Economic Instability Threatens European Unity Europe's economic growth has slowed dramatically, even in the economic powerhouse of Germany. Steven Erlanger of the New York Times and Time Magazine's Rana Foroohar discuss what Europe's wealthier states can do to help their neighbors, and if the Eurozone can remain unified.
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Economic Instability Threatens European Unity

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Economic Instability Threatens European Unity

Economic Instability Threatens European Unity

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NEAL CONAN, host: This is TALK OF THE NATION. I'm Neal Conan in Washington. Europe can go forward, or it can go back, but it can't stand pat. The leaders of the two biggest economies there, German Chancellor Angela Merkel and French President Nicolas Sarkozy, met in Paris today to discuss solutions to the economic crisis engulfing Europe, but as if to underline the urgency to act, the meeting came just after news that economic growth across the continent has all but ground to a halt.

Massive debt, struggling banks, political gridlock are weighing down the so-called eurozone, the countries that use the euro as common currency. Some say the only solution is more federalism, to tie the economies of the struggling south to the prosperous north, while others wonder if Greece might not be better off going back to the drachma and Germany to its beloved deutschmark.

The cover story in this week's Time magazine speaks of the end of Europe. Writer Rana Foroohar joins us in just a bit. Should eurozone nations pull together or pull apart? 800-989-8255. Email us, You can also join the conversation on our website. That's at Click on TALK OF THE NATION.

Later in the program, magician, libertarian and hardcore atheist Penn Jillette will join us. But first the eurozone crisis, and we begin with Steven Erlanger, Paris bureau chief for the New York Times. He joins us from his home there. And Steve, always nice to talk with you.

STEVEN ERLANGER: Nice to hear you.

CONAN: And you know it's a crisis if you find Nicolas Sarkozy in Paris in August.

ERLANGER: Well, that is for sure, let alone Angela Merkel in Paris because usually Sarkozy has to fly to Berlin to see her. So this is really special moment. I'm not sure it's going to help satisfy the markets particularly, but the two of them needed to show a common front today.

CONAN: And they called for something they described as a European government. That sounds a little bit more like a biannual retreat.

ERLANGER: It's not really an economic government. It's more like governance. I mean, they are trying to make permanent rather than have eurozone summit meetings always called at the last minute in an urgent fashion, to have them come every other six months and to be put under a sort of secretariat run by Herman van Rompuy who, after all, does the same thing for the larger European Union.

So the 17 members of the eurozone that would - the heads of state and government would meet twice a year with van Rompuy, in addition to the 27 members of the European Union's regular summits.

CONAN: But would this so-called government have any real powers or do anything like what we think government does?

ERLANGER: No, that's really the point. I mean, you really have a built-in set of contradictions, which you have sovereign governments who have agreed to share their sovereignty on certain issues, particularly on defense, on borders, on passports, things like that, but they've never agreed to a kind of common set of rules on the economy.

Fiscal sovereignty is an important part of the European Union, and the Germans were always promised that they would never be asked to bail out any other weaker member. So it's all changed now, and I think everyone's moving slowly toward more economic integration.

The problem is, when you say government, it always sounds like there's going to be one minister of finance who's going to be in charge of everybody's budgets. It'll never work like that. But what they're trying to do is coordinate better so that, for example, people retire roughly at the same age all over the eurozone, and that the corporate tax rate is roughly the same all over the eurozone and that governments are kept within limits for the amount of debts that they can run up. And that they are pushed by others and by discipline, not just by the markets, to reduce the amount of debt they have to manageable proportions.

And in return for that, the stronger countries will try to help the weaker countries become more competitive and grow. But as Mrs. Merkel keeps saying, there's no magic wand. There's no single lever to pull to make these very, very disparate economies act like one.

CONAN: Yet there is a mechanism that a lot of people have been talking about that would spread the debt around Europe, from the south to the north. It's called the Eurobond, something that would be supported by the pledges of all 17 members of the eurozone. And before this meeting in Paris, the two leaders pledged not to even mention it.

