Europe has had a shock and it needed it. The sovereign debt crisis coming at a time of global slowdown has created a storm of anxiety and brought home as nothing else could the fact that economic fundamentals cannot be ignored. Does this storm mean that the euro will collapse? No. Does it mean that Europe will decline? No, quite the opposite. Because of this shock, Europe will reach a point of greater internal fiscal discipline and economic efficiency.
Europe, taken as a whole, is already the largest economy in the world and its dominance will increase. The current headlines are deceptive. Everybody is currently worried about debt. Europe is in debt to the tune of 80% of one year's GDP. That is not good. Many economists think that 40% is healthy and Brussels rules call for 30%. However, the USA is 100% and Japan is much higher. In terms of debt, Europe is healthier than its main rivals.
People are worried about the possibility that a member state might default on its sovereign debt. They should be worried, but it is not going to happen. These worries will enable the imposition of more central control. Nobody will like it, but bit by bit it is now inevitable because the alternative is unthinkably worse. This will make Europe more centralised and more efficient. Britain will pretend to stand aloof from all this but it will conform - in fact it already has done and has been one of the first to do so. As William Haigh said while he was running the government a week ago while the PM was on holiday, Britain has taken the necessary steps and now looks to other countries (Italy, Spain, Greece, Ireland) to do likewise, and they will.
Europe is still a confederacy rather than a federation and with this comes distinctive characteristics. Because it is a herd with no acknowledged leader, it behaves the way that herds do. It is prone to bunch together and even stampede when danger is around, as now. When the sun shines and the grass is rich, it loses cohesion and individuals wander off, sometimes into dangerous territory, which is what happened before the sub-prime crisis hit the world economy. However, herds have been one of nature's most successful inventions. A herd of buffalo is match for any number of solitary big cats.
It is still a confederacy because it is difficult to get individual countries to give up elements of sovereignty. Populist politicians can always gain ground by opposing such moves. However, the logic of the situation is that centralisation will happen inevitably whether it is publically recognised or not. The political institutions will lag behind the reality. Other means will be found. There has been recent concern that the European Central Bank has been adopting a role that goes well beyond its original remit. Well, yes, it would, wouldn't it? It is one of the powerful central institutions. There will be central power and if politicians will not pick it up, bankers and others will. Later people will wake up to what is happening and then there may be some democratization. In fact, already, the European parliament is starting to become more assertive.
The thing that makes all this difficult to read is that there are few personalities. Chancellor Merkel is the nearest thing to a leader and Jean-Claude Trichet has played a key role in many of the recent moves, but these figures do not have the prominence in the public eye that a president of the United States has. Europe is wonderfully Byzantine and while those who like simplicity may lament this, it is really one of its strengths. The coming budget round in Europe will be hard fought, complicated, involve innumerable deals and temporary alliances and will be easy for newspapers to poke fun at. Nonetheless, things will happen. All this complexity distracts attention from what is happening at a more fundamental level and that may well be a good thing.
Europe is growing in strength, is becoming more cohesive and more integrated. More and more European citizens spend substantial amounts of their lives in European countries they were not born in. I do. Economies are becoming more interdependent. Large amounts are being invested in infrastructure binding the continent together with high speed roads, rail links and airports. Europe's home market is much bigger than that of the USA or Japan. Furthermore, Europe has untold riches of historically accumulated cultural riches. The diversity of the continent is now generating creativity rather than war and that has been the great - truly great - achievement of the past few decades.
The political institutions are evolving more slowly than the reality on the ground but this is not bad. It is natural. Application of purist principles at a political level is not necessarily so wonderful. America's democracy is currently gtridlocked by its own checks and balances. Europe muddles through and a certain amount of clouding of the waters enables the economic fundamentals to operate. Europe is stronger then you think and will emerge as the leading superpower in due course.