All quiet on the euro front? Seen from Berlin, it looks as though the continent is now under control at last, after the macro-financial warfare of the last three years. A new authority, the Troika, is policing the countries that got themselves into trouble; governments are constitutionally bound to the principles of good housekeeping. Further measures will be needed for the banks – but all in good time. The euro has survived; order has been restored. The new status quo is already a significant achievement.
Seen from the besieged parliaments of Athens and Madrid, from the shuttered shops and boarded-up homes in Lisbon and Dublin, the single currency has turned into a monetary choke-lead, forcing a swathe of economies – more than half the Eurozone’s population – into perpetual recession. The Greek economy has shrunk by a fifth, wages have fallen by 50 per cent and two-thirds of the young are out of work. In Spain, it is now commonplace for three generations to survive on a single salary or a grandparent’s pension; unemployment is running at 26 per cent, wages go unpaid and the rate for casual labour is down to €2 an hour. Italy has been in recession for the past two years, after a decade of economic stagnation, and 42 per cent of the young are without a job. In Portugal, tens of thousands of small family businesses, the backbone of the economy, have shut down; more than half of those out of work are not entitled to unemployment benefits. As in Ireland, the twentysomethings are looking for work abroad, a return to the patterns of emigration that helped lock their countries into conservatism and underdevelopment for so long. Why has the crisis taken such a severe form in Europe?
Part of the answer lies in the flawed construction of the European Union itself. Though Americans have been hard hit by the great recession, the US political system has not been shaken. In contrast to most European incumbents, Obama sailed through his re-election. Only in isolated pockets like Detroit has elected government been replaced by technocrats. In Europe, private and public debt levels were generally lower before the financial crisis struck. But the polity of the European Union is a makeshift, designed in the 1950s to foster an industrial association embracing two large countries, France and Germany, with a population of about fifty million each, and their three small neighbours. It was then expanded, piecemeal fashion, to incorporate nearly thirty states, two-thirds of which adopted a shared currency at the height of the globalisation boom – a project aimed in part at preventing a significantly larger, reunified Germany from dominating the rest.
The EU’s hybrid constitution includes, among much else, a decision-making European Council (summit meetings of the heads of the 28 governments); an overarching secretariat, the European Commission, with thirty-odd departments (directorates-general) and its own bureaucracy; a Parliament that discusses Commission proposals; and a supreme court to rule on any disputes. The blueprints for the euro that were drawn up in the 1990s added a further layer of confusion, for they bore no intelligible relation to any of the above.
‘The euro is essentially a foreign currency for every Eurozone country,’ the French economist Michel Aglietta and his co-author, Thomas Brand, write in Un New Deal pour l’Europe. ‘It binds them to rigidly fixed exchange rates, regardless of their underlying economic realities, and strips them of monetary autonomy.’ For Aglietta, a currency is essentially a social contract: behind it stands a sovereign guarantor with the power to tax its citizens in return for the public goods and services it provides for them. The euro had no such support; it bears ‘a promise of sovereignty’ that has not been kept. Un New Deal pour l’Europe contrasts the scheme for the euro embodied in the 1992 Maastricht Treaty with the 1970 Werner Plan for monetary union, a Franco-German attempt to protect the European economies from the buffeting of floating exchange rates at a time when the US was pulling out of the Bretton Woods system.
The earlier project had envisaged the six EEC member states defining a collective fiscal policy marked by a strong social dimension. The single currency agreed at Maastricht lacked the backing of a taxable citizenry; its guiding principle was price stability, guaranteed by an independent European Central Bank that would operate ‘in splendid isolation’, underwritten at arm’s length by the member states. The idea was that the euro would give free rein to financial liberalisation across the continent; market efficiency would see to it that savings were reinvested in an optimal manner, ensuring a general convergence of the eurozone economies. Aglietta and Brand attribute the difference between the two plans to the intellectual sea-change of the intervening decades – the triumph of monetarism and rational-choice theory. Europe, they write, is now a prisoner of its leaders’ decision to embed the flawed concept of an inflation-targeting central bank in ‘institutional marble’.
