Is the EU Doomed?

Jan Zielonka

• Publisher: Polity
• Year: 2014
• ISBN:
  9780745684000
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

The European Union is in crisis. Crippled by economic problems, political brinkmanship, and institutional rigidity, the EU faces an increasingly uncertain future. In this compelling essay, leading scholar of European politics, Jan Zielonka argues that although the EU will only survive in modest form - deprived of many real powers - Europe as an integrated entity will grow stronger. Integration, he contends, will continue apace because of European states' profound economic interdependence, historic ties and the need for political pragmatism. A revitalized Europe led by major cities, regions and powerful NGOs will emerge in which a new type of continental solidarity can flourish. The EU may well be doomed, but Europe certainly is not.

1

Crisis

‘Crisis’ is the word we have come to associate with the EU. Yet the origin, nature and implications of this crisis are hotly contested. One thing, however, is certain: this is no ordinary crisis; it cannot be handled in a routine manner by the European Union. As Federico Rampini put it in the Italian daily La Repubblica: ‘This crisis has assumed dimensions that no one can control. There are too many fires to extinguish in too many diverse places.’¹

The EU has experienced crises before. In 1965 General De Gaulle refused to attend the European Council’s meetings, causing the so-called ‘empty chair crisis’, which lasted for seven months. In 1999 all twenty European commissioners resigned following allegations of corruption in high places. In 2005 French and Dutch voters delivered a negative verdict on the European constitutional treaty. But there has never been anything like the crisis that began in 2008 and is still unfolding. This crisis is not just about the EU’s internal matters. In fact, it was triggered by events far away from Brussels. But the financial storm in New York has quickly spread to many different fields of European politics and society. The EU has attempted to cope with the rapidly evolving situation, but in a clumsy and contentious manner.

If we examine the variety of events that have shaken Europe and the EU over the past few years, we find that there is not one, chiefly financial, crisis but a series of different crises with different spans and durations. The end of one type of crisis may herald the beginning of another. Moreover, all these crises are highly interdependent, albeit in an asymmetric manner. The financial crisis exposed the weakness of several European economies and also of the faulty institutional set-up of the euro and the EU itself. Troubled economies could not but generate political and social consequences. Money has been lost, political careers have been ruined and ideological truths have been challenged as a result of these crises. However, different states and social groups experienced these crises in different ways. Some of them even benefited from Europe’s disarray. The EU was not one of the beneficiaries, however. It proved poorly prepared for navigating through the stormy weather and it lost the confidence of Europe’s citizens.

European officials are fond of stressing that in the past the EU has emerged stronger from successive crises, but in light of the evidence available at present this rosy history is not likely to repeat itself.

Crisis, what crisis?

One can hardly speculate about the EU’s future without getting to the heart of the crisis currently gripping the institution. To put it another way: the cure for a patient begins with a proper diagnosis. The dominant view is that the crisis was about the euro, Greece and sovereign debt. In my view, the most important crisis was and still is one of cohesion, imagination and trust. The latter is obviously harder to address. The hole in the Greek budget is relatively small in aggregate euro-zone terms and could easily be covered. However, Greece is not the only country in financial trouble, few believe that writing off debts will make the Greeks behave like the Germans, and there are no plausible solutions for solving Greece’s complex problems. What we do know is that the solutions applied by the EU have so far proved pretty ineffectual. What looked to be a straightforward financial challenge has become a social, political, cultural and even ideological one, concerning the entire continent and not just one ‘black sheep’. Let me explain why.

The euro is on the verge of collapse, and the blame is being attributed to external financial shocks and misguided, if not absent, common fiscal policies. The financial discourse has become so prominent that most Europeans have acquainted themselves with the meaning of such ostensibly odd terms as credit crunch, quantitative easing, financial spread, structural adjustments and eurobonds. However, only some economies within the euro-zone have performed poorly, while others are booming and have faced no fiscal pressures. Can we make any general statements about the euro crisis in this situation? Moreover, it is far from obvious that any fiscal policy would be able to address the roots of the economic problems facing Greece, Cyprus, Portugal, Spain, Ireland and, one may add, Italy. The culture of clientelism and meritocracy can hardly be tackled by macro-economic structural adjustments and budgetary oversight alone. Moreover, fiscal policies alone would not spur the weaker economies to catch up with the stronger ones in a single currency union. A closer look at Greece illustrates this problem.

