Stefan Lehne, Tomáš Valášek – Carnegie
Summary: European leaders should convert their newfound confidence into positive energy to develop realistic solutions to the challenges that continue to plague the EU.
Lately, Europe has been going through strange mood swings. Just a few months ago, the end seemed to be near for European integration. In light of the British vote to leave the EU and the rise of populist parties in a number of member states, many observers doubted whether the EU would survive 2017. They expected the onslaught of the populists to bring down one government after another until, with the election of Marine Le Pen as French president, the game would be over for the European project.
Contrast that with the current mood. First, widespread frustration at U.S. President Donald Trump’s America First policies rekindled hopes in the EU as a defender of the liberal world order. Then, French President Emmanuel Macron proved that one can win an election with a pro-European message, an idea that most other centrist politicians in Europe seemed to have given up on. And finally, Prime Minister Theresa May’s botched election in the UK highlighted the vicissitudes inherent in the Brexit process. Suddenly, the EU began to look no longer like a sea of problems but like a haven of stability. “We are witnessing the return of the EU rather as a solution, not a problem,” as European Council President Donald Tusk put it.
But is the EU really rising like a phoenix from the ashes of its multiple crises and conflicts? In reality, the preachers of a bright future for the EU are probably as mistaken as the merchants of doom were a few months ago.
Despite some progress, not a single one of the structural problems besetting the EU has been resolved. The union’s passport-free Schengen Area and the eurozone remain fair-weather constructions not robust enough to cope with major asymmetric shocks. The EU’s geopolitical neighborhoods in the East and South remain turbulent and full of risks and uncertainties. Even the new driver of ambition for Europe—the decline in U.S. interest to play the role of the main guarantor of the international order—brings as many threats and challenges as opportunities.
There is a risk that a complacent Europe may take its eyes off the various concrete challenges facing it. While EU leaders are justified in feeling confident to set new ambitions for their bloc, those goals need to be based on a solid understanding of the EU’s vulnerabilities and a realistic assessment of its potential. Without such a reality check, the current European euphoria might be short-lived and give way to another descent into pessimism and despondency.
Good Economic News—but How Sustainable?
The EU economy is in its fifth year of recovery, and a virtuous circle appears to be taking shape: confidence frees people to start spending, lifting the construction, retail, and real-estate sectors and improving the outlook for ailing European banks, whose investments in those sectors continue to weigh them down. With banks looking somewhat safer, fears of a repeat of the banking and fiscal crises recede, leading to more spending. However, at under 2 percent, growth remains underwhelming. Several states are still struggling with the legacies of the crises, including high unemployment and high private and public debts.
The European economic model has become more and more contested. Trade liberalization within and outside the EU, long a source of growth, is now deeply controversial in Europe. The EU’s free-trade agreement with Canada was finalized with great difficulty. The EU-Japan trade agreement signed in July has benefited from both sides’ desire to demonstrate to Trump that the free-trade agenda can flourish even without U.S. leadership. But the ratification process may reveal many EU citizens to be closer to Trump’s than to Tusk’s views on the subject.
Whereas globalization has brought great opportunities and benefits, significant parts of the European population have lost out from this process. High unemployment, stagnating wages, and rising inequality have added to citizens’ alienation. The sense that the prevailing economic arrangements are profoundly unfair to ordinary people, and that their children will end up poorer than themselves, is driving many people toward extreme political choices.
Simply returning to the traditional ways of trade policy does not seem to be an option. For Europe to start growing more impressively and sustainably, EU leaders need to take a number of additional steps. Germany will have to start converting its surpluses into investments to reduce the imbalances in the European economy. Trade will remain important to growth, but future negotiations need to do a better job of addressing citizens’ demands that environmental and social standards be protected and the interests of potential losers from trade deals be taken seriously.
To put the euro on a sustainable basis, the EU will have to correct the mismatch between its unified monetary policy, its strict (but not always strictly enforced) fiscal rules, and the eurozone’s relatively weak economic policy instruments. Discussions about reform have been hampered by a division between the Southern eurozone countries, which insist on greater solidarity through transfers and risk sharing, and the Northern partners, which prioritize structural reforms and the need to stick to the agreed fiscal rules. The dialogue needs to move beyond the sterile clash of dogmatic positions and explore creative solutions that can bridge the divide.