Just as important was the international context. A single currency might have worked for the core group of closely aligned economies – France, Germany, the Benelux countries – envisaged in the Werner Plan. Instead, the architecture of the Eurozone, concocted in response to the fall of the Berlin Wall, became fatally entangled with the project of EU enlargement. As it took shape from the mid-1990s, the single currency became available to any country that could claim to meet the minimal convergence criteria, in a spirit of geopolitical expansionism strongly backed by Washington and London. The result, as the vanity of the leading continental powers combined with the venality of the smaller ones, was a heterogeneous group of 17 economies, with divergent dynamics, tied to a uniform exchange rate and enjoying a shared credit rating. Rather than helping them converge, the common currency exacerbated the underlying differences between them. Domestic manufacturing in the Mediterranean countries was squeezed by Chinese imports at the lower end – textiles, ceramics, leather goods – while German companies gained an increasing market share at the upper end: cars, chemicals, machinery. At the same time, the easy credit of the globalisation bubble created the illusion that Europe was equalising upwards, as southern consumption was fuelled by northern banks’ cross-border lending.
When the crisis came in September 2008, the EU governments loyally toed the G20 line, pledging public funds to save the banks and shore up the economies. The 2009 Vienna Initiative underwrote the exposure of big Austrian and German banks in Central and Eastern Europe with government and IMF funds. By the start of 2010 the bank rescues, combined with recessions exacerbated by burst property bubbles, had widened deficits and piled up government debts. The ratings agencies began targeting the most indebted states – Greece, then Ireland, Portugal, Italy and Spain. Speculation on an exit from the Eurozone or a collapse of the currency helped drive the rates of government borrowing to unaffordable levels.
What followed was a thirty-month tug of war between the financial markets and the Obama administration, on the one hand, and Berlin and the ECB on the other, in which Germany grudgingly agreed to guarantee the debts of other member states on condition it was allowed to dictate the outlines of their national budgets. ‘No guarantees without control,’ as Merkel put it. In effect, Germany was to stand in for Aglietta’s absent sovereign power. On every occasion that panic came to a head – in May and November 2010 with the Greek and Irish bailouts; summer 2011 with tremors over Spanish and Italian bonds; November and December 2011 with the ousting of Papandreou and Berlusconi, followed by Cameron’s veto of the Fiscal Compact treaty; and summer 2012 with the Greek elections and the spectre of a Spanish banking collapse – Berlin acquiesced to the demands of the US Treasury.
Merkel’s one attempt to forge an independent path, the October 2010 Deauville agreement to force Greece’s creditors to write off some of their lending, was swiftly quashed. Washington was willing to go along with German austerity policies – Obama himself phoned Zapatero in May 2010 to harangue him about the need for Spanish spending cuts – as long as the chains of debt leading back to Wall Street were guaranteed. In September 2011 the US treasury secretary flew to Poland, gatecrashing a meeting of EU finance ministers to press his agenda. The list included emergency bailout loans, ECB bond purchases, bank funding, quantitative easing, eurobonds and Eurozone equivalents to US bank resolution and deposit insurance mechanisms. The US Treasury line was backed by the German SPD and Greens, the financial press and the world media.
In May 2010 the European Council agreed to set up a temporary €440 billion European Financial Stabilisation Facility (EFSF), later supplemented by a permanent €500 billion European Stability Mechanism (ESM). Underwritten by the Eurozone powers (with the help of Goldman Sachs, BNP Paribas, Société Générale and RBS), these entities would borrow money on the markets to provide loans to any country requesting help in meeting the billion-dollar interest payments on its national debt, on condition that the country agreed to an externally administered programme of fiscal austerity and structural reforms. For the financial markets, however, what mattered was not Berlin-inspired economic policies but an open-ended guarantee by the Central Bank. This involved a change of the guard at the ECB, which had to abandon its founding no-bailout mandate. At Merkel’s insistence, ideological cover was provided by the Fiscal Compact treaty, committing member states to inscribe a 3 per cent deficit limit in their constitutions. Once this was agreed in December 2011, the ECB dispensed a trillion dollars to Eurozone banks in super-cheap long-term credit. Even this was not enough; it was only in September 2012, when Mario Draghi, the president of the ECB, announced that the bank was ready to buy unlimited quantities of member states’ bonds – again with strict conditions attached – that the markets’ bets against the euro were taken off the table and the furore over Europe’s monetary policy could subside.
The EU that has emerged from this epic battle is significantly more autocratic, German-dominated and right-wing, while lacking any compensatory charm. The catastrophists, it’s true, have been proved mistaken. Far from disintegrating, the Eurozone has continued to expand: Latvia is adopting the euro in 2014, as Estonia did in 2011. Croatia joined the EU – or rather its ‘periphery’, as two sardonic Croats put it in the Guardian – this summer. But the EU hasn’t simply muddled through either. Instead, driven by the financial markets, with the US Treasury and the German Chancellery tugging at the tiller, it has lurched into a new phase of unification, characterised by the same skewed mix of centripetal and centrifugal logic that has shaped its course since Maastricht: asymmetrical integration, combined with inegalitarian enlargement.
