Against European Integration

The European Union and its Discontents

Ivan T. Berend

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429575655
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book gives a complex description and discussion of today's populist attacks against the European Union (EU) following the financial crisis of 2008, which opened the floodgates of dissatisfaction, and the migration crisis which destabilized the traditional solidarity basis of the EU. The problem of Brexit is also explored.

Each chapter presents one of the main elements of the crisis of the EU. These include West European populism, Central European right-wing populism in power, andthe exploitation of the EU's mistake during the migration crisis of the mid-2010s. These also include the discovery of Christian ideology against immigration and hidden anti-Semitic propaganda using a hysterical attack against the liberal billionaire philanthropist George Soros, and Brexit. There is a detailed discussion of the failures of the EU to pacify the neighbourhood in the South and North, especially in Ukraine, and the rising hostile outside enemies of the EU, including Russia and Turkey, bad relationships with Trump's America, the uncertainty of NATO, and the emergence of a new rival, China, that enters into the Central European edge of the EU.

The author explores strategies for coping with, and emerging from, this existential crisis and ends with the alternative plans and possibilities for the future of the eurozone. This will be an invaluable resource for understanding the crisis of the EU, one of the central questions of contemporary international politics for undergraduate and graduate students, and readers interested in the discussion surrounding an endangered European integration and difficult world politics.

1

Existential crisis, the possibility of disintegration, and the European Union in the 2010s

The rise of an existential crisis: the economic factors

The statement in the title of this chapter—the existential crisis of the European Union (EU) and the ensuing fear of disintegration—was often repeated and broadly believed between 2009 and 2016. Like lightning from blue sky, the 2008 financial crisis stopped more than two decades of high prosperity and aggressive pressure for further integration in Europe. The period around the millennium was probably the most successful time in the half-a-century-long history of the EU. The Single Market project was initiated and realized, the common currency was introduced, and countries around the six founding members lined up before the door to join the EU. Several Southern, Northern, and Central European countries joined, and the number of member countries elevated to 28. Four other rich Western countries—although not members—joined the EU’s common market by special treaties, while five others in the Balkans waited for membership. The impressive economic growth promised a relatively rapid catching up of the new, less-developed member countries located at the European peripheries.

In 2008, all of a sudden, everything changed. The international liquidity crisis, caused by the collapse of a major American mortgage bank, Lehman Brothers, froze crediting in the entire world economy. The cheap, credit-fueled prosperity bubble burst in Europe. An unprecedented real estate boom in several peripheral countries, generated by an overenthusiastic feeling of new richness and fueled by cheap credit, stopped. Tens of thousands of newly built homes remained empty; the real estate market collapsed. An EU review registered, “Taking into account the 2007–2012 period, house prices contracted considerably in Ireland (−49.5%, until 2010), Latvia (−35.7%) and Estonia (−30.2%). In Ireland, house prices in 2010 were significantly lower than they had been in 2005. A substantial decrease between 2007 and 2012 was also registered in Spain (−28.0%) and Romania (−26.1%, 2010–2012).”¹ The major banks of Ireland, Spain, Greece, and several other countries became bankrupt. The governments rushed to save the banks by refinancing them, but as a consequence, the countries themselves became unable to pay back their loans. Ireland; Spain; Portugal; Hungary; Romania; Bulgaria; Latvia; and, most of all, Greece declined into an unprecedented financial disaster. The Western banks, especially the major French and German organizations that credited the peripheral countries, were also hit hard.

“The EU economy is facing the biggest global economic downturn since the Second World War,” reported the EU Commission in January 2009,

This will invariably have significant impacts on households, people in (self-)employment, businesses and public finances throughout the Union. The next years will be difficult indeed…. The postponement in investment and consumer purchasing decisions may create a vicious cycle of further falling demand, downsized business plans, reduced innovation activities and labour shedding…. Car sales in the EU have plummeted leading to temporary closures of car manufacturing plants.²

The EU rushed to introduce a European Economic Recovery Plan. Its first pillar was

a major budgetary impulse amounting to €200 billion, or 1.5% of EU GDP to boost demand…. It is made up of a budgetary expansion by Member States of at least €170 billion and EU funding in support of immediate actions in the order of €30 billion. The second pillar outlines a number of short-term actions designed to provide short-term support.³

The European saga of recurrent new crises continued as waves followed one another in an endless line. The most disastrous acute crisis was that which devastated Greece. The country continued down a road of irresponsible spending, widespread corruption, tax evasion, and deindustrialization, despite lacking a real modern industrial sector. It became mired in a hopeless situation when the government became unable to repay its debts and sold its bonds because the interest rates skyrocketed (in certain periods surpassing the usury rate of 37 percent).