ERLANGER: Well, that's exactly right. They both disapprove of it, and they spoke of that today at their press conference, because frankly it would weaken them. It would put the credibility of the stronger nations with a kind of blank check to cover all the debts of everybody else.

And what they're arguing is that without more economic integration and discipline first, without more economic coherence, there's no point in having a Eurobond: It would just pull everybody down.

And there are domestic reasons, too. I mean, the Germans are not going to vote for a blank check to, you know, support everybody in the eurozone, and it would be expensive. It would probably create enough risk that France might lose its much-vaunted triple A credit rating and put it into a bigger problem.

So they kept saying no, this is a bad idea, but it's a good idea for the end of a process of economic integration but a terrible idea for the beginning of one.

CONAN: Yet they seemed to be dragged screaming into half-measure after half-measure after half-measure, propping up Greece and then Portugal and Ireland and then Greece again. Are these steps going to be quick enough to avoid seeing Spain and Italy sucked into the same morass?

ERLANGER: Well, they have all together shown a remarkable lack of foresight and leadership. They haven't understood the depth of the problem. They thought it was just a Greek problem. Then they thought it was just a sovereign debt problem. They haven't come to grips with it that it's a structural problem. It's also a bank problem.

It's a big, big set of issues, and the markets, you know, people complain about them, and the rating agencies, but they are putting their fingers on real fault lines inside the eurozone. And I think it is very much true that leaders have been slow to react, and they have reacted with half-measures, but in part this happens because they are all the leaders of 17 democracies with 17 parliaments and different politics at home.

And it all has to be done by unanimity. It's not a country. And that frustrates the markets, and it's very expensive, I think, for all the members of the eurozone, but the European Union has tended in the past to move when it's had to through crisis. It's just that this is a very, very expensive way to do things. And I think it has really undermined the credibility of anything they do now because the markets have seen, much as you say, that everything they've tried before under pressure has only been a half-measure and hasn't really come to grips with the depth of the problems.

CONAN: Well, joining us now from a studio at the offices at Time magazine in New York City is Rana Foroohar. She's an assistant managing editor there at Time, and she oversees business and economics coverage. Her piece titled "The End of Europe" is the cover story in this week's issue, and it's nice to have you with us today.

RANA FOROOHAR: Thank you for having me.

CONAN: And is this summit meeting today going to accelerate or put off the end of Europe?

FOROOHAR: Oh, I think it's another half-measure. I agree with Steve. I think that what we have yet to see is the two strongest nations in the eurozone, namely Germany and France, saying yes, we commit to saving the common currency unequivocally and particularly Germany because Germany is not only one of the strongest economies in Europe but in the rich world.

And, you know, at this point, we need to see a real unequivocal statement on the part of Merkel saying we are not going to let Italy and Spain go under, we're going to guarantee not only that sovereign debt but the debt of the banks in Europe, and we're going to stop taking these half-measures because clearly that's spooking the markets.

I mean, you know, markets tend to stop panicking when leaders start panicking, and that's what we need to see, I think.

CONAN: A little panic at the top.

FOROOHAR: Yeah, I think so.


CONAN: At the same time, there is a sentiment in Germany to say wait a minute, why can't we kick the Greeks out, or why can't we just go back to the deutschmark, things were better then.

FOROOHAR: Yeah, well, you can understand the Germans' point of view because they spent the last decade very painfully getting their own house in order. They have under seven percent unemployment right now. Their unemployment level is actually lower post-crisis than it was pre-crisis. It's really incredible what's been done there, and it offers a model for the U.S.

So yeah, there is a sort of a sense of why should we bail out all these spendthrift books-cooking Greeks and Italians. The problem, though, is this idea that you can sort of miraculously go back to the deutschmark and have a strong Germany while the rest of Europe is in trouble, is really false because when you look at the numbers, 40 percent of Germany's exports, and it is an export powerhouse, go into Europe.

