Europe must not allow Rome to burn - FT.com

By Martin Wolf
Europe must not allow Rome to burn - FT.com:

What is at stake today is not only the stability of the European – perhaps the world’s – economy, but the survival of the most successful – and certainly most civilised – effort to unite Europe since the fall of the western Roman empire 1,535 years ago. As Walter Scheidel of Stanford University notes in a fascinating essay: “Two thousand years ago, perhaps half of the entire species had come under the control of just two powers, the Roman and Han empires.”* Both collapsed. But the Chinese empire was repeatedly restored and enlarged, while the Roman empire divided irretrievably. Yet the dream of reunification never died. It was apparent in the claims of popes and “holy Roman emperors”. It was carried by Napoleon’s eagles. It is the aspiration embedded in the European Union.

So, when Germany’s Angela Merkel, chancellor of Europe’s most powerful state, calls “for Europe to build a ‘political union’ to underpin the euro and help the continent emerge from its ‘toughest hour since the second world war’” I take her seriously. I have little doubt, too, that the majority of the German business and political elite believes that the survival of the euro and of a united Europe is in the country’s interest. The question is whether they are prepared to pay the price.

In the centuries after the fall of Rome, Europe became Babel. Uniting such diversity is a daunting challenge. Politics are local, not European, as are the politicians. This might not matter if decisions taken at the European level were of little import. But monetary and fiscal policies or labour market regulation are at the core of democratic politics. The greater the economic divergence within the eurozone, the greater the stresses. Unfortunately, divergences in competitiveness, before the crisis, and in the price of credit, after it, have been extreme (see charts).

This, then, is where the postwar European project itself has arrived. On its fate hangs the European economy, the global banking system and perhaps the world economy.

My interpretation of the actions of chancellor Merkel is that “just enough, just in time” is itself the strategy...

Just enough, just in time has been too little too late. What was once a crisis in small peripheral countries has become a conflagration. Spreads on sovereign credit have reached the stratosphere (see charts). Worse, sovereign spreads now include some risk of a break-up...

...The time for too little too late has passed. What is needed, instead, is “too much, right now”. Power brings responsibility. Germany alone has the power. It is up to it to exercise the responsibility.