Circling unity: A history of postwar Europe

The arc of Europe's postwar history is turning toward tragedy. It isn't just that much of the continent has fallen into a new Great Depression. It isn't even that the whole mess was avoidable. It's that the crisis is dividing Europe along the very lines the European project was intended to erase.

Ancient stereotypes frame conversation about the crisis. Germans are bossy and severe. Italians are idle. Greeks are corrupt. Brits are arrogant. The French are vain. So much for 60 years of European unification.

Germany in particular is coming in for a bashing, not just in Greece, where cartoonists have brushed up on their swastikas, but in Italy, Spain and other countries suffering the stress of a German-directed drive to restore Europe's public finances. In a union that was intended, not least by Germany's own leaders, to bind and subdue Germany within a larger whole, it instead stands increasingly isolated.

Why did it all go wrong? Three main reasons: French grandiosity, German shame and a universal law of bureaucratic self-aggrandizement.

The overriding goal for a Europe in ruins after 1945 was to create a secure zone of peace and prosperity. Reconciliation between France and Germany, formerly bitter enemies and sure to be the dominant economic entities in a new Europe, was vital.

The path not taken was that of an enhanced free-trade area, a zone of economic cooperation among sovereign states, a kind of NAFTA-plus. According to France's thinking, if Europe was to compete on equal terms with the United States, it would need to aim higher than that. Ultimately, a United States of Europe was the goal.

From an early stage, Europe hoped to integrate politically as well as through trade and commerce. As the European Economic Community came into being, it took in new members and began to develop a thin yet feverishly proliferating European layer of government. These two drives were in tension.

The critical juncture was reached in talks for the Maastricht Treaty of 1992. This provided for European Monetary Union, the boldest step yet. As you would expect, France was keen on the new currency: This was deepening with a vengeance.

Under then-existing arrangements, French monetary policy was in practice constrained by the choices of Germany's mighty central bank. Back then, France saw monetary union as adding to, not subtracting from, its monetary sovereignty.

More gloriously, the single currency advanced the goal of a Europe fit to contend with the United States in global affairs. The dollar needed a rival.

Germany viewed deepening more skeptically. Had its constitution permitted a referendum on dropping its esteemed mark, the country would have rejected the idea. But Chancellor Helmut Kohl gave greater weight to other considerations. Germany's sudden enlargement to the east was stirring concern. Kohl wanted to offer reassurance. Germany acquiesced in the annihilation of its currency out of meekness.

Yes. That's ironic.

That's why leaders weren't too worried that Europe's democratic underpinnings, including its arrangements for fiscal policy, were so much weaker than those of a typical currency-issuing nation-state.

This crisis has proved that central banking is a branch of politics. Under extreme circumstances, such as the ones we're in, monetary policy is really just fiscal policy by other means -- as when a central bank engages in "quantitative easing" and takes government debt onto its books.

Strictly speaking, again to underline its independence, the European Central Bank was forbidden to do that, but out of necessity it has lately found ways around the prohibition. Many economists are now calling for more.

In addition, with economies across the euro area diverging, the supposed simplicity of the stable-prices goal has evaporated. Price stability in Germany means depression in Greece. But the euro area can have only one monetary policy.

Setting it involves choices that are as political as they come -- but no clear line of democratic accountability connects the ECB and the EU's citizens or governments.

If this reluctance brings the ceiling down, it may do Germany more harm than good. You can understand it nonetheless. Since Europe's national solidarities look more entrenched than ever, you can also understand resentment in Greece and elsewhere at being dictated to by Berlin.

One way of describing Europe's dysfunction is to say that economic integration got too far out in front of political integration. Although that's true, you would be wrong to conclude that political integration could have moved much faster. Successive treaties have run into mounting popular resistance to the transfer of decisionmaking power to the EU. Across Europe, politics is still resolutely national.

For that reason, adopting the single currency was always going to be a risk, but it didn't need to be as risky as it proved. National governments understood what the economic demands of the euro would be, then spent more than a decade doing nothing about them.

Labor markets also remain more national than continental, leaving workers and businesses at the mercy of the EU's imperfectly synchronized business cycles. Migration is permitted in theory, but can be difficult in practice because pension arrangements and labor certifications aren't easily portable.

Powerful unions and broken wage-setting systems let labor costs get out of hand and created a widening competitiveness gap between Germany and southern Europe, the main underlying cause of the peripheral countries' current plight. Until the crisis intervened, labor-market craziness as notorious as Spain's -- where a dual system of permanent and disposable workers has driven the unemployment rate to 25 percent -- was left unattended.

The immediate question is whether Greece will exit. Europe's leaders would hope to stop the rot there. But if a "Grexit" happens, attention will turn instantly to which country goes next. To stop the system unraveling with who knows what consequences, the EU may have to take the strides toward deeper union that Germany has been resisting since this crisis exploded: joint guarantees of sovereign debt and unlimited intervention by the ECB.

The problem is, that's fiscal union. It commits the EU to potentially enormous transfers among its members, and makes them explicit. Can there be fiscal union of that sort without political union? And do Europe's divided nations -- the bossy Germans, idle Italians, arrogant Brits and vain French -- actually want to be one country?