The Biggest No-Show at Davos Wasn't Keith Richards

02/01/2012 12:13 pm ET | Updated Apr 02, 2012

At any conference, like any wedding, the no-shows are as interesting as those in attendance.

At the World Economic Forum's Annual Meeting in Davos the list of government, corporate, academic and social leaders is staggeringly impressive. Geithner, Cameron, Merkel, Soros, and Jagger all made it. But without question the biggest no-show of this year's Davos was Winston Leonard Spencer-Churchill. It is no surprise that the guy who was heavily involved the last time there was an attempt to integrate Europe was on everyone's lips. And like the American Republican Party's folk memory of Ronald Reagan, Churchill's ghost was frequently invoked, but rarely accurately.

His name came up in most of the sessions I attended. His quotes were mangled even before cocktail hour. However, it on the issue of further European integration where he would have had the most to contribute. Rising income inequality is a surprisingly strong concern for this gathering, and the search for new economic models is sincere, but avoiding Europe's combustion is, understandably, the most pressing issue.

What would the great man have thought of Europe's current crisis and its teenage currency? British PM David Cameron, channeling his inner-Winston, made it clear that this time Europe will have to fix its own problems before he would be sending any financial reinforcements. The great man still defines England's image as impeccably dressed, highly principled, but very isolated. n Oxbridge education enables all British leaders to say "I told you so, you knuckleheads" without breaking out of the Queen's English.

Will the Euro survive? Unquestionably. I know that is a big call, but it's the only thing that makes no sense, so it is by definition the most likely outcome.

And, for the second brave call in as many paragraphs: The Euro has been an extraordinary success. Politically that is. It has always been a wildly silly idea on any economic grounds. Currency union without fiscal unity is asking for exactly the type of trouble that Europe has now got in spades.

One qualification: The Euro could fall apart if one or more nation suddenly storms out of the currency union. It is possible that the EU's austerity plans become so unpopular that people demand their leaders pull them out of the euro. But that's highly unlikely, as the only thing less popular in Greece than the unelected bureaucrats of Brussels are the recently elected technocrats of Athens.

But the biggest reason the euro won't collapse is because the rest of the 27 national European Union -- and for increased accuracy let's call it Germany -- won't let it.

The simple math is that the Euro without the sandbags of Greece (and then almost certainly Portugal and Spain and possibly Italy) would rise faster than Facebook on its first day of trading.
I asked the head of a German car manufacturer and exporter how his company would fare if the Euro appreciated 30 percent. I chose that number because that's the lowest figure I have heard, and about half the consensus. No points for guessing his answer.

This weekend's London's Financial Times could hardly contain its schadenfreude, breathlessly leading with the story that the "German government wants Greece to cede sovereignty over tax and spending decisions." A Eurozone "budget commissioner" would have the power to "veto budget decisions taken by the Greek government if they were not in line with targets set by the international lenders."

By Sunday night, 36 hours later, Greek ministers were posing in front of images of the Acropolis (really, they were) to say this was "unnecessary" and would not be agreed to.

But as the German proposal is required to secure a second 100+ billion Euro bail out, nobody doubts increased fiscal controls will be agreed to somehow. And that's Federalization-creep under any definition.

An increasingly federalized Europe will require Center-to-South ausgleich, a German word I understand to mean politically expedient economic re-balancing. West Germany ausgeichen'ed about 9 percent of GDP to East Germany for 10 years.

Federation works when States cede control of certain administrative hassles -- such as setting budgets and determining fiscal policy -- in return for help when things go wrong, the economic benefits of a single market, and the convenience of never returning from a foreign vacation with handfuls of useless coins.

The Greek PM's monumental task is to sell his people on the loss of their fiscal independence. And while that is a big ask, imagine you are in Angela Merkel's (sensible black) shoes and you have to convince the German people that you'll be sending five to eight percent of your GDP to the profligate Southerners each year. And for how long? "Indefinitely" is Harvard Economist's Niall Ferguson's initial guess (and he's been correct on most of this euro stuff up to now).

Amazingly, these two political feats of extraordinary domestic gymnastics will most certainly be achieved, demonstrating the deep political maturity of Europe. Something the Davos delegate Winston L. Churchill could understandably have been very proud of.