The New York Times
January 3, 1999
In 'Euroland,' Strengthening Financial Ties Herald the Dawn of a New Day
By ROGER COHEN
ACHEN, Germany -- Europe has two faces, light and dark, and they are evident on Germany's western and eastern borders as the continent crowns four decades of integration with the adoption of a single currency, the euro.
Here in Aachen, which lay in ruins in 1945, borders have ceased to exist. It has become usual for people who work in this western German city to live in Belgium and play a weekly tennis match in the Netherlands. The sweet whiff of prosperity seeps from Italian shoe stores, Spanish tapas bars, French croissanteries and English pottery shops that line the pedestrian shopping areas on all sides of the borders.
"This used to be a border city, but no longer," said Hans Poth, a spokesman for the Aachen town council who lives in Belgium. "And once we have the euro, the last barriers will disappear."
But a few hundred miles to the east, in Gorlitz, crumbling facades testify to decades of Communist rule. The town is split into two halves, as it has been since 1945 when eastern districts fell into Poland as European borders were rearranged after World War II. A single bridge, clogged by long lines of traffic, links the German and Polish parts.
While Aachen's melting borders symbolize the growing unity of Western Europe, Gorlitz underlines the continuing division of the continent.
Rolf Karbaum, mayor of the German part of Gorlitz, gazed out over a disjointed vista of baroque homes built centuries ago by German burghers and apartment blocks left by Polish Communists. "Now we want to be one city again," he said. "But for that, we need Poland in the European Union and the euro as our currency on both sides of the river."
Aided by the United States, postwar Europe has risen from the ruins of 1945 and overcome seemingly perennial rivalries through a bold vision of union that has brought prosperity and peace to regions plagued for centuries by instability and bloodshed. The euro, a single currency for 290 million people that may in time challenge the dollar, symbolizes a colossal achievement.
Yet it falls short of the original vision of a federal Europe with a single currency at its heart. Through its 20-year gestation, the euro appears to have shifted from a political ideal to a more prosaic economic tool.
Europe, for the foreseeable future, seems set to remain a hybrid beast, using English as its lingua franca, running its monetary policy through a federal institution -- the European Central Bank in Frankfurt -- while control of most other instruments of government, including budgets, remains at the national level.
Whether such an arrangement -- a new experiment in historical terms -- is workable remains unclear. Projected slower European growth in 1999, dragged down by slumps in Asia and Latin America, will place added strain on the euro's inception.
Beyond the economics loom larger questions. With the Cold War's glue now gone, will the trans-Atlantic bond that buttressed European growth remain firm as "Euroland" takes form?
The 11 nations joining the euro have abandoned an important part of their sovereignty to the European Central Bank. That probably will dispose them toward finding multilateral solutions to world problems, while a wholly sovereign America may choose -- as recently in Iraq -- to take a unilateral view of its interests.
And does Europe still have the vitality and drive to overcome the many remaining divisions between its capitalist and former Communist halves, to fulfill Karbaum's wish of making his wounded Gorlitz whole again?
Voicing a sentiment common in France, which acutely feels an end-of-millennium intellectual malaise, Arnaud Jacomet, a French defense official, considers Europe "a tired continent, in late middle age, looking only for a comfortable retirement, with the United States as its eternal protector." In this vision, Europe may be content to rest on its laurels, leaving the formerly Communist, still impoverished states in its east on the outside looking in.
The 11 nations that have adopted the new currency carry formidable economic heft. They represent about 18 percent of the world's total output and account for about 20 percent of its exports. After the United States, "Euroland" will be the world's second-largest trading area with a single currency.
The euro, if it is successful, will provide enhanced European capital markets, easier comparison of prices, improved competitiveness, convenience and the kind of stability that resisted any European contagion from Asian or South American crises in 1998.
Already, the tough fiscal and other criteria set for qualification for the euro have drawn countries like Spain, Italy and Portugal toward a low-inflation prosperity they have never previously known. The euro, and the 15-nation European Union in general, have amounted to a beneficent magnet.
Some day, many economists believe, the euro may even rival the dollar as a reserve currency, obliging the United States to abandon a central assumption: that its deficits will always be financed because the world wants dollars.