The Western member countries, also hit by the crisis, were hesitant to act fast and solve the problem of Greece, which unfortunately had already implemented the common currency, the euro, without fulfilling the prerequisites of having a stable financial household behind it. Instead, as the new Greek government announced, the government had reported false figures. Several other insolvent southern countries and Ireland were also eurozone members. Their bankruptcies pushed the common currency to the brink as well. After 2009, all the member countries that were unable to repay their debts were bailed out by the International Monetary Fund (IMF) and the EU. Greece was actually rescued three times.

The deep financial crisis soon spread and undermined the “real economy,” industry, and all other sectors as well. The level of national income severely dropped throughout the EU. Economic decline remained the rule for years in several countries. Between 2010 and 2016, 15 member countries suffered Gross Domestic Product (GDP) losses, and three more stagnated. The decline was most severe in the Baltic and Mediterranean regions: the three Baltic countries suffered a 15–18 percent GDP drop; the Mediterranean countries, Greece (more than 15 percent), Portugal (12 percent), and Spain and Italy (both more than 11 percent) also experienced significant losses. Some Central European countries, such as Slovenia and Hungary, also experienced a roughly 11 percent decline. Among the Western countries, the Netherlands’s GDP dropped the most, by 10 percent.

It did not help that meanwhile, the GDP increased in ten other member countries: the highest increase occurred in two small countries with strong financial centers, Malta (+18 percent) and Luxembourg (+15 percent). After the decline of the first years, growth soon returned in Ireland, Sweden, and the three Baltic countries (as an average of 11 percent altogether).

The all-around economic crisis in the eurozone naturally undermined the common currency, which lost about one-third of its value. All of a sudden, it became clear that the monetary unification was a mistakenly unfinished construction. It was based on political decisions without the complex financial considerations necessary to create the strong foundation of fiscal unification, much like the construction of a building without a solid base. Throughout history, monetary unification has never happened without fiscal unification. The eurozone countries were not ready to give up central elements of their sovereignty, like national taxation systems and budgetary and crediting independence. Consequently, the euro was tragically endangered during the crisis; its collapse was seemingly near and broadly forecasted.

The unheard-of complexity of the European crisis was crowned by important new elements in the early to mid-2010s. The austerity measures adopted in the crisis-hit countries required cutting state expenditures, including health and educational spending, pensions, and wages. The EU, led by the creditor countries and most of all Germany, forced this policy onto the bankrupt debtor countries in order to help put their financial households in order and save the common currency. These measures were vehemently debated and considered by governments and several experts as counterproductive. I quote one typical statement:

The medicine could actually kill the patient. The reduction of wages and in public and private spending will in the short run reduce effective demand below the growth potential, and in the long run it will slow down the potential growth rates…. All this makes servicing debt more difficult.

In essence, these individuals argued that EU austerity policy was wrong. In contrast, several experts and politicians did “not shy away from recommending a break-up of the Euro Area…. What is needed is generating economic growth out of which the debt can be serviced.”⁴

True, these measures contributed to the decline of the GDP in the austerity countries, which made the relative share of debt compared to the GDP even higher and repayment more difficult. Nevertheless, the EU, in my view, rightly continued forcing the debtor countries to stabilize their finances, eliminate their sometimes huge budgetary deficits, and realize surpluses in order to be able to repay the debts. It was definitely painful, but in the long run, it was the only way to introduce normal financial order and stabilize the common currency in the eurozone. Regardless of the evaluation of austerity policy, it certainly generated mass dissatisfaction, anger, and even revolts in countries forced to apply it. The ensuing confrontation between debtor and creditor countries led to a harsh break in solidarity, the most important building material of the EU.