Greece was a prototype of poor bookkeeping: an unsustainable current account deficit, huge public and foreign debt, a narrow tax revenue base, a ballooning and inefficient public sector, and an untenable burden of pensions and unemployment benefits.² However, the country’s problems can only partly be explained by the chronic lack of financial discipline. One should also look at the weakness of the Greek state and its administrative structures, at the politics of patronage practised by the two parties ruling Greece since the fall of autocracy, at the economic and political imbalances within the euro-zone system. Ordinary Greeks have probably lived above their means for some time, but, contrary to their depiction in numerous European tabloids, they are not selfish, lazy, uneducated, tax-evading and ‘unwilling to embrace change’.³ Some Greek politicians have cheated their colleagues in Berlin, Paris and The Hague, but they also cheated the Greek people and subsequently lost their confidence.⁴ Prior to the crisis the country consumed too much and invested too little, but not all of the current problems of Greece are of its own making. It was not Greece but Germany and France who were behind the faulty design of the European Economic and Monetary Union which envisaged a common currency without any instruments for helping the weaker members of the euro-zone align with the stronger ones. Nor were the Greek banks and their regulators responsible for the global financial meltdown of 2008, which rendered the sovereign debt burden of Greece unsustainable and a tempting target for speculators. From the early days of the euro-crisis, Greece was hardly in charge of its policies, which means that it is difficult to blame Athens for the disastrous social and political effects of severe austerity and internal devaluation. In fact, when in October 2011 the Greek Prime Minister, George Papandreou, announced his intention to hold a referendum on the acceptance of the terms of a euro-zone bailout deal, he was forced to step down from office under the pressure of Germany and other creditor states. Ancient Greek dramas show that a key character can be a perpetrator and a victim at the same time, and this is the case with modern Greece in this crisis.

The stories of Ireland, Portugal and Spain confirm that Greece’s economic misfortunes are partly of its own making and partly the result of policies and processes beyond its control. These four states requested a financial rescue from the EU and the IMF, and they were bundled together by the financial discourse under the denigrating acronym PIGS: Portugal, Ireland, Greece and Spain. (Some analysts use PIIGS, to include Italy – Europe’s notorious debtor.) However, the PIGS’ reasons for financial difficulties were not all exactly the same. In 2007 only Greece had a disturbing level of gross public debt: 94.5 per cent of GDP, compared to 25.4 per cent of GDP in Ireland, 36.2 per cent of GDP in Spain. In comparison, the UK’s gross debt in 2007 amounted to 43.8 per cent of GDP.⁵ Spain and Ireland’s major economic problem was a property bubble; this problem was not present in Portugal and Greece. Banks were also in bad shape in Spain and Ireland. The latter went into recession in 2008 after the government had pumped 7 billion euros into its two biggest banks, Allied Irish Banks and Bank of Ireland. Insolvent local banks were not the key problem in Portugal or Greece. The PIGS were weak links in the poorly designed euro-chain. When the pull of financial markets intensified, the PIGS fell off the chain.

Cohesion, imagination, trust

‘Ever-closer union’ is the official aim of the EU, and the progress of European integration has always been measured by the EU’s success in fostering greater cohesion. In the EU discourse, concepts of fusion, convergence, cohesion and integration are often used as synonyms. Over the last few years, however, it has become evident that ‘ever-closer union’ is a myth, and the EU is facing a profound crisis of cohesion. For instance, unemployment in Greece reached 27.6 per cent in May 2013, continuing an upward trend since the debt crisis erupted five years earlier. In Germany, meanwhile, unemployment was 5.4 per cent, the lowest since the country’s re-unification. Outside the euro-zone, Poland has not been in recession since 2008, while Latvia’s economy shrank by 25 per cent in 2008–9 (although Latvia, unlike Greece, has recovered relatively quickly). It has also become more obvious than ever that in the EU there are policy-makers and policy-takers, the former exemplified by creditor states and the latter by debtor states. The gap between those within the euro-zone and those outside of it is also widening; the latter have only limited access to the decision-making process affecting their economic interests.

Nobody really knows how to bridge the gap between Europe’s powerful affluent centre and its impoverished peripheries. Subjecting all countries to the same set of rules and laws is clearly insufficient. Central economic redistribution is controversial for practical and ideological reasons. The creation of the single market was accompanied by the creation of a cohesion policy to help the poorer regions cope with the economic competition from the wealthier ones, but the assigned funds were relatively modest and their use and misuse has been widely criticized. Similar cohesion funds were not envisaged with the creation of the single currency. The market was supposed to take care of discrepancies between the weak and strong economic actors within the euro-zone. We now know that this was an illusion. The current situation resembles a joke from the communist era: the state pretends to pay the employees and the employees pretend to work. In the present-day EU the creditor states pretend to subsidize harsh structural reforms and the debtor states pretend to follow the former’s directives, however electorally unpopular and economically counter-productive. None of the actors seem to believe that this will ever work, but they lack a plausible solution to address the problem. After all, member states were unable to bridge gaps between their own rich and poor regions despite having budgets the EU could never dream about.⁶ Relatively rich states such as Italy are the most striking examples here.

