What would happen to the European Union were a country, or several countries, to drop the euro and return to their own currencies? It is the sort of question that you are not really supposed to ask, or at least not if you are a eurozone politician. Angela Merkel said at the weekend: "I have said that if the euro fails, Europe will fail..."
But intuitively we all know that is wrong. Or rather, if the EU were such a weak entity that one mis-step were to reverse more than 50 years of co-operation, then there is something wrong with the whole EU concept. But she also said something else that rings right: that the eurozone's problems and worries will not be fixed swiftly.
"Those who want to take political responsibility, and that's what the government wants and takes seriously, know that responsibly there won't be one spectacular step," she said. "It's entirely about creating a controlled, composed process of gradual steps and measures."
There you have in two statements the nub of two problems. The first concerns the euro itself, the second the indebtedness of several fringe members of the group. They are connected, of course, but much of the comment has jumbled them together.
So, what we are having at the European summit tomorrow is a discussion about the second: gradual steps and measures designed to tackle the failure of the first effort at refinancing Greece. The problem has been that these are perceived as too gradual. As a result, there have been rising fears that other highly indebted eurozone members, Ireland and Portugal in the first instance but also others, may also need a second bailout – or in the case of the others, a first bailout.
But sovereign defaults do not mean a country leaving the eurozone. Some of us think that will eventually happen, but it is not a necessary consequence of a default.
Now come to the future of the euro itself. A currency zone does not disintegrate because one member leaves it. The worst-case scenario is that Greece leaves the eurozone, forcing other countries to do so as well. Assuming Germany remained a member, the euro would presumably become a northern European currency, anchored by Germany. The euro would have "failed" in Angela Merkel's terms; but would that mean the end of Europe?
Germany, which has the overall lowest indebtedness among the large developed nations, is doing well; Italy has the highest sovereign debt and is only growing slowly. So there are obvious tensions. There are other less obvious ones. Germany is becoming less and less dependent on trade within Europe. It looks as though China will soon become its largest export market, larger even than France.
So Europe's future prosperity depends on this ability to sell to the world. That is part of the inevitable rebalancing of international trade, but there is still value in European economic cooperation. Membership of the EU brings more pluses to its members than minuses. The fear behind Ms Merkel's comment is that were the eurozone to break up, the minuses would pile higher than the pluses. But there is an answer to that: the experience of the UK.
It is perfectly plausible that in 30 years' time the UK will have a larger population than Germany and maybe have a higher GDP. Were the UK to remain a member of the EU, that would demonstrate it is perfectly possible to run an effective union with two major currencies and a number of smaller ones. So Europe won't "fail" as such; it would not have moved to an ever-closer union as some politicians wish. But it would survive in perfectly good shape.Reuse content