Europe at the crossroads: splinter or unite

[May 10, 2012]  BRUSSELS (AP) -- The European Union, a hope for peace that rose from the fires of World War II, paused Wednesday to honor its past and ponder its future -- and how it can ensure it still has one in light of the anti-austerity anger expressed this week by voters in France and Greece.

May 9 was Europe Day, a commemoration of a key event that led to the creation of the modern EU. It was on this day in 1950 that French Foreign Minister Robert Schuman issued a declaration calling for an integrated Europe.

Tens of millions of Europeans had perished in twin cataclysms of World Wars I and II. At root, Schuman's dream was simple: He wanted an economic union, a sharing of strategic resources in Europe that would "make war not only unthinkable but materially impossible."

By that measure the project has been a resounding success. The EU has grown to 27 members and the economic union has grown ever deeper, including a common market and, for 17 countries, a shared currency. The interlocking interests have helped to shield the bloc from any possibility of war.

But on Sunday voters in France and Greece voted in droves against the strategy of harsh budget cuts leaders contend is necessary to preserve the economic union that is at the heart of the European Union.

The question then arises: Is the European dream in danger? Could it all come unstuck?

"The current situation is extremely fragile and extremely dangerous," said Zsolt Darvas, a research fellow at Bruegel, a Brussels-based economic think tank.

Greece's two major parties, both of which backed a drastic package of budget cuts in order to secure a desperately needed bailout loan, were so thumped by voters that even put together they would not command a majority in Parliament.

That's alarming because it raises the prospect of protracted political paralysis, in which market panic could trigger a Greek financial meltdown and possibly force the country out of the currency union. That would endanger the viability of the entire European project.

And what of the Franco-German cooperation that was key to the EU during its inception, and more recently instrumental in charting Europe's course through its crisis?

French voters ousted Nicolas Sarkozy as president on Sunday and replaced him with the Socialist Francois Hollande, a leader not at all committed to swallowing more doses of the EU's bitter austerity.

That raises questions about the continent's key alliance, since German Chancellor Angela Merkel is the staunchest champion of Europe's strategy of belt-tightening.

However, some see the unraveling of the Merkel-Sarkozy pairing as possibly a good thing.

The two were so close they were collectively dubbed "Merkozy." They met before each EU summit to make decisions that, critics say, the other EU heads of government were simply expected to endorse.

Europeans increasingly saw a democracy deficit in which the top players were bullying weaker members into submission.

"That was not the right thing to do for Europe," said Paul De Grauwe, an economist with the London School of Economics. "This is the reason the union might break up."

Or one of the reasons.

The other is the potential catastrophe of Greece breaking away from the euro.

If that were to happen, virtually every Greek with euros in the bank would rush to withdraw them and deposit them abroad, said Darvas of Bruegel. The country's financial system would collapse within days, and the country would suffer a terrible financial crisis -- far worse than the one it now endures.

Beyond that, analysts say that Greece's exit from the euro would leave investors wondering which country would be next, raising the prospect of a financial contagion worse than any that has been seen in the course of the crisis.

"The European project will be in danger," Darvas said.

The irony is that Greek voters are not rejecting the European Union, just an EU strategy of unrelenting budget cuts that has pushed struggling economies deeper into the hole.

Antonis Samaras, the leader of Greece's Conservative New Democracy party, has called for the terms of the country's bailout loans to be re-negotiated to put more emphasis on stimulating growth.

Some experts say that slowing down the push for budget balancing -- though not abandoning it -- while stimulating the economy could form the basis of a more successful EU approach to the crisis.

But there are more radical voices on the rise. Alexis Tsipras, the left-wing politician now trying to form a government in Greece, wants to pull out of the agreement under which the country is receiving bailout funds.

Samaras said that would bring catastrophe.

"The Greek people have not given a mandate to destroy the country, nor to leave the euro," Samaras said. "Quite the opposite. And those who understood something like that are altering and misinterpreting the electoral result."

As the political wrangling in Greece continues, the question of whether the union will hold together, whether Robert Schuman's dream will survive, hangs in the balance.

EU leaders, while they have been accused of often being a half-step late in their responses to the series of crises, have nevertheless shown strong and durable political will in their efforts to save the European project.

They have faced down other crises that felt more immediately threatening, such as in December, when it was unknown whether Greece would fulfill the conditions to receive a euro130 billion rescue package.

But De Grauwe says Europe is today entering more treacherous terrain.

"This is in a way deeper, because it's more political," he said. "It's testing the political viability of the project."

[Associated Press; By DON MELVIN]

Elena Becatoros in Athens contributed to this report.

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