Norway, for example, is certain to take payment for oil exported to "Euroland" in euros rather than dollars, because it imports principally from European countries. Eastern European exporters may do the same.
"Taking a three-year view, the euro will present a serious challenge to the dollar," said David Hale, chief economist for the Chicago-based Zurich Group. "America may have to rethink its view of itself."
But challenging America in the ether of world financial markets is far from creating the unified political entity imagined by the founding fathers of the European Union and very far from any European emancipation from American military tutelage.
For generations, ever since Churchill spoke in 1946 of uniting Europe in "the sharing of its common inheritance" and Jean Monnet of France laid the first foundation stones of integration, many Europeans have dreamed of unity. Yet just as the euro is being introduced, the idea of Europe may have lost its galvanizing appeal.
A difficult decade in Europe has taken a heavy toll on the European ideal. Slow growth and high unemployment -- more than 10 percent in Germany, more than 11 percent in France -- have been widely equated with the budgetary rigors imposed as preparation for the new currency. In many places, Brussels has become a dirty word.
Although East Europeans still talk constantly of "joining Europe," seeing in this mantra the age-old vision that European unity could banish the continent's demons and bring peace, "Europe" has little or no resonance for the millions of young West Europeans touched by unemployment. No new, forward-looking message has been found to take its place.
Indeed the very words "idea" and "Europe" seem strangely paired because intellectual vitality appears to have migrated elsewhere, and with it the forces now changing the world.
Yves Thibault de Silguy is the European Union's top monetary official and an ardent promoter of the euro. For this energetic Frenchman, a Paris-to-Potsdam, Berlin-to-Barcelona currency may eventually make the the nations that have opted to join "Euroland" more stable and robust.
But European patriotism -- hearts thumping, even stirring, before Europe's blue-and-gold flag? Forget it. A quick expansion eastward to embrace formerly communist Mitteleuropa? Not likely.
"We can never be an American melting-pot, even with a single currency," de Silguy said. "People here are firmly attached to national ideas. They like to live in a big, open European market, but within their own language and culture. As for expansion eastward, we need to wait. You have to be a realist."
Such realism, however, is new at European headquarters. A few years ago, the dismissal of a United States of Europe -- especially by a Frenchman -- would have been viewed as Thatcherite Europhobia. For decades, the 15-nation European Union progressed precisely by being unrealistic. It embraced far-fetched dreams, like a single currency, and somehow staggered toward them.
But now, the boldness of a postwar European generation driven by the desire to banish bloodshed from the continent has given way to the pragmatism of a more pampered generation for whom America is at least as resonant as Europe.
This shift of ambition suggests that Europe will long remain what Norbert Walter, the chief economist at Deutsche Bank, calls "an economic giant and a political dwarf". While challenging U.S. supremacy on the currency markets, the dwarf will still desire -- even require -- U.S. military protection and, in times of crisis such as the recent Balkan conflicts, strategic leadership.
"Nobody buys the federalist model in Brussels any more," said Andrew Moravcsik of Harvard's Center for European Studies. "As governments have started looking beyond the euro, at harmonizing foreign and defense policy, even at a common tax policy, they have seen that public opinion is just not with them."
In this climate, de Silguy and other officials said, the euro will not propel Euroland toward political unity -- a common foreign and defense policy, a European army, the federal European government long seen by France as the best escape from U.S. domination of Europe and by Germany as a refuge from a troublesome national identity.
"Right now, a shared defense, security and foreign policy looks unrealistic to me," de Silguy said.
In its absence, America, through NATO, will continue to bear the chief burden of Europe's defense. But already, debates on the future of the alliance have been marked by differences over how "global" NATO should become and whether, as Europeans now argue, the organization should be bound in its missions by the U.N. Security Council.
Still, for now the alliance of interests binding Europe and the United States since the end of World War II has held. The success of this joint undertaking -- European integration under the umbrella of U.S. security guarantees -- is evident in Aachen.
Once home to Charlemagne, who governed much of Western Europe from here in the 9th century, including modern France and Germany, Aachen was long disadvantaged by the proximity of the Belgian and Dutch borders -- barriers to trade and economic development that were as cumbersome as today's German-Polish border at Gorlitz.
