The European Union in Crisis

Desmond Dinan, Neill Nugent, William E. Paterson

• Publisher: Bloomsbury Academic
• Year: 2017
• Print ISBN: 9781349996032
• eBook ISBN: 9781350312739
• Edition: 1
• Topic: Politik & Internationale Beziehungen
• Subtopic: Europäische Politik

The European Union (EU) is in crisis. The crisis extends beyond Brexit, the fluctuating fortunes of the eurozone and the challenge of mass migration. It cuts to the core of the EU itself. Trust is eroding; power is shifting; politics are toxic; disillusionment is widespread; and solidarity has frayed. In this major new text leading academics come together to unpack all dimensions of the EU in crisis, and to analyse its implications for the EU, its member states and the ongoing study of European integration.

Chapter 1

A Multi-dimensional Crisis

DESMOND DINAN, NEILL NUGENT, AND WILLIAM E. PATERSON

Introduction

This chapter provides an overview of the different dimensions of the crisis, sets them in their contexts, outlines their implications for the European Union, and summarizes how the EU has responded so far.

The Multi-dimensional Nature of the Crisis

The ‘age of crisis’ for the EU began in 2009–10 with the onset of what quickly came to be called the euro or eurozone crisis. This crisis, whose severity has ebbed and flowed over the years that have followed, is the most obvious manifestation of the EU in crisis. It has threatened the very existence of one of the EU’s main policy achievements: the single currency – the apotheosis of Economic and Monetary Union (EMU) – which 19 of the EU’s 28 member states had adopted as of 2016. At various times during the eurozone crisis, the membership, governing structure, and operating rules of the single currency system have been fundamentally questioned and challenged.

Apart from the eurozone crisis, the most recognizable feature of the EU in crisis has been the migration crisis, which greatly escalated in 2015 when vast numbers of migrants – eventually numbering over 1 million – mostly consisting of asylum-seekers from war-torn Syria, Iraq, and Afghanistan, together with irregular migrants from North Africa, flooded into the EU. This wave became a perfect storm (that is, a situation caused or greatly aggravated by an unanticipated and very rare set of circumstances) in September 2015 when Chancellor Angela Merkel announced that Germany would not limit the number of refugees entering the country, thereby unintentionally encouraging many more arrivals. Migrants benefit from one of the EU’s main policy achievements: the free movement of people facilitated by the Schengen system. The migration crisis has put severe strains on free movement within the EU and, indeed, has led to a partial breakdown of Schengen.

Another dimension of the crisis pertains to EU governance. The handling of the eurozone and migration crises has demonstrated poor EU leadership, often slow and insufficient decision-making, hardening national positions, uneven burden-sharing, and fraying solidarity among member states. Crucially, in respect of fraying solidarity, there has been a near fracturing of some membership arrangements, notably with Greece’s continuing membership of the eurozone being much discussed in EU circles in the summer of 2015 and then the UK, building on an already considerable number of policy ‘opt-outs’, holding a referendum on membership in June 2016, which resulted in a decision to leave the EU.

These features of EU governance have, in turn, fuelled euroscepticism and put the credibility and democratic legitimacy of the EU system increasingly in question. Originally, public attitudes towards European integration were characterized as constituting a ‘permissive consensus’ or benign indifference, but that changed in the 1990s as the European Community evolved into the European Union and the impact of EU policies and programmes on the everyday lives of Europeans became more evident and intrusive. Support for European integration gradually declined after the Maastricht Treaty of 1992, which launched EMU and ushered in the EU (Eichenberg and Dalton, 2007). Since the beginning of the crisis this has continued to be the case, with growing doubts about the desirability and effectiveness of EU initiatives and increasing irritation with the cumbersomeness of the EU itself. The apparent hollowing-out of national political institutions and the strengthening of European institutions, which to many people seem remote and technocratic, have exacerbated the EU’s inherently weak legitimacy. The EU’s democratic credentials have been further undermined as apparently unaccountable, Brussels-based technocrats have been seen to impose, or try to impose, policy solutions that have often been unwanted and/or thought to be inappropriate.

