Will it hold?
Helen Thompson on the EU
If the real point of the European Union is to achieve an ever closer union among the peoples of Europe, the British have never seriously wanted a place in it. If we follow the logic, Brexit makes the EU a more viable political entity. But the EU has always been about much more than gradual European political unification. Currently, it is set up in a manner intended to enable it to manage the varying problems of its member states and to contain Germany. Brexit reflects more than just the difficulties of bringing an island state with a singular constitutional and legal history and a fear of monetary integration into a union created by other states to contain problems Britain did not share. Brexit is part of a larger reality in which the European Union must navigate faultlines deriving from its political structures and the turbulence beyond its borders.
These faultlines were already evident in the summer before Britain’s EU referendum. At that time, no one was taking seriously the possibility that Britain – the member state which possessed the second largest economy, was its financial centre, made the second highest net contribution to the EU budget, and spent the most money in absolute terms on defence – might secede. The sacrifice required to end the crisis afflicting the EU in 2015 was supposed to be Greece. Led by Germany’s Wolfgang Schäuble, the Eurozone finance ministers drew up an ultimatum designed to be too ignominious for Greece to accept. This document revealed a brutal truth about the EU. If Eurozone governments could expel a fellow member state from the single currency with the aid of the European Central Bank (ECB) and without legal authority under EU treaties, membership of the EU itself was, or had become, contingent. It is the most perverse of ironies that the Greek prime minister, Alexis Tsipras, defiantly asserted Greece’s sovereignty by acquiescing to more humiliation than it had been assumed any European state could bear.
While Schäuble’s attempts to effect the expulsion of Greece failed, Angela Merkel’s attempt to manage the refugee and migrant crisis was more effective. Confronted with large numbers of people entering Europe as a consequence of the failure of Western policy in Syria and Libya, growing tensions in Western relations with Turkey, and the long-term pull of economic opportunity, the EU had difficulty in agreeing a collective response. By acting unilaterally to suspend the rules on asylum seekers and welcome a million refugees and migrants to Germany, Merkel demonstrated her unwillingness to be constrained by the rules or inertia of the EU. When she faced a backlash at home she reached, just as significantly, for another solution of her own, this time securing what amounted to a bilateral agreement with the Turkish president, Recep Tayyip Erdoğan (presented as an EU deal in March 2016), to halt the flow of refugees from Turkish camps in exchange for accelerating talks on Turkish accession.
In this way the EU moved from a crisis about Greece’s possible exit from the Euro to a crisis over a possible path to Turkish membership. It had insufficient leverage to determine the conclusion of the first and is unable to face the implications of the second. Merkel’s actions in particular exposed the privileges enjoyed by Germany. It was not simply that German decisions proved decisive. The Turkey deal was also proof that the German government can change course when domestic politics dictate, whereas for other states EU treaty law generally prevails over democratic discontent in spite of adverse electoral consequences. David Cameron must have looked on in envy: he’d tried to talk tough on immigration without any authority to reduce Britain’s openness to southern Europeans. Merkel meanwhile profited from continuing to talk up German openness while having ensured that Germany was closed to non-Europeans coming through the Balkans.
Cameron lost his referendum in good part because of the increase in German power over the EU that began with the Eurozone crisis and culminated in the Turkey agreement. Britain’s domestic politics were not equipped to withstand either its economy becoming an employer of last resort for the Eurozone or the overt displays of German influence that marked the migrant and refugee crisis and Cameron’s renegotiations. It remains unclear whether Merkel understood the risk of Brexit happening and was willing to run that risk because the Eurozone crisis had raised questions about the durability of a multi-currency political union, or if Brexit was for her an unintended and regrettable accident brought about by her preoccupation with the refugee and migrant crisis.
After the Eurozone crisis made it clear that the original form of monetary union was unsustainable there was always an argument for the EU dispensing with Britain. While British labour markets provided a safety valve for southern Europe its politics were an impediment to reforming the single currency via treaty change: in 2011 Parliament legislated for a referendum lock on any new treaty, and Cameron tried to prevent changes to the fiscal governance of the Eurozone in the hope of securing regulatory protection for the City of London. Although he failed, the position of the City in the single market risked becoming an intractable problem. Having London operate as the centre of euro-dominated financial activity was unsatisfactory to the French and German governments and the ECB, but no action could be taken to distinguish euro from non-euro members in financial services because the principle of non-discrimination within the single market was sacrosanct.