So if Europeans, and already you're seeing incredibly slow growth there, if consumer spending stalls even further, that's going to have ramifications for Germany. At the same time, they would under - let's say the eurozone were to fracture and break apart, and countries would go back to their national currencies, Germany would then find itself having to compete with, say, Italy, which also has a strong manufacturing sector and could then devalue its currency and undercut the Germans.

So right now, they can enjoy the euro and the fact that the other countries can't devalue. If that wasn't the case, then they would be in for more competitive pressures.

CONAN: And Steve Erlanger, would it be accurate to say it's conceivable that things might fall apart, but taking them apart is unthinkable?

ERLANGER: Well, it is unthinkable. There's no process by which you leave the euro, and since all debt is denominated in the euro, countries that leave like - you know, let's say Greece left, their debt would immediately skyrocket once they devalued their own currency.

So the only way you could do that would be to do a sharp restructuring of Greek debt and then leave the euro, but, you know, that's exactly what people don't want to have happen.

And I think it's true, if Germany left, which is in a way more likely, and forms some kind of other, smaller currency union, let's say with France and The Netherlands, the risk would be that their currency would be so overvalued that they'd have a lot of trouble staying competitive.

CONAN: We're talking about the common currency and intertwined economies of the European continent. Should the eurozone nations pull together, or are they falling apart? 800-989-8255 is the number to call. We'll have more with our guests, Steven Erlanger and Rana Foroohar, in just a moment. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.


CONAN: This is TALK OF THE NATION from NPR News. I'm Neal Conan in Washington. Earlier today, French President Nicolas Sarkozy and German Chancellor Angela Merkel pledged to march in lockstep to protect the euro. They're meeting in Paris, and their united front comes at a critical moment.

Germany and France's typically strong economies have barely grown at all this year, while Portugal, Greece, Spain and now Italy struggle with debt. So tell us what you think. Should the eurozone nations rally together or just call the whole thing off? The number is 800-989-8255. Email us, You can also weigh in on our website. Go to Click on TALK OF THE NATION.

Steven Erlanger is Paris bureau chief for the New York Times; Rana Foroohar of Time magazine is our guests. Rana wrote this week's cover story, "The End of Europe." And let's see if we get a caller on the line, and we'll go to Mario(ph), Mario with us from Fort Lauderdale.

MARIO: Yes, I'm right here.

CONAN: Go ahead, you're on the air.

MARIO: Okay, very good. My suggestion to the person who took the call is - or actually to the panel now: Is there a chance that they can bring Europe into two currencies, the higher GDP under the current currency and the lower GDP onto a par to the dollar or similar to that rate?

CONAN: Rana Foroohar, is that going to be an option?

FOROOHAR: You know, that's not something I've ever heard discussed seriously. I think that, you know, the euro as a whole has been a good thing for Europe. I think that there is, of course, the split, as always, between the stronger economic zones and the weaker.

But I think ultimately the problems - let's say you were to have all of the weaker nations in a single currency, you might get some advantage from the arbitrage and the devaluing that would allow you to be more competitive in terms of exports, but I think ultimately the fiscal problems would remain.

And that's what we're really getting at here. You have these countries like Germany, particularly Germany, that have really done the right thing in the last 10 years and provided a way forward for how a rich country can continue growing in an economy - in a global environment like the one we have.

And then you have a lot of peripheral countries that have a variety of problems. You know, in Spain you had a housing crisis. In Italy and Ireland you have some debt issues and sort of spendthrift issues. But all of these are going to need to be cleaned up ultimately, and I think that you're just in the situation in which you've got a slow growth global economy and Western countries that are going to have to come to grips with the fact that they can't do business as they did during the period when all boats were rising, from '91 to 2008.

CONAN: And Steven Erlanger, the stalled growth in Europe only exacerbates this problem.

ERLANGER: Well, it does. Europe always has traditionally low growth, but without growth it's very hard to get rid of debt because when you grow, then automatically your tax receipts go up, even if some people aren't paying taxes. Corporate taxes go up, and not only that, your debt as a percentage of an increasing GDP goes down.