So, too, has the EU’s chronic economic underperformance contributed to the crisis. Peace and prosperity are the twin pillars of the EU’s existence, but the EU’s economic performance has varied greatly over time. The internal market, the core policy field of the EU, has had mixed results. Monetary union, an addendum to the internal market and a highly symbolic undertaking in its own right, was supposed to have facilitated economic convergence among participating countries and stimulated further growth. Yet far from converging, the economies of eurozone countries have diverged and experienced, at best, only modest growth following the introduction of the euro in 1999. Since the outbreak of the crisis, economic performances have become even worse, with most of the economies of eurozone countries having experienced sharp recession. The impact of austerity policies pushed by eurozone creditor states (especially Germany) has intensified economic hardship in debtor states, stoked social tensions, and deepened political divisions. High unemployment, especially among young people, has sapped morale and nurtured a sense of deep despair.

Inevitably, these internal problems have weakened the EU’s standing on the world stage. By definition, the migration crisis has had an external dimension, while the eurozone crisis has been closely related to global financial developments. The EU’s seeming inability to deal forcefully and effectively with events in Ukraine has constituted a further external dimension of the crisis.

The Ukraine crisis, which erupted in 2014, represents the point at which the aspirations of the EU to extend its influence eastwards collided with Russia’s determination to rebuild power and status following the collapse of the Soviet Union. This keenly felt loss impelled President Vladimir Putin to try to regain control of Russia’s near abroad and restore Russia’s global standing. Putin’s pressure on Ukraine to reject a proposed association agreement with the EU in favour of a Russian-led customs union foundered on popular protest in Kiev, which resulted in the ousting of Ukraine’s pro-Russian president. This, in turn, triggered violent resistance in eastern Ukraine against the new, pro-Western government, and Russia’s annexation of Crimea. Chancellor Merkel took the lead in managing the EU’s response, which helped to bring about a fragile peace – the Minsk Accord – and included sanctions against Russia. The conflict is now frozen, but could escalate at any time. Accordingly, the EU faces instability on its eastern border in addition to the instability caused by the migration crisis on its southern border.

There are thus many aspects to the EU crisis. It is truly multi-dimensional in nature, spanning politics and economics, touching on cultural and identity issues, and covering both internal and external affairs.

Origins of the Crisis

General origins

The origins of the EU’s crisis are many, various, and often – as the sections below on the EMU, migration, and the Brexit crises show – specific to particular dimensions of the crisis. However, in addition to specific factors, some of which have already been mentioned, three general sources can also be identified.

The first is the weak foundations of aspects of the EU’s system of governance and of some of its key policies. The lack of clear, accountable, and treaty-based EU leadership has been an important factor behind the legitimacy/democracy crisis and may even have contributed to what could be called a leadership crisis. Similarly, the weak foundations of two of the EU’s core policies – EMU and the Schengen system – have been at the heart of the eurozone and migration crises. The rules of these policies were laid down in relatively good times, when the focus of the EU was on making integrationist advances with great steps forward. Insufficient attention was given to whether the arrangements that were established were sufficiently robust to withstand the pressures of less good and more difficult times.

The second general source of the crisis is that the EU’s member states are, in numerous respects, significantly different from one another in terms of national needs and preferences. While it was possible to manage many of these differences in good times, and with fewer member states, it has become much less so in a far larger EU that is being buffeted by severe shocks and policy challenges.

Being part of a highly interconnected global system, the EU is susceptible to what happens elsewhere in the world. As such, external factors constitute the third general source of the crisis. So, for example, it was the sub-prime mortgage crisis and the ensuing recession in the USA that sparked the eurozone crisis. Continuing global financial and economic uncertainty has made it more difficult to stabilize the situation in Europe. It was developments in Iraq, Libya, and Syria that triggered the migration crisis. The global threat of Islamic extremism has reverberated in Europe, most dramatically with the terrorist attacks in France in 2015 and 2016, and Brussels in 2016, and has contributed to the EU crisis in that there have been great uncertainties about how best to deal with this partly internal and partly external security threat. So, too, have Russia’s actions in Ukraine added to the crisis. The reasons for the Russian intervention are largely rooted in Russia’s view of the world and in domestic Russian politics, but they have presented the EU with a major foreign policy problem.

Particular origins of the three headline crises: eurozone, migration, and Brexit

As noted above, there have been many dimensions of the EU crisis. However, three of these have been of particular importance and have attracted most attention. There are chapters on each of these dimensions – the euro crisis, the migration crisis, and Brexit – later in the book, but given their centrality to the EU crisis an introductory account of their origins is given here.

