Whenever a society regards its problems solely through the prism of distributional disputes, its chances ofsolving them diminish greatly, because the “usversus them” mentality distorts analysis and blocks solutions that wouldunambiguously improve the overall situation.Every policy choice is perceived as a zero-sum game, whereby a gain for onegroup is necessarily a loss for another group. The very notions of trust andprogress vanish.

We have seen in the past the extent to which such conflicts – between richand poor, landlords and industrialists, or capital and labor – can hamper development. We are seeing today in the United Stateshow entrenched antagonismsresult in a stalemate on tax and budgetary matters. And there are many examples of failedeconomic reforms that fundamentally boil down tothe same zero-sum logic.

But that logic is nowhere as salienttoday as it is in Europe.Since the eurocrisis began, almost three years ago, there has been a continuous strugglebetween two readings of it.

The first interpretation emphasizes the eurozone’s policymaking shortcomings and the reforms needed toremedy them. The second highlights individual eurozone countries’ failings andthe costs that they impose on their neighbors. Until now, a rough balancebetween these two interpretations has prevailed. But the second is increasinglygaining the upper hand.

In northern Europe, public opinion isincreasingly exasperated by what many viewas an attempt by the south to rob it of its savings. A recent letter signed by160 German economists claiming that the EuropeanUnion’s plan for a banking union was little more than an attempt to make Germany payfor Spanish mistakes is revealing in this respect.

The economists largely overlook the problem offinancial fragility that a banking union is supposed to address,claiming instead that there would be no problem if governments simply stoppedintervening in banking crises. And they overstate the risk that a commondeposit-insurance scheme could turn into a massive north-south transferchannel.

In turn, southern Europe is gettingangry. Italian Prime Minister Mario Monti recently decriedthe emergence of a European “creditocracy” –governance by those who pretend to be on the givingside of Europe – and pointed out that, contrary to widespreadperception, Italy is not relying on anyone else’s support. (Italy is indeedcontributing to support other crisis countries, so, objectively, it is still acreditor). If the mild-mannered Monti speaks in these terms, what can we expectfrom the new breed of populism that is boundto result from the southern European crisis?

Admittedly, Europe’s increasinglydivisive zero-sum thinking is not entirely new: the EU is accustomed to distributional disputes, and the lengthy budget discussions (which take place everyseven years) are typically acrimoniousaffairs. But, until now, policymakers could contain controversies to the usualpolitical give-and-take of taxation and cross-country transfers. The problemwith the current debate is that distributionaldisputes now contaminate the entire policy spectrum.

One man saw this coming. American economist MartinFeldstein wrote in 1997 that monetary union would create conflict within Europe. At the time, he was deridedand regarded as an entrenched opponent ofthe European project. Unfortunately, his insight was correct: Europeancountries today are at loggerheads not despitethe common currency, but precisely because of it.

History suggests that international disputes over debt and transfers are aserious danger. In the 1920’sand the 1930’s,representatives of European states devoted countless meetings to resolving them(at the time, mainly German reparations).Despite USgoodwill, they were unable to overcome their differences, and let the reparation problem degenerateinto a poisonous financial conflict thatcontributed to much worse.

But conflict is not inevitable. Many societies have proved able to overcome a zero-summentality and project their perceptions of national interest into the future; Europe must find in itself the ability to do the same.

An important lesson from how countries address internal disputes is thatthe attitude needed does not require overlooking distributional issues.Successful societies do not stop having arguments about who benefits or losesfrom taxation, redistribution, or regulation. But they do not letdistributional issues take over the entire debate. Theyare able to separate efficiency or stability issues from distributionalcontroversies.

That is the lesson that Europe mustlearn. It must recognize that it is bound to live with distributional disputes,and that it must find ways to address them. But, even more important, it shouldcontain the scope of these disputes, and avoid becoming mesmerized by them. Doing so requires courage, vision, andtrust – qualities that are currently in dangerously short supply.