When the 19th century dawned, modern Italy and Germany did not even exist while the various Slav and Balkan states were embarking on a course of self-determination that has ultimately resulted in the tortuous journey to the status that they enjoy today. The Ottoman, Russian and Austro-Hungarian Empires which had once been the major bulwarks on the eastern side of Europe were already declining. Balancing ageing empires against the nascent force of nationalism preoccupied the major European powers throughout much of the 19th century and was a significant factor in the conflicts of the last century, with very mixed results.
Italy in 2011 has achieved the successes that it has despite its strong sense of being a collection of disparate regions and city states that were simply united by a post-Napoleonic desire to achieve a home-grown democratic republic rather than pay homage to rulers whose power base was imposed from outside. However, the greater the economic stresses that Italy faces, the greater is the risk that regional tensions will rise ever closer to the surface, as they did in the 1930s.
While Italy may still be very much a work in progress, Germany seems to be the finished article. Germany was established in installments from the series of agreements leading to the customs union, or Zollverein, to its galvanisation as a nation by successful military campaigns against France and Denmark. Despite talks of various secessions in 1918, Germany remained together until 1945 and even then successfully re-unified once the Berlin Wall came down. Perhaps this is a good indicator of where the Euro project has gone wrong. The EU has no such ties that bind it: There is no real sense of a single Union within the EU, merely a collection of self-interests that have become fatally interwoven and inter-dependent.
Angela Merkel is aware that the entire German banking system and economy could ultimately be brought to collapse by a chain reaction of events beginning with Greek or Irish or Portuguese or Spanish or Italian default right now. Like a row of dominoes, one falling would knock over the next. Yet Merkel also cannot fail to recognise the anger felt by German taxpayers is not far behind that expressed this week by the Greek protesters (whose anger is fuelled by the triple whammy of surging unemployment, lower wages and high inflation).
Hence the need to wring the concessions that so upset the Greek protesters. We expect these problems to intensify throughout 2011. Debt has always been a zero-sum game - the borrowers have to either repay the debt or default to the detriment of the lender. But in the Euro-zone experiment, like in the sub-prime madness in the States, this reality was suspended. The problem now is that it is very much back in play and no-one wants to be the loser in this high stakes game. Whatever method is used to unwind it - for example default, restructure, or extend at sub-market rates - will result in an effective loss to the lenders.
The recent “Cucumber Wars” between Spain and Germany are a sign that tensions between lenders and borrowers are rising while competitive divisions are also appearing between the recipients of bailout funds as each justifies its actions to its own electorate by insisting that it negotiated better terms than its peers had before. This merely adds extra spice to the merry-go-round of bankrupt countries taking turns to queue up with their hands out.
The day of reckoning for debtors, and therefore the creditors linked to them by the umbilical cord of debt, is getting closer - Irish government debt is just one level above junk with a worsening outlook, and Greek borrowing costs have soared, not just because of recent protests but because of the dawning realisation that whatever austerity is now imposed, Greece and the fellow GIPSIs, having spent a decade being force-fed more than they could chew by the ECB, will never be able to repay.
These irreconcilable interests cannot be held together much longer with the sticky tape of more bailouts. The instant that any party in this hugely expensive co-dependency walks away from its perceived obligations, the game is up and the Euro-zone experiment will implode. With stakes continuing to rise, the moment of my Big Fat GIPSI Divorce keeps getting closer and closer.