At supranational level, the ‘controls’ demanded by Berlin have produced an ad hoc economic directorate with no legitimation beyond the emergency itself. The Troika – it has no official name – was scrambled together in April 2010 to take over direction of the Greek economy, as the condition for its first EFSF loan. Composed of functionaries from the European Commission, the ECB and the IMF, it now governs Portugal, Ireland, Cyprus and Greece, and has been permanently inscribed in the European Stability Mechanism. The Troika issues Memoranda of Understanding on the same model as the IMF, which dictate every detail of the member states’ legislative programmes: ‘The government will ensure that the legislation’ – for cuts in health and education, public sector redundancies, reductions in the state pension – ‘is presented to Parliament in Quarter 3 and agreed by Parliament in Quarter 4’; ‘the government will present a Privatisation Plan to Parliament and ensure it is speedily passed’; even, ‘the government will consult ex ante on the adoption of policies not included in this Memorandum.’
The Troika’s record of economic management has been abysmal. Greek GDP was forecast to fall by 5 per cent from 2009 to 2012; it dropped by 17 per cent and is still falling. Unemployment was supposed to peak at 15 per cent in 2012; it passed 25 per cent and is still rising. A V-shaped recovery was forecast for 2012, with Greek debt falling to sustainable levels; instead, the debt burden is larger than ever and the programme has been renewed. No one has been held to account for this debacle. Further rounds of cuts are scheduled for 2013, without any economic rationale. Another 15,000 public sector workers have to be sacked to meet the requirements of this summer’s quarterly review; the entire staff of the Greek broadcasting corporation has been dismissed. The number of doctors by headcount must fall by another 10 per cent this year, as in 2012; hospital costs are to be cut by another 5 per cent, after 8 per cent in 2012, and the Troika wants to see a substantial further reduction in hospital beds.
The most aggressive component of the Troika is the European Commission’s Directorate for Economic and Financial Affairs. Its public face is the beefy blond Olli Rehn, usually photographed haranguing Mediterranean lawmakers in viceregal style. In his native Finland he has been compared to Bobrikov, the hated tsarist governor-general who tyrannised the country in the early years of the 20th century until a patriot shot him dead. Rehn’s understanding of his job was revealed in the comment he made as he lashed out against the IMF’s mild criticism of the Greek programme: he informed the Financial Times that the Troika should march ‘in together, out together’, on the model of the Nato powers in the Balkan war.
Like many European commissioners, Rehn had been summarily rejected by his own electorate. Educated in the US and at St Antony’s College, Oxford, he entered the Helsinki Parliament as a 29-year-old in 1991 and was quickly seconded to the office of Esko Aho, the Centre Party prime minister. Aho’s government was detested for the harsh spending cuts it imposed, exacerbating the already severe early-1990s recession. When the party was consigned to the opposition benches in the 1995 election, Rehn made his way to Brussels, where he landed the plum job of chef de cabinet for Finland’s European commissioner, into whose shoes he stepped in 2004. (Aho became executive vice-president of Nokia.) His first brief was EU Enlargement; Romania and Bulgaria were whisked into the fold in 2007, with evidence of massive political and economic corruption brushed aside. An ardent disciple of Merkel’s finance minister, Wolfgang Schäuble, and his hardline stance on budgetary and labour market discipline, Rehn was promoted to Economic and Financial Affairs just as the Greek crisis was erupting in 2010.
Since then, the European Council has successively extended the Commission’s remit for ‘economic surveillance and enforcement’. First came the European Semester (2010), a new process in which Brussels sets annual targets for all member states, whose budgets must be submitted to Rehn’s office before they can go before the parliaments. Countries considered to be ‘at risk’ are subject to the EU’s ‘excessive deficit procedure’ and face fines of up to 0.2 per cent of GDP. A series of overlapping intergovernmental agreements (the Euro Plus Pact in 2011, the Fiscal Compact in 2012) and EU regulations (known in its miserable jargon as the six-pack and two-pack) gave the Commission greater powers to intervene if any state was not already following its strictures on lowering unit labour costs, increasing labour market flexibility and making the requisite budget cuts. Within the Commission, the Economic Directorate has been given more sway: Rehn must be consulted about other commissioners’ initiatives if they affect government spending.
