Turbulent and Mighty Continent

What Future for Europe?

Anthony Giddens

• Publisher: Polity
• Year: 2013
• Print ISBN:
  9780745680972
  9780745680965
• Edition: 1
• eBook ISBN:
  9780745681276
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Winner of the 2014 European Book Prize.

A "United States of Europe", Winston Churchill proposed in 1946, could "as if by a miracle transform" that "turbulent and mighty continent". "In this way only", he continued, "will hundreds of millions of toilers be able to regain the simple joys and hopes which make life worth living".

Today, nearly seventy years later, over 500 million people live in the member states of the European Union – a greater number than in any other political community save for China and India. The currency of the Union, the euro, is used in economic transactions world-wide. Yet the EU is mired in the greatest crisis of its history, one that threatens its very existence as an entity able to have an impact upon world affairs. Europe no longer seems so mighty, instead but faces the threat of becoming an irrelevant backwater or, worse, once again the scene of turbulent conflicts. Divisions are arising all over Europe, while the popularity of the Union sinks. How can this situation be turned around?

Now published as a revised and updated paperback that takes account of the May 2014 elections to the European Parliament, Turbulent and Mighty Continent makes a powerful case for a far-reaching and fundamental renewal of the European project as a whole. 

Chapter 1
The EU as Community of Fate

The malaise of the euro does not stand on its own. It reflects issues that stretch a long way beyond Europe itself, including a series of deep economic problems shared across the industrial countries. Within the European context, the problems surrounding the euro have brought to the fore weaknesses in the Union that are of much longer standing but now demand resolution.

Europe at the moment is dominated by a specific version of EU2, called into existence by the euro crisis. It features an informal ‘president’ of Europe, Angela Merkel. If Barack Obama wants to influence what is happening in Europe, he talks in the first instance to Mrs Merkel. The ‘president’ has an ‘inner cabinet’, of varying composition, with whom she takes the key decisions – especially in periods of particular difficulty – and seeks to push them through. The ‘cabinet’ consists of a small number of the leaders of influential states, the president of the ECB, plus one or two IMF officials. Of course, there is also a range of connections with EU1and its several presidents, still labouring away in the background. The German leader calls the tune because of the size of the country’s economy and its relative success in comparison with the other larger European states. That situation has to be a transitional one. It is dangerous because of noxious divisions that have opened up between member states as well as its more general ramifications in politics. Countries in the south that depend on German acquiescence to release needed funds are as resentful of that fact as are the ‘donors’. The German public is put off by the image of the ‘feckless’ Greeks that has taken root in the wake of the turmoil in the country. Meanwhile, some Greek politicians have been raking over the coals of the Second World War, demanding that Germany pay reparations for its historic brutalities. Populist parties have appeared almost everywhere, although the most prominent antedate the crisis itself. Most are nationalist and Eurosceptic in one sense or another. Some, such as that led by Geert Wilders in the Netherlands, have participated in government. Democratic processes have sometimes been put in suspension. In November 2011 the prime minister of Italy, Silvio Berlusconi, resigned from his position and was replaced by a ‘technocrat’, Mario Monti. Monti initiated a reform programme in Italy, approved of by Chancellor Merkel, the then president of France, Nicolas Sarkozy, the ECB and the IMF – EU2, in other words.

Monti then stood for office in the general election of February 2013, at the head of a new coalition group. His coalition, however, finished bottom of the four main contenders. The big surprise was the success of the ‘Five Star Movement’, led by the comedian and actor Beppe Grillo. As a consequence of the division of the vote, no coherent government could initially be formed. Grillo described Mr Monti as an agent of the banks and repeatedly called for a referendum on Italy’s membership of the euro. He is not, he said, a Eurosceptic or anti-European, but a critic of how the EU has evolved. ‘Why is only Germany getting richer?’ he asked.¹ Monti was replaced by a new Prime Minister, Enrico Letta. He in turn gave way to another unelected leader, Matteo Renzi. Grillo was scathing about the manner in which Renzi came to power, calling it a coup.

The euro could in principle be wound back, one or two members could either be ejected or leave, or even the whole thing could be abandoned. I defer detailed discussion of these possibilities to the end of the book. Even the more limited options could prove far more difficult than many who have proposed such courses of action seem to imagine. Following the path of further integration is the only way the Union can effectively deal with the problems it faces today. The basic theorem is simple. Saving the euro means moving towards greater economic cohesion within the eurozone. Because EU2 leadership is inherently too unstable and divisive, this in turn presumes a transformation of the EU’s political institutions. The deep, and connected, flaws that have haunted the European project since its inception must be dealt with – its lack of both democratic legitimacy and effective leadership. The politics of getting from here to there, however, are testing indeed, since they reflect the very limitations of the system that needs to be replaced.

Progress so far has been substantial, if erratically so. Since reform is crisis-driven, decisions are quite often taken, and interventions made, at the last minute. Once things appear a bit more placid, the impetus to push through major change can be lost. The personalities involved count for a lot, as does how well they get on with one another at any particular point, since their association is informal – that is, not based upon an established institutional system. Moreover, EU2 is unstable because of the vagaries of national election processes which, being timed differently, act against continuity of leadership. Thus for some while commentators used to speak of Europe being led by ‘Merkozy’ – the duo of Angela Merkel and Nicolas Sarkozy. Some newspapers even published photos in which the traits of the two were combined to form a single face. The German tabloid Bild carried a headline: ‘Merkozy – sieht so das neue Europa aus?’ (‘Merkozy – is this how the new Europe looks?’)² Although in the early days there were many tensions between them, Merkel and Sarkozy became ‘Europe’s indispensable couple’. Sarkozy explained in private the dynamics of the ‘marriage’ and he put it very appropriately: ‘Germany without France frightens everyone. France without Germany frightens no one.’³ By acting together they could mute each of these qualities and could also underpin the wider activities of EU2.

