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Reimagining the European Union

Muhammad Mahmood | June 24, 2018 00:00:00


The European Union (EU) and its member states have been in turmoil both economically and politically for more than a decade now. The turmoil is at present slowly taking the shape of a crisis of confidence. A sense of foreboding is engulfing the EU. Everything that could go wrong seems to have gone wrong in Europe. The refugee crisis is one which is of its own making. It created the crisis by joining with the US in its wars of aggression against Iraq, Afghanistan, Libya and now Syria. Europe appears to be once again on a civilising mission in Asia and Africa, and this time around needed a prop, the USA, the guarantor of European security. But the present mission has backfired; the victims of those aggressions are streaming down in thousands to the very heart of Europe.

Once again European colonialism's signature contribution to the world, racism, is back and openly espoused. The identity politics is now taking firm root in Europe. Austria, Hungary, Poland and Italy are in the forefront of a crusade to keep Europe "pure".

Economic austerity on the one hand, and rising unemployment and poverty, on the other hand, created a fertile ground for catapulting populist politics to gain ascendency in all EU member countries. In fact, populism has catapulted the populist parties to power in a number of EU countries and many are waiting in the wings in other member countries. Worse of all, the EU is now facing territorial disintegration exemplified in Brexit. Many observers of European politics believe that the EU is in existential danger.

The EU critics within the bloc have long argued that it at its core is undemocratic. The democratic deficit has been in evidence right at the start when the idea of a united Europe was visualised at the end of the World War II.

The EU and its members have faced almost a decade of political tumult now. To add to the political turmoil, the EU in general and Eurozone economies in particular have been lurching from one economic crisis to another. The economic crisis in Greece continues and many consider this is the foretaste of what awaits for PIIGS (Portugal, Italy, Ireland, Greece and Spain). When the European Central Bank (ECB) thought it was about to get the business of emergency economic stimulus unwinding, the jittery in financial markets threatened it to put it back in again. The ECB's latest threat is coming from Italy where mounting debt burden (second only to Greece in terms of the debt/GDP ratio and the third largest size of debt burden in the world only after the USA and Japan) can threaten to fracture the euro area.

A common currency, i.e. the Euro, was meant to bring Europe together. Now that very single currency has become a divisive issue within the eurozone. The currency has now instead led to economic divergence and political division. Germany enormously benefitted from a relatively depreciated Euro, bolstering its exports and got richer. On the other end, Greece has gone totally bust. Paolo Savona, who is now Italy's Minister for Europe, has termed the Euro as 'German cage'. But the cage has been inherent in the original design of the Euro. The Euro is now held together more by the fear of the cost of exit than by any belief that it will make their lives any better off.

The EU's fiscal rules are just an additional feature. There were instances cited by critics that whenever a government failed to fall in line with Brussels, pressures were brought to bear with the government to change the course or the government was toppled using economic and financial leverages. Critics cite the example of Greece where pressure was exerted on Greece to reverse the course after the country voted to reject the terms of an EU bailout in 2015. They also cite the example of Cyprus in 2013.The debate over whether the EU is anti-democratic continues to resurface time and time again, particularly at times of economic crises. After a decade of very weak economic growth the crisis-ridden countries in Europe are increasingly turning to homemade remedies, populist solutions, to the crisis.

The Eurozone economic performance over the last decade since the global financial crisis (GFC) has been rather very poor. Over the last decade most Europeans experienced stagnant or falling wages, and unemployment remains stubbornly high, especially youth unemployment. In fact, wages have been driven down in pursuit of gaining international competitiveness. The situation is even worse in Southern European countries. However, last year the Eurozone economy experienced its strongest growth in a decade achieving a growth rate of 2.8 per cent, but it now appears that its spark has gone out somewhat. There are now signs that growth has slowed down even in Germany, the largest economy in the EU. The growth forecast for 2018 has been scaled down to 2.4 per cent. The signs of economic recovery are marred by massive household and corporate debt overhang and depressed demand. Changing demographic profile and slow productivity growth are further adding to the economic woes.

EU policies and the governance system have had difficulties in dealing with the fallout from the GFC. The austerity measures further deepened the crisis creating economic hardship for the people but at the same time taxpayer's money were used to bailout banks.

Meanwhile, British Prime Minister Theresa May has abandoned the plan to present the detailed blueprint for a future UK-EU relationship at the forthcoming European Council meeting to be held in Brussels on June 28-29. This indicates getting out of the EU is not only far more difficult but also very costly than getting into it. This scenario is far more acute for countries belonging to the Eurozone (the UK is not a member of the Eurozone but only a member of the EU). Brexit has now turned out to be a Gordian Knot which the UK is finding very difficult to untie. Populist regimes in power in countries like Hungary, Poland and Italy with their anti-EU rhetoric better watch how Brexit is unfolding. No wonder the populist regime in Italy has already toned down its anti-EU and anti-Eurozone rhetoric.

The vast majority of EU member countries, who jumped onto the boat in the wake of the disintegration of the former Soviet Union, are finding themselves not much better off than before. Most of these new entrants were also given another carrot, a membership of NATO which, under President Trump, is now rapidly becoming dysfunctional. Message from Washington is very clear, no more free riding on US taxpayer's money by the Europeans to ensure their security. More shocking for these countries is the realisation that the EU has become little more than an afterthought under the Trump administration.

Now the reality has become very stark as the Europeans will have to pay their way to ensure their own security. The EU member countries, from the East and Central European region, rather embraced the trans-Atlantic military alliance with a gusto without having the faintest idea who was/were their enemy/enemies except for their zeal to bond with and praise the virtues of Pax Americana. This dream is also falling apart as the European security landscape is becoming rather very complex. The idea that these countries also have to pay now their due share for European security is becoming another financial nightmare.

The EU is 61 years old now, but there is a growing feeling that the project Europe is facing widespread popular disenchantment. There is a growing gap between the leaders who run EU institutions and their vision of Europe and that of the people at the grassroots level. Issues central to this divide include loss of national identity and sovereignty, serious democratic deficit; EU's economic policies ( in particular monetary and fiscal policies) which have practically disempowered many member countries; pressure of refugee influx (which many EU countries themselves like the UK, France and Italy in particular contributed to happen in the first place); strong feeling of unequal access to opportunity and many others. So, the debate over the future direction of the EU need to be reframed to those concerns.

German Chancellor Angela Merkel and French President Emmanuel Macron have promised to present a joint plan for overhauling Europe at the EU summit on June 28-29 in Brussels. This meeting is taking place at a time when Europe is facing both internal turmoil and a damaging transatlantic rift. But there appears to be still significant differences on policy options suggested by Chancellor Merkel and President Macron while having some areas of agreement. Whatever their joint plan may be, failure to face the harsh reality and to address the core concerns will push Europe further into existential danger.

Muhammad Mahmood is an independent economic and political analyst.

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