The new powers of the European Commission and the Troika mark a real diminution of democratic control. Before the crisis, the EU had left major decisions on taxation, pensions, unemployment pay, public spending, health and education in the hands of national governments, considering them sensitive enough to require parliamentary legitimation. Now they are effectively subject to the diktat of EU functionaries. The constitutional niceties have been preserved, so far, in that parliamentary majorities have been found to vote the emergency measures through. But in countries where unemployment and economic misery are running high, the MPs are supported by a minority of voters. In Greece, barely 30 per cent of the total electorate cast a vote for the winning New Democracy-Pasok-Dimar coalition in June 2012; those who did so were mostly pensioners and rural voters, worried for their savings, while in the big cities and among under-55s, a majority voted for the anti-Memorandum Syriza. In Spain, the governing People’s Party is down to 23 per cent in the polls, the centre left Socialists even lower, and Madrid’s budget strictures are fiercely contested by Catalonia. In Italy more than half the voters opted for Eurosceptic parties in February 2013 and Mario Monti, the EU establishment favourite, crashed out with 10 per cent.
Is electoral democracy compatible with the type of economic policies the EU – backed at a distance by Washington and Wall Street – wants to impose? This is the question posed by the Cologne-based sociologist Wolfgang Streeck in Gekaufte Zeit, a book that is provoking debate in Germany. Streeck argues that since Western economic growth rates began falling in the 1970s, it has been increasingly hard for politicians to square the requirements of profitability and electoral success; attempts to do so (‘buying time’) have resulted in public spending deficits and private debt. The crisis has brought the conflict of interests between the financial markets and the popular will to a head: investors drive up bond yields at the ‘risk’ of an election. The outcome in Europe will be either one or the other, capitalist or democratic, Streeck argues; given the balance of forces, the former appears most likely to prevail. Citizens will have nothing at their disposal but words – and cobblestones.
Brussels’s response to the curtailment of democracy has been to propose a ‘commensurate increase’ in the role of the European Parliament, to lend democratic legitimacy to the Commission’s expanded powers; but the Parliament is constitutionally incapable of that. Its electoral process can’t do what voters expect of parliamentary elections – i.e., determine the make-up of the ensuing government. The Parliament’s first incarnation, the Common Assembly, was established in 1952 as a gathering of MPs from the national parliaments to provide a democratic sounding board for the High Authority of the European Coal and Steel Community, forerunner of the Commission. The Assembly was granted power of dismissal over the Authority and could vote down its budget. From the start, however, both institutions saw their relationship as one of close co-operation: unanimity would strengthen their bargaining power vis-à-vis the national governments, represented in the Council of Ministers and later in the European Council, where real power came to reside.
De Gaulle had mocked the idea of direct elections to a consultative body, but in the 1970s Giscard gave it the green light, in exchange for the small states’ conceding a greater role to intergovernmental summitry. The first Europe-wide elections were held in 1979, but the Parliament’s function was still advisory. The MEPs were not lawmakers; their task was to issue a majority opinion on the directives drafted by the Commission and agreed by the Council, with the details hammered out in closed committees. The creeping extension of the Parliament’s ‘co-decision’ capabilities over the past twenty years relates to its capacity to propose amendments to the Commission’s wording, which the Council can override. The cosy relationship continues: the vast majority of co-decision directives are agreed beforehand in informal ‘trialogues’ between representatives of the Commission, the Council and the Parliament. The condition for MEPs’ success in getting an amendment adopted is its acceptability to the other institutions, not its importance to European voters.
Most of the MEPs’ work is done in the twenty-odd committees set up to cover specific policy areas: foreign affairs, agriculture, transport, justice, the EU budget. Committee appointments are controlled by the leaderships of the party groups – the centre right European People’s Party (EPP), centre left Socialists and Democrats (S&D), liberal Alliance of Liberals and Democrats for Europe (ALDE) – and allocated on a proportional basis. At the monthly Strasbourg plenaries, the groups issue voting cues to guide their members through the bewildering sequence of resolutions: regulations for EU airports, animal feed, cellphone registration procedures and so on. The EPP and S&D groups control two-thirds of the seats, so agreement between their leaders ensures a majority of plenary votes. The Commission has had nothing but praise for the speed with which the Parliament’s committees and party groups put their stamp on the draconian measures for the Eurozone. In an inter-institutional tweak that is supposed to lend the European Commission a democratic lustre, each of the party groups will nominate a candidate for the Commission presidency, to succeed the hapless Barroso in the run-up to the Parliament’s elections in May 2014; names being touted include Donald Tusk, Guy Verhofstadt, José Luis Zapatero, Pascal Lamy, Martin Schulz and Barroso himself. If turnout continues to fall as it has since 1979, the winner could end up with the support of less than 10 per cent of European voters. In sum, the European Parliament appears unreformable.
