France and Germany are emphatic: The fall of the single European currency would spell the end of United Europe and is therefore unthinkable. As French President Nicolas Sarkozy put it at the World Economic Summit in Davos, Switzerland: “The disappearance of the euro would be so cataclysmic that we can’t even possibly entertain the idea.” And German Chancellor Angela Merkel seconded the motion: “If the euro fails, then Europe would fail.” Their latest proposal might indeed enable the currency to muddle through - but only at the risk of long-term discontent and disharmony among Europe’s peoples.
Though tied up in a French bow, the proposed “competitiveness pact” was made in Berlin. Germany is the only European country capable of bailing out troubled members of the 17-nation eurozone such as Greece, Ireland, Portugal and Spain, but German taxpayers deeply resent doing so. Therefore, Ms. Merkel offered more financial support for debt-strapped countries, but only if eurozone members abandon inflation-indexed wage increases, raise retirement ages and adopt balanced-budget amendments - just as Germany has. Not surprisingly, there is a backlash. Prime Minister Donald Tusk of Poland, which aspires to join the euro, asked the French and German leaders “whether they really thought they had the right to treat others in this manner,” according to diplomats.
To some extent, the plan represents the belated recognition of necessity. As the crisis has shown, a currency union among countries with divergent fiscal policies will always be vulnerable. Trimming pension costs reduces public debt; linking wages to productivity spurs growth. But forcing countries into a constitutional fiscal straitjacket is no wiser in Europe than in the United States. And other suggestions in the pact, such as higher corporate taxes, seem calculated mainly to remove the threat to a few large countries from a few small countries’ low rates.