The social cost of the crisis was tremendous. Wages declined, social benefits were cut, the welfare states were curbed, and huge layers of society lost their jobs. Unemployment increased and, in several countries, elevated above 10 percent, but in some countries that were hit by the crisis especially hard, even to 15–20 percent. Youth unemployment became especially devastating. “At its worst,” an EU report noted,

in February 2013, youth unemployment stood at 23.5% in the euro area versus 12% overall unemployment. As of February 2017, these same figures stood at 19.4% and 9.5%, respectively. These indicators are dramatically more troubling in certain countries, notably Greece and Spain, which respectively showed rates of 47.3% and 44.4% youth unemployment for 2016 – Some 43% of youth aged 15-24 participate in the labour force, versus 85% of people aged 25–54.

There was a “lost generation,” especially because youth unemployment also had long-term consequences for later employment and income.⁵ Between 2008 and the spring of 2012, during the devastating crisis years, most European households saw a marked deterioration in their financial situation. All income groups were affected. An EU document shows a dramatic picture of the social consequences of the crisis: in some peripheral countries,

those on low incomes felt the impact [of the crisis] most, especially in Estonia, Greece, Spain, Italy, Cyprus, Latvia, Hungary, Malta, Portugal and Slovakia. Between 2008 and 2011, the proportion of people reporting that their household was only just making ends meet rose sharply (by more than 4 percentage points) in the Baltic States, Cyprus, Greece, Hungary and Ireland. In 2010, 8.5 percent of the working-age individuals were at persistent risk of poverty already in at least three out of the previous four years. Persistent poverty is high, more than 10 percent in Italy, Greece, Portugal, Bulgaria, Romania, Poland and Ireland. The risk of poverty or exclusion among the migrant population remains much higher than among the EU population overall. For people aged 18+ born outside the EU-27, it stood at 37.8 percent in 2011, compared to 20.8 percent for those born in the country and 22.2 percent for those born in another EU country. Children are generally more at risk of poverty or social exclusion than the overall population, with a rate of 27.1 percent as against 24.2 percent for the population as a whole in the EU in 2011.⁶

An EU policy paper analyzed the news coverage of the crisis, taking one major newspaper from each of the major euro-area countries, such as the German Süddeutsche Zeitung, the French Le Monde, the Italian La Stampa, and the Spanish El País. They collected 51,714 news articles on the crisis. It is interesting who was blamed for the crisis by those journals.⁷ Most of the articles blamed Greece and the South European region for overindebtedness as a result of fiscal irresponsibility; Germany and the troika for imposing austerity policies; the national governments for mishandling the economy before and during the crisis; the banks’ and other financial institutions’ practices, which were at the core of the crisis; the exuberant capital markets’ mispricing risk, which was leading to vicious spirals; Brussels institutions’ not being willing or able to put the right remedies and stricter oversight of national budgets in place; and the European Central Bank (ECB) for being reluctant to act aggressively or for being too aggressive.⁸

Migration crisis and its connection with Europe’s demographic crisis

On top of all of those major troubles, in 2015–16, a frightening migration crisis shocked the EU. At that time, nearly three million migrants “flooded” Europe from the Middle East, Africa, and Asia in a chaotic, unorganized way, generating a vicious political crisis.

Before that migration crisis, in 2009, the EU Commission made a demographic analysis and forecasts for the next half a century. The thoroughly calculated demographic facts put the entire migration crisis into a different light. First of all, it pays to recall that in the second half of the twentieth century (between 1950 and 2015), the world population exploded from 2.5 to 7.3 billion. During that time, Europe’s demographic trend moved opposite the world’s: in Europe, during the last three-quarters of the century, birth rates dramatically declined from 2.5 children/woman in the “baby boom” period of the second half of the 1960s to 1.52 children/woman in 2008, thus dropping below the reproduction level (2.1 children/woman). The share of Europe’s population had already halved from about 15 percent of the world population in 1950 to 8 percent in 2000, and, as forecasted, it will shrink to about 5 percent in 2050.

International migration, partly connected to the world’s population explosion, accelerated around the turn of the millennium. In the quarter century between 1990 and 2016, the world population increased by 38 percent, but the overall number ...