The Grand Bargain: A New Book Demystifies European Integration
The EU is under siege. The arrival of hundreds of thousands of refugees from Afghanistan, Iraq, and Syria has tested the single-border principle at the core of the union. The ongoing financial crisis in Greece has strained the single currency. The United Kingdom will soon hold a referendum on whether or not to exit the EU. The survival of an EU with a single border, a single currency, and a stable membership appears less likely than ever before.
European federalists dismiss these problems as growing pains. The EU is an incredibly ambitious work in progress, they note, one that is rooted in a vision of Europe that challenges deep-seated notions of sovereignty and statehood. Surveying the destruction during World War II, Jean Monnet, considered by many to be a founding father of the EU, wrote, “There will be no peace in Europe if the states are reconstituted on the basis of national sovereignty. . . . The countries of Europe are too small to guarantee their peoples the necessary prosperity and social development. The European states must constitute themselves into a federation.” Monnet’s union would be built through cooperation and common markets and would ultimately resemble a “United States of Europe,” a phrase later embraced by Winston Churchill to describe his own vision of Europe’s best possible future. The question is whether that vision can withstand the blows that have rained down on the EU since the financial crisis began in 2008.
When the euro was adopted, in 1999, many voiced concerns that the monetary union would prevent countries from responding properly to financial crises because they were forfeiting the ability to devalue their currencies, which most economists contend is the best response to such situations. But the political logic of binding the continent together through a common currency trumped the doubts. Supporters of the single currency argued that crises could be averted through adherence to a set of rules (the Maastricht rules) that prevented countries from accumulating too much debt.
The euro supporters’ view took a major hit in 2008, when the financial crisis spread from the United States to Europe. In October 2009, George Papandreou became Greece’s prime minister and discovered that his country had vastly underreported its debt levels. Greece’s creditors, particularly French and German banks, were overexposed. The EU called in the International Monetary Fund, fearing that the crisis would spread. It did, and soon Ireland, Italy, Portugal, and Spain were all affected. Negotiations between each government and the so-called troika—the European Central Bank, the European Commission, and the IMF—resulted in EU-IMF programs in Greece, Ireland, Portugal, and Spain.
The EU response, and the showdowns it has produced in the subsequent years, has been interpreted by observers in two ways. One view holds that the crisis has drawn Europe closer together. This is what the political scientist Kathleen McNamara argues in her thoughtful new book, The Politics of Everyday Europe. Despite a fraying sense of European solidarity, she writes, EU member states committed roughly one trillion euros to keep the currency afloat and the eurozone’s member states financially stable. The EU has also inaugurated new institutions designed to help the member states respond to crises: the European Stability Mechanism; a new fiscal compact; and a European banking union, currently under construction. The power of the European Central Bank has increased, she writes, making it “the most effective and active actor in the Eurozone crisis,” and European leaders have met more and more frequently in summits “too numerous to count.”
A less sanguine interpretation of the crisis is that the EU, far from being drawn together, has been split down the middle. Southern European countries, including Greece, Italy, and Spain, blame the EU for punitive austerity measures that have left millions out of work. Meanwhile, northern countries, such as Germany, the Netherlands, and the United Kingdom, complain that the EU has not been strict enough with highly indebted member states; some officials in those countries, including German Finance Minister Wolfgang Schäuble, have openly called on Greece to exit the monetary union. (The refugee crisis has precipitated a similar split, as southern and eastern states have shouldered the bulk of the burden, breeding resentment toward their northern and western neighbors.)
At this point, it requires a great deal of optimism to interpret the EU’s response to the eurozone crisis as proof that the union’s institutions can steer Europe toward more integration. More likely is the prospect of a more fractious, divided union, drifting away from the vision of its founders and champions.
McNamara views the EU’s response to the financial crisis as evidence of the union’s successful integration. Such a response would have been impossible, McNamara writes, were it not for “decades of slow accumulation of everyday symbols and practices” that “created a permissive consensus for such political developments.” These “symbols and practices” include not just the single currency and the absence of border controls but also “European” buildings and spectacles, a common market in European soccer players, a shared statistics agency (Eurostat), and a European diplomatic corps. Put simply, the quiet introduction of European “labels, mental maps, and narratives” has built a European way of interpreting the world.
