Newsweek: Europe Defies The Skeptics: Why Europe Is Stronger Than Ever - By Andrew Moravcsik

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Europe Defies The Skeptics: Why Europe Is Stronger Than Ever - By Andrew Moravcsik

Just six months ago, the media were rife with predictions about the collapse of the European Union and its currency in the wake of the economic crisis. Credit agencies issued downgrades or downgrade warnings for countries like Spain, Portugal, Ireland, and Greece. Even more serious debt crises were expected in Central and Eastern Europe.

Today, it's clear that the crisis has renewed European solidarity and seriousness of purpose. Europe is stronger than ever. What explains the quiet turnaround? The leading nations of Europe did not lose their nerve, and they did not work only to protect themselves, as many pundits predicted. Instead, they rushed to save their neighbors. In monetary policy, small nations realized that they lack the capacity to act as a credible lender of last resort for domestic banking systems that conduct many of their transactions in foreign currencies. Large nations, Germany in particular, realized that their banks, investors, and exporters would take a catastrophic hit if smaller neighbors went belly up. So the European Central Bank responded by pouring money into euro-zone banking systems. The Stability and Growth Pact, which restricts public spending, was relaxed to permit governments to recapitalize their banks. And in an unheralded and entirely informal expansion of EU responsibility, perhaps the largest since the 1999 launch of the euro, the central bank accepted responsibility for stabilizing EU countries outside the euro zone—those that still use their own currencies. It extended guarantees and swaps to assist efforts to stabilize financial systems that otherwise might have been forced to impose a punishing interest-rate hike or devaluation. The most striking example was the bailout of Latvia, managed jointly by the IMF and the EU. The turnaround in trade is no less spectacular. In March, European leaders made a collective commitment to avoid further protectionist measures, and they stuck to it. The core of Europe's single market—a ban on tariffs, quotas, and subsidies, protected by the Schengen Agreement prohibiting border controls and competition policy—seems to be holding firm.

Note EU-Digest: Unity is the only way forward for our EU. As the saying goes: "United we stand, divided we fall".