Under the acute pressure of the financial crisis, the architecture of the eurozone has been considerably strengthened. But from 2012 onward, the reform impetus receded together with the pressure from financial markets. There are still no sufficient instruments in place to support sustainable economic convergence among the members of the eurozone. And as long as the economic prospects of the participating states diverge sharply, the euro remains exposed to recurring political and economic crises.
Migration—the Calm Before the Next Storm?
Although the overall number of refugee and migrant arrivals in Europe has diminished, the continent is still struggling with the political aftereffects of the crisis that began in 2015. Attitudes toward immigration have become greatly more negative in many countries, with fears of terrorism and crime fueling xenophobic sentiments and triggering a vicious cycle of failing integration of newcomers, rising tensions, and growing alienation of foreign-born residents.
A return to the crisis remains possible. Overall migration pressure is likely to increase in view of Africa’s rapidly growing population, continued social woes in a number of African countries, and Europe’s relative wealth. Besides economic drivers, political instability remains a factor. The continuing turmoil in the Middle East and the fragility of a number of states in North Africa could lead to another sudden upsurge in refugee flows to Europe.
The EU’s capacity to control its external borders has somewhat improved with stricter procedures and the establishment of a joint border and coast guard agency. But effective migration management will require real partnership with countries of origin and transit. And that will necessitate significantly greater financial incentives, increased readiness to offer legal pathways for migrants, and more direct operational action on the ground, such as on providing security in the Sahel or on stabilizing the situation in Libya.
On the internal front, the EU has achieved little to ensure fairer burden sharing among its member states and develop more integrated asylum and migration policies, which would make the Schengen space more robust. As a number of states continue to impose temporary border controls, Schengen has still not returned to full functionality.
Unlike the euro crisis, in which the danger of economic catastrophe forced the eurozone countries to come together and reinforce their common instruments, the migration crisis has driven member states apart. Many governments now rely primarily on national means to manage migration flows and seem reluctant to transfer further powers in this field to the European level.
Populism—Not a Pandemic but a Chronic Disease?
The domino effect that many observers expected following the Brexit referendum and Trump’s election has not taken place. The Dutch held off the challenge of Far Right leader Geert Wilders in the Netherlands’ parliamentary election in March, and in France, Le Pen was soundly defeated in the second round of the presidential election in May. It turned out that populist fever is not easily transmitted from country to country; local political dynamics remain dominant. Also, concerns about Brexit and Trump seem to have driven many voters back to the safer option of centrist parties. The same worries about a destabilization of Europe have given rise to a new wave of grassroots mobilization for Europe and open, liberal societies.
Despite these recent setbacks, populists are by no means a spent force. Le Pen received nearly twice as many votes in the second round of the 2017 presidential election as her father did in 2002. In the first round, she and another anti-establishment candidate from the Far Left, Jean-Luc Mélenchon, together received only 3 percentage points of the vote less than the combined tally of the two leading establishment candidates, Macron and François Fillon. If Macron fails to deliver his promised reforms, populists on the right and left could gain further ground in the presidential election in 2022.
Nationalist-populist parties remain in power in Hungary and Poland, where they propagate Euroskeptic and illiberal policies, and are part of coalition governments elsewhere. The dominant feature of European politics today seems to be its great volatility, as Prime Minister May in Britain could attest. Sometimes, strong swings in the public mood—like Macron’s election—benefit European integration. But the opposite could happen just as easily. Right-wing populists are likely to do well in forthcoming parliamentary elections in Austria and Italy, where strong performances by the Five Star Movement and the Northern League, which reject Italy’s participation in the eurozone, could trigger renewed turmoil in the financial markets.
Stopping the Centrifugal Dynamic
The declaration adopted by 27 EU leaders on the sixtieth anniversary of the Rome Treaty in March 2017 contains the beautiful phrase “Our Union is undivided and indivisible.” Sadly, nothing could be further from the truth. The EU member states have rarely been as divided as they are at present.
In addition to the bitter North-South divide over eurozone governance, there is now an East-West division over burden sharing and solidarity in hosting refugees. In the forthcoming negotiations on the EU’s next multiyear budget framework, already tough fights between net payers and net recipients about the size of structural funds will be aggravated by the budgetary shortfall arising from Brexit. Democratic values and the rule of law—once supposed to be the common foundations of the EU—have become controversial due to illiberal policies in Hungary and Poland. And the wish of some old member states, led by France and Germany, to deepen integration if necessary in the framework of smaller groups of member states raises fears in other countries of becoming second-class European citizens.
