Capital E

The most ardent Europhile would be hard-pressed to deny that the past few months have been anything but dismal for the European Union. Passage of the Lisbon Treaty was meant to herald a release of energy and ambition. Instead it has exposed the political paralysis that had been hiding behind the constitutional wrangling.

The lowest-common-denominator choices of Herman Van Rompuy and Catherine Ashton as the faces of the European Council and of the Union’s foreign policy set the tone. Next came the humiliation of being locked out of the room at the Copenhagen climate conference. Then came Barack Obama’s decision not to attend an EU-US summit in Madrid. Some called this a snub. It is more accurately described as a wake-up call. If Europe wants to be listened to, it must have something to say.

I listened to Baroness Ashton speak at February’s Munich Security Conference. She was in serious company, sharing a podium with Russia’s Foreign Minister Sergei Lavrov and US National Security Adviser Jim Jones. Ashton spoke for 20 minutes or so and then promptly departed, leaving the American and the Russian to take questions from the floor.

Perhaps the slight was unavoidable – an unbreakable commitment elsewhere. But her audience, liberally sprinkled with US senators, foreign ministers, military chiefs and the like, found it hard to imagine what could be so pressing mid-morning on a Saturday.

The speech itself was a boilerplate effort about the insecurities of a world of failed states, proliferation, emerging threats and unavoidable interdependence, coupled with self-congratulation for Europe’s contributions to global security.

Maybe I am being unfair. Either way, Europe’s willing embrace of geopolitical irrelevance pales into insignificance against the storms buffeting the single currency. It is one thing to surrender the chance to be a global actor; another to fail to recognise that the economic crisis engulfing Greece challenges the core purpose of the Union.

Ministers and central bankers will tell you the crisis is all the fault of the Greeks. And, on one level, their analysis is hard to gainsay. Greece cooked the economic books to get into the euro and has been fiddling the figures ever since. Runaway spending has co-existed with endemic corruption and lamentable failure to collect tax revenues. In these dimensions, Athens is indisputably the author of its misfortune.

The trouble with recriminations is they take you nowhere. Certainly, Greece must put its economic house in order. And yes, its partners must be careful not to provide an excuse for Athens to duck harsh choices. But the rest of the eurozone – and the Union – has as big a stake in Athens succeeding as do the citizens of Greece.

A sovereign default born of insufficient external financing, a failure of Greek political nerve and/or riots in the streets of Athens would mark the beginning of the end for the single currency – a grim truth underlined by the contagion that has already destabilised other peripheral economies such as Spain, Portugal and Ireland.

Responsibility for an economic adjustment programme cannot be palmed off onto the IMF – as happened when Hungary, Latvia and Romania were hit by the global financial crisis. Too much credibility is at stake within the eurozone. If Europe’s economic integration is to be taken seriously, those at the heart of the single currency – most obviously Germany and France – must show the capacity to clean up the mess.

The understandable fear in Berlin and Paris is that a bailout would take off the pressure for domestic retrenchment and encourage future bad behaviour in Greece and elsewhere. But concern about “moral hazard” has to be set against preserving the credibility of monetary union.

We have learned during the past two years that even irresponsible financial institutions must be rescued when the system is at risk. The same applies to irresponsible governments. Put bluntly, if Greece were to go bust, monetary union would begin to unravel.

This is uncomfortable for Berlin in particular, as we saw at February’s inconclusive Brussels summit. Angela Merkel found herself balanced precariously between the need to reassure financial markets that Germany will ultimately stand behind Greece and the ire of her own taxpayers at the idea of bailing it out. But that is the price Germany must pay for its obsession with building up huge current account surpluses at the expense of its partners.

There has been much talk in the past year or so about unwinding global economic imbalances; Europe’s imbalances are just as dangerous.