Consensus Out of the Euro Zone Crisis

As the euro zone struggles to avoid breakup, its members find common ground

Peter Gumbel

Some things, at last, seem to be going right for the euro. A semblance of calm has returned to financial markets following the European Central Bank's (ECB) decision to buy up the sovereign debt of troubled euro economies. And on Sept. 12, Germany's highest court ruled (with some caveats) that the new $900 billion bailout fund doesn't breach the German constitution.

Big deal, you might say. There's still enough bad news out there — Greece, anyone? — to quicken the pulse of financial-market traders. And neither decision addresses the pressing challenges facing Europe today: the recession that is forecast for the entire 17-nation euro area, including Germany, for the rest of this year; the 2 million jobs lost over the past 12 months; and, above all, the continent's diminishing status in a rapidly transforming world.

It's easy to overlook the bigger picture. Two years of intense crisis management have done more to create a policy consensus and, possibly, clarify the future shape of the E.U. than the decade-long debate and drama over a new European constitution that dominated the agenda at the beginning of this century.

The pragmatists, acting out of urgency, have trumped the theorists. In the past, "Europe was often spoken of in idealistic, abstract terms; and even when its concrete achievements affected people's lives, it was always in positive terms ... Win-win was the only game in town," said Herman Van Rompuy, the largely invisible president of the European Council, in a speech at the annual international economic conference in the Italian town of Cernobbio this month. There's nothing like the prospect of lose-lose to focus the mind on what's really important.

The contours of a new policy, let's call it the Frankfurt consensus, are emerging out of this mess. It has three major components.

The first is a commitment by all euro-zone governments, from Ireland to Latvia, and of whatever color, to safeguard the euro and to enforce rigor as a means to restoring longer-term competitiveness. François Hollande, who was elected President of France in May, promising to change the European debate to focus on growth, is a case in point: as he made clear in a TV interview on Sept. 9, his domestic priority over the next two years is a strenuous effort to reduce the nation's budget deficit. The new orthodoxy is being set by both the German government in Berlin, newly strengthened as Europe's principal paymaster, and by the ECB in Frankfurt, which has made clear that it will only come to the bedside of sick national economies if they first take large and measurable doses of austerity medicine. Critics say it's the wrong course, and both Spain and Greece will be its proving grounds, but for the moment, it's the way things are going.

The second component is that the status quo cannot be maintained. After a lengthy hiatus, Europe is once again in flight-forward mode, heading as a first step toward a more integrated system of banking regulation, combined with more meaningful macroeconomic-policy coordination. This, in concrete terms, is what German Chancellor Angela Merkel means when she talks about "more Europe" being the solution.

How far any of this gets depends on the critical third component: the growing public and political disaffection with the euro in particular and with European integration in general. Significantly, that disaffection is on the rise in the countries that were long the most Europhile. Even in Germany a new movement of euro skepticism is gaining ground; more than 35,000 Germans went to the trouble of petitioning the court to rule the bailout fund unconstitutional.

All this makes for a volatile political and economic mix — but then, that seems typical. Over the past half-century, European integration has come in fits and starts, with progress interrupted by setbacks aplenty, from Charles de Gaulle's "empty chair" policy in 1965 to Margaret Thatcher's "I want my money back" blockage of decisionmaking in the 1980s to the crisis of the European monetary system in the early '90s. If the euro does survive — and each bout of what looks like muddling through makes that survival more likely — Europe's policymakers will need to answer the point that Van Rompuy made: "If we want investors to buy 10-year government bonds, we need to show them where we want the euro zone to be in 10 years' time." One thing's for sure: figuring that out will be anything but smooth.

Peter Gumbel, TIME