So that's all wonderful. Most people feel that the best way to get rid of debt is not by cutting or by raising taxes but by growing. The problem is, Europe isn't growing, and one reason it isn't growing is the United States isn't growing, and China's slowing down.

So when you have export-led countries, and the countries that normally buy aren't buying, you run into trouble, like Germany, and then, you know, if you're a place like Greece, people aren't spending money on their vacations. So things get worse. It's much harder without growth.

CONAN: Rana Foroohar, you said basically in your piece, you said that Europe's Plan A, B, C and D was for the United States to get going and to be the engine of a recovery.

FOROOHAR: Yeah, I mean, as improbable as it would sound to all of us here that sort of feel how bad the economy still is, Europeans were looking to us to be this traditional engine of growth, and the fact is that we're no longer a counterweight to Europe. We are Europe.

You know, the Fed and a lot of businesses and a lot of economists were expecting the U.S. to grow four percent this year. We're going to be lucky to hit two percent. So there's no way that we can balance Europe. We can't even get our own nine-plus-percent unemployment rate down.

CONAN: Here's an email from Josh(ph): Why, if the eurozone is so shaky, is the euro's value against the dollar relatively unchanged? The euro was introduced at a one-to-one ratio to the dollar, and other - after an initial drop, it has consistently been much stronger than the U.S. dollar. And Steve Erlanger, the dollar is relatively weak right now.

ERLANGER: That's one of the wonderful questions, because I'm paid in dollars, and I live on euros.


ERLANGER: So I think about it all the time. I think it's a race to the bottom. Basically, you know, the weakness perceived in the United States, and the size of the debt is so big in the United States that it weakens the dollar against other currencies. It's not that the euro is so wonderfully strong, it's that the dollar is actually quite weak.

And though the administration keeps talking up a strong dollar, it doesn't seem to believe in it. And you know, the dollar is still the great reserve currency, and so when things are bad, people flee to the dollar, which, you know, isn't necessarily good for the dollar, but it keeps it low against the euro.

That's my sense of it. Maybe Rana disagrees.

FOROOHAR: Oh, no, no, I think that's absolutely right. I think it's sort of an amazing tribute both to the long tale of America's privileged position in terms of having the global reserve currency, but also how bad things are in Europe, that there hasn't been more of a rush out of treasuries. And indeed there's just been the converse, in fact, as the crisis has heated up in the last few weeks.

CONAN: Let's go next to Tom(ph), and Tom's with us from Pikesville, Maryland.

TOM: Hi. Thanks for taking my call.

CONAN: Sure.

TOM: I keep hearing a lot of discussion about the different problems that the eurozone is going through. The question I have is the U.S., when we first started as a union, we had lots of states that were also drowning in debt, having difficulties with their economies, and what we did was we federalized that debt, and it strengthened the federal government and strengthened the union. I was wondering if anybody has discussed doing that in the European Union and creating a real strong federal government in the European Union as a union.

CONAN: Rana Foroohar, isn't that the basic idea of the Eurobond?

FOROOHAR: Well, yeah. I mean, and in a broader way, this has been discussed at any number of points in the last few decades, as Europe came together. The problem is that Europe is not like the U.S. It's much more diverse. You've got cultures that do a lot of trading with each other, and they want to avoid wars, both the kind with guns and the kind with trade.

But in terms of anything else, any other kind of common agenda, there aren't a lot. You have huge cultural differences, social differences, and so it's difficult to bring those countries together in any kind of a deeper political union, which is exactly what you've seen at every point. In the creation of the EU, in the creation of the eurozone and how it would(ph) work, in the rejection in 2005 of a European constitution, you've seen how difficult it is to really get deeper political unity, and that is at the core of the problem today.

CONAN: Our friend - thanks very much for the call, Tom - our friend Micki Maynard from Changing Gears tweeted us: more convenient for travelers, businesses to deal with the eurozone. Currency exchange, many regulations are simpler, but cultural differences still exist, and things like opening hours are inconsistent across the EU. It didn't mean a homogenous Europe.