Sharp clashes of interests and disputes have always been part of the EU’s experience, and overcoming them through painstaking technocratic negotiations has always been one of the union’s strengths. However, three aspects of the current situation seem new and problematic.
First, the number of controversial issues is higher than before. The EU and in particular its main crisis-management forum, the European Council, are not good at multitasking. Big challenges tend to monopolize leaders’ attention and crowd out all other concerns. The current proliferation of problems and disputes could therefore easily overstretch the EU’s negotiating capacity and result in delays and blockages.
Second, the dividing lines in a number of areas coincide: on refugee burden sharing, structural funds, multiple-speed integration, and access to social services for EU workers abroad, the same old and new member states are pitted against each other. This points to a deepening rift between the Western European founding states and some of the Central and Eastern European countries that joined in 2004 and 2007. In the past, the EU often overcame divisions through broad cross-cutting package deals. But if the disputes become heavily politicized and aggravated by Euroskeptic and illiberal policies in some countries, the situation might become difficult to manage.
Third and most seriously, several years of crisis have eroded solidarity among the member states, and populists have reduced governments’ space for making compromises. Trust in EU partners and institutions has declined. Many countries seem to be going through a phase of renationalization. Governments prioritize direct national interests and are reluctant to share further powers at the European level. Leaders are confused and divided about the future course of European integration. The old federalist vision of the EU is dead, but no new narrative has replaced it.
The EU Still Behind the Curve as an International Actor
The reforms of the Lisbon Treaty have not addressed the fundamental structural deficits of EU foreign policy—the existence of parallel national foreign policies and the requirement of unanimous decisionmaking. Member states have not fully exploited the potential of the new institutional framework. The bigger countries continue to prioritize their national foreign policies, and many of the smaller ones shy away from the costs and risks of serious collective action.
As a consequence, the speed at which the EU has developed its capacity has not kept pace with the deterioration of the EU’s security environment. Paradoxically, aggressive Russian behavior in the East and deepening turmoil in the South seem to have dampened rather than enhanced EU member states’ collective foreign policy ambitions. And thus, the EU’s overall influence in its neighborhoods has gone down and not up.
The latest challenge, Trump’s America First policies and the possible end of the United States’ pivotal role in upholding the international order, should be seen as the ultimate wake-up call. In the face of U.S. disengagement, there is a need for the EU to take greater responsibility both in neighboring regions and on the global level. But this cannot be done on the basis of business as usual or through incremental capacity development. There is a need for a qualitative shift in the priority that the EU assigns to collective efforts on foreign and security policies.
When Britain leaves, the EU will lose one of its more capable foreign policy actors but also a member state that has been hesitant to strengthen European security and defense structures. Without the UK, the case for greater coherence and solidarity among the remaining member states will be even more urgent. And countries that have been hiding behind the British reluctance will have to show whether they are willing to seriously commit to a stronger external role for the EU.
The fact that the need for substantive investment in diplomatic, security, and defense capabilities is now widely recognized is a positive development. However, there is no time to lose. The growing global disorder will not stop and wait until the EU is ready.
Steps to an EU Reality Check
It is important for the union to avoid complacency and overconfidence. It would be ludicrous to think that the EU has emerged from its crises and can now concentrate on its new role as the sole guarantor of the liberal world order. In fact, none of the problems or disputes that have burdened the EU over the past year has really been resolved.
A corner might well have been turned, as Tusk expressed, but a new crisis might be lurking behind the next corner. If they wish to avoid further disillusionment and anger, leaders need to take this reality into account in their messaging. They need to remain sober and frank about problems and resist the bipolar tendencies of the media.
Reject Both Grand Designs and Muddling Through
This is not the time for a far-reaching restructuring of the EU. It is good that Merkel has recently expressed openness to EU treaty change, because in the long term, real reform will require this step. But it needs careful preparations. At present, even in the unlikely case that the 27 post-Brexit EU members could agree on such projects, their proposed reforms would likely be rejected in national referenda.
At the same time, member states should avoid the ad hoc, firefighting approach to reforms that has characterized recent years. Although only incremental legislative steps appear realistic for the time being, they should still be based on a coherent plan. That is why the idea of a road map for deeper European integration that Macron and Merkel have agreed to develop has merits. This would allow a step-by-step progression from more modest to more ambitious measures.