This leads to the next major crisis the EU is facing at present: the crisis of imagination. Money alone is not likely to get Europe out of this crisis. Europe needs to invent a new way of investing and distributing money, but addressing this paradigm crunch is proving trickier than addressing the credit crunch. Plausible proposals for reinventing Europe and rescuing it from its current malaise are in short supply at present and they are often technical, uninspiring and timid. EU decision-makers are guided by short-term political considerations and are chiefly concerned with defending their own partisan interests, be they national or institutional. EU experts tend to focus on detailed treaties and formal institutions while ignoring historical memories, cultural myths and ideological prejudices. Their abstract modelling and theorizing are increasingly detached from European realities and as such are of little use to Europe’s politicians.

However, the lack of a plausible vision for moving the EU forward is also related to broader intellectual and political quandaries. Democracy and capitalism are undergoing a rapid change, which means that understanding Europe and its institutions is not sufficient for addressing current problems. Moreover, solutions for Europe’s current troubles can hardly be confined to Europe itself. What happens in China, India, Brazil or the United States will be of paramount importance to the continent’s future, and Europeans have a limited understanding of, and influence over, developments in these countries.

Paradigm change takes time. Moreover, new visions, however brilliant, would have to be ‘sold’ by politicians to the European electorate. At present, the electorate has little trust in politicians, whether they come from Brussels or from national capitals. The current crisis of trust manifests itself not only in opinion polls, but also on the streets of villages and cities. When in the autumn of 2013 the Italian Prime Minister, Enrico Letta, and the President of the European Commission, José Manuel Barroso, visited the tiny southern island of Lampedusa after yet another boat full of migrants sank there, they met an angry crowd of local citizens exasperated by the failure of the EU and their country to stop such repeated tragedies. Likewise, mass, at times violent, protests in the streets of Athens, Madrid or Nicosia are directed at both the EU and respective national governments. Both fare extremely poorly in public opinion polls. According to the November 2012 Eurobarometer, since 2007 trust in the EU had fallen from positive 20 to negative 29 per cent in Germany, from positive 30 to negative 22 per cent in Italy, and from positive 42 to negative 52 per cent in Spain. Public trust in national institutions and politicians is also remarkably low. The Pew Research Center data for 2013 showed that in a relatively affluent France 91 per cent of those polled said that the country’s economy was doing badly, up 10 percentage points from 2012. The French were also downbeat about their leadership: 67 per cent thought President François Hollande was doing a poor job in handling the challenges posed by the economic crisis. (Hollande was elected only a year earlier.) Across Europe the established political parties are fighting for their political survival when faced with ‘new kids on the block’ such as the Greek Syriza party, the Dutch Freedom Party, the Italian 5* Movement or the True Finns. These ‘new kids’ are hammering not only the national but also the European political establishment.

The way Europe’s leaders have handled the crisis has not made them any more popular. It also reinforces the impression that the EU’s major problems are cohesion, imagination and trust, and not just poor financial supervision.

Crisis management

EU efforts to handle the crisis have never enjoyed a good press. As Simon Tisdall expressed it in the Guardian: ‘The political bottom line, now as in the past, is that when a full-blown crisis hits, Europe’s response falls short. Put another way, when the going gets tough, the EU goes shopping.’⁷ Even the remarkable pledge, in July 2012, of the President of the European Central Bank (ECB), Mario Draghi, ‘to do whatever it takes to preserve the euro’ was greeted by the press in some creditor countries as writing a ‘blank cheque’ to debtor countries and exceeding the ECB’s mandate. Draghi’s declaration reassured international markets, though, and averted what seemed at the time an imminent collapse of the euro. Numerous other actions of EU leaders, by contrast, have either failed to reassure the markets or made them pretty nervous. The same can be said about the reactions of Europe’s citizens to EU crisis management, although for different reasons in different groups and countries.

The first major set of decisions EU leaders took in their effort to manage the crisis was in 2008 following the collapse of Lehman Brothers in the United States. When it was revealed that European banks, too, had huge toxic assets, EU governments decided to act. Each European government with troubled banks quickly took similar decisions regardless of whether they were within or outside the euro-zone and regardless of whether they had a left- or right-wing government in office. In essence, the decisions amounted to the public sector assuming the responsibility for the private sector’s failure, or, to be more specific, for the banking sector’s failure. Moreover, although all major banks in trouble operated transnationally, their debts were ‘nationalized’ and not ‘Europeanized’.

This concerted (although not always coordinated) set of decisions had profound implications for the further course of events. First, it exposed different strengths of individual states, especially those within the single currency area. The financial markets subsequently realized that a member state could actually default and they raised the risk premiums on the weaker states with a vengeance. Second, the set of decisions taken put pressure on public expenditures in all states, but especially in the weak ones. Cutting funds for public hospitals, schools and pensions became commonplace, causing enormous social hardship and political contestation. Third, the set of decisions taken directly involved tax-paying citizens in all future European arrangement...