The next phase in creating a federated Europe will not be easy, McNamara concedes. She argues that it will require greater democratic representation, more citizen participation, and a higher quality of debate. “The EU needs more overt contestation and direct discussion of its policies, and debate over its leaders,” McNamara writes.
Optimistically, McNamara sees such change happening already. As evidence, she points to the most recent election of the European Commission president and to the 2014 EU parliamentary elections, which she describes as “much more publicly contested than any before in EU history,” noting that they received “wide coverage in national newspapers” and that “various trans-European interest groups—from students to environmental activists to high-priced consultants”—sought to mobilize EU-wide constituencies.
The 2014 EU parliamentary elections may well have been “more publicly contested,” as McNamara argues, but the results swept an extraordinary number of anti-EU and anti-euro parties into power. In France, the right-wing National Front won the largest share of the vote; in the United Kingdom, that distinction went to the anti-EU UK Independence Party. In the Netherlands, the Party for Freedom, which has advocated withdrawal from the EU, won more than 13 percent of the votes (it had won an even greater percentage in 2009). In Greece, the neo-Nazi party Golden Dawn won just over nine percent of the votes.
It requires a great deal of optimism to interpret the EU’s response to the eurozone crisis as proof that the union’s institutions can steer Europe toward more integration.
In light of severe government cutbacks across Europe, such results are not surprising. In the wake of the 2008 crisis, austerity has meant fewer jobs, smaller pensions, less affordable health care, tighter school budgets, and cutbacks to local services. People are feeling the pinch, and they are afraid. Meanwhile, support for populist and nationalist parties has risen, and support for the EU has declined. Between 2007 and 2013, the Pew Research Center reports, the EU’s favorability rating fell by 34 percentage points in Spain, 21 points in France, and 20 points in Italy. As McNamara notes, “The close identification of [austerity] policies with ‘Europe’ is an association that is piercing the banal authority the EU has been built on, and creating new challenges for legitimation.”
Public opinion toward the EU has improved recently, but not much, with the median figure for EU favorability rising from 46 percent in 2013 to 52 percent in 2014. Eurobarometer, a series of public opinion surveys conducted by the European Commission, has shown slight increases in the percentage of Europeans who say they have a positive image of the EU (41 percent in May 2015, up from 39 percent in November 2014), trust the EU (40 percent, up from 37 percent), and feel that their voice counts in the EU (42 percent, up from 40 percent).
It’s unclear, however, whether this trend has much to do with the new institutions the EU created in the wake of the crisis and which McNamara hails. Once the crisis erupted, it became clear that the EU’s rules on debt management were not being enforced, that its banking regulations were inadequate and ill equipped to deal with cross-border issues, and that the EU had no centralized fiscal capacity to bail out a member state. Still, the eurozone’s members held together, aware that the cost of a Greek exit would be greater than the cost of a bailout. In 2012, they signed a treaty creating the European Stability Mechanism, which comes with an emergency lending capacity of 500 billion euros. To borrow from the new fund, countries must submit an outline of their economic programs for approval by the troika and ratify the new fiscal compact, a strict set of rules designed to prevent countries from going into debt—in part by threatening economic sanctions against those that do not comply. EU leaders have also committed to a new banking union.
The new institutions may sound promising, but the details reveal significant weaknesses. Germany remains terrified of any initiative that involves sharing liabilities. And so the banking union has no common deposit insurance, no simple resolution process for failing financial institutions, and no single backstop with which to bail out banks. The fiscal compact is simply another version of the Stability and Growth Pact, introduced in 1999, which failed when France and Germany did not abide by it. There is little to suggest that this time around will be any more successful. And the European Stability Mechanism, for its part, is less a sign of European integration than of continued German dominance. It will raise 500 billion euros by selling bonds that will enjoy creditworthiness only because, to quote the credit-rating agency Moody’s, they are “closely correlated” with key shareholders. Put simply, the markets assume that the European Stability Mechanism will reflect Germany’s intentions, and the eurozone governments know that there will be negative repercussions at any hint that Germany disapproves of a loan.