A substantial section of Europe’s intelligentsia has rallied to defend the new round of market-driven integration as the best of all possible outcomes. Jürgen Habermas devotes The Crisis of the European Union: A Response to demonstrating that the balance of power ‘has shifted dramatically within the organisational structure in favour of the European citizens’. Although the citizens themselves are regrettably apathetic about it, post-national democracy is well on its way to being realised through the European Parliament; the mass media should do more to help them appreciate its significance. In a recent essay taking issue with Streeck, Habermas argued that failure to offer full support for the emergency Eurozone measures amounts to a capitulation to right-wing populism that ‘repeats the errors of 1914’. He hopes the German elections will produce a truly grand coalition – CDU, SPD, FDP, Greens – to push through the supranational blueprints for fiscal and political union. ‘Only the Federal Republic of Germany is capable of undertaking such a difficult initiative,’ he concludes, with a flourish of the sort of provincial arrogance that used to be a British prerogative but has become common in the German media. What has been obliterated here is France. (The former leader of the Greens, Joschka Fischer, has claimed that ‘Germany is and has been the driving force behind European integration.’)
For Europe!, a manifesto co-authored by the German Green Daniel Cohn-Bendit and the Belgian Liberal Guy Verhofstadt, has even wilder pretensions. ‘Only the European Union’ is able to ‘guarantee the social rights of all European citizens and to eradicate poverty’; ‘only Europe’ can solve the problems of globalisation, climate change and social injustice; the ‘shining example’ of Europe has ‘inspired other continents to go down the path of regional co-operation’; ‘no continent is better equipped to renounce its violent past and strive for a more peaceful world.’ Cohn-Bendit and Verhofstadt out-catastrophise Habermas: if the single currency fails, so does the European Union – ‘two thousand years of history risk being wiped out.’ For Europe! is a hymn to discipline, which emerges – surprisingly – as green-liberalism’s central theme. A ‘strong’ authority is required to ‘enforce compliance’; ‘discipline is vital to the Eurozone.’ Asked by a Libération journalist whether the European Stability Mechanism was not ‘a technocratic dictatorship’, Verhofstadt preferred to call it a ‘transitional stage’ – after all, nation-states had existed for centuries before universal suffrage.
The Munich sociologist Ulrich Beck’s German Europe at first strikes a refreshingly critical note. It opens with his incredulity on hearing a radio newsreader announce in late February 2012: ‘Today the German Bundestag will decide the fate of Greece.’ For Beck, the new inter-state hierarchy in the Eurozone has no democratic legitimacy: it is entirely a product of economic power. Spain, Greece and Italy are being subordinated to austerity policies prescribed by Berlin and designed with the German electorate in mind, and as a result entire regions are being ‘plunged into social decline’. Debtor nations are becoming the new EU underclass, their democratic rights reduced to acceptance or exit. Merkel may have had her leading role thrust upon her but she has made the most of it. The test for Eurozone measures is whether or not they promote Germany’s national interest and Merkel’s domestic position. The upshot is ‘brutal neoliberalism for the outside world, consensus with a social democratic tinge at home’.
Beck relates Berlin’s ‘swaggering’ universalism, its ‘arrogant conviction’ that Germany has the right to determine the national interests of other countries, to the former West Germany’s takeover of the GDR. Its ‘know-it-all attitude’ and ‘quasi-imperialist sense of superiority’ to East Germans is now the template for Eurozone crisis management, with the critical difference that solidarity has no place here. But the confidence of ‘Europe’s schoolmasters’ in Gerhard Schröder’s 2003 neoliberal package is misplaced, Beck argues, for its effect in Germany has been to create a universalised precariat: of the new jobs, 7.4 million are ‘mini-jobs’ at €400 per month, three million are temporary positions, one million agency jobs. German growth has come mainly from exports, not least to the southern Eurozone. Yet Beck’s final prescriptions bear no relation to his diagnosis. His enthusiasm for a non-accountable Eurozone economic directorate is no more qualified than that of Habermas, Cohn-Bendit or Verhofstadt. Like the others he believes that it must be defended against complaints that it is ‘above the law’ on the grounds that it is necessary in order to save the EU order.
