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Is There a Europe to Be Saved?

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In the run up to the June 28-29 European summit, George Soros issued gloomy warnings about Europe running out of time to save the euro. Soros issued a stinging critique of German policy, saying that it was leading to a Europe with an "imperial" Germany and calling Angela Merkel a "strong leader," who is "leading Europe in the wrong direction." Just a week earlier, Paul Krugman took on the myth of lazy Greeks and a runaway welfare state in Greece and pointed out that the euro itself and woefully inadequate European institutions are at the heart of this crisis. Krugman's conclusion that Europe needs the institutional strength of the American federal government is spot on, but there's more to the problem.

A great deal of ink has been devoted to newspaper columns illustrating elements of the American experience and the American economy that Europe should mimic. As European leaders head into this summit and start thinking about the structural reforms the PIIGS need to take and the ones needed by the EU, they should take a crash course in American constitutional history.

The Articles of Confederation established the first government of the United States of America. Under the Articles of Confederation, "union" was not the best way to describe the way the states interacted: they often argued amongst themselves, refused to financially support the national government, imposed tariffs on one another, and used different currencies. Some states began making agreements with foreign governments and most had their own military.

In 1786, Shays' Rebellion occurred in western Massachusetts as a protest against financial difficulties brought about by a post-war economic depression, a credit squeeze caused by a lack of hard currency, and fiscally harsh government policies instituted in 1785 to solve the state's debt problems to rising debt (sound familiar?). However, the national government was unable to gather a combined military force amongst the states to help put down the rebellion.

The economic, military, and institutional weakness that became apparent because of this economic/debt crisis led to a reset in the American experiment and the U.S. Constitution. The rest is obviously history.

Europe has a similar opportunity to reset -- to cure the original sin of a euro that was launched without the institutional infrastructure and culture to prevent the crisis we are experiencing today. The European Union is a few years into its latest constitutional reforms, but the pace of the European experiment is clearly inadequate. Europe has still not turned the corner from its version of the Articles of Confederation to its Constitution.

Most importantly, Europe's economic crisis has exposed not only the institutional weaknesses of the EU, but also its lack of solidarity. Even if Brussels becomes as powerful as Washington DC, as long as Europeans rank each other (incorrectly, by the way) according to "laziness" and as long as policy makers from one state make insensitive comments about the suffering of another state's citizens, the EU cannot succeed.

Krugman detailed how the American taxpayer has subsidized Texas and Florida in times of crisis, and that a strong national economy and federal government can absorb the lower productivity of a state like Mississippi. Yet, to really get to the heart of the difference between Europe and the United States, a comparison to post-Katrina New Orleans would have been appropriate. Americans stood in solidarity with New Orleans -- from charitable giving to accepting Katrina's refugees across the country, to punishing the federal government's inadequate response at the ballot box.

It is this sense of solidarity, indeed compassion, that is absent from Europe's discourse at this point. Southern Europeans are in for more austerity and structural reforms whether the euro survives or not. But can the leaders of Europe continue to turn a blind eye to the human cost of these adjustments on the poorest Europeans? It can be argued that the present structure of the United States was kicked off by a rebellion by poor farmers. Our Founding Fathers concluded that the union had to be kept together at all costs. Larger, more prosperous states like Virginia ceded political power, economic dominance, and agreed to debt mutualization in order to save the United States. Yet, the greatest success of the American experiment is that two centuries later, we are all Americans first. For Europe to survive, it must not only restructure the governance and economy of EU, but establish a post-Katrina level of solidarity to deal with the suffering that entire nations are facing. Only then can Germans and Greeks live in a true Union.