The German chancellor’s indignance over suggestions her commitment to the “European project” is anything less than absolute reflects the growing disconnect the coronavirus has created in Europe. As leaders in Germany and other northern countries insist they will do everything they can to safeguard the EU, their counterparts in the south demand much more.

With the pandemic ravaging economies across the Continent, many in Europe want to believe Merkel will act. But should they? So far, Berlin has offered distressed countries little more than encouragement. Many are hoping Germany, which has so far weathered the crisis better than most, will agree to open its purse during a videoconference summit of EU leaders on Thursday.

Competing blueprints for how to structure a special “corona recovery fund” have been shuffling between Brussels and national capitals for days. Some want additional resources earmarked to the EU budget; others envision a freestanding fund under the administration of the Commission that could be financed through the sale of bonds.

The “corona bond” debate is a proxy for a more fundamental question: If Europe’s weakest economies emerge from the pandemic even less competitive than they were going in — and burdened by even more debt — what’s the case for them to remain members of the euro? Conversely, can the euro survive without them?

If Germany is the key to resolving the problem, that’s largely because it is the problem. The country’s outsized economic clout has made Berlin Europe’s political fulcrum, a responsibility its leaders are both uncomfortable with and have been unwilling to take on.

Doing so would require them to confront the truth. In Germany’s popular imagination, the euro has been a success because it leveled the playing field in Europe. Countries that have underperformed like Italy and Spain have only themselves to blame. They failed, as Merkel never tired of pointing out during the Greek debt crisis, “to do their homework.” The implication was that Germany had done its homework.

In fact, as the fallout from the coronavirus is making clearer by the day, the odds were stacked in Germany’s favor from the outset.

The euro was sold to Southern Europe, which had been less successful than the north for decades, as a path to lasting prosperity. By eliminating exchange rate risk and lowering interest rates, Southern Europe would become more competitive.

But after the initial economic boost that followed the euro’s introduction, the picture for the region darkened. Though countries that had historically high inflation benefited from lower interest rates, the cheaper financing had the unintended consequence of removing the pressure on governments to enact economic reforms.

Partly as a result, growth in Italy and other countries stagnated. Though it’s easy to portray that as “their fault,” as some German economists have done, the expectations were likely unrealistic from the start.

In Germany, and the small surrounding countries that integrated into its industrial economy, the reverse was true. Caricatured as the “sick man of Europe” in the early 2000s, the German economy took off following the introduction of a package of sweeping labor market reforms.

Once plagued by the strength of the Deutsche mark, Germany benefited from the euro’s lower exchange rate, which made its goods more competitive abroad. That was particularly true within the eurozone itself, which accounts for about 40 percent of Germany’s exports. For decades, exporters from Southern Europe could undercut their German competitors on price. No more.

That wouldn’t be such a problem if Germans reciprocated by buying their neighbors’ exports with equal vigor. But Germans prefer to save, both in the private and public spheres. As a result, the country has large trade surpluses with much of the eurozone.

Instead of acting as the great equalizer, as the fathers of the euro promised, the euro has exacerbated Europe’s economic divisions and, arguably left some countries worse off. In Italy, for example, per capita GDP in 1999, the year the euro was introduced, was about €1,000 above the eurozone average; by the end of last year, it had fallen to about €4,000 below the average. The country’s economy has effectively been stalled for two decades.

All along — counter to the popular perception in Germany and other northern countries — Italy has kept a lid on public expenditures, running a small budgetary surplus, before interest payments, year after year. But without economic growth, the country’s debt, a legacy of government overspending in the 1980s and early 1990s, has remained high.

Italy’s history with the euro explains its population’s growing frustration with the currency and, more generally, with the EU. Having relinquished a large degree of sovereignty to join the euro club, Italy, in the view of many Italians, has little to show for it.

The EU’s slow response to Italy’s struggle with the coronavirus has further exacerbated those tensions. Less than half of Italians said they consider themselves to be “pro-European” in a recent survey.



