Europe's date with destiny

Bulletin article
Hugo Brady
01 August 2011

Many people have quietly given up on the European Union. Not too long ago, Europe struggled long and hard to ratify the Lisbon treaty – now barely mentioned. Today, fear of the euro's collapse, the widespread perception that the EU is doomed to fail as a global power and recurring tensions over immigration and free movement have cruelly exposed the limits of European integration. Margaret Thatcher once derisively described the EU as "yesterday's vision of the future". More than any other factor, it is the fate of the euro – arguably the most significant achievement of European integration – that will demonstrate whether this is true.

 EU leaders are struggling vainly to assert themselves in a political environment made toxic by economic stagnation in the periphery, political disillusionment in the core and palpably declining international influence overall. In Northern Europe, voters have challenged seemingly unresponsive mainstream politics by flirting with anti-establishment and often anti-EU parties in ever greater numbers. In the spring of 2010, pollsters found that, for the first time since records began, a majority of Europeans distrusted the EU as a political project, including in France and Germany. As German backbenchers openly question the value of the EU, and George Osborne – Britain's eurosceptic chancellor – urges euro members to create a fiscal union, European politics could shift in three possible directions.

The first is a form of 'euro-götterdämmerung' where European integration collapses in a Wagnerian finale. Current efforts to save the eurozone end in abject failure, the single currency breaks up and the EU disintegrates. This scenario may sound risible. However, it simply takes at face value statements from German Chancellor Angela Merkel and Herman Van Rompuy, president of the European Council, that the end of the euro would mean the end of the EU.

In this scenario, the economic and political chaos that follows a messy break-up of the single currency, from the collapse of Europe's banking systems to protectionism within the single market, discredits the entire European project. Some elements of the internal market and freedom of movement are saved through a revamping of the inter-governmental European Free Trade Association, a body through which Switzerland, Iceland and Norway participate in some EU policies. But the days of ambitious European supranationalism are over.

The second option is another bout of 'euro-sclerosis', a term that describes the stalling of European integration during the 1970s and early 1980s, also a time of low growth, anxiety about inflation and political unrest. In this scenario, the euro survives, probably after the exit of Greece and Portugal and a radical increase in the size and role of the European Financial Stability Fund. Despite some limited steps towards fiscal integration, leaders stop short of issuing common bonds for the euro area. Concerns over the common currency fester on in international markets, albeit at a lower level.

Even if some of the peripheral countries leave the euro, the remaining core will not move towards political union because the euro crisis has led national parliaments in Germany, the Netherlands, Finland and elsewhere to question their hither to un challenged support for European integration. Already in 2010, domestic legislatures became noticeably more aggressive in challenging EU laws, for example the proposed deposit guarantee scheme for banks. Other steps – such as a recent resolution by the Dutch parliament pre-emptively rejecting a future political union, and the rulings of the German constitutional court that establish limits to further European integration – suggest a decade of limited ambition f or the EU.

The third scenario is 'euro-federalism'. Here, EU countries are forced to attempt some form of political and fiscal union to prevent a messy break-up of the eurozone and the disintegration of the EU. Under current political circumstances, such moves do not look feasible. Voters in most core EU countries would not stand for it. But if the crisis deepens precipitously – say, because Italy or Spain are cut off from financial markets or Germany's constitutional court demands that measures for stabilising the Eurozone need a new treaty base – the situation will change.

This scenario involves lengthy and divisive negotiations for a new treaty on 'European Economic Union'. Traditionally eurosceptic Britain chooses to substantially re-negotiate its membership or leave the EU. Other European nations follow: a fiscal and political union does not allow for different types of membership or national currencies.

The remaining EU members have to run the gauntlet of ratifying a very ambitious new treaty. Some call national elections in order to gain a mandate, others try to win referenda. Some countries fail to ratify and are forced to leave the Union. Others, however, discover an unprecedented commitment to European unity. This is the EU's true 'constitutional moment'.

The EU in its current form and the euro were born during a unique period between 1989 and 2008. This was a time of steady economic growth and freedom from existential threats. Agreement on European integration was relatively easy against this benign background. It no longer is, with debt crises, slow growth and a rise in nationalist populism in many European countries. From this perspective, the eurosclerosis scenario looks the most likely of the three, and the best that can be hoped for under the circumstances.

At the same time, however, each new – and insufficient – attempt to stem the euro crisis has increased the stakes for the economic stability and the political survival of the EU. That suggests that the last scenario of euro-federalism is also surprisingly plausible. The euro crisis has shown that, unlike the internal market or other incremental achievements of EU integration, the basic logic of the eurozone is that it must move towards closer economic union or perish. Given the apparently insurmountable political obstacles that stand in the way of that outcome, and given that the more modest efforts currently in train to save the euro need an unlikely amount of good fortune to succeed, it appears that Europe's date with destiny is set. Hence the exact definition of 'ever closer union' – a key phrase from the EU's founding treaty – will be decided in our time, whatever the political casualties.

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