Euro zone countries will become more nationalistic in hard times, and more likely to vote against incumbent governments, no matter what the specific issue at stake. It is hard to see a stabilizing outcome, so the best bet is on a crack-up of some of Europe's major economies, including Spain and Italy.
This article is part of The New York Times Room for Debate question "In Europe, Now What?"
Today, very few countries in the euro zone are capable of making credible commitments or binding agreements with the others.
The euro zone probably was unworkable from the beginning, and now we are seeing why.
Quite simply, democracy is having its say. The French soon may elect a left-wing candidate who, in essence, wants to exempt France from fiscal rules and place more fiscal risk on Germany. The Dutch can no longer form a governmental consensus on the budget. The Irish will be putting the fiscal compact up for a referendum, and the Greeks are holding an election in May. Even in Germany there could be problems holding together the ruling coalition.
In general, voters are unwilling to give up their say over policy, or to regard the European Union or euro zone as necessarily superior to national interests. When it comes to the specifics, it appears increasingly likely that at least one national electorate will pull the plug on the entire set of bailouts and austerity programs.
There is no way to pull off the required cross-national agreements. Resources are being drained from euro zone banks, which are contracting their lending to business. This will make the current recession worse, which in turn will necessitate further unpopular policies, including cuts in government spending. Euro zone countries will become more nationalistic in hard times, and more likely to vote against incumbent governments, no matter what the specific issue at stake. It is hard to see a stabilizing outcome, so the best bet is on a crack-up of some of Europe's major economies, including Spain and Italy.
There is an old saying in economics, namely "no monetary union without a corresponding fiscal union." It could be added "no fiscal union without a corresponding electoral union." In the longer run, we will probably end up with none of these institutions.
The euro zone probably was unworkable from the beginning, and now we are seeing why.