Viewpoint April 15, 2010, 1:01PM EST

Europe Must Focus on Value Creation

The Greek crisis was a distraction from Europe's project to create value through integration, harmonization, and diversity. Let's get back to the future

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Let's put it all into perspective. The financial and economic crisis, the Greek crisis, the discussions about the European economy and European integration in a larger sense: all these phenomena are about value creation. But what values are we looking for?

In Europe, it is really all about making sure that member states are not losing out in the current game of global power-shuffling. Isn't Europe, collectively, proposing a unique model to the world, one that is founded on horizontal and vertical collaborations that reach far beyond the objectives of economic growth alone? While economic growth is essential, it is not sufficient to deal with the interlinked challenges of our contemporary world. The crisis within the banking sector has been just one recent example.

Due to the financial crisis, international trade in the past two years shrank to an extent consistent with wartime, as reported by the WTO on Mar. 26. In addition, since the beginning of 2010, the euro zone has faced its greatest test ever: Confronted with debt and public deficits incompatible with euro zone policy, Greece badly spooked its European Union neighbors (and world markets), even though many of those EU members are only doing slightly better. What really happened was that the traditional thinking about debt-to-GDP ratios was not only challenged but compromised. The ability to finance high debt levels became the focus of crisis management. Critics will note that Greece had provided barely legitimate figures to enter the euro zone in the first place.

What followed was a passionate flow of discussions, debates, and even insults thrown from one political arena to the other, across (normally transparent) EU borders. Germans blamed Greeks for their small contribution to the EU budget and economic dynamics and for their particularly generous pension system; Greek politicians referred to Germany's warrelated moral debt and criticized the German structure and style; Britain, France, and Germany criticized each others' roles in European economics.

Out of Balance

What we must keep in mind, though, is that this crisis would have come upon Europe in any case, sooner or later. Financial innovation proceeded faster than political and legal integration. It is not surprising that prevention and supervision didn't function in the desired manner. Financial management and consumption patterns were out of balance; the Greek environment did not allow consumption to drive the economy, as it does in the U.S. Frustrations about EU budget policy became apparent, too: Germany alone contributed €8.8 billion ($11.9 billion) more than it received from the EU budget in 2008; Greece at the same time pocketed a net gain of €3.4 billion ($4.6 billion).

Above all, European integration (or lack of it) is to blame, because it is not sufficiently developed.

The European Union is, without a doubt, the most advanced market grouping of sovereign states in the world, with great achievements in single market effects, harmonization, and deregulation. Its binding legislation is applicable across all member states, and some key areas of national policy are run by European institutions under the label "common policies." Nevertheless, the EU remains a collection of national authorities and interests. This is what EU members want it to be: a vehicle for solving pan-European issues that can't be addressed easily by any individual state. Think of it as a blend of federalism and functionalism.