The Euro-Crisis Has Historical Parallels With Past European Crises
The euro-crisis, although a modern phenomenon, has strong parallels to some of Europe's troubles in the twentieth century. Indeed it was the two world wars that motivated Europeans to create the European Union and later, in part, the single currency. Over at the New York Times Prof.Hal S. Scott has done a good job at outlining the similarities between Europe's twentieth century wars and that continent's current discontents, as well as how the crisis threatens to envelop the United States.
Prof. Scott begins by highlighting an often overlooked part of the euro-crisis, the disconnect between Germany and the rest of Europe:
One fundamental parallel with the two world wars is the tension between Germany and other European states. While successfully integrated into Europe, Germany remains the Continent's most powerful economic force, with higher productivity and economic growth rates and lower inflation than the other major European countries, including France, Italy, Spain and Britain. In the periods leading up to the world wars, Germany's neighbors rightly feared and deeply resented German military power. Today, they fear German economic power even while they plead with Germany to come to their aid.
The European Union has never managed to get anything of substance achieved (for better or worse) when Germany and other major European nations like France disagree on policy. Such a situation is currently unfolding, with the socialist French government calling for the pooling of debt through Eurobonds, a proposal that has been rejected by the Germans.
Germany faces potential backlash from its European neighbors if it vetoes future bailouts, a possibility that is being openly considered by some in the German government. Even if Germany does yield to pressure from countries in need of rescue there just isn't enough funds for Germany to be able to rescue all of the countries that might need assistance. Prof. Scott warns of putting too much pressure on the Germans:
Too big a reparation burden on Germany after World War I contributed to the rise of the Nazis; in contrast, after World War II, we used the international approach of the Marshall Plan to rebuild Europe. Instead of placing another impossible burden on Germany, we must again take international action.
While Prof. Scott is right about the pressures on Germany and the relationship it has with the rest of Europe I am not sure he is right that what is needed is more involvement from countries like the United States and Japan. Prof Scott proposes a Bretton Woods II:
What is needed is an international approach, led by the United States, China and Japan, channeled through the International Monetary Fund, and perhaps considered at an international conference — Bretton Woods II.
Although Germany might well face backlash for not bailing out irresponsible countries, it will almost certainly be domestically isolated and not a threat to Germany's civil society or the security of Europe. However the euro-crisis unfolds and however Germany reacts it will be important to keep the historical parallels in mind.