Let's go next to Peter(ph), and Peter's with us from Alencon in - are you in France?

PETER: I am in France.

CONAN: Alencon, excuse me.

PETER: Alencon.

CONAN: I'll get the accent right. Go ahead, please.

PETER: I've been here for 16 years. I was here pre-euro and post-euro. And I do a lot of traveling around Europe, not as much as I did before. It would be dreadful to have to go back to changing currencies every time you cross a border, and I think it would be dreadful for folks here economically, who - I think it would hurt tourism. I think it would hurt the economies. It would be a dreadful step back.

I think that it's time for the European politicians, at least, to brace up and accept a little bit of loss of sovereignty nationally - I know that's hard to imagine - to come together and work better together.

CONAN: Steve Erlanger, that's - I think a lot of people would agree with Peter, but at the same time you're seeing resistance, nationalist resistance in countries, and indeed even on the immigration issue you're seeing countries saying wait a minute, we agreed to free movement of peoples across borders, we didn't mean that.

ERLANGER: Well, what you have is a Europe that is much bigger and much more diverse and in some ways much poorer at 27 than it was at 12 or even 15. I mean, the addition of Eastern Europe has changed the balance. I think in the end it's probably helped northern-minded countries like Germany and the Netherlands, because they tend to be more liberal in their economics.

But I don't think we should underestimate the political will to keep the euro going, because the European Union is a big idea, but it's kind of a given among people, and a lot of people, from Herman van Rompuy to Angela Merkel and Nicolas Sarkozy, all say that if the euro goes, the real rationale for the European Union may also go. And no one wants to deal with that. So I think, you know, push comes to shove, leaders will do what they think is necessary to do to keep the euro going, but that may mean further dilution of the sovereignty of states that get into trouble. I mean, after all, Greece now you could hardly call it sovereign over its own government. I mean, it has a major program run by the EU and by the IMF, which is pretty much telling it to sell companies, what its tax rate should be.

ERLANGER: It has given up a lot of its sovereignty in return for these bailout funds, and that's really the hold the European Union has over its less competitive members. And I think in the long run it's been a very good idea. And as your caller says, it certainly made life much, much easier, but there still are very odd things. I mean, you could buy a car in Belgium much cheaper in the same euros than you could buy it in France. But if you bring it across the border, you're still paying enough taxes in what is supposed to be a duty-free border so that it will cost you just as much as it would be to have bought it in France.

Data roaming charges for cell phones are enormous between EU countries. Now, people are working to reduce that kind of national grabbing, but there's still a very long way to go. But the process is going, and it's going in ways we don't see.

CONAN: Rana Foroohar, there was once a theory that the further integration of the eurozone was inevitable, and it would go by increments. Is that still seen as inevitable?

FOROOHAR: Well, that theory, again, was born in this kind of very unusual period of global prosperity between the end of '91 and 2008. And at that time, it was easy to imagine that things would sort of slowly move towards greater integration. I think that, unfortunately, now with the crisis and the downturn, what you're seeing not just in Europe but in the U.S. and many other countries is that it's a lot harder to come together when economic times are bad, and you see that not only in the debt crisis but in politics.

You see it in violence like the kind of riots we've seen in London. You see it in populous politics across Europe, the rise of right-wing political candidates in France. Even in mainstream politics in the last few months, you've seen Sarkozy, Merkel, the British prime minister, David Cameron, speaking about the end of this European dream of multiculturalism. So this is a very difficult period when all those are not rising to come together and have the fulfillment of that dream.

CONAN: Peter, thanks very much for the call.

PETER: I was just going to add baby steps. It will take a lot of baby steps.

CONAN: And we appreciate you listening to us in France.

PETER: I love hearing you. Bye.

