Commentary | The Space Impact of the Euro Crisis

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The European sovereign debt crisis is not simply a bump in historical progress; it is the end of a period of history and a critical point in European and global transition in the 21st century.

The confluence of several trend lines — the unification of Germany, the end of the Soviet Union, the collapse of the Berlin Wall, the expansion of NATO, the expansion of the European Union (EU) and the creation of the single currency — constitutes a unique period in modern European history.

The trend line was also defined by moving the borders of Europe eastward with the expectation that an expanded Europe would manage its own internal dynamics well and provide stability in a historically unstable region of the world.

However, the European crisis is also gradually revealing serious flaws in the functionality of both the European Union and NATO. The two decades of European consolidation and expansion are now confronted with new centrifugal forces that are again widening political, social, economic and security differences within the EU and among its neighbors. Deepening recession and the severity of its impact on employment and the well-being of citizens are increasing these differences and encouraging re-energized nationalism and renewed political localization.

Europe will now be challenged in the form of rollbacks of the many intertwined strands of integration, fraying what has been an intricate but incomplete tapestry. It is questionable whether Europe will be able to prevent stalling of the integration process in the face of widening gaps among the interests of each nation and even within each nation.

Since the birth of the euro, the French and Germans were in the lead in resisting transfer of national regulatory power to the European Central Bank or some other eurozone-wide entity. Other euro governments have also insisted on keeping local supervision of banks. What really lies behind this continuing resistance is that national governments and their banks do not wish to reveal the true leverage and the weakness of capital among European banks.

Eurozone governments are still trying to hide the reality of European bank weaknesses. The main reason is that eurozone economies are far more bank-dependent than economies like those in the United States or United Kingdom, where substantial nonbank financing alternatives exist for the corporate sector.

In the eurozone, banks are the financial markets; in the U.S., banks are but one segment of a multifaceted financial market. Eurozone governments and their politicians simply do not want to risk collapse of their national economies through full revelation of the weaknesses of their banks. Thus, this is not solely an issue of whether or not to yield national sovereignty. A true banking union based on transparency would necessitate a redefinition of all European banking against a backdrop of hundreds, even thousands of bank failures and decimation of the savings of millions of European citizens.

European leaders are also attempting to initiate a more comprehensive fiscal union, with new decision-making mechanisms that transfer sovereignty in parallel with the new banking union. We do not believe that any of the eurozone governments are ready for such a political transition in which citizens in each nation must agree to be under leadership of people appointed or elected in some other nation among the European Union members.

The way ahead in dealing with the crisis will have a significant impact on the space business in Europe and beyond. A key element will be reshaping the euro around the German policy agenda. The Germans will be key players in reshaping the euro and downsizing the eurozone to what might be called the Ger-Euro. The economic and political weight of Germany will go up as the euro crisis goes on, and the weight of German influence will be to reshape the eurozone into a more cohesive, “responsible” and integrated “core.”

But this is a united Germany, which is shaping a European-cohesive process, not a divided Germany, which had to accept the dictates of smaller European powers to gain an end of national division.

The weight of Germany in shaping European space policy and business approaches will clearly go up. And the role of Germany already in the launch side of the business within Europe was on the ascendency prior to the highly visible euro crisis.

Also likely is an acceleration of global partnerships and presence. We have seen Airbus announce plans to come to the United States; will space businesses follow into the non-eurozone? Will Europe recast its business face toward a more significant industrial presence outside of Europe to shape a long-term response to the euro crisis?

It is also likely that partnerships with countries like India and Japan need to be deepened to ensure that core European space capabilities are maintained and sustained.

In other words, one outcome to the euro crisis could be to propel Europe into a leading position in reshaping the global space business and strategic partnering. And such an outcome would have a significant impact on the United States, if the U.S. cannot shape a more effective global partnership and export system.

Robbin Laird is co-founder of Second Line of Defense and an analyst of defense, space and security issues, based in Paris and Washington. Harald Malmgren is a global strategic analyst with a specialty in political economic affairs. This piece is based in part on the report “The Euro-Crisis and its Strategic Consequences,” which is available on the Second Line of Defense website at www.sldinfo.com/products/july-2012-sip.