There is legitimate anger at the EU, and then there is populism and nationalism

Insight
22 June 2016

Some frustration with the EU is justified, but much of it – particularly in the UK and across Central and Eastern Europe – reflects populism and nationalism.

Unlike national institutions, whose legitimacy can survive long periods of poor performance, the legitimacy of the EU rises and falls with its record at making people’s lives better. There is no doubting the scale of disillusionment with the EU. We’ve seen profound shifts in popular attitudes to it across the continent. Countries that used to be overwhelmingly pro-EU, such as Italy, are now as eurosceptic as Britain. Is this fair? Yes and No. Yes, in that the roots of the EU’s legitimacy crisis lie in the mismanagement of the eurozone and Schengen, and the resulting erosion of popular faith in free movement. Only by sorting out these issues will confidence in the EU be restored. No, in that the problems of the eurozone and Schengen are being used by politicians, especially in Britain and Eastern Europe, to discredit the EU as a whole and to further populist and nationalistic agendas.

The UK is flirting with the nuclear option of quitting the EU. Economic stagnation in the eurozone has created problems for the UK. It has stymied any rebalancing of the British economy towards exports and away from consumption. And it has emboldened the country’s eurosceptics, who argue that the euro crisis is the inevitable result of pushing European integration too far. There was real distaste in the UK, especially among left-leaning voters, for the way Greece was forced to accept yet more austerity by the rest of the eurozone in the summer of 2015.

However, the impact of the eurozone crisis on Britain’s EU referendum should not be exaggerated. If Britain leaves the EU it won’t primarily be because of the euro or the EU’s alleged democratic deficit. Brexiters appear quite happy with the UK’s far from perfect institutions. Nor will it be out of a determination to protect the small man or woman. The leaders of the Brexit campaign are libertarian sovereigntists who support further deregulation of the British economy. Their opposition to immigration is aimed at appealing to disenfranchised and insecure voters. Many in Britain erroneously believe that immigration, and not government policy, is the principle driver of economic insecurity and falling disposable incomes among the low-paid. Leaving the economic illiteracy of this aside, most immigrants in the UK are from outside the EU.

Similarly, it is even less obvious that waning support for the EU across Eastern Europe has its roots in EU underperformance, but rather in some unpleasant attitudes to immigration. These countries could have waited before joining Schengen; they were not forced to join. If they have to accept some refugees under the EU’s quota system or if some of the refugees currently in Germany end up choosing to move to Poland under free movement rules once they get German citizenship, so be it. After all, there are plenty of Poles, Slovaks and people from other Eastern European member-states living elsewhere in the EU.

But disillusionment with the EU is more justified in many eurozone countries. The eurozone economy is no bigger than at the beginning of 2008, with many member-states having fared far worse. Economic growth has picked up a bit, but the overall picture remains grim. Youth unemployment remains offensively high in many countries. And inflation, and expectations of future inflation, dangerously low. The next economic downturn could test the politics of the single currency to the limit.

The original sin of the eurozone is that it requires a higher level of political integration than its member-states can sell to their electorates. Many resent the loss of policy autonomy but few are prepared to see national politics supplanted by a eurozone government. The participating governments have to find a way forward which respects this need for national democratic accountability but which ensures the necessary degree of federalism to make the whole thing work.

This is possible. For example, fully integrated banking systems and financial markets combined with a central bank that saw its primary responsibility to be the maintenance of a robust level of domestic demand, would do much to stabilise the eurozone. The ECB is now upholding its end of the bargain, but there is a long way to go in integrating banking systems and markets. Moreover, the currency union also needs proper management of public spending. The eurozone crisis was hugely exacerbated by economically damaging austerity. The easiest way of preventing governments from being forced into cutting spending in a slump and therefore making it worse, would be to agree a fiscal union. As this is out of reach, large-scale debt restructuring is needed.

However, irrespective of what eurozone governments do or do not agree among themselves, the single currency must not be allowed to do further damage to the EU. What the euro has demonstrated is that countries in the vanguard of integration should not be allowed to dictate the pace for everyone. The single currency and the EU cannot become one and same thing: non-euro members need control over their destinies within the EU. They should not have to fear marginalisation for their failure to join the euro. The UK’s February deal with the EU was positive in this regard in that it acknowledged the reality of a multi-currency EU. 

Similarly, the Schengen crisis must not be allowed to damage freedom of movement. If Schengen governments cannot enforce the external border effectively or agree a common asylum policy and quota, it may well make sense to suspend Schengen, if this helps national governments to sustain popular support for free movement of EU workers within the EU. The latter is far more important than passport free travel.

The EU does not deserve the bile hurled at it by the right of British politics and much of the country’s media. Similarly, the EU bears little of the responsibility for the surge of right-wing populism across Eastern Europe. But the EU is far from blameless for its loss of popular legitimacy. The euro has amplified the forces of financial globalisation by sharply eroding national policy autonomy without replacing it with any meaningful political integration at eurozone level. This has undercut the popularity of the EU and damaged relations between euro-ins and outs. If the EU is to flourish, there needs to be an acceptance that countries will integrate at different speeds and that those in the vanguard cannot be allowed to damage the EU.

Simon Tilford is deputy director at the Centre for European Reform.