European leaders seemed to understand, at least until recently, that even a partial breakdown of the euro zone would have a devastating economic and political impact on departing countries and on the European Union as a whole. But while they have repeatedly committed to providing emergency aid, they haven’t yet accepted that saving the euro is more vital than clinging to the constraining rules that govern the European Central Bank. They are debating their future with a diminished sense of history and of the alternatives available to them. They should recall Secretary of State George C. Marshall’s grave warning, upon returning from Germany in early 1947: “The patient is sinking while the doctors deliberate.”
The former patient is now the principal doctor. The German chancellor, Angela Merkel, assures us that the answer to the crisis is “more Europe” — more coordination of policies and more common decision-making. But the question behind the immediate crisis posed by Greek and Spanish debt is how to bring about more Europe. It will not be created simply through the European Union’s recent “fiscal compact” extracted by Berlin, which provides for automatic but unenforceable fines designed to encourage budget orthodoxy.
It is time for Germany, once the recipient of aid, to design its current policies with the same sense of urgency and vision that America did after World War II with the Marshall Plan, a farsighted program of assistance for the reconstruction of Europe. The Continent is vastly wealthier today than it was then, but the key issue remains how to overcome economic stagnation without imposing painful austerity that strengthens extremist parties and endangers democratic politics.
Unwinding a decade of profligate borrowing will not be easy. But no one should believe that if Greece and Spain abandon the euro, their economies will float buoyantly upward without wrenching interim misery. Their European neighbors will have to provide assistance whether they are in the euro zone or outside; after all, unemployed Greeks and Spaniards can and will migrate to northern Europe in search of jobs.
Many Germans — not only bankers and Ms. Merkel’s political allies — have lost patience with the idea of pouring resources into a “bottomless barrel,” as they often call Greece. They justifiably ask whether bailing out Greece won’t make Spain even more vulnerable and they fret about moral hazard — rewarding irresponsible behavior and making it more likely to recur. Yes, Spain and Greece indulged in irresponsible borrowing, but it’s important to recall that they did so in partnership with French and German banks who were willing lenders. Moreover, Germany has benefited greatly from the euro and the European Union: two-thirds of German trade revenue, and about half of the trade surplus from which Germans derive so much pride, can be attributed to commerce with other members of the European Union.
Countries in a position of leadership must finance and support their distressed neighbors for systemic reasons. or they have no real claim to leadership. In the 1990s, West Germans committed roughly one trillion euros to give their newly reunited countrymen a common standard of welfare. Two decades later, Germans must extend the same sense of obligation to Europe more broadly.
THE Marshall Plan is sometimes seen as an early triumph for “conditionality” — that is, grants dependent on the recipient’s cutting domestic public expenses, raising revenues and, often, firing “redundant” workers. In fact, the Marshall Plan worked because it indefinitely suspended conditionality while nudging recipients toward eventual reforms.
Postwar American leaders repeatedly postponed austerity requirements when confronted with French and Italian tax evasion and budget deficits. They let Marshall Plan funds cover budgetary deficits, wagering correctly that growth would ultimately wipe out the deficits. Today, rather than conditioning assistance on policies of immediate austerity that will only worsen depression — the outcome that the architects of the Marshall Plan sought to avoid — creditor countries like Germany would be wise to tie debt reduction and loan repayment to the resumption of economic growth.
The cautious leaders of the European Central Bank argue that the euro treaties prohibit the bank from buying the debts of member states; likewise, Berlin has resisted issuing any “Eurobonds” that the members of the European Union would have a collective duty to repay. But treaties can be loosened as well as tightened; they fit for a while, then must be revised. If European leaders and finance ministers were able in a weekend to agree on a pact that envisaged a punishing commitment to austerity, surely they can also authorize the central bank to buy government bonds directly.
Sober minds among the German opposition understand this. Ms. Merkel seems to comprehend it, but, constrained in part by her own majority’s reluctance, she has been moving too slowly to halt the unfolding crisis, hoping that lining up harsher fiscal discipline will stanch the ebbing of confidence. Promise the impossible and supposedly the bond markets should rally. But this is wishful thinking. The history of the last five years has demonstrated that political leaders can’t always rely on the market; banks are fair-weather friends — anxious to lend in good times but in danger of imploding in crises.
Ultimately, the issue is not merely one of economic welfare. For over half a century the progress of the European Union has provided a civic vision comparable to earlier aspirations for national liberation from dictatorships — whether Nazi or Communist. It managed to move millions of excess farmers off the land into new jobs without their mass defection to xenophobic populist parties. It has led to a huge exchange of young students and workers, reintegrated formerly Communist nations of Eastern Europe and accommodated a united and wealthy Germany without a destructive revival of earlier anxieties. And in the future the European Union is needed for the Continent to remain a significant international actor in a world organized around powerful regional groupings.
Ultimately, the path to “more Europe” will require granting the European Parliament a far greater share of control over Europe’s public expenditures, even if many European Union experts might be scornful and the British would balk. The European Union’s budget today is limited to less than 2 percent of total European G.D.P., whereas every major European country’s budget usually accounts for 40 to 50 percent of national output. Europe’s parliament should have the power to decide on the overall amounts to spend on welfare and pensions and support of the unemployed. Then European social preferences can be debated the way they are within every nation, through European-wide parties and parliamentary elections that will take on real significance. If German policies prevail, they will seem less coercive, and the national populist parties that have emerged with disturbing strength will be compelled to debate ordinary politics rather than demonize immigrants.
Ms. Merkel is right; Europe must press forward, and Germany is today the country on whose farsightedness the European project hinges. Chancellor Helmut Kohl proved an unlikely visionary in 1989-90 when he urged both German unification and an enhanced European Union. The need for decisive policies has come again.
Charles S. Maier is a professor of history at Harvard.