Blog post

Europe’s integration overdrive

May 10 is the fifth anniversary of the bailout of Greece. Set almost exactly 60 years apart from the Schuman Declaration, the events triggered by the

Publishing date
19 May 2015
Ashoka Mody

Sixty-five years ago on May 9, French Foreign Minister Robert Schuman read a

Declaration, triggering the birth of the European Union. Still in the shadow of

World War II, Europeans began to create, historian Tony Judt writes, “a new

and stable system of inter-state relations.” Put simply, Europeans learned

once again to work with and talk to each other. It was a magnificent


Europeans have lost the ability to talk to each other.

May 10 is the fifth anniversary of the bailout of Greece.  Set almost exactly 60

years apart from the Schuman Declaration, the events triggered by the Greek

bailout have unleashed a daunting challenge to European cooperation and

harmony. Above all, Europeans have lost the ability to talk to each other.

For some, this is not a European problem—it is a Greek problem. Greece, so

this view goes, is sui generis, and once it is brought back into the fold, the

systems of cooperation will return to normal functioning.

That is a mistaken view. The Greek problem will not go away. But the bigger

problem is that the euro placed European integration into an unmanageable


The policy package proposed by Greece’s creditors, requires further austerity

and reduction of wages and social benefits. Those measures will help down

the road, but the deflationary contraction will work faster. Debt will become

harder to repay.  A debt-deflation spiral could overwhelm Greece quickly.

German Chancellor Angela Merkel has blamed her predecessor Gerhard

Schroeder for allowing Greece to enter the Eurozone.  Indeed, Greece should

never have been in the Eurozone. But the real problem lay in the construction

of the Eurozone itself.

Greece should never have been in the Eurozone.

Schuman had said: “Europe will not be made all at once, or according to a

single plan. It will be built through concrete achievements which first create a

de facto solidarity.” That philosophy was admirably embodied in the Treaty of

Rome in 1957, when European nations opened their borders to each other.

Numerous commercial relationships sprouted among the European

businesses and citizens.  Empathy for the trading partners generated a sense

of European identity. Citizens’ trust in European institutions followed the

share of intra-European trade. The Treaty of Rome succeeded because it

aligned national interests—nations and their citizens all gained through

enhanced commerce.

With the euro, national interests collided. A common monetary policy is more

favorable for some than for others. And crucially, the euro created the ever-

present risk that one nation would have to pay the bills for another. The

Treaty of Rome created a “level playing field,” in which nations participated as

equals. In the euro area, some nations are inevitably “more equal than others.”

Greece must play by the rules of its creditors—even when these are evidently

dysfunctional. Proponents insist that this will discourage others from

deviating, and fidelity to the rules will ensure a stable Eurozone. But that

equilibrium will, at best, be fragile. The problems will worsen in Greece and,

will inevitably, arise elsewhere.

The economic and political costs of breaking the Eurozone are so horrendous

that the imperfect monetary union will be held together. Instead, the cost of

the ill-judged rush to the euro and mismanagement of Greece will eventually

be a substantial forgiveness of Greek debt.

This is a good moment to step back and loosen European ties.

But this is a good moment to step back and loosen European ties. As Schuman

said, “Europe will not be built according to one plan.” The task is to create a de

facto solidarity—not to force a fragile embrace.  A new architecture should

scale back the corrosive power relationships of centralized economic

surveillance. Let nations manage their affairs according to their priorities. And

put on notice private creditors that they will bear losses for reckless lending.

The European fabric—held together by commercial ties—is fraying as

European businesses seek faster growing markets elsewhere. That fabric

could tear if political discord and economic woes persist. History and

Schuman will be watching.

This piece was also published in Handelsblatt.

Read more from Ashoka Mody:

The IMF's big Greek mistake

Greece and the André Szasz axiom

A Schuman compact for the euro area

About the authors

  • Ashoka Mody

    Ashoka Mody is the Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University. Previously, he was Deputy Director in the International Monetary Fund’s Research and European Departments. He was responsible for the IMF’s Article IV consultations with Germany, Ireland, Switzerland, and Hungary, and also for the design of Ireland's financial rescue program. Earlier, at the World Bank, his management positions included those in Project Finance and Guarantees and in the Prospects Group, where he coordinated and was principal author of the Global Development Finance Report of 2001. He has advised governments worldwide on developmental and financial projects and policies, while writing extensively for policy and scholarly audiences.

    Mody has been a Member of Staff at AT&T’s Bell Laboratories, a Research Associate at the Centre for Development Studies, Trivandrum, and a Visiting Professor at the University of Pennsylvania’s Wharton School. He is a non-resident fellow at the Center for Financial Studies, Frankfurt and the Center for Global Government, Washington D.C. He received his Ph.D. in Economics from Boston University.

    Declaration of outside interests 2014

    Declaration of outside interests 2015

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