Atlantic Council

The European Union yesterday rejected calls from Hungary for a massive bailout plan for struggling economies in Eastern Europe, despite dire warnings of a new "iron curtain" dividing the Continent.

Stefan Bos for VOA:

Ahead of the EU summit in Brussels, Hungary's Prime Minister Ferenc Gyurcsany urged the European Union to show solidarity by establishing a support fund of about $240 billion to help failing economies in Eastern Europe. That was far more than the roughly $30 billion that international institutions agreed on Friday to make available.   Mr. Gyurcsany, whose country is among the hardest hit by the global economic crisis, said his plan could prevent the creation of a new "iron curtain" which, he warned, would "divide Europe" between rich and poor nations.

However, Chancellor Angela Merkel of Germany, Europe's largest economy, made clear she strongly opposes a bailout plan for Eastern Europe. "The situation is very different in each EU country and aid should be handled on a case by case basis," said Chancellor Merkel. "You cannot compare Slovenia or Slovakia with Hungary. We help countries in need. But I think a one size fits all bailout is unwise."

[...]

There were also calls during the summit to make it easier for East European countries to introduce Europe's single currency, the euro. But Czech Prime Minister Mirek Topolanek, whose country holds the rotating EU presidency, disagreed. His comments were translated by Euronews television.  "Concerning the rules for entering the eurozone, I think the majority of countries agree that it would be an error to change the rules of the game at this time," said Mirek Topolanek.

Writing in the Times of London, David Charter provides some background:

Twenty years after the fall of the Berlin Wall, Western leaders were told yesterday that five million jobs could be lost in the “new” European Union countries of the East unless radical action were taken to bail them out.

The spectacular collapse of some of the post-communist tiger economies led to demands at an EU summit in Brussels for a rescue fund of €190 billion (£170 billion) to stop social collapse in the Eastern nations spilling over into the rest of Europe.

[...]

Ferenc Gyurcsany, the Hungarian leader, openly raised the spectre of collapse in Eastern Europe and the creation of a new Iron Curtain.  “Central Europe’s refinancing needs in 2009 could total €300 billion, 30 per cent of the region’s GDP,” he said in a paper calling for a fund of €160 billion to €190 billion to be set up by the richer EU members. “A significant crisis in Eastern Europe would trigger political tensions and immigration pressures. With a Central and Eastern European population of 350 million, of which 100 million are in the EU, a 10 per cent increase in unemployment would lead to at least five million unemployed people within the EU.”

British PM Gordon Brown has renewed calls for increasing IMF reserves to handle this impending calamity but the funding has not thus far been forthcoming.  Indeed, with states rightly concerned about their own domestic economies, the political will to spend hundreds of billions propping up the East will be, to say the least, difficult to muster.

The present crisis has had the salutory effect of splashing a bit of cold water on the enthusiasm for a united Europe.  Considering the state of perpetual war that existed for centuries, that comity that has existed for the last six decades is truly remarkable.  Even the EU itself has come a long way from the days when it was a mere energy cooperative.  But the fact remains that "Europe" remains a relatively vague construct in comparison to the very real forces which tie the United Kingdom, Germany, France, and Hungary together as nation-states. 

ADDENDUM:  Adam Blickstein observes,

Whereas even up to two years ago, fuller integration was seen as mutually beneficial to both the"net givers" (Britain, France, Germany)  and "net takers" (Poland, Bulgaria, Spain), that ideal has clearly been disintegrated in the current financial climate. The growing divisions in Europe and the across the board economic suffering of countries from west to east may be exposing the mutually destructive nature emanating from the lack of protective economic compartmentalization in the basic political and financial foundation of the EU. It will be interesting to see if Britain's greater economic autonomy allows it to weather the economic storm more adroitly than their continental counterparts, despite of course ostensibly a more dire economic reality.

Indeed it will. Sovereignty and risk pooling work both ways, of course.  At the moment, it appears to be to Britain's benefit to be on the outside of the Eurozone looking in.  In a subsequent slowdown, especially a localized one, going it alone could be much less desirable.

Meanwhile, the estimable Martin Walker thinks this a watershed moment:

The financial crash is becoming a defining moment for the European Union, an economic shock that is testing the system's political solidarity to the limit. Europe's banks and governments have inched painfully over the last week toward recognizing the need to rescue the fallen.  If they do so successfully, the EU will become a different and altogether more coherent body. If they fail, it may end up rather like the League of Nations in the late 1930s, a sad and toothless crone muttering memories of might-have-beens.

This strikes me as a bridge too far.  The EU has long struggled between the "deepening" versus "broadening" camps.  The crisis may simply be a signal that there's a third course of action that's more sensible: "resting."  After decades of bustling to expand the scope and size of the outfit, it may simply be time for the EU to catch its breath and do what it can do while not trying to do what it can't.  While a "United States of Europe" may one day be in the offing, it's rather obviously not going to coalesce under present circumstances.  I'm not sure why that should constitute failure.

James Joyner is managing editor of the Atlantic Council. Photo from Reuters Pictures.