The EU has survived the crises of the past few years so far, but it seems unlikely to cohere any further into a tightly bound superstate. Three other possibilities seem more likely. The rise of localism, regionalism, and even separatism—witness the renewed strength of Scottish nationalists and Catalan separatists—suggests that many Europeans yearn for more self-determination. One way the EU could respond is by accommodating, rather than blocking, the emergence of small independent nations that might see closer ties with Brussels as a form of freedom from overbearing national capitals. Such a future would certainly fit within McNamara’s vision of a more politically active, participatory Europe.
This possibility was derided after the interwar years as a recipe for conflict and instability. Indeed, it was to defend Europe from the threat of various nationalisms and regionalisms that Monnet developed his concept of a European federation. In reality, however, the growth of the EU has gone hand in hand with demands for autonomy within it. Indeed, the EU has itself made such demands plausible: Scots would likely find the idea of secession from the United Kingdom far less attractive if there were no EU for an independent Scotland to join. The problem for the EU is that if it were to accept Scotland as a member, the Basques, the Catalans, and others would soon line up to be next, opening the floodgates to secessionism. This is not something major powers in the EU will permit.
The EU, far from being drawn together, has been split down the middle.
A second possible future would see the reinforcing of Germany’s de facto hegemony within the EU. France and Italy are declining in influence and economic power, and the United Kingdom is not a eurozone member, so Germany has become ever more powerful as the core of the EU. This observation is curiously absent from McNamara’s book. German leadership is driving European integration forward, providing the resources to ensure that the EU succeeds, even as the resolve of other member states weakens. Yet for many states, the eurozone crisis underscored the threat of unchecked German influence. As Bill Cash, the chair of the British Parliament’s European Scrutiny Committee, put it recently, “The European Union has morphed into an increasingly undemocratic German-dominated Europe.” As a result, countries have become less interested in a European federation, even as they continue to follow EU rules and regulations. And poorer, smaller nations understandably fear a union whose stability would depend on a German chancellor’s self-restraint.
A third future for Europe hinges on the continent’s changing demographics. Crucially, Europe’s low birthrates and aging populations have created a need for immigrant labor. In 2014, the Organization for Economic Cooperation and Development and the European Commission reported that Europe’s working-age population is projected to decline by 7.5 million between 2013 and 2020, and in a scenario of zero net immigration, it could decline by up to 11.7 million. The continent is suffering from a shortage of skilled labor just as it needs most to compete globally for talent. Meanwhile, Europe has been flooded by what the OECD calls “an unprecedented number of asylum seekers and refugees,” which includes 350,000 to 450,000 people who “could be granted refugee or similar status, more than in any previous European refugee crisis since World War II.”
Europe is quickly becoming one of the most diverse regions of the world. Germany now has the third-highest number of immigrants of any country, according to the United Nations, and more than 16 million of its 81 million people are of foreign or immigrant descent. The United Kingdom has the second-highest number of immigrants in the EU after Germany. As these and other European economies continue to grow, so, too, will their demand for foreign workers. Put another way, Europe will become more like the United States, since immigration will be unstoppable (geopolitically) and necessary (demographically and economically). This might make further European integration easier as old national identities become ever more porous. Countries looking for social cohesion may well turn to a broader European identity, one tied together by the “labels, mental maps, and narratives” McNamara describes. In the short term, however, it is precisely this prospect that fuels opposition to both immigration and further European integration.
The most likely future of the EU is ongoing cooperation under German leadership. Whether this is to be feared will depend largely on domestic politics within Germany, as well as on the willingness of Europe’s larger players to keep Germany focused on (and constrained by) the mutual benefits of the union. In the longer term, politics within Germany (and all the other European nations) will shift as its population changes. A more diverse Europe will alter the politics within each country and may ultimately make the case for greater integration easier.
The idea of European federation promised peace within Europe’s borders and global influence beyond them. But Europe is not on the path toward that future. The eurozone crisis has cracked the foundations of European integration. European countries have successfully cooperated over the past six decades and are likely to continue to do so, under an umbrella of Germany hegemony. Paradoxically, ever-strengthening German leadership simultaneously facilitates cooperation and repels further integration. The result will be a Europe that continues to use, but does not fully exploit, its collective political and economic weight in the world.