The euro lives

But keeping Europe's single currency intact will take diplomacy and money aplenty.

November 10, 2011

The latest headlines tell the story:

"Is the euro dead?"

"Could the euro be dead?"

"The euro is dead"

In reality, Europe's single currency is a long way from breathing its last, though it's sicker than at any time since its creation on Jan. 1, 1999. The worsening European sovereign debt crisis does indeed threaten the euro's existence.

But while its survival is no sure thing, it has much better odds than many English-speaking pundits give it. For a lot of reasons, Americans should hope the patient rises from its bed.

Just by coming into being, the euro beat the odds. When the unified currency launched almost 13 years ago, a top official of the European Commission acknowledged that most observers had dismissed it as a "bureaucrat's pipe dreams." The Tribune toasted its arrival with an upbeat editorial titled, "Happy Birthday, Euro," that nevertheless voiced doubts about its ability to "hold its value in times of turmoil."

Those times have arrived with a vengeance.

Financial markets plunged Wednesday as borrowing costs soared for Italy — the eurozone's third largest economy after Germany and France. Italy is no Greece, a much smaller eurozone member that previously had seen its borrowing costs soar. Italy is too big to fail without destabilizing the continent's finances.

Arguably the most important player in determining what happens next is German Chancellor Angela Merkel. The wealthy nations of northern Europe have hesitated to commit their resources to a eurozone bailout.

Picture the negotiations to save the euro as a poker game. Merkel's the one with the big stack of chips.

She has to play carefully. Germans, like many Europeans, believe in the euro and all it stands for: a continent at peace, working together for mutual prosperity.

Merkel's Germans also believe in economic and fiscal discipline, and in governments behaving responsibly.

Good thing they don't live in Illinois.

Merkel's task is to keep up the pressure for fiscal reform throughout the eurozone and establish new rules to rein in profligate governments — while also holding the union together.

That very well could mean that some of the eurozone's 17 nations drop out of the currency bloc, while remaining in the looser coalition of the 27-member European Union. Those retaining the euro would accept closer fiscal coordination under stronger central authority. Merkel may have hinted at such a scenario Wednesday when she mentioned changing the "ground rules." It is time, she declared, "for a breakthrough to a new Europe."

She's got it right. The eurozone needed stricter controls on its member governments' indebtedness from the start. Now it can't go on without them.

Meantime, the European Central Bank reportedly is snapping up Italian government debt to slow down the latest panicky selloff. Much as the U.S. Federal Reserve expanded its balance sheet during the 2008 financial crisis on these shores, its counterpart in Europe can't help but become a buyer of last resort for distressed securities. It likely will print money, at the risk of inflation. Those steps would represent a policy reversal certain to provoke bitter criticism from policymakers who distrust easy money. But it sure beats a disorderly financial collapse, which would result in much greater damage. If Fed Chairman Ben Bernanke can hold his nose and shovel currency into U.S. banks, so can newly appointed ECB head Mario Draghi — like Merkel, another key player in determining Europe's financial future.

America is no mere bystander in the fight to save the euro. The outcome will influence the growth and prosperity of the U.S. The euro is more than a high-minded experiment. It is a fundamental building block of today's global economy. If it were to fall apart, Americans would suffer too: Our economy would slow in tandem with Europe's. The rebuilding effort would be long and arduous.

Anyone who pays attention to the blood-drenched history of the 20th century can think of another reason to root for the euro. The continent ushered in the 21st century with a framework for unity based on a single currency, in contrast to the national rivalries and political extremism that had brought about its devastating wars. Against that backdrop, a currency crisis pales.