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A ‘Two-Speed’ Europe?

• August 25, 2010 • 4:00 AM

Splitting the European Union into separate “achievers” and “laggards” clubs may not be a good idea, but it may be inevitable economically.

The most recent growth spurt in Germany was good news for Europe, on the surface, because it showed the German economic engine pulling the euro zone into positive territory for the second quarter of 2010. The suffering southern economies were still in recession by mid-2010, but the euro zone’s GDP as a whole grew by 1 percent.

Great! So the euro crisis is over, and we can all think about something else, like terrorists, right? No — actually Europe’s economic divide, if anything, makes a profound change in the euro more likely.

The euro panic last spring focused on an exaggerated vision of disaster — a “collapse” of the currency — that EU leaders were never going to allow and that never came about because the rich member states hustled late in the game to prevent defaults by poorer governments on their sovereign debt. The rich nations kept the euro intact by promising huge amounts of credit to shore up the balance sheets of their struggling, debt-riddled neighbors.

But a more orderly breakup of the euro zone may still be on the horizon. The German growth spurt could bring it closer. German exports are booming thanks to a cheaper euro (brought about by the crisis), while weaker governments in Athens and Lisbon have to pare spending and watch their GDP contract. So now the chatter in economic circles concerns a two-tiered euro zone.

Observers of Europe have for years imagined a “two-speed” EU, a first- and second-class club that would let stronger and healthier nations leap ahead (politically, militarily, economically) without having to worry about the others.

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European Dispatch

EUROPEAN DISPATCH
Michael Scott Moore complements his standing feature in Miller-McCune magazine with frequent posts on the policy challenges and solutions popping up on the other side of the pond.

[/class] But this idea does damage to the EU’s self-image. The whole hopeful project was meant to form a political and economic bloc that could a) compete with America, b) harness German power for the benefit of the entire post-Communist continent (instead of letting the German beast run free), and c) give lagging states an economic hand up.

The two-speed vision would not only offend the weaker nations and the nations still hoping to join, from Turkey to Iceland; it would challenge EU membership for the wealthier members, like Britain and Sweden, that never signed up to the euro.

So in the name of fairness and stability, the EU should remain what it is, a reflection of Europe’s cultural mishmash. But now that rich European countries have engineered an economic recovery to make even Washington jealous, while the poorer parts languish in recession (and receive financial aid to keep the euro intact), the economic face of a “two-speed Europe” is plainly on display.

What to do? One solution could be greater political union, but passing so much as a constitution has been a long political nightmare. Every time a major vote on the EU constitution failed, in fact, someone inevitably asked, “Why don’t we have a two-speed Europe?”

Of course, breaking the EU into a matched pair of political systems would be not just difficult but illegal under all the current treaties. Breaking the euro zone in two seems almost easy by comparison.

In April, a Belgian economist named Peter De Keyzer outlined a feasible “euromark,” a top-class euro that would leave the more familiar currency behind, intact but weakened.

The idea is not palatable so much as clear-sighted. “Germany would then have a strong currency and a credible fiscal policy,” he wrote in De Standaard, a Belgian paper. “The southern countries would have a heavily weakened currency, economic growth and a breather to clean up their financial act. No one would be required to devalue or lose face, the euro would be saved and we’d have a strong European currency. Unfortunately, however, not everyone would come away a winner, there would be a key loser, too: namely Europe, and the European idea.”

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Michael Scott Moore
Michael Scott Moore was a 2006-2007 Fulbright fellow for journalism in Germany, and The Economist named his surf travelogue, "Sweetness and Blood," a book of the year in 2010. His first novel, "Too Much of Nothing," was published by Carroll & Graf in 2003, and he’s written about politics and travel for The Atlantic Monthly, Slate, the Los Angeles Times, and Spiegel Online in Berlin, where he serves as editor-at-large.

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