Euro crisis: The only way to save the euro is the destruction of its members

The Telegraph UK (Link) - Peter Oborne (January 13, 2011)

Since the coronation of Charlemagne as Holy Roman Emperor in 800 AD, there have been numerous attempts to unify Europe. Philip II of Spain, Louis XIV, Napoleon and Hitler all came tantalisingly close to success, but all ultimately failed. Today a fifth attempt is under way through the European Union.

Though not associated with a single great or powerful man, the ultimate objective of the EU is otherwise more or less familiar to students of European empires: no internal boundaries; a single currency; one parliament; one central government; one army; one foreign policy and a single political unit stretching from the Atlantic to the Urals.

The 27 nations that currently comprise the EU would merge into one huge state, accounting for a population of some 500 million, approximately one fifth of global wealth and an even higher percentage of the world�s trade. Such a nation would take its place alongside the United States and China as a superpower.

This project, in its way both noble and visionary, is surprisingly close to realisation. Many people fail to grasp this point because they have been distracted by the headlines on financial pages signalling daily woe and disaster for the eurozone countries.

But these setbacks were long ago foreseen by the architects of the EU. Jacques Delors, the French politician who more than anyone else was the architect of the single currency that is used today, is a highly intelligent man. He was warned many times by critics such as Margaret Thatcher that it was hopelessly premature to set up a monetary union without full political unification. He knew very well there would be problems.

But Mr Delors saw these problems as opportunities � what have been called �beneficial crises.� These economic crises, he believed, could be exploited by the European governing class to expedite with extra urgency and dynamism their over-riding project of integration, and the creation of a single European state.

An understanding of this background is essential for anyone wishing to come to terms with yesterday�s speech in the City of London by the French prime minister, Fran�ois Fillon. Most of the guests listening to Mr Fillon would surely have expected at the very least a substantial measure of alarm and contrition in the wake of the devastating setbacks for eurozone countries such as Greece and Ireland over recent months.

Yet there was no sign of retreat, or even judicious contemplation. Mr Fillon could hardly have been more bullish, upbeat or confident. �Europe is at a historic turning point,� declared the unchastened French premier. �The real question right now is whether to keep building on this adventure, or whether we leave it at that.�

His answer could not have been clearer: �We are going to move towards greater integration.� That means a deepening of the common social and economic regime which already binds Europe � as well as one potent extra element. Governments are to be stripped of their ability to tax and spend according to the democratic demands of their own voters. Instead (though Mr Fillon did not explain this), their budgets will be set for them by a greatly empowered common European government in Brussels.

It must be acknowledged that, strictly within his own terms, Mr Fillon is right. There is only one way to save the euro, and it is finally to resolve the problem so lucidly analysed by Mrs Thatcher in her conversations with Mr Delors 20 years ago. Europe cannot survive with a single currency but a pluralist and diverse political system. So long as member states enjoy local autonomy, the currency is guaranteed to collapse. The euro will only survive if the power of national governments is destroyed.

It is this basic fact which makes the year 2011 such a critical year in the history of Europe � or �a historic turning point,� to use Mr Fillon�s potent phrase. European leaders have no choice but to act at once. If they leave political and economic structures as they are, the single currency will collapse very quickly and the European project will follow.

So 2011 is the year of the �beneficial crisis,� when the EU will try to exploit short-term economic hardship in order to eliminate the powers of national governments and to create a new pan-European political structure. If it succeeds, it may go on to become a great world power. If it fails, it will start to revert to a collection of nation states.

European leaders are fully aware they face this moment of decision. Two of the most basic ingredients of this new order were first discussed at a meeting between Angela Merkel and Nicolas Sarkozy last October, as the scale of the Irish financial crisis was starting to become apparent.

Mrs Merkel and Mr Sarkozy accepted that it was no longer possible to respond to eurozone crises in the ad hoc way with which they had responded to the Greek meltdown of May 2010. They recognised the need to create a new and more enduring structure. They decided that this meant, first, the creation of a massive fund to bail out failing members of the eurozone (later agreed at a European summit). Second, they discussed (but did not agree) the creation of common eurozone government bonds. These would prevent the markets focusing on the solvency of embattled individual states. Instead, traders would be obliged to focus on the creditworthiness of the eurozone as a whole. As a result, the kind of crisis which afflicted Greece and Ireland last year, and threatens Portugal today, would be prevented.

In theory, these new structures would work easily. But they mark a fundamental and revolutionary change in the structure of the EU. Mr Delors�s Maastricht Treaty envisaged each member state taking responsibility for its debts. The common bail-out fund and eurobond set out by Mrs Merkel and Mr Sarkozy abandon that principle, though Germany has yet to fully acknowledge this killer point.

Once implemented, all member states (and Mrs Merkel in particular is agonisingly aware of this) will take responsibility for each others� debts. From that moment, Europe will transform once and for all into one country. This is the historic turning point Mr Fillon was discussing yesterday, and he asked for Britain�s assistance. David Cameron pledged that Britain �will be a helpful partner.� But our true interests lie elsewhere. Europe is our greatest trading partner and we have a visceral interest in its prosperity and growth.

Already the dogmatic adherence of the European elite to the single currency has had a devastating impact on many eurozone countries, converting Greece and Ireland (to quote my colleague Ambrose Evans-Pritchard) into economic protectorates of Brussels, a fate likely to befall Portugal and Spain.

The act of a true friend would have been to warn Mr Fillon against digging himself and Europe into a deeper hole. Meanwhile, our Government would be wise to lecture bankers, not about the size of their bonuses, but about the scale of their exposure to European sovereign debt. �