Germany has become Europe’s indispensable nation. Merkozy, however, proved more transitory than many imagined. Suddenly, Sarkozy was gone. In his place came François Hollande, a different personality from his predecessor and one holding different political views. The newspapers tried, but they could not come up with a catchy merging of the names of the German chancellor with that of the new French president. The abortive attempt matched up to reality. Hollande became part of EU2, but its inner dynamics changed. No one would think of making a composite face for the two of them. Nonetheless they are obliged to work together.

The dialectic of EU1 and EU2 has always been Europe’s way of doing things. However, since the crisis, a new player, the IMF, has become involved and is a key member of the Troika. The involvement of the IMF is humiliating for the Union, but has proved absolutely essential. Its current head, Christine Lagarde, is a former finance minister of France and thus intimately familiar with European politics. She is the first ever female head of the IMF. Apart from Mario Draghi, the president of the ECB, she and Merkel are the most prominent leaders in EU2 at the moment, a unique moment in the history of the EU, which has long been a resolutely male affair. The EU claims many founding fathers, but so far as I know there are no founding mothers at all. Lagarde and Merkel appear to have a good relationship, although they have had their public disagreements. Lagarde has said that Merkel is the ‘unchallenged leader’ on the European scene. The two exchange presents and sometimes dine alone with each other. Lagarde thinks, however, that the progress of reform in the EU has been too slow. She has advised Europe’s leaders to ‘get on with the union. Make sure you have a banking union, down the road fiscal union, and that you keep that currency zone together and solid.’⁴

There have been other tensions within the Troika. An IMF report published in June 2013 criticised the EU’s handling of the first bailout given to Greece in 2010, which amounted to about €110 billion.⁵ It was a mistake, the IMF said, not to oblige investors in Greek bonds to accept losses at that point, rather than waiting until late in 2011. If this had been done, the government would not have had to make such swingeing cuts in expenditure. Olli Rehn, the European commissioner for economic affairs, rejected the criticisms. ‘I don’t think it’s fair just for the IMF to wash its hands and throw the dirty water on the Europeans’, he said. He pointed out that Lagarde had resisted any debt restructuring when she was a member of Sarkozy’s government. The Greek government at the time also came in for forthright criticism, for moving too slowly to begin with in making the reforms that were part of the bargain.⁶

HOW MUCH PROGRESS HAS BEEN MADE?

‘It is imperative to break the vicious circle between banks and sovereigns’ – the declaration was first made in an EU communiqué in June 2012 and repeated following a European Council meeting a year later.⁷ To achieve such an end, as is very widely recognised, a banking union must be set up, accompanied at some point by a version of fiscal union. The one will not be water-tight without the other. Most banking unions have three elements: powers of supervision, powers of resolution of debts and a deposit guarantee. So far as the first of these is concerned, an important threshold was crossed in March 2013 with the endorsement of legislation to set up a Single Supervisory Mechanism. It places a range of supervisory powers in the hands of the European Central Bank, which will directly monitor the larger banks and those that have received direct assistance from the EU. States not in the euro can sign up should they choose to accept the conditions imposed. A European resolution mechanism, equally important, is still in the making. Here the EU lags well behind the United States. Banks still in trouble – and there still seem to be plenty of them – have been called by critics ‘the living dead’, ‘zombie institutions’ stuffed with toxic assets. They cannot be closed down, and their assets written off, until further progress with banking union has been made. An American banker observed in May 2013: ‘The ECB and politicians spin a nice story. But behind the scenes the market is concerned that Europe may just go into a slow decline that cannot be reversed.’⁸

Figure 2 ‘The last battle: how Europe is wrecking its currency’ A view from the influential magazine Der Spiegel in 2010

The issue is a serious one because, until the banking system is further consolidated, even the healthy banks are likely to limit investments that could help promote growth. There is some considerable way to go to reach an acceptable framework. Ecofin meetings in June 2013 agreed upon how the European Stability Mechanism could be deployed for direct bank recapitalisations and the ‘bail-in’ rules for ailing banks.⁹ Since the Cyprus crisis, it has become accepted that bail-ins should replace bailouts, placing responsibility in the hands of banks and their investors to accept losses. What seemed like a perverse and dangerous strategy at the time has now become accepted as the norm. It has also been agreed that the Single Supervisory Mechanism demands a Single Resolution Mechanism, but that is still at the design stage. The EU is in danger of slipping into a leisurely EU1 way of proceeding when the problems to be resolved are still urgent. Angela Merkel has rejected unified European deposit insurance ‘at least for the foreseeable future’.¹⁰

Fiscal integration is happening, but so far is based on an extension of the traditional EU1 practice of coordinating policies across the eurozone. The measures taken include the ‘six pack’, the ‘two pack’, and the Treaty on Stability, C...

Table of contents

• Cover
• Title Page
• Copyright
• Acknowledgements
• Introduction
• 1 The EU as Community of Fate
• 2 Austerity and After
• 3 No More Social Model?
• 4 The Cosmopolitan Imperative
• 5 Climate Change and Energy
• 6 The Search for Relevance
• Conclusion
• Index
• End User License Agreement