A More Perfect Union
Over the years, European leaders forgot how to justify integration to their citizens. It’s time they remember—and proceed with tough reforms.
Americans are writing Europe off–and apparently for good reason. The last several months have seen the European Union stagger from one crisis to another. After barely passing the Lisbon Treaty–which amended the EU’s fundamental texts in order to streamline its institutional structures–the EU soon found itself in the throes of its current crisis over the economic governance of the euro, while simultaneously confronting the failure of its ten-year effort to modernize the European economy.
American pundits seem almost to take pleasure in Europe’s problems. Richard Haass, the president of the Council on Foreign Relations, claims that the European project is “foundering” and that Europe’s days as a world power are over. Officials in the Obama Administration are less consumed by schadenfreude, but are nonetheless irritated with Europe’s navel gazing. They find the EU’s decision-making structures confusing and indecisive–no one knows whether the president of the European Council, the high representative on foreign affairs, or the country holding the Council presidency is supposed to be in charge of foreign policy. While U.S. officials publicly claim that the relationship with Europe is “the cornerstone for U.S. engagement with the world,” they privately do everything that they can to avoid entanglement with Europe’s byzantine policy apparatus. When the United States wanted to make sure that some decision would emerge from the Copenhagen talks on climate change, it deliberately cut the Europeans out of the final stages of the negotiations in favor of one-on-one discussions with China. As European Commissioner for Energy Günther Oettinger acknowledges, “If the Copenhagen summit showed us one thing, it is that even the European Union isn’t big enough for world authority when it comes to countries like China.”
That the European Union is going through a rough patch is indisputable. The Greek debt crisis and the reluctant bailout by members of the union have underscored the unsustainability of Europe’s economic arrangements. Even so, the United States cannot afford to lose patience with Europe. The U.S.-EU economic relationship is the largest and most important in the world. The EU and the United States together dominate international financial markets, accounting for 80 percent of the debt securities market and 65 percent of issued equity before the Great Recession. If, as Haass predicts, the EU falls into complete disarray, it will hurt the United States nearly as much as it hurts Europe. The collapse of the EU would cause massive turmoil in international financial markets, and very likely a new Great Recession, which would be far worse than anything recently experienced.
America has a strong interest in seeing the European Union come through the crisis. It also has a longer-term interest in the stability of Europe. Even when the United States wants to ignore Europe, it has much more in common with it than with most other parts of the world. Europe and North America are by far the most important examples of democratic stability in the modern world. The European Union has not only helped bring peace and stability, but has helped spread democracy in the wake of the fall of the Berlin Wall.
However, Europeans need to decide whether they are ready for real European politics, or whether they are content merely to senesce. The decisions that the EU takes about how to recreate its system of economic governance will have long-term consequences. If Europe decides simply to muddle through, it will run a high risk of failure, with little real prospect of breaking out of the trap that it finds itself in. If it chooses instead to remake itself as an exemplar of harsh economic austerity, it will destroy what legitimacy it still retains. Europe needs instead to rebuild its economic framework so as to make it more flexible in accommodating national differences.
A Crisis of Legitimacy
The politics of the continent are a tangle of contradictions that would have led to the current predicament with or without an economic crisis. Europe is paralyzed by three major intersecting problems. The first is a general crisis in European integration–the EU lacks the political legitimacy to undertake major institutional changes. The second involves the more specific deficiencies of Europe’s institutions for economic governance. These problems are inherent in the current system, but have been cruelly exposed by current harsh economic conditions. The third problem concerns the structural factors–an aging workforce, inefficient labor markets–that present long-term challenges to European economic growth. Raising European levels of productivity and innovation will be a struggle, as it has been for years.
The crisis of European integration is a byproduct of Europe’s past success. The European Union began in France and Germany’s desire to dissolve their historic enmities through economic cooperation. The EU’s institutional ancestor, the European Coal and Steel Community, was founded in 1952 in order to create unity “through practical achievements which will first of all create real solidarity, and through the establishment of common bases for economic development.”
Over almost 60 years, the EU has accumulated many such practical achievements. It now has 27 member states with about 500 million citizens. Its GDP adjusted for purchasing power parity–a measure that calculates consumers’ actual buying power in different currencies–is $14.8 trillion, higher than that of the United States, and 21 percent of world GDP. In 2002, a new layer of economic governance was introduced to the EU with Economic and Monetary Union (EMU), which created the euro and sought to further break down economic barriers between member states. Today, 16 of the EU’s 27 member states participate in EMU, and all other member states, except the UK and Denmark, are theoretically obliged to join it when they meet its membership conditions. EMU members share a single currency and delegate all their monetary decision making to the European Central Bank.
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