But now, on the German-Dutch border, a unique project has begun. Called "Avantis," it is a 100-acre trans-border industrial zone that literally straddles the frontier. Dutch and German letter-boxes, red and yellow, have already been placed side by side in the sort of act of symbolism that has nonetheless proved consistently helpful to Europe's construction.
The project is complicated because Dutch and German taxes and regulations are different. But it is intended to feed off Aachen's renowned university of technology and engineering to create between 7,000 and 12,000 jobs in the high-tech sector. A brochure describes the project as a "European Science and Business Park" set in a "win-win situation."
That, in many ways, is a good summary of Europe today: A German-Dutch cross-border project with an English name and American jargon. Areas of prosperity in places long prone to instability abound. Alsace-Lorraine, and the French-Spanish border region between Perpignan and Barcelona are other examples.
"Peace and freedom are now taken for granted," said Jurgen Linden, the mayor of Aachen. "So we have to show our citizens that Europe has advantages by creating jobs in projects like these. With the euro, we can work on both sides of a border."
Not everyone is convinced. In the streets of Maastricht, the Dutch town where European leaders decided in 1991 to tear down trade barriers and adopt a single currency, Elisabeth Lubbers, a housewife, said the people of Europe were still different, and its nations too diverse, to accept the euro. "There will be trouble," she said, "and with Germany you never know."
That sentiment is not uncommon in Britain and has contributed to keeping the country out of the euro for now. Among the 18 million unemployed in Europe and the continent's "new poor," resentment against Europe is often virulent.
But for most Europeans -- a clear majority, according to polls -- the euro is now seen as a logical extension of a successful experiment. What is not clear is whether the will exists to reach out from the relative comfort of today's western European society to take that experiment decisively further.
Some ideas do exist: the nomination of a "High Representative" to coordinate European foreign and security policy; a passage to majority voting on more European issues, seen as essential if Europe is not to become too unwieldy; a possible integration of the Western European Union, Europe's largely dormant defense arm, into the formal structures of the European Union.
But such steps -- known as "deepening" -- are controversial, because they may imply further compromises on national sovereignty.
They may also prove difficult because Germany and France, long the motors of European integration, have discovered other priorities. Germany has been absorbed with its costly unification and, of late, with an attempt to step out from the shadow of its past.
"Of course, we are all for a strengthening of Europe, but we no longer feel this is a historical obligation," said Bodo Hombach, minister of state at the Germany chancellery. "We want Europe, but not because we have to."
In practice, the new government of Social Democrats and Greens led by Gerhard Schroder has adopted an almost Thatcherite tones in demanding a reduction in its huge contribution to the European budget. It has also suggested that candidates for European Union membership -- including Poland -- may have to wait a long time.
Across the Rhine, French politicians have been made acutely aware of the enduring appeal of nationalist slogans by the success of the National Front, and disgruntlement over unemployment has made any ringing appeals for united European governance tantamount to political suicide.
Until Europe works out these internal problems, it will not reach out to address the pressing needs of Gorlitz and all the once-Communist countries on its eastern flank. Already, with unemployment running at 21 percent in the area, many Germans complain about Poles coming to work illegally in Gorlitz.
"It took generations to resolve the French-German problem, and here tensions with Poland have been compounded by almost 50 years of Communism," said Karbaum, the Gorlitz mayor. "But this is an artificial border, and we have to overcome it, just as on Germany's western side."
Jreneusz Aniszkiewicz, the deputy mayor of Zgorzelec, as the Polish side of the town is known, agreed: "The economy can resolve everything today," he said.
The two men have a project: to rebuild Gorlitz's old bridge, destroyed by Allied bombing in 1945. But six years of negotiation have so far failed to resolve various difficulties and the two banks of the River Neisse -- no more than 30 yards apart -- remain unbridged in the center of town. The one existing bridge is on the outskirts.
"It is not easy," Karbaum said. "Young Germans say to me, we have no work, no hope, nothing to do, and you want to spend millions of euros on a bridge."