Q&A: Stanford’s Fukuyama on European debt crisis

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A woman walks past a vacant discount shop in Ireland on Dec. 9, 2011. Europe divided over building a closer fiscal union to preserve the euro, with most countries agreeing to more oversight and Britain opposing the plan.
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European leaders converged in Brussels to figure a way out of a worsening debt crisis and agreed to greater financial oversight and centralization. England refuses to go along with the plan, and Stanford political scientist Francis Fukuyama says he expects some countries will start bailing out of the eurozone.

“The political difficulties of deepening any fiscal union are so great that I wouldn’t bet on that happening,” says Fukuyama, the Olivier Nomellini Senior Fellowat Stanford’s Freeman Spogli Institute for International Studies and a resident at FSI’s Center on Democracy, Development, and the Rule of Law. “The easier path is going to be for countries to begin exiting.”

Fukuyama talks about the summit, the euro’s chances of survival and what’s at stake for America if the currency collapses.

What does the Brussels agreement mean for Europe’s debt crisis?

We will have to see how much of a binding constraint this agreement actually is. It’s just an informal agreement at this point. Political leaders can promise anything at this kind of summit and fail to deliver.

I think the most interesting thing going on is the eurozone – the 17 countries that participate in the euro – is actually splitting off from the greater EU. The reason that’s happening is that in order to save the eurozone, they need to make certain decisions on this type of deepening control. And countries like Britain will never go along with this. The 17 countries have to create their own unit that can make decisions at the expense of the larger EU.

Explain Britain’s refusal to have its budget reviewed by the European Commission

The UK is like the United States – they’ve always been jealous of their sovereignty. If you go to England and talk about crossing the Channel, they’ll say, “Oh, so you’re going to go to Europe.” While an American would say “England is a part of Europe.”

There’s a strong strain – especially within the conservative party – that really does not want to give up authority to what they regard as a bunch of French socialists in Brussels. That’s their vision of what the EU really represents. So they’re resistant about being dragged into any German scheme to deepen the powers in Brussels to include control over national budgets because that is a core element of sovereignty. The majority of people in Britain will say that will happen over their dead bodies.

What is the likelihood that countries will begin exiting the eurozone?

I don’t think it makes sense for a country like Greece to stay in the eurozone. It’s a matter of national pride that they don’t want to be the first country out, but it’s very hard to see how they actually return to growth under a system that links them to Germany in terms of the price of their currency. Long before there’s any kind of centralized fiscal reform that’s imposed on Greece, Portugal and these other peripheral countries, I think it’s more likely that they’ll exit. The euro will probably remain, but it will be at the core of the more stable countries.

What mechanism is there for countries to exit the eurozone?

There is no mechanism. Not only is there no legal way of exiting, there’s no disciplining mechanism. You have a stability pact where countries agreed they wouldn’t run a budget deficit greater than 3 percent, and Germany was really one of the first counties to violate that. But there were no sanctions. That’s the problem right now – there’s neither discipline nor an exit mechanism. That’s why everyone is fearing a disorderly, messy breakup of the EU, which would be extremely damaging.

President Obama has said the U.S. “stands ready to do our part" to help Europe resolve its crisis. What can America really do?

It’s an indication of how far we’ve fallen, but there’s really nothing concretely we can do apart from possibly increasing our International Monetary Fund share. But the IMF doesn’t have the ammunition to really help at all in this particular crisis. So all we can do is sit on the sidelines and try to get the Europeans to take our advice, which a lot of them are not inclined to do given the mess that happened on Wall Street three years ago. It’s a mark of the diminishment of overall American influence that we’re simply relegated to the sidelines of this crisis.

What’s at stake for America in the wake of a total European financial meltdown?

There’s a lot at stake. We are slowly crawling out of the biggest recession since the Great Depression. The one thing that could really send us back into a second leg of a recession is collapse of the European financial system and panic in Europe. If Europe doesn’t do well, the United States isn’t going to do well.