Brexit allows the EU to confront the question of how long it can continue to function under a single legal framework when not all its member states participate in the euro. Britain is not the only non-member of the single currency, but the resilience of the other non-members can in principle be tested more readily either because they have clear legal obligations to join, as for example do Poland and Hungary, or their monetary policy is tied formally or informally to that of the ECB, as is the case for Denmark and Sweden. In his 2017 State of the Union speech, the president of the EU Commission, Jean-Claude Juncker, used the opportunity to restate that the euro is supposed to be the single currency of the entire union and that the status quo entrenches division. Macron appears to seek a different solution – namely, the long-standing French preference for a new hierarchy, organised around membership of the Eurozone. For Macron, relegating the non-euro members to an outer circle and establishing a transfer union that would move resources between the Union’s core states for fiscal and banking purposes would allow a Franco-German vanguard to drive Europe closer to what for him is the continent’s destiny.
Yet there is little evidence that the EU is capable of choosing either of these paths. Earlier this year Merkel seemed to be constructing with the then leader of the German Social Democrats, Martin Schulz, a new grand coalition that could have gone some way towards Macron’s position. But Schulz’s support for Macron’s ambitions proved a liability within the SPD and even if Schulz had kept the leadership of his party, Merkel would have been constrained by the absence of support in her own party for sharing tax and banking liabilities with other countries. Meanwhile, the two remaining northern non-euro states, Sweden and Denmark, have reacted to Brexit by making alliances – some have called it a new Hanseatic League – with those northern Eurozone states, including the Netherlands and Ireland, that have little stomach for risk-sharing. What still cannot be contemplated is the possibility that the only way to save the EU is to end the euro. Instead what we can expect is the kind of muddling through that has characterised monetary union since it was first conceded by the Germans to the French in the belief that hard convergence criteria would restrict the single currency to a handful of states. But then, if muddling through is all that can ever happen, we might wonder why Merkel offered Cameron so little ammunition with which to try to persuade the British electorate to stay inside the EU.
This is particularly striking because Brexit does have serious costs for the EU, individually for member states, especially Ireland, and collectively in the budget. The Multiannual Financial Framework that covers the annual budgets from 2021 to 2027 will be missing around 94 billion euros in British contributions. The Commission has unveiled a draft plan which would see overall expenditure increased and contributions rise. But the net contributors to the Union are divided. The German and French governments have indicated that they are willing to pay more. But the Austrian, Danish and Dutch governments were quick to denounce the Commission’s proposal as unacceptable. Indeed, the Dutch prime minister, Mark Rutte, has made it clear that for the Netherlands, usually the largest per capita contributor, Brexit must mean a smaller budget. German and French willingness to replace British funds is accompanied by demands for discretionary powers for the EU to terminate the provision of money to member states. Over the past year Merkel has sought to tie funding to the acceptance of migration quotas and the rule of law; Macron wants to link it to an end of what he sees as fiscal and social dumping. The Commission wants to be allowed to petition the Council of Ministers to terminate or reduce access to EU funding as a means of punishing general deficiencies in the rule of law in member states, with a qualified majority required only to block rather than to support any such action. The targets of these policies are the Polish and Hungarian governments, and it’s unlikely that they would consent to these proposals, especially when the additional expenditure advocated by the Commission comes with a 7 per cent reduction in the cohesion budget, most of which goes to the Eastern European countries. Macron sees responsibility for responding to the Commission’s draft budget as lying in the first instance with France and Germany. But too much is at stake for the other states to forego their veto without a fight. In addition, Macron needs substantial concessions from Merkel on the details of the budget – something he has not achieved on any matter of consequence since he became president. Without them it will be hard to explain to the French electorate why French contributions must go up while expenditure on the Common Agricultural Policy comes down and a designated Eurozone budget of any size remains unacceptable to Germany.