Counterintuitively perhaps, German debates have concentrated on the politics and sociology of the European crisis, while the most imaginative economic alternatives have come from France. Michel Aglietta and Jean-Luc Gréau offer proposals for democratically constituted Eurozone budgetary federations, while in Les Dettes illégitimes François Chesnais mines the experience of the Latin American debt crises for useful lessons, drawing especially on Ecuador’s successful ‘debt audit’, which examined in detail what obligations had been accrued in the name of the state and which ones might legitimately be repudiated. Aglietta has also outlined a step-by-step path that Greece could take to a new currency, via a structured default and devaluation, while still remaining within the European Union. The price would be high, but no higher than the price the Greeks have had to pay anyway, and relief would have been in prospect by now. (As for the effect of a Greek default on Spanish and Italian bonds, that price has been paid as well.) In the June issue of the Cambridge Journal of Economics, Jacques Mazier and Pascal Petit envisage a multiple European monetary system: a single external euro, which would float against the other currencies on international markets, but coexist with non-convertible national euros, which in turn would have fixed but adjustable intra-European parities – a variant of what China envisages as a middle stage for the convertibility of the yuan.
Whatever their merits, in a Europe run from Berlin, Brussels and Frankfurt, the political forces to champion such ideas are lacking. Yet German dominance during the Eurocrisis has depended above all on French compliance: active collaboration under Sarkozy, passive absence of opposition under Hollande. There is something anomalous about the neutralisation of France as an actor on the European stage and the brittle character of German hegemony must stem in part from it. The conventional explanation is that the French economy is too weighed down by its statist legacies for the Elysée’s word to carry much authority, but the figures don’t bear this out. France has now overtaken the UK, after a swifter recovery from the crisis. Its public debt, including bank rescues, is lower than Britain’s and its manufacturing sector is in better shape. Unemployment is worse, but average household income is higher, inequality lower and infrastructure and healthcare in another league. France faces the same global problems as the other advanced economies, but the reason it has ceased to play a leading role in Europe must lie elsewhere – perhaps in a sclerotic political system and intellectual entrancement with Atlantic liberalism, as well as the cross-border entanglements of BNP Paribas and Société Générale.
For the longer term there is no shortage of proposals for European ‘economic union’ and ‘political union’, headings that cover a wide variety of arrangements, many of which have been under discussion for years. All the schemes work on the assumption that economic policy should aim at reduced public spending and low-cost labour markets, as the failsafe recipe for stability and growth; all see political union as a means by which to apply this policy; nearly all gesture towards the European Parliament as the mechanism for lending it ‘legitimation’. Where the proposals differ is in the respective weight they give to intergovernmental bodies as opposed to supranational ones, and in their minimalist or maximalist versions. Decisions will depend not only on the balance of forces between the states – Germany, historically a champion of the small states’ supranational agenda, has shifted towards intergovernmentalism in the course of the crisis – but also on external shocks, as the current negotiations over banking union demonstrate. Supranational oversight of the national banking sectors by the ECB is relatively uncontroversial; but Berlin is leading the resistance to the Commission’s proposals for EU-wide deposit insurance (backed by the ESM funds) and a supranational authority which would have the power to take over bankrupt German banks. Still, another financial tremor could see an emergency mechanism cobbled together which, like the Troika, would become part of the EU system.
Minimalist intergovernmental versions of economic and political union – sketched in Van Rompuy’s European Council report in June 2012 and currently backed by Merkel – lean towards ‘integrated frameworks’, whereby the national governments agree to co-ordinate budgetary and economic policies (deficit limits, ‘competitiveness’, pensions etc), monitored by the Commission. A maximalist intergovernmental version, favoured by Schäuble, envisages explicit policy co-ordination for the Eurozone alone, perhaps upgrading the Eurogroup finance ministers’ meetings to quasi-cabinet status. Supranational or ‘federalist’ versions of political and economic union focus on strengthening the Commission as a proto-government, with the European Parliament given a higher profile. Maximalist supranational variants include Barroso’s September 2012 report to the Parliament and the Commission’s November 2012 ‘Blueprint for a Deep and Genuine Economic and Monetary Union’, which set out longer-term plans for an autonomous Eurozone budget and a eurobond market, conditional on tight central controls over national spending.
The problem is Europe’s citizens. Substantial new powers for supranational or intergovernmental bodies would require another treaty, which would entail referendum campaigns over ratification in at least two member states – effectively, an invitation to voters to make their dissatisfaction known. In Spain, the number expressing ‘mistrust’ of the EU has risen from 23 to 72 per cent over the past five years; in Germany, France, Austria and the Netherlands the figure is around 60 per cent. Fewer than a third of Europeans now ‘trust’ the EU; a majority give unemployment and the state of the economy as their chief concerns.
