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At “Make-or-Break” Euro Summit, Tighter Unity Can Save EU – and Spare U.S. (12/6)     Print Email
By European Affairs

The fate of the euro and all it implies seems to be at stake in the EU leaders' summit meeting opening Friday. A successful meeting -- meaning one that advances the agenda to create supranational oversight of member states’ budgets -- will keep alive prospects for a reversal of recent market trends and a revival of credibility for the euro.

Failure, however, could trigger a financial explosion that consumes the euro, many officials and analysts say. That outcome could unravel the EU’s future, and the shock waves would damage the U.S. economy at a vulnerable moment.

Even if the summit succeeds in adding momentum toward a solution for the euro’s problems, that success will then need a determined collective follow-through by the eurozone's 17 member states. Germany and France have together called for an amendment of the EU treaties (or at least for a treaty amendment for eurozone countries) that would single our “deficit sinners” for automatic punishment. The proposed move marks a step toward fiscal union that proponents say is the only course for saving the euro, by encroaching on national sovereignty, now that monetary union has proved unworkable without some degree of fiscal union.

The calls being made on Germany to accept this joint sacrifice of some national sovereignty are “historically breath-taking,” according to this respected European financial analyst. He argues that attempts at inter-governmental coordination have failed and must be replaced by a supranational authority in the euro zone – one can raise taxes, veto countries’ budget plans and backstop and close banks if necessary.

The Obama administration has recognized that Washington cannot stand aside at this crucial juncture. Even though Congress opposes any idea of direct help to Europe via the International Monetary Fund, Treasury Secretary Timothy Geithner is visiting key European capitals this week, asking them to put more reforms and more money on the table to rescue the euro. European action on a decisive scale could attract more help than has been forthcoming from China and other emerging economies -- and perhaps, too, from the U.S.

In pressing European leaders to be more aggressive in their crisis response, Washington is driven by the prospect of the fall-out on the U.S. economy of a collapse in the euro and, even worse, the break-up of the eurozone as some member states returned to their own national currencies. The ensuing financial chaos in Europe would hurt American exports and have other negative impacts that “would almost certainly throw the United States back into recession.”

-- European Affairs