The eurozone crisis

The proximate cause of the eurozone crisis was, as mentioned above, a development on the other side of the Atlantic. By the late 2000s, the US financial system was under immense stress, as the bankruptcy in September 2008 of the giant firm Lehman Brothers dramatically demonstrated. The ripple effects were soon felt in the real economy, as output and employment plummeted. Even if the foundations of EMU had been solid, the EU was bound to experience a severe shock from these events in the USA. As it happened, the structural weaknesses of EMU, which hark back to the Maastricht Treaty, accentuated the impact of the shock. Indeed, EMU’s foundational flaws arguably portended a crisis in the making.

EMU is a long-standing goal of European integration. It first emerged as a real possibility in the early 1970s, when global exchange rate instability bolstered the desirability of a fixed exchange rate regime, or even a single currency, among European Community countries. The policy debate at that time raised several contentious questions that recurred 20 years later during the Maastricht Treaty negotiations. How much sovereignty would members of a monetary union willingly surrender in order to ensure the success of a supranational currency? What should the criteria be for countries to join? Should economic convergence precede monetary union or would monetary union bring about the necessary degree of convergence?

In the early 1970s, Germany was willing to concede more sovereignty and France less; Germany wanted a high degree of convergence first and France believed that convergence could happen later. In the event, the global economic recession of the 1970s put paid to plans for EMU. When the issue emerged again in the late 1980s, global economic conditions were more benign and the European Community better integrated economically. France and German retained their earlier preferences, but managed to come to an agreement.

Academic economists, especially in the USA, pointed out that the putative EMU-zone did not constitute an optimal currency area. In other words, there would be insufficient fiscal transfers and labour mobility to absorb the impact of asymmetric economic shocks, which would render the currency union unworkable. Ideally, a currency union would include a fiscal union and a banking union as part of an economic union, and a political union as well. Intellectually, the Maastricht negotiators may have understood this point. They certainly understood that such ambitious objectives were politically impossible to achieve. Political union was on the agenda at Maastricht, but only in the form of taking steps to strengthen the legitimacy of the EU, not to engineer a wholesale transfer of national authority to a federal EU. Germany was willing to concede more than France, especially in the run-up to German unification, but Germany could not risk jeopardizing monetary union by getting too far ahead of French preferences on economic and political union. The result was a fudge: EMU was established with a weak ‘E’ (no banking or fiscal union) and a strong ‘M’ (a single central bank, single monetary policy, and single currency). A single European government (political union) was nowhere to be seen.

EMU and the eurozone were likely to succeed, given their weak foundations, only as long as the regional and global economy remained reasonably buoyant. The presumption was that monetary union would flourish in a eurozone with an economic growth rate of about 3 per cent, which seemed reasonable by post-war standards. By the mid-2000s, it appeared as if the eurozone was indeed succeeding, with most members having growth rates in the range of 2–4 per cent and some, such as Ireland, having significantly higher rates. However, these healthy figures obscured some disturbing underlying developments, notably growing disequilibria in competitiveness, investment, and exports between financially stronger northern countries and increasingly debt-burdened southern countries. Nonetheless, as long as growth remained high and international borrowing costs low, this did not seem problematical.

However, the shock of the US financial crash caused a sudden drop in capital flows to ‘peripheral’ eurozone countries, notably Greece, Ireland, Spain, and Portugal. It also exposed the extent of some European banks’ reckless lending and some European countries’ excessive borrowing. The magnitude of the problem first became apparent in Greece, where a new government revealed, in 2009, that the country was running a deficit of over 12 per cent of GDP, more than four times the permissible deficit for eurozone members. The problem in Ireland was caused not by excessive debt, but by the Irish government’s decision to write a blank cheque to rescue the country’s failing banks. Spain was also in difficulty because of a banking crisis, and Portugal because of excessive debt.

By 2010, a balance of payments crisis had turned into a public debt crisis, and EMU’s inadequate design – notably the lack of a fiscal union and a banking union – resulted in there being no readily accessible solutions to what was becoming a eurozone crisis (Baldwin and Gros, 2015).