Still, much could be done without involving the voters, as Jean-Claude Piris points out in The Future of Europe: Towards a Two-Speed EU? Piris was the EU’s chief lawyer for two decades, responsible for the technical drafts of the Maastricht, Amsterdam, Nice, Constitutional and Lisbon treaties before his retirement in 2010. He is a stern judge of his own handiwork: expansion has robbed the EU of its coherence and identity; the Parliament has failed to win voters’ confidence; the Commission is intellectually weak, the Council hampered by unanimity requirements; voter disaffection rules out a much-needed institutional fresh start. Instead, Piris argues, Article 136 of the Treaty on the Functioning of the European Union gives the Eurozone countries ample scope for fiscal and economic co-ordination; a core group could use a political declaration to provide themselves with a coherent identity and future project.
What will become of the EU countries outside a more tightly co-ordinated Eurozone? In Au Revoir, Europe: What if Britain Left the EU? David Charter, a Times journalist, argues that the combined dynamics of growing Euroscepticism in the UK and increasing integration in the Eurozone mean that London will either have to negotiate a form of second-tier membership – some have proposed making a virtue of a looser outer ring, which could include Turkey and the Balkan states as well as Britain – or quit the EU altogether. One can see why many in Europe might welcome that possibility. Britain has loyally fulfilled De Gaulle’s prediction that it would serve as a Trojan horse for US interests in Europe. Cameron has lately spared no efforts in defending London’s derivative traders – mostly subsidiaries of US banks – from EU regulation, let alone taxes, while backing savage austerity programmes and urging Germany to step up to the mark.
Charter’s history of the UK’s relationship with Europe is a useful reminder that much of what people loathe about the EU has been the result of British intervention. Polls say a majority would favour a single market – Thatcher’s dream – without the mass of EU regulations, but the latter are a precondition for the former. By the 1980s, every advanced industrial economy had built up its own web of health and safety rules, not without reason: specifications for product labelling; safety requirements for electrical appliances; protocols for food standards and abattoir inspection agencies; restrictions on toxic substances, such as lead paint on children’s toys. National import tariffs could be removed by fiat, but to create a single market these ‘non-tariff barriers to trade’ needed to be brought into alignment, sector by sector, across a growing number of national economies. Naturally the Brussels negotiating committees charged with the task became a target for corporate lobbyists. Then, from 2006, the EU’s bid to become the global leader in environmental regulation – eagerly backed by Blair, who hoped to greenwash his reputation – helped to produce a plethora of further edicts, on everything from plastics to lightbulbs.
Au Revoir, Europe offers a brisk cost-benefit analysis of what leaving the EU would mean for Britain. Charter’s findings on the economic effects broadly concur with those of the Economist, in its anti-exit intervention of December 2012. On the plausible assumption that the UK could negotiate a bilateral trade deal with the EU, the medium-term effects would be negligible; Charter effectively demolishes Clegg’s claim that 3.5 million UK jobs ‘depend’ on membership of the EU. The short-term impact on investment would be more dramatic, perhaps comparable to the financial crisis, when foreign investment fell from £196 billion to £46 billion between 2007 and 2010. Over the medium term, investment would recover in tandem with growth, once post-EU arrangements were on a solid footing. As for the UK contribution to the EU budget, €11.3 billion is barely a blip in the public accounts: 1 per cent of total government spending.
Leaving the EU would allow the UK to adopt a tightly controlled visa system for other Europeans; EU nationals make up 40 per cent of net UK immigrants and currently have free entry for up to three months, with indefinite leave to stay if they have a job or are self-employed. But Brits would be subject to equivalent barriers on trying to enter the EU; around a million are resident in other EU countries, above all Spain, where they can collect their UK pensions through the local post office and enjoy free healthcare. Post-exit, the repatriation of Costa Brava grandparents would add to UK social service costs; demographic recalibration would be further ratcheted towards the elderly and dependent by the exclusion of fit young Poles and Romanians. For the Economist, cheap immigrant labour is a principal reason for remaining in the EU (along with being useful to Washington and having a voice in financial sector regulation); Charter suggests that costs and benefits in this area cancel each other out.
Au Revoir, Europe was published before Cameron promised to hold an in-out referendum in 2017, but Charter anticipates something like it. He sketches an exit trajectory unfolding over the next ten years. In the 2015 election, all three parties include an in-out referendum pledge in their manifestos, a reluctant Edward Miliband having been convinced by his advisers that Labour can’t afford to be the only party not to offer voters a choice. Labour scrapes in and duly holds the referendum. Boris Johnson, who has replaced Cameron as leader of the opposition, leads an energetic Out campaign, trumping the lacklustre Ins. On a 54 per cent turnout, the UK votes by 51.4 to 48.6 per cent to leave the EU. Miliband’s lame-duck government limps on to conclude a UK-EU free trade agreement, with London now paying substantial fees for access to the single market and agreeing to take account of EU legislation in drafting its own laws. Geography and trade dictate that Britain is still closely entwined with its ex-partners; exiting the EU doesn’t mean adieu to Brussels.
