When a bank goes bust in Europe, it doesn’t just threaten depositors and shareholders. With no single agency to handle failing euro-area lenders, wobbly banks can drag down the national governments that try to rescue them. European Union leaders pledged to attack this vicious circle in June 2012, in the third year of a debt crisis that almost broke apart the euro bloc. They plan to centralize bank supervision and crisis management for the first time, an effort seen as the biggest transfer of sovereignty since the creation of the common currency. Policy makers are united in the goal of what they call the banking union: ending taxpayer bailouts and taking key decisions out of national hands. But first they had to agree on who decides when a bank has failed, who pays to clean it up and how to divvy up the losses. Plus they had to convince Germany that it won’t end up paying the bill.
The same people who brought you Wikileaks are back, and this time, they’ve created a virtual currency called Bitcoin that could destabilize the entire global financial system. Bitcoin is an open-source virtual currency generated by a computer algorithm that is completely beyond the reach of financial intermediaries, central banks and national tax collectors. Bitcoins could be used to purchase anything, at any time, from anyone in the world, in a transaction process that it is almost completely frictionless. Yes, that’s right, the hacktivists now have a virtual currency that’s untraceable, unhackable, and completely Anonymous.
And that’s where things start to get interesting. Veteran tech guru Jason Calacanis recently called Bitcoin the most dangerous open source project he’s ever seen. TIME suggested that Bitcoin might be able to bring national governments and global financial institutions to their knees. You see, Bitcoin is as much a political statement as it is a virtual currency. If you think there’s a shadow banking system now, wait a few more months. The political part is that, unlike other virtual currencies like Facebook Credits (used to buy virtual sock puppets for your friends), Bitcoins are globally transferrable across borders, making them the perfect instrument to finance any cause or any activity — even if it’s banned by a sovereign government.
You don’t need a banking or trading account to buy and trade Bitcoins - all you need is a laptop. They’re like bearer bonds combined with the uber-privacy of a Swiss bank account, mixed together with a hacker secret sauce that stores them as 1’s and 0’s on your computer. They’re “regulated” (to use the term lightly) by distributed computers around the world. Most significantly, Bitcoins can not be frozen or blocked or taxed or seized.
In 2010 and 2011, the first two years of Europe’s sovereign debt crisis, Germany seemed to emerge as the continent’s dominant power, possessing an unrivaled ability to shape its neighbors’ destinies. Enjoying unabated economic strength, Germany agreed to bear the largest burden in the eurozone’s financial rescue, and so it was able to determine the pace and methods of managing the crisis. It also influenced the economic and budgetary policies of Europe’s debt-ridden countries, such as Greece and Spain, and it used that authority to impose an agenda of reform and austerity across the eurozone. Witnessing these developments, some observers went so far as to proclaim the onset of German hegemony and argued that only Berlin could solve the continent’s woes.
Although Germany is, to be sure, the most important European country for overcoming today’s problems, its abilities to project its power at the EU level are substantially restricted — and they will diminish further in the months ahead. Germany’s position as the chief backer of the eurozone’s stabilization arrangements does not necessarily translate into political supremacy. And as the euro crisis has escalated and Germany has lost political allies, it will now have to accept that the common currency area will only partly conform to its vision.
The first reason Berlin will struggle to implement its plans for Europe is that political developments of the last six months have left Germany a rather isolated giant. In 2010-11, it was largely because of cooperation between Berlin and Paris — and the close partnership between their two leaders that came to be known as Merkozy — that Germany was able to set European policy and disregard the attitudes of other eurozone members, generally the southern countries with large deficits. Now, France’s new president, François Hollande, has advocated a European pro-growth agenda that clashes with German Chancellor Angela Merkel’s preference for austerity and, in the view of many Germans, would not encourage national governments to implement necessary reforms. Meanwhile, Austria, Finland, and the Netherlands — smaller eurozone members that traditionally side with Germany on economic matters — have ceased to be reliable partners for Berlin, as populist forces have pressured their governments to withdraw from rescue mechanisms or demand stricter regulation of the recipient countries’ budgets in exchange for financial help. Berlin’s other usual allies in balancing against Mediterranean-style policy approaches, the United Kingdom and Poland, lack importance in the present crisis. Neither country uses the euro, and the eurozone is where the main political decisions on the future of Europe will be made.