Peter Popham: Amid the bailouts, a United States of Europe takes shape

Never mind details of rescue funds, Eurobonds and the like, moves towards a federated Continent are now unstoppable, says veteran Independent on Sunday correspondent


Everyone in Europe knows the euro is in deep trouble. Yet despite the jeremiads pouring out of British and American newspapers predicting the currency's demise, only a tiny minority on the continent sees going backwards as desirable or even feasible.

Living as if Europe were already a single country has made life so much simpler. At airports across the Schengen zone, going from country to country is no harder than going from one city to the next. Only those heading for Britain are funnelled into separate lounges and must queue to have their passports examined. More than humiliating, it feels anachronistic.

The introduction of the euro was no more popular than the switch to decimal money in the UK 40 years ago, and for the same reasons: people thought they were being taken for a ride. The fact that shops had to display prices in old and new currencies only enhanced the feeling.

Yet today, when it's only the British and others on the margins who have to fuss about exchange rates and the coins in their pockets, this modern, rational currency is a fact of life. Like easy travel, this crucial step towards full union is taken for granted.

But with each new shuddering crisis in the euro, with Spain the next country after Greece, Portugal and Ireland to have its banks bailed out, it is dawning on the citizens of Euroland that they have been the doubtful beneficiaries of fantasy nation-building. And it is the most important symbol of their prospective union, the euro itself, that has done the most to drive them apart. The Nobel Prize-winning economist and New York Times columnist Paul Krugman puts it pithily: "The euro itself," he told the Financial Times recently, "created the asymmetric shocks that are now destroying it."

Europe's political engineers created the eurozone in the belief that its effect would be capillary: that as their citizens began to feel more and more like citizens of a single entity, their behaviour, too, would steadily converge. The common currency would draw all 17 countries towards the fully integrated promised land.

Instead, as Krugman points out, the opposite happened. For Germans, junking the deutschmark for the euro was an effective devaluation, which reduced the price of their exports, making them far more competitive in China and elsewhere, and cementing their position as Europe's dominant economy, with more than twice France's share of the world export market (and four times that of Britain).

But for the weaker economies, including relative giants such as Italy and Spain, the effect was of an entirely unmerited revaluation. Locked into the common currency, with devaluation no longer possible, Italy's weavers and Greece's fruit growers and the Irish towns that had persuaded Silicon Valley companies to build factories found themselves high and dry. The euro priced all of them out of the market. The result was the long crisis through which the EU – and we in Britain, dependent as we are on EU markets – are now living.

For several years, pundits outside the eurozone have been predicting its inevitable demise, for the reasons sketched above: intended to be a centripetal mechanism, the euro's effect was in practice centrifugal. And in the past few months, with the Greek crisis dwarfing all those that came before, the idea that Greece might actually crash out of the euro – an orderly exit was never contemplated by the founding fathers – is finally being discussed on the Continent as well.

But unlike in Britain, where many rub their hands with glee at each new turn of the euro screw, no one on the Continent relishes such a development. Europe has been a one-way street ever since Winston Churchill, in 1946, spoke of building "a kind of United States of Europe"; ever since France's Robert Schuman four years later proposed a European Coal and Steel Community, forerunner of the European Community. These men saw, after two world wars, not the desirability but the utter necessity of Europe's unification. Only neo-fascists and other wackoes were rash enough to dream different dreams.

When Angela Merkel, terrified by the possible effect on Germany's inflation and tax bills, refused to do more to recapitalise banks in countries such as Spain and Greece, the extremists who dream of scuttling the European project were given new political space. But last week, perhaps spooked by the increasingly likely prospect of an uncontainable run on Greek and perhaps other banks, she showed signs of changing her tune.

Her mellowing attitude may mean that Spain's banks are bailed out without the sort of painful and humiliating takeover of the economy by international institutions suffered by Ireland, Greece and Portugal. And meanwhile Ms Merkel has once again begun to chant the European integration mantra. Looking forward to the European summit in Brussels on 28 and 29 June, she said: "We need more Europe. We need not just a currency union, we also need a so-called fiscal union, more common budget policies. And we need above all a political union. That means we must step by step, as things go forwards, give up powers to Europe as well."

It was the same old same old, but the background was decidedly different. As the leader of the only nation with the financial muscle to address Europe's crisis, the German Chancellor has frequently been accused of being too rigid, of doing too little too late to avert disaster. But The Economist argued yesterday that Ms Merkel has eventually come round to adopting many measures that she initially opposed. "By July," the newspaper's Berlin correspondent reported, "she will push through parliament the European Stability Mechanism, the permanent fund she once opposed." If all the money was lent and everyone defaulted, "Germany's potential liability... could be€€280bn". In return she is asking her European partners to reaffirm their commitment to the grand project that yokes them all together.

Neither Germany's grudgingly increased commitment, nor the Chancellor's renewed evocation of the tarnished Euro-dream, may be enough to convince Greece's voters – who go to the polls again one week from today – to return to the path of righteousness. Europe's democratic deficit gapes as wide as it ever did, Brussels seems more remote than ever from the parliaments of Euroland's 17 national governments, and the chances of hammering political cultures as diverse as those of Greece, Italy and Spain into a form efficient enough to satisfy Germany remain what they always were: a pipe dream.

And yet... Angela's Merkel's new/old rhetoric this week may be a sign that Germany has realised that if anything is going to keep the markets from pecking the euro to pieces, it is a convincing demonstration of Germany's commitment to the project; a sign, too, of Germany's dawning realisation of the damage that would be wreaked on Europe, and on Germany's exporters, by the destruction of the euro.

If so, the change of heart is welcome. For Europe's embattled economies, to be at the beck and call of Brussels is better than being at the mercy of foreign hedge-fund managers. And to slide towards the sort of future envisaged by the neo-Nazis of Greece's Golden Dawn and their kin is a fate well worth avoiding.

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