"Germany Dominates Europe Once Again" is the eye-catching headline of an editorial by William Pfaff in truthdig.com, a blog and commentary site popular with the political left. His perspective is useful in evaluating the European Union, which just concluded a summit in Brussels.
The summit was highlighted by forceful renewed demands from German Chancellor Angela Merkel that Greece and other members hold to austerity measures. Germany is by far the largest and strongest economy on the European continent, providing powerful leverage. The International Monetary Fund urges a more flexible approach.
Writing from Paris for decades, Pfaff is a knowledgeable observer of the European scene, putting contemporary developments in wide historical perspective. He personifies a rich tradition of literary expatriates from the United States, who find valuable professional perspective living on the other side of the Atlantic.
Pfaff argues in his column that characteristic Germanic rigidity threatens Europe, and is counterproductive in today's political and policy environments. By contrast, he describes with approval the "quantitative easing," relatively flexible and expansionist monetary policies, of the U.S. Federal Reserve under Chairman Ben Bernanke. He declares the Europeans should go and do likewise.
However, important structural differences distinguish the economies of Europe and North America, even in today's increasingly integrated global economy. The United States remains remarkably successful in drawing foreign investment, unique in scale and duration among major nations. The U.S. dollar is the dominant global currency, freely convertible and the only truly universal monetary unit.
Even as the U.S. dollar has retained a distinctive global role, which dates from World War II, the nation's credit markets continue to enjoy unprecedented diversity as well as depth. The American economy compared with Europe on balance is less dependent on commercial banks for loans, and those banks are also generally better capitalized than banks across the Atlantic.
Financial services remain a realm where the United States and the United Kingdom are relatively strong. Predictions years ago that Frankfurt would supplant London, and perhaps eventually New York, have not been realized or even approximated. The industrial scale and production capacities of Germany are enormous, but have not resulted in the innovative flexibility required in rapidly evolving financial markets.
Given the interconnectedness and integration of the global financial system, the financial failure of Greece and other debt-burdened EU member nations could result in another slump, perhaps even a major world crisis. Events in Europe could duplicate those in the United States of several years ago, when initially apparently contained negative commercial developments led to a more general meltdown, through quick contagion.
These complex challenges reinforce the role of Germany, where Merkel has proven effective in juggling contentious interests at home, including strong nationalist currents, while building coalitions among the broad diverse membership of the European Union.
In the wake of the international financial crisis, touched off by the U.S. housing market's collapse, stronger government regulation is essential. Irresponsibility was fed by abolition in the U.S. in the late 1990s of the Glass-Steagall Act, which segregated commercial banking from other financial services. Germany has been helpful in emphasizing relatively strict regulation.
The European Union was initiated soon after World War II. Economic integration shrewdly was seen as an instrument for encouraging political stability and peace. In consequence, no single nation dominates Europe today.
Arthur I. Cyr is Clausen Distinguished Professor at Carthage College in Wisconsin and author of "After the Cold War." Reach him at email@example.com.