The migration crisis

The roots of the migration crisis lie in a mixture of push and pull factors. The push factors are partly accounted for by shortcomings in the EU’s external relations. The EU has done little – and perhaps could not have done more – to promote peace and stability in North Africa, to address the turmoil in the Middle East, to prevent the rise of the Islamic State, and to stop the civil war in Syria. All of these developments, and others besides, resulted in attempted mass migration to the EU from Iraq and Syria, and from other war-torn or impoverished countries.

Despite a large amount of money and effort having been spent on a range of elaborate initiatives, the EU was blindsided by the Arab Spring and found that it had little influence in a large, strategically vital, and increasingly unstable part of the world. It would, of course, be absurd to blame the EU for all of the problems of North Africa and the Middle East. But the EU must bear some responsibility for the failure of its diplomacy, which has been backed up with generous economic inducements, to help reduce the factors that push migrants from the Middle East and North Africa towards Europe’s shores.

The pull factor for migrants is the lure of living in a peaceful and secure country, with the prospect of employment or, more likely, welfare assistance. Germany and Sweden have been the main destinations of choice. Chancellor Merkel’s apparent willingness in the summer of 2015 to allow unlimited numbers of refugees to enter Germany opened the floodgates. Schengen’s largely lightly protected external borders made it possible for hundreds of thousands of refugees and other irregular migrants to reach their desired destination.

Merkel’s generosity rebounded on her politically in Germany, and exposed the inherent weakness of the Schengen system. Despite years of negotiations, when the numbers of attempted migrants to the EU exploded in 2015, a fully functioning common asylum system had not yet been established. The Dublin Regulation for processing asylum-seekers (which specifies that migrants should be processed in the EU country in which they first arrive) was not effective in dealing with the vast numbers of people attempting to enter the EU, which led to Germany suspending the Regulation, of which it had been a staunch defender, in August 2015. The porousness of the EU’s external borders undermined the integrity of the intra-EU free travel area, resulting in several ‘temporary’ restrictions on free travel being put in place. Like EMU, Schengen had been designed from the perspective of hoping for the best rather than anticipating the worst. When the worst happened, the system was unable to cope.

As with EMU, the influx of migrants has resulted in the EU trying to fix a system (Schengen in this case) while it is in crisis. Like EMU, the Schengen system was not designed for conditions of severe strain. Certainly, there was no systemic anticipation of what would be done if hundreds of thousands of migrants suddenly appeared at Schengen’s external borders. To make matters worse, the eurozone crisis has resulted in there being less trust and goodwill among member states to help resolve the migration crisis. Resentment of Germany’s preponderance in the EU, and especially of Germany’s insistence on austerity, has spilled over into the migration crisis, in which Germany has desperately needed its EU partners to carry out their Schengen obligations and share the burden of refugee settlement.

At the same time, the migration crisis has sown deep divisions between EU member states. This has been especially so with Greece which, having been on the front line of the eurozone crisis, has similarly been on the front line of the migration crisis. The Greek border forms the principal EU external border through which most migrants set out for Germany and other northern states. As countries along the migration route closed their borders in 2015, tens of thousands of migrants became trapped in Greece, sparking a major humanitarian disaster. Given Germany’s treatment of Greece during the eurozone crisis, Greece has not been inclined to accommodate Germany during the migration crisis, at least not without the prospect of significant financial assistance and possibly even debt relief.

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Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Boxes, Figures and Tables
• List of Contributors
• Abbreviations and Acronyms
• Preface
• 1 A Multi-dimensional Crisis
• 2 Crises in EU History
• 3 The Political Economy Context of EU Crises
• 4 Playing for High Stakes: The Eurozone Crisis
• 5 The UK: Membership in Crisis
• 6 The European Migration Crisis
• 7 The Eurozone in Crisis: Core–Periphery Dynamics
• 8 The Aftermath of the Eurozone Crisis: Towards Fiscal Federalism?
• 9 The Crisis and the EU’s Institutions, Political Actors, and Processes
• 10 The Legitimacy Challenge
• 11 Germany and the Crisis: Asset or Liability?
• 12 Greece: A Crisis in Two-Level Governance
• 13 Central and Eastern Europe: The Sacrifices of Solidarity, the Discomforts of Diversity, and the Vexations of Vulnerabilities
• 14 The European Union, Ukraine, and the Unstable East
• 15 The EU’s Global Image
• 16 Theorising Crisis in European Integration
• 17 Can the EU Survive?
• 18 Conclusions: Crisis Without End?
• Index