financial.com.