In Europe, Breaking Up Is So Easy to Do

By William Drozdiak

BRUSSELS, Belgium – When I first arrived in this city to play professional basketball in 1971, the place was brimming with hope that a United States of Europe might soon become a reality. Britain, Ireland and Denmark were poised to enter the Common Market, and the nine-nation “country club” harbored ambitions of becoming a dominant global force. But the dream evaporated like a desert mirage with the Arab oil embargo of 1973, as the continent’s governments went their separate ways in a desperate scramble to stave off recession.

Nearly two decades later, I rushed to Berlin as The Washington Post’s foreign editor to witness the fall of the Wall. Again, the magical vision of “one Europe, whole and free” captivated minds on both sides of the divide. East Germans made a beeline for that renowned consumer emporium, the KaDeWe department store on the Kurfurstendamm, which their communist leaders had ridiculed as a capitalist facade. As I watched throngs of Easterners in the food section crying in front of mountains of plump oranges and fresh bananas, I realized that their feelings of betrayal foreshadowed the demise of the Soviet empire.

That yearning to share the West’s culture of freedom and prosperity propelled the European Union’s strategy over the past 20 years to “widen and deepen” – to embrace the new democracies in the East while compelling member states to adopt common policies such as the euro, the currency now used in 16 countries.

But suddenly, all the gains of the past decades are threatening to implode as Eastern Europe’s economic vulnerability in the current financial crisis raises the specter of a new East-West divide, underscored by the nationalist animosities that have led to calamity in the past.

Already, commentators are warning that history could repeat itself – that just as the Great Depression ushered in an era of political extremism that led to the rise of fascist and communist dictatorships, the current wave of financial turmoil could foment the kind of political demagoguery that could shatter the noble cause of European unity.

“It’s been twenty years since Europe was united. What a tragedy if (it) should be split again,” World Bank President Robert Zoellick, who was closely involved in the negotiations that led to the unification of Germany in 1990, said in a recent conversation.

For the past two decades, the former communist states in the East have enjoyed an economic boom. Western investors poured money in to create jobs and growth in a heady atmosphere of social peace and political stability aided by the countries’ entry into the EU and NATO.

But in just a few months’ time, Poland, Hungary, Latvia, Bulgaria and Romania have been sent reeling by a credit crisis that has caused growth rates to plummet and their currencies (not yet converted to the euro) to plunge in value. Eastern European countries need to repay short-term debts of more than $400 billion this year, and some don’t have the resources to meet their payments, prompting concern from the International Monetary Fund and the World Bank, which Friday announced a $31 billion rescue package.

Car plants such as the Czech Republic’s Skoda, which had been flourishing until last year, have suffered a sharp decline in orders from the West, forcing them to shorten the work week to four days. In the Baltic states, automobile sales fell 57 percent in the final months of 2008. Overall, demand across Europe for industrial and manufacturing goods fell by 22 percent at the end of last year.

Meanwhile, Austrian and other Western banks and insurance companies that hold East European debt are feeling enormous pressure at home to withdraw their capital. In the post-communist era, Austrian banks rushed headlong into Eastern markets, and now Austria’s loans to the East amount to 70 percent of its gross domestic product. Some analysts fear that Austrian banks’ dangerous exposure in Eastern Europe could cause a catastrophe in the way that the 1931 collapse of the Viennese bank Creditanstalt helped trigger the Depression.

As I traveled across the continent on a speaking tour in recent weeks, talking with audiences in Paris, Brussels, Duesseldorf, Berlin and Prague, I was struck by a rising anxiety that Europe’s golden era of general peace and prosperity might be drawing to a close, that the vaunted social safety net is fraying and civic responsibility eroding. Most of all, I was struck by the growing alienation between the continent’s haves and have-just-recently-hads.

In Prague, a new generation that barely remembers communist repression increasingly resents the 27-nation European Union. Even though the EU has showered the Czechs with lavish subsidies, it is now disparaged as unfairly allowing bigger Western governments to impose their will on small countries.

Czech President Vaclav Klaus, a Euroskeptic in the best of times, provoked outrage in the European Parliament when he told the assembly on Feb. 19 that the EU was an undemocratic and elitist project comparable to Soviet-era dictatorships. “Not so long ago, in our part of Europe we lived in a political system that permitted no alternatives and therefore also no parliamentary opposition,” Klaus said. “We learned the bitter lesson that with no opposition, there is no freedom.”

Though his criticism may have been exaggerated, Klaus was tapping into a certain rejectionism among East Europeans who ask why, after their countries’ long struggle for independence, they should now give up their sovereignty in favor of an ephemeral quest for European unity.

Europe’s recent East-West divisions are most glaring in the matter of a resurgent Russia. The West is willing to mollify Moscow’s desire to regain superpower status and wants to cooperate in building oil and gas pipelines. But the East fears that this would give Russia more leverage and eventually allow it to dominate Europe’s energy supplies – fears that were stoked this winter when Russia temporarily cut off natural gas delivery to Ukraine in a pricing dispute.

All of this is frightening policy-makers and historians alike.

At a recent meeting in Rome, German Finance Minister Peer Steinbrueck told his European colleagues that there is a greater risk than many realize of repeating the mistakes of the 1930s. Then as now, European governments were tempted to succumb to domestic political pressures urging “beggar thy neighbor” measures that ultimately transformed a financial crisis into a Great Depression. That helped the Nazis and other political extremists take power. By the end of the 30s, 15 European countries were being run by right- or left-wing dictatorships.

Although there is little evidence that extremist political parties are moving into position to seize power, European leaders’ weakness in the face of the crisis is a growing cause for concern. In recent weeks, the governments of Iceland and Latvia collapsed after banking failures that seem impervious to any remedy, Greece and France were swept by massive labor strikes, and agitated depositors have caused major bank runs in capitals from Dublin to Kiev.

In Germany, Chancellor Angela Merkel leads a grand coalition of Christian Democrats and Social Democrats that controls 75 percent of the Bundestag. Yet despite this overwhelming parliamentary power, the government failed for months to come up with an emergency rescue package. Only reluctantly, and with an eye to September elections, did Merkel approve $100 billion in economic incentives in January, including a 2,500 euro (US$3,000) bonus for anybody who scraps an old car and buys a new one.

French President Nicolas Sarkozy, meanwhile, has offered French carmakers Renault and Peugeot-Citroen a 6-billion-euro loan package – provided they keep the jobs in France and stop building plants in Slovakia and the Czech Republic, where labor costs are much cheaper. That, in turn, provoked an angry response from Slovakia, which threatened to expel the Gaz de France power utility from its territory. Czech Prime Minister Mirek Topolanek could not stop himself from suggesting that France was once again willing to harm others to save its own hide – a not-so-subtle reference to the way the French abandoned the Czechs when the Nazis invaded in 1938.

Since World War II, Europe has been an admirable success story, showing how the long-term benefits of multinational cooperation can surpass short-term national interests. Now protectionist pressures are rising everywhere. But what’s troubling about Europe is the way the financial crisis has become entwined with populist fears that echo from the continent’s tragic past. I watched Europe’s dream of unity dissolve once before. I hope I won’t soon be watching it disintegrate once and for all.

William Drozdiak, a former editor and foreign correspondent for The Washington Post, is president of the American Council on Germany.

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