If Germany exercises too much influence over the EU, it is too disengaged from the rest of the world, except where its energy interests in Russia are concerned. Brexit will leave France as the only member of the EU capable of deploying significant military power. Merkel may well be right in saying, as she did recently, that Europe can no longer rely on the US for military protection. But Europe cannot protect itself when Germany has only four serviceable military planes and at the end of last year hadn’t a single operational submarine. If this situation doesn’t change France will have to maintain its military partnership with Britain. Macron may see Brexit and Germany’s unwillingness to meet its obligations as a member of Nato as an opportunity to establish France as the US’s chief European partner. But Macron’s exaltation of his personal relationship with Trump serves only to highlight the EU’s lack of an adequate foreign policy.
Macron’s failure to persuade Trump not to pull out of the Iran nuclear deal, despite a high-profile trip to Washington, is a disaster for the EU. After the failures in the Balkans in the 1990s and the divisions over the Iraq war, the Joint Comprehensive Plan of Action (JCPOA) was supposed to show what a collective foreign policy for the EU could achieve on a matter of international significance. From the start this was an optimistic aim. Russia appears to have been more influential than Britain, France and Germany in finally getting the Rouhani government to agree to the plan of action, a fact acknowledged when Obama publicly thanked Putin for his help at a time when Russia was subject to a third round of sanctions over its behaviour in Ukraine. Even maintaining the sanctions regime against Iran was a strain for European states. Britain, France and Germany were twice granted temporary reprieves from the requirement that they maintain full oil sanctions against Iran. Now Trump has chosen to prioritise the interests of America’s principal allies in the Middle East, Israel and Saudi Arabia, over the pleas of European leaders.
Trump has done so in part because the situation in Syria has changed dramatically since July 2015, when the JCPOA was agreed. The Obama administration hoped for regime change in Damascus, or at least an emasculated Assad, but Russian intervention since September 2015 has ensured the defeat of the Syrian rebels and strengthened Iran’s military presence in Syria and Hezbollah’s power in both Lebanon and Syria. Meanwhile, the EU has been irrelevant and Britain and France peripheral. Early on in the war the British government pushed the Obama administration to carry out more direct intervention. However, by seeking parliamentary authorisation for air strikes on the Assad regime to punish it for its apparent use of chemical weapons at Ghouta in 2013, Cameron, not for the last time, subjected Britain’s geopolitical strategy to domestic politics. After the Labour leadership sought to exploit the fragility of public support for bombing, Cameron retreated, unwilling even to attempt to mobilise the parliamentary majority that almost certainly initially existed for military action. The last three French presidents have been largely unconstrained by domestic politics when deciding on the deployment of French military power and have pushed more consistently for increased Western intervention in Syria. But when first Britain and then the US withdrew from the proposed military action after the Ghouta attack, allowing Putin to negotiate his agreement with Assad to end chemical weapons production, the French government was left with a policy commitment to regime change that it could not possibly implement unilaterally. Two years later President Hollande was ordering air strikes on Isis-held territory in Syria and co-ordinating French action with Russia.
Now that Trump has repudiated the JCPOA the European states are left to face the consequences of the resurgence of Russian influence in the Middle East. They may want to protect the commercial interests of European companies in Iran and to reject what the French economy and finance minister, Bruno Le Maire, describes as the economic vassalage expected by Washington. But strong expressions of concern about companies like Rolls Royce, Siemens and Total losing their investments in Iran makes them seem indifferent to the substantive issue of the Iranian military presence in Syria, and the predicament facing Israel. If they insist that European banks should be allowed to continue to facilitate money flows into Iran for European companies, they may well discover just how acute problems of dollar shortage can be in a world in which access to the American banking system is a requirement for most international payments and many corporations are dependent on dollar credit. American extraterritorial sanctions are of course extremely unpalatable. But Washington’s capacity to impose them reflects the simple fact that the denial of access to the American banking system and currency is an effective instrument in a financial world in which US currency rules and the Federal Reserve is the global lender of last resort.
