Europe Moving Even Farther Left

What will happen if the euro collapses? Politicians such as German Chancellor Angela Merkel and French President Nicolas Sarkozy say it will be an unmitigated disaster. They depict a gloomy future in which complete chaos follows and the nations of Europe go back to their past habit of waging war on each other.

Swiss professor Bruno S. Frey of the University of Zurich, however, is not impressed. Last week he published an article in which he called these scaremongering statements "careless" and "totally misleading." The euro, the EU, and Europe are far from being identical, he points out. Not all the countries in Europe are members of the European Union – Norway, Switzerland, Iceland, Ukraine, and a number of others are not. Nor do all the EU member states use the euro as their currency – such as Britain, Sweden, Denmark, Poland and a number of others.

Countries which are not in the eurozone nor even in the EU, do not wage war on each other, despite a past in which they sometimes did. Norway is not at war with Sweden, Sweden is not at war with Denmark, Poland is not at war with Ukraine. Why would France and Germany be bound to go to war with each other simply for not sharing the same currency?

If the euro, or even the EU, collapses, says, Frey, the individual countries in Europe will quickly draw up new treaties among themselves. Just as non-EU members Norway and Switzerland are party to certain European treaties. The essence of Europe is variety and diversity, rather than uniformity, centralism and bureaucracy. "A possible demise of the euro and the EU can be seen as a chance for the evolution of a better future Europe," Frey predicts. He envisions a Europe of states using flexible and overlapping agreements and contracts; not a Europe where all the member states are put through the same mold.

The euro project is a classic example of what Friedrich Hayek called the "fatal conceit" of bureaucratic planners, who assume that only uniformity and centralism can ensure peace, prosperity and harmony among peoples.

What happened in Europe shows that in fact the opposite is true. By forcing the divergent economies of Europe to adopt one monetary policy that fitted no one, the euro has exacerbated problems everywhere. Growth has stalled, unemployment in the eurozone has risen to 10.5% of the labor force, with records up to 25% in countries such as Spain. The countries with contracting economies and ever higher levels of unemployment in southern Europe can only survive with a financial lifeline from the healthier economies of northern Europe; but the latter, who have traded in their former currencies, such as the German mark or the Dutch guilder, for the weaker euro, feel they have already made enough sacrifices.

In the South, laborers have lost their jobs; the economy is not competitive with the northern economies. In the North, austerity policies have kept production costs down while laborers did not benefit from earning their wages in a stronger currency.

The dissatisfaction of the working population in both North and South, is benefitting the far-left. In the Netherlands, polls indicate that the Socialist Party (SP) has become the biggest party in the country. The SP is the successor to a former Maoist fringe group. It has managed to attract the bulk of the electorate of the social-democrat Labor Party and proposes to solve the crisis by "letting the rich pay for it."

In France, the polls predict that Socialist candidate François Hollande will win next May's presidential elections there, not the current President. Nicolas Sarkozy. Hollande is campaigning on a very radical platform, pledging a 15% tax increase on banks and rejecting the balanced budget principle which the EU wants to impose on its members. Pressured by Hollande's leftist rhetoric, Sarkozy announced on French television last week that France will introduce a financial transaction tax of 0.1% in August. The tax, expected to raise €1billion, will be levied on stock purchases and on certain credit default swaps.

Hollande has also announced that, if elected, he will renegotiate the fiscal treaty which the EU countries, at Germany's instigation, approved at last week's summit meeting. This statement prompted Sarkozy to postpone ratification until after the elections, while German Chancellor Merkel announced that she will actively back Sarkozy's re-election. One of the leaders of Merkel's Christian-Democrat Party in Germany even commented that Hollande's election would "hinder further European integration and endanger the future of the EU." Germany's leading conservative newspaper, the Frankfurter Allgemeine Zeitung, warned that Hollande's program "is heavily influenced by redistribution and by the firm belief in the supremacy of the state."

Even if Sarkozy wins the election, however, Merkel's worries are not over. Next year, Merkel herself will have to run for re-election. She hardly stands a chance if the euro crisis is not under control by next Summer and if Europe is still in a recession in 2013. There is a great chance, therefore, that by the end of next year both France and Germany will be ruled by Socialists.

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