Last updated: 22 april, 2009 - 10:57 GMT

Peter Day's Comment

Global Business is taking a look at the economies on the edge of Europe and the way they are being hit hard by the global recession. After last week's report from Spain and Hungary, this week I'm in Ireland. Here's what I said about Europe last week :

What is this thing called "Europe"? A continent? A project? A series of drunks trying to prop each other up?

Don't know. What I do know is that Europe is not yet an economy. The Common Market still has uncommunal flaws. This programme is one of two setting out to discover why they are feeling the heat (or the chill of depression) on the fringes of Europe. In the Baltic states, in Central Europe, in Greece and Spain and Ireland.

After they entered the EU, these countries boomed and bloomed, flush with European catch-up money and inward investment. But not now.
They are in deep trouble, whether or not they are inside or outside the Eurozone.

And that gets me back to the interesting question of what this thing called Europe actually is.

A clever young British think tanker called Mark Leonard moved on to the idea of Europe after he'd put forward the catchy idea of "Cool Britannia" in the early days of Tony Blair's Britain. Mark Leonard (who grew up in Brussels) wrote a book "Why Europe will run the 21 century", with the counter-intuitive proposition that it does not really matter what Europe is, what matters is what people think it is.

He says that this is the only supra national bloc he can think of which has had outside nations queuing up to join. Most such country groupings have been formed by war or conquest. Not Europe.

Transparent

In other words, Europe is an idea rather than a political association. If strong national governments can translate European policy into national legislation, then the vagueness of the European parliament does not matter too much.

Think of Europe (says Mark Leonard) as a sort of series of transparent overlays. Some countries may join up for economic reason; some to stop a European war ever breaking out again. Some may want the embrace of a single currency among them and their neighbours, but others find their own currencies impossible to renounce. Some want to join NATO, some do not.

Sounds chaotic, but the chaos doesn't really matter. Europe is not what politicians think it is, a continent looking for a national anthem. It's a club of members who can subscribe to the membership plan they want : no to a Europe defence policy, yes to the euro, yes to a common passport.

Judged by conventional expectations of how countries ought to behave, this is disconcerting. Mark Leonard sort of says that the uncomfortableness of the European idea is one of its hidden strengths, Other countries want to be in for all kinds of reasons, rather than for one great big reason. Europe is what you want it to be.

Nevetheless, the idea of Europe is under some severe strains at the moment. Particularly in question is the idea that one interest rate decided by the Central Bank of Euroland in Frankfurt is suitable for the non-existent Europe-as-a-whole economy.

Stability

"One interest rate does not only not fit all," says the economist Maya Bhandari at Lombard Street Research in the City of London, "One interest rate does not fit anyone."

The European Central Bank kept interest rates high by German standards over the past ten years because its members were deeply worried about incipient inflation.

But what were high interest rates for the Germans were pretty low for many other countries with more buoyant economies. Joining the Euro unleashed an orgy of low interest rate borrowing and lending in places such as Spain.

In Hungary homebuyers seeking low interest rates rushed into Euro denominated loans because the forint carried such high interest rates by comparison.

The rest is history, and unpleasant. Except that experts in the Euro-land countries still insist that on balance the agony of currently being in the Europe does not overwhelm the long term advantage of stability.

Now what does all this tell us about the idea of Europe ? I still don't know.

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