In conceiving such a plan, the EU should assign top priority to enhancing its resilience. The union will continue to confront massive external and internal challenges. Efforts should therefore focus first and foremost on making policies and institutions more robust and resistant to crises. New ventures need to wait until existing unfinished projects such as the eurozone and Schengen have been consolidated.
Bridge Divisions and Engage the Public
In the heterogeneous EU of today, French-German cooperation is a necessary but not a sufficient condition for the EU to move forward. After September’s parliamentary election in Germany, both Paris and Berlin will probably have pro-European leaders with strong new mandates—an excellent opportunity to develop a common program of EU reform.
But this is not the period of Helmut Kohl and François Mitterrand, when German-French leadership was broadly accepted and supported by other EU members. In today’s more complex constellation, Paris and Berlin will have to engage with other member states from the start to assemble a critical mass of support for reform. It would be useful if some initiatives were co-authored by governments on both sides of the North-South and East-West divides. To avoid blockages, there is also a need to reach out to more awkward partners and aim for a fair balance of benefits and costs that brings all member states together.
The more positive trends of recent months provide a good basis for relaunching a broad public debate on the EU’s future direction. Such consultations could be supported by governments and the EU institutions and draw on the various grassroots initiatives that have recently emerged. Such an inclusive conversation at the European, national, regional, and local levels could be a valuable source of new ideas and strengthen support for EU reform.
Handle Flexibility With Care
To cope with the growing diversity among EU member states and expand the room for maneuver for individual governments but still allow for deeper integration when necessary, the EU will need more flexibility. That includes the possibility of smaller groups of states moving forward. Without enough flexibility, centrifugal forces could tear the EU apart. But if the union has too much flexibility, solidarity and cohesion among the member states will disappear.
Multiple speed is therefore inevitable, but as negative reactions particularly in Central Europe have shown, it can also be highly divisive. There is a need for strong safeguards to ensure that differentiation does not result in fragmentation or different classes of EU membership.
The EU should aim for as much unity as possible and as much flexibility as strictly necessary. Variable speed needs to remain a measure of last resort. Narrower groups of countries should remain open for other member states to join later on the basis of objective criteria. And the EU needs to preserve a strong common foundation that serves the interests of all members. The union will therefore have to protect the integrity of the single market—with its free movement of capital, goods, labor, and services—and further develop its legal and institutional bases.
Upgrade Capabilities and Enhance Partnerships
Foreign policy has long been a secondary concern in the EU’s work. This can no longer be justified in the current security environment. There needs to be more focused and proactive leadership, more investment in diplomatic resources, closer coordination, and more systematic sharing of information and analysis among member states and institutions.
In the EU’s approach to security and defense, there are already signs of a new seriousness. Recent decisions to create a European defense fund to finance research, to allow more ambitious and capable member states to move forward on defense cooperation, and to ensure permanent financing for the deployment of battle groups would not have been possible only a few months ago.
Even more importantly, after a long period of decline, defense expenditures are going up in most member states. But doubts remain to what extent governments will avail themselves of these new collective instruments. Even if they do, the EU will still be at the beginning of developing serious capabilities in this area.
If the EU aims to play a meaningful role, this can be done only through enhanced cooperation with other organizations such as NATO and the UN and partnership with like-minded countries around the globe. The EU is uniquely positioned to develop networks and relationships that can strengthen regional stability and secure global governance. While the EU and its partners can compensate for U.S. disengagement in some areas, there remain critical issues, such as territorial defense or nonproliferation, where there is no alternative to U.S. engagement. Maintaining a functioning transatlantic relationship despite all the turbulences therefore remains a core priority of EU foreign policy.
Without doubt, the EU is in better shape today than most observers had expected at the beginning of 2017. However, this improvement is to a considerable extent psychological. It derives from a better economic outlook and from the fact that some perceived threats, such as expected right-wing populist victories in the Netherlands and France, did not materialize.
But the newfound confidence will be short-lived if it blinds EU leaders to the seriousness of the remaining external and internal challenges. Rather, the union should turn this confidence into positive energy to develop realistic strategies to tackle these problems. The EU is not out of the woods yet, but at least it now has the energy to move forward again and just needs to rediscover its sense of direction.