CONAN: Bye-bye. We're talking with Steven Erlanger, the Paris bureau chief of The New York Times, and Rana Foroohar, the assistant managing editor at Time magazine, about the eurozone crisis, which is in its way our crisis, too. You're listening to TALK OF THE NATION from NPR News. And let's see if we can go to Mike, and Mike is with us from Delray Beach in Florida.

MIKE #1: Yes. Hi. Thanks very much. I have a theory that after Reconstruction and World War I and World War II, we forgave everyone's debt. And it seems to me that the happy days in America and the rest of the world seems to start right after that. There is no real currency anywhere in the world. If you actually look at it, it's all paper and computer. So if everyone were to actually do that, zero out their debt, nationally, corporations, you know, do bankruptcies and rebuild themselves.

If the entire world would do that, I think the economy would soar. The European - EU would be wonderful. The United States would be wonderful. Because actually in reality nobody can pay back their debt as it sits right now. Grandchildren and great-great-grandchildren are going to suffer for it. So...

CONAN: If you tell me the date ahead of time, I'll buy a Ferrari.

#1: Well, you know, I think everyone deserves one if they earn it.



#1: In fact, the other fact that I'd like to bring up is we used to have a thing called Fort Knox in gold. And during Johnson's time, we went off that. Whatever happened to that gold and the value of it went off an awful lot. And that should pay off a lot of debt if we're going to do it, but I really believe that doing a Chapter 11 worldwide would be the answer and would actually save everybody and build everyone's economy back.

CONAN: We are off the gold standard. The gold, however, is still in Fort Knox and worth quite a bit more than it used to be and, who knows, it might be worth that again tomorrow. But, Rana Foroohar, what's the idea behind - talk about a panacea...


CONAN: ...button, just erasing world debt.

FOROOHAR: Well, you know, it's interesting the comparison between the post-war period and now. I would actually go back a little further, and I would compare this to the '20s and the period of the Great Depression, which is very similar to the period we're in, really. We have this kind of great contraction of growth and this great unwinding of this huge debt bubble. In the '30s and into the '40s, you have this incredible stimulus called World War II, which actually...


FOROOHAR: ...was what jumpstarted economies and then the reconstruction afterwards. There's been a lot of talk in the U.S., for example, of infrastructure projects and sort of WPA-type projects. Unfortunately, we're too politically polarized to come together and sort of buy into those projects and infrastructure, in particular, which a lot of people think we should, so. It comes back to the point, this is a political question as much as an economic one.

CONAN: Because, you know, as to the American economy, somewhat different effect in Europe. But, anyway, let's see if we can go to Mike, and Mike with us from Philadelphia.

MIKE #2: Yes. I know - as mentioned earlier, about that effect of the poorer countries and the Eastern European bloc countries joining the eurozone, what impact would England joining the euro have being a richer country?

CONAN: Steve Erlanger, Britain joining the eurozone, giving up the pound?

ERLANGER: I think much less likely now that it's ever been. Britain has its own troubles, to be sure, but one way it's able to deal with them is because it has its own central bank, and it can print money or devalue its money, do what it's like. And I just think, you know, this old Labour idea that Tony Blair had that one day we'll all join the euro. Right now, it seems almost impossible to think about because Britain would be one of the major countries that everyone else would expect to help pay the bills, and it has enough problems of its own. So I don't think that's going to happen. But I keep thinking that one of the jokes that the head of the European Central Bank keeps making, touche, he keeps saying God bless all the little ones because they shall inherit the national debt.


CONAN: Well, we'll leave him with the last word. Thanks very much for the call, Mike. Steve Erlanger, have a - well, I hope you get some vacation.

ERLANGER: Me, too.

CONAN: Steve Erlanger of The New York Times in Paris and Rana Foroohar, thank you for joining us. Appreciate it.

FOROOHAR: Thank you.

CONAN: Rana Foroohar, assistant managing editor at Time magazine, the author of this week's cover story, "The End of Europe." Coming up, Penn Jillette joins us. He's reworked the "Ten Commandments" for atheists and managed to work Elvis impersonators, the Vomit Comet and Bruce Springsteen into his new book. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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