How plausible is this scenario? The Labour leader’s gratitude for White House guidance on the in-out referendum – popular consultation was curtly dismissed by Obama as ‘unhelpful’ – ensures that it won’t be featuring in Labour’s election campaign. The Liberal Democrats had no qualms about dropping their own referendum commitment for the 2010 coalition agreement. So the referendum will depend on a clear-cut Tory victory in 2015, which at present looks against the odds. The population drain to the South-East has left constituency boundaries heavily weighted in Labour’s favour, and in 2010 UKIP denied the Tories a dozen marginal seats, by skimming off a few thousand votes in each. A Conservative pollster has predicted a ninety-seat majority for Labour, which sounds far-fetched, especially given low turnout and tactical voting – Tories warning that a vote for UKIP means a vote for Miliband, who has also, to his credit, mortally offended Rupert Murdoch. But a Lib-Lab government would rule a referendum out.
If one were to be held, though, the likelihood would be a vote for the status quo. UKIP’s rise is not due to a sudden, post-crisis surge of Euroscepticism in England (Scotland will have none of it) but to the collapse of support for the three main parties. For the first 15 years of its existence, UKIP struggled to get 3 per cent in national polls. Its breakthrough came in the 2004 European Parliament elections, fought on the basis of PR. As the others slumped to unprecedented lows – Labour brought down by Iraq, the Tories still wandering in the post-Thatcher wilderness – UKIP garnered 16 per cent of the vote and 12 MEPs, a sixth of the UK cohort, whose ample salaries, perks, office staff and resources could be diverted to local party-building. In the 2009 European elections, Labour’s rout – barely 15 per cent of the vote – put UKIP, on 17 per cent, in second place to the Tories.
Since 2010, the Liberal Democrats’ embrace of spending cuts and student fees has created a tri-partisan consensus, leaving UKIP the best-known receptacle for the protest vote. Meanwhile the English political mainstream has shifted so far to the right that UKIP’s domestic policies – limited visas for immigration, grammar schools, sacking teachers and local government workers – are only mild exaggerations of what the others proclaim. Academy schools, pursued with equal zeal by Labour and Tory education secretaries, select or exclude pupils on the basis of management diktat, not even bothering with an exam. Phil Woolas, Labour’s immigration minister, pledged his party to a ‘war’ on undocumented immigrants; his 2010 election leaflet, attacking a Liberal Democrat rival who had been wooing the local imams, was reminiscent of the Tories’ famous 1960s slogan, ‘If you want a nigger for a neighbour, vote Labour.’
Opinion polls currently indicate 41 to 54 per cent for EU exit, 24 to 38 per cent for staying in and 8 to 30 per cent don’t knows. But these are soft figures, measuring off the cuff political views rather than hard-headed calls on material personal advantage. The transatlantic bully pulpit will make much of short-term financial upheaval and higher interest rates; fear will favour the status quo. In the 1975 referendum, a much more anti-European population voted two to one to remain in the Common Market. A pioneering mood of national confidence, a willingness to strike out into the unknown, is lacking in England as much as it is in Scotland. The Trojan horse will be staying put. Europe’s luck is out on that front, too.
As for the immediate future, the Berlin-Brussels axis can probably continue to manage the crisis on Germany’s terms as long as its worst effects are confined to the small peripheral economies – Greece, Cyprus, Portugal and Ireland. The latest figures indicate a fragile 0.3 per cent improvement in second-quarter Eurozone growth compared to 2012, sustained almost entirely by Germany and France. But if the world economy were to take a turn for the worse, Spain and Italy would pose problems on another scale. The ECB’s bond-buying programme would oblige their already discredited politicians to submit to Troika rule. Yet the financial market turmoil that greeted Ben Bernanke’s murmur this summer about a cut in quantitative easing was a reminder that the lull won’t last for ever. Five years of zero interest rates and $14 trillion from the Federal Reserve have produced only stuttering American growth. China, with falling exports, teeters on the brink of a bank and local government debt disaster. Europe is vulnerable from both directions: higher interest rates will raise the risk of default by its states and banks, while German exports depend increasingly on China’s construction boom. This summer the Bundesbank revised down its forecasts for 2014. The austerity regime has yet to be tested in its homeland.
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