This is how tighter European integration is likely to happen then. Having tied their fates together, European countries can no longer pretend to be indifferent to the success or failure of other euro zone members. Germany is learning now what that means—that it is economically unacceptable to allow troubled member states to fail on their own, and politically and economically unacceptable to kick them out. And so the options are to be drawn reluctantly and repeatedly into bail-outs or to attempt to act pre-emptively to prevent crisis conditions from emerging—which, of course, means a move toward common European fiscal policy, including regular transfers between states as takes place in America.
My Europhile colleague Max Bergmann and I were talking earlier this week about how critics of Europe’s monetary union ought to consider the possibility that the architects of the Euro actually understood what their critics among economists were saying perfectly well. After all, monetary union is now driving closer political integration precisely because of the problematic nature of the monetary union. This may or may not have been an advisable course of action, but I don’t think it was undertaken for narrow economic reasons and so it can’t be properly evaluated through a narrow economic lense. The European integration project is an elite-driven political agenda, and it appears to be benefitting from the recession even though the depth of the economic problems on the continent are in part a consequence of the project itself. It’s a pretty neat trick.