Only the Russian government has the capacity to pressure the Iranian regime to withdraw from Syria. But reliance on Russia poses its own problems for the EU. There cannot even be the pretence of unity when some Balkan members see Russia as a traditional security ally, the Baltic republics and most of the East European states fear Russian aggression, Germany leads a group of states that are dependent on Russian oil and gas imports, and US policymakers perceive Russia as a geopolitical threat and an energy rival. The response to the Salisbury chemical attack seemed co-ordinated enough, but in fact the German government did as little as possible, expelling only four diplomats, and days later giving approval to Gazprom’s construction of Nord Stream 2, which will transport gas under the Baltic from Ust-Luga, near the Estonian border, to Greifswald. Merkel’s government accepts its reliance on Russian oil and gas imports as a fact of life and the need for some accommodation between Germany and Russia as a condition of European stability. No German government is likely to accept paying more for American liquid natural gas, especially when the long-term prospects of US shale gas production are uncertain. Although Germany may well find it easier to maintain relations with Russia in an EU that does not include Britain, it cannot escape the problematic consequences of antagonising Washington over the Russian energy issue if it remains unwilling to develop its military capacity to support the EU as an independent foreign policy actor, or to make significant concessions on trade.
The EU also has to respond to the still unanswered question of what form of language can legitimate it internally as a political community so that its claim to authority can rest on popular consent. In his Sorbonne speech on the future of Europe last year, Macron insisted that the European political community constitutes an expression of faith in the continent’s shared inheritance, a unique combination of values centred on freedom, human rights and social justice. That community can, he insisted, be realised only through the EU. But the Canadians, for example, might reasonably object to the idea that this combination of values is more evident in the politics of European countries than in their own. In practice, any European political community is a selective political creation, just as national communities are. To be able to accept the periodic political defeats that must come with supranational decision-making, Europeans need to share a sufficiently common identity, and this means they have to agree minimally on who their fellow Europeans are. The events of the last two years are not encouraging in this respect. Greece stayed inside the EU even as other members decided they no longer wanted to share a currency with the Greeks. Britain voted to leave even though its electorate might well have chosen otherwise had any meaningful inducements to stay been on offer. Turkey was encouraged to see accession as a possibility even as the political conditions that inspired the agreement demonstrated how difficult it will be to obtain consent for a Muslim-majority state joining the EU, not least in Hungary where Viktor Orbán talks openly of the need to preserve the country’s Christian culture.
Macron talks a great deal about unity but still offers a selective vision of Europe. It is through the euro, he said in his Sorbonne speech, that the heart of a unified Europe can be forged. For the foreseeable future this Europe will exclude parts of Scandinavia, Eastern Europe and the Balkans. It is a Europe that relied at the height of the Eurozone crisis on an outside employer of last resort (Britain) and is likely after Brexit to continue to have an offshore financial centre. Above all it is a Europe that faces a huge predicament in the shape of Italy. Italian democratic politics have been an impediment to sustaining monetary union since Berlusconi’s government was removed from office in 2011 by the manoeuvrings of the ECB, Angela Merkel and the Italian president. The new Italian government, a coalition between the Movimento 5 Stelle and the Lega Nord, will test the fiscal rules of euro membership to their limits. If, under pressure from the same actors who ended Berlusconi’s premiership, it does not, there will no longer be even a pretence that elections can make a difference to economic policy. Yet Italy cannot be encouraged towards exit as Greece was without raising the question of how a European Union that excludes Italy can call itself European at all.
For all its talk of the future, the EU is constantly in search of a civilisational heritage. Macron, confident that the origins of European civilisation lie in the Mediterranean, is typical of that aspiration, but so in a radically different way is Orbán. Europe is the heir of competing civilisations, none of which can provide a coherent answer as to where the continent begins and ends or what values count as ‘European’. For much of its duration the Roman Empire included more of North Africa and Turkey than EU states. Christianity began elsewhere and divided Europe between Latin and Greek religious inheritances. The Enlightenment and the French Revolution were never unifying. Of past territorial entities the EU bears most geographical resemblance to the Carolingian empire – and that may explain the difficulties of Britain and Greece. Sovereignty, unity and democracy are no more compatible in the EU than liberty, fraternity and equality were in France. The governments and peoples of Europe have to identify who is to be part of the EU, the commitments that must be shared for it to endure and those that risk its self-destruction. They must also decide how the EU will engage with an outside world defined by conflict, not least that generated by the legacies of European involvement in the Middle East.