It’s becoming clear that the Greek debt crisis and the troubled outlook for the eurozone and all the EU offers an unhappy glimpse into Europe’s future.
Failing competitiveness and runaway debt are at the root of Greece’s difficulties, and are a wider European problem too. Europeans have been living far beyond their means. High standards of living and generous social security systems have for several decades been increasingly out of step with Europe’s sluggish economic growth.
And it’s going to get much worse. Even before the present economic crisis broke, Europe wasn’t educating and training enough high-tech experts to retain its technological lead over Asian competitors. On top of that there’s a rapidly ageing and unproductive population and snowballing public debt, with low growth set to sink to no growth at all.
Similar problems beset America. But the difference is that unlike the United States, the EU is not a single political entity.
The roots of the crisis now shaking financial markets’ confidence in the euro go back 20 years. In April 1990, Germany’s Chancellor Helmut Kohl and France’s President Francois Mitterrand jointly called for “political union” as a vital element of the economic and monetary union (EMU) that it was hoped would yield a common European currency.
When they spoke of political union they meant some form of centralised economic government that would bring European countries’ taxing and spending policies into line. It proved a step too far for many of the national governments. When they signed theMaastricht treaty a year later to launch EMU and open the way to the euro’s introduction in January 1999, political union was not part of the deal.
A deeply disappointed Helmut Kohl warned at the time that EU countries were building “a castle in the air” if their shared currency lacked strong political foundations.
There have since been repeated warnings that the euro is a politically unstable currency. These criticisms were met by the “disciplines” of the Stability and Growth Pact limiting the 16 eurozone countries’ public debt to 60% of GDP, underpinned by a ban on bail-outs for any profligates.
The peer pressure to enforce these conditions wasn’t enough; the eurozone worked well enough in fair weather, but the worldwide economic hurricane that broke 18 months ago has exposed its in-built weaknesses. Behind Greece there may yet be comparable debt crises in Portugal, Ireland and Spain.
Two major questions now confront the EU and its member governments. The first is how to defuse the eurozone’s difficulties, and the second is what it must do in strategic terms to arrest Europe’s long slide into economic stagnation and all the political and social tensions that go with it.
In both cases, the right answer would be a political volte face that today looks unacceptable to most Europeans. EU governments would have to accept that the national sovereignty they guard so jealously must now be heavily diluted by the creation of a shared but independent political mechanism.
The health of the euro already demands a Greek bail-out that will involve EU monitoring to ensure Athens’ austerity measures are tough enough. And that sets a precedent for some sort of economic governance by Brussels and the European Central Bank inFrankfurt. Fearful of offending public opinion that in many EU members is already uncomfortably eurosceptic, policymakers are talking quietly of “back door” forms of political union such as a European Monetary Fund that would be equipped with rigorous powers.
The even bigger issue is EU countries’ willingness to abandon the inter-governmentalism that since the mid-1990s has been whittling away at the authority of the European Commission. The Lisbon treaty that came into force at the beginning of this year is widely seen as marking a new phase in the EU’s capacity to make common policies and speak with one voice, but the reality is that the 27-nation bloc usually marches to the tune of its largest member states.
In today’s globalised economy, competitiveness is the key to Europe’s future. Yet the last ten years have seen EU governments pay no more than lip service to their Lisbon Agenda pledge that they would “turn Europe into the world’s most advanced knowledge-based economy”. It has lately been re-labelled as the EU’s 2020 strategy, but the snag still is that Brussels cannot insist on cash-strapped governments investing much, much more in high-tech skills and innovation.
Across the Atlantic, the alarm bells are ringing in the U.S. to warn that rising economic powers like China, India and Brazil could soon seize the initiative and profit from the West’s decline. In Europe those bells are muffled, with most politicians and media commentators content to sit back and digest the modest streamlining that the Lisbon treaty offers, and say that the EU’s political union has gone far enough.
What a stronger political core to the EU should look like is a deeply divisive question. But a first step towards finding the answer is for Europe to admit it can’t stay where it is. The eurozone crisis is just the rumbling of thunder before the storm.
Giles Merritt is Secretary-General of the Brussels-based think tank Friends of Europe and Editor of the policy journal Europe’s World