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RETHINKING EUROPE
The Federalist Choice for a Continent in Crisis
Edited by Jonathan Eyal
Royal United Services Institute
OCCASIONAL PAPER
Occasional Paper, May 2012
Rethinking Europe
Edited by Jonathan Eyal
www.rusi.org
The views expressed in this paper are the authors’ own, and do not
necessarily reflect those of RUSI or any other institutions with which the
authors are associated.
Comments pertaining to this report are invited and should be forwarded to:
Dr Jonathan Eyal, Director, International Security Studies, Royal United
Services Institute, Whitehall, London, SW1A 2ET, United Kingdom, or via
email to [email protected]
Published in 2012 by the Royal United Services Institute for Defence and
Security Studies. Reproduction without the express permission of RUSI is
prohibited.
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Contents
Foreword
Lord Mandelson
v
Introduction: When Democratic and Fiscal Deficits Combine
Jonathan Eyal
1
Future Constellations of Europe: Strategic Reflections
Werner Weidenfeld
11
The Democratic Inadequacies of the Proposed Fiscal Compact
Declan Ganley
17
Alexander Hamilton and the Debts that Helped Create the United States 23
Declan Ganley and Brendan Simms
Could America’s Founding Fathers Save Europe?
Joel Faulkner Rogers and Sean Kirwan
27
A Sceptical Perspective
Malcolm Rifkind
37
Europe’s Halfway House
Michael Stürmer
43
Foreword
H
ELMUT Kohl once said that the question of European Union was the
question of war and peace in the twenty-first century. This sounds
exaggerated in part because it has turned out to be true. European integration
has transformed Europe in the course of half a century. It has made military
conflict between the states of Europe all but inconceivable. And because it is
inconceivable, we take its absence for granted.
The European Union poses much more troubling and ambiguous questions
today. Kohl’s Europe enters the second decade of the twenty-first century in
bad shape. At the heart of its problems is an inadequately designed currency
union, the weaknesses of which have been terribly exposed by the 2008
banking crisis and the subsequent crisis of sovereign debt. As I write, Greece
wobbles on the edge of this currency union, effectively a ward of the EU and
the IMF.
Most observers now accept that the Eurozone’s flaw was the attempt to
create a single currency without the political and fiscal union to support
it. Many argue that the only way to resolve the Eurozone crisis now is to
take that step into fiscal union. Yet we also know that the reason this union
was never seriously attempted in the 1990s is because Europeans remain
ambivalent about political federalism in Europe, no matter how successful
European economic integration has been up to this point. Europe has solved
the war and peace question in the twentieth century, but Europeans are less
sure what question the Union is there to answer in the twenty-first.
In reality the European sovereign debt crisis and the prescription of a big
new leap into fiscal union has exposed the other crisis in Europe – political
legitimacy. The challenge for the EU now is to overcome the Eurozone
debt crisis in a way that helps resolve this ambiguity, rather than making
the crisis of legitimacy worse. This collection of essays deals with precisely
this challenge and these questions. How powerful is our sense of European
political identity? Can political federalism work in Europe? Can Europe learn
from America’s experience of continental federalism? Is Europe’s problem
a democratic or delivery deficit at the level of European institutions, or is
it a more profound issue of identity and solidarity? If we take the task of
securing some form of European Union for the twenty-first century seriously,
these questions will have to be answered before we are done.
Lord Mandelson
Former UK Cabinet Minister and European Commissioner
Introduction: When Democratic and Fiscal
Deficits Combine
Jonathan Eyal
Europe is rapidly approaching one of the most critical decisions in its postwar history: it can either offer an unlimited amount of cash to failed states
such as Greece thereby unleashing high inflation, or it can start ejecting
some countries from the euro, and risk the collapse of the continent’s single
currency. In both cases, the amount of social and political dislocation which
Europe will experience is bound to be unprecedented; quite literally, the
continent will be reinvented, almost regardless of which one of the two main
options is ultimately adopted.
European leaders still like to pretend that the crisis is temporary and
containable; plenty of weasel words are being uttered about the crisis being
‘imported’ from the US and being exacerbated by those nasty ‘Anglo-Saxon
speculators’ who have taken it upon themselves to destroy Europe for no
other reason than, well, they are Anglo-Saxon. François Hollande managed
to get himself elected as France’s president with the simple message that
handling the crisis was just a matter of the triumph of the will: one can simply
stare back at those nasty ‘speculators’ and they will just go away. In fact, the
real problem lies with a euro project which was always misconceived. And,
as secret German diplomatic documents recently made public indicate, the
warning signs were there from the start, known to all the politicians at that
time, but still ignored. The history of the euro is a copybook case on how not
to construct a continent-wide policy.
Told You So
It is by now largely forgotten that, when the idea of creating one currency
for Europe was first mooted over two decades ago, leading economists
reacted with astonishment. In a memorable article published in 1992 in The
Economist, Professor Martin Feldstein from Harvard University predicted
with astonishing accuracy Europe’s current crisis, largely based on his analysis
that a euro currency unit without a single government or a single national
budget was bound to fail.
But as Feldstein and all his colleagues soon found out, Europe’s leaders
were simply not interested in their views. For the impetus that led to the
continent’s monetary union was politics at its most basic: raw emotions. In
essence, the euro was the result of a deal under which a newly reunified
Germany gave up its own currency in order to reassure the rest of Europe
that it had no intention to become the dominant power. It was a deal hatched
between French president François Mitterrand, born during the First World
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War and obsessed with the tragedies of the Second World War, and German
Chancellor Helmut Kohl who believed that his own Germans are part-nation
and part incurable disease, people who must have their hands tied behind
their backs, for otherwise they would unleash another war.
Both leaders knew that the euro amounted to the riskiest project the EU had
ever undertaken, as well as being the most audacious currency innovation
since the establishment of the US dollar in 1792. But so were the anticipated
political rewards: a common currency resulting in a true European union. And
the parallels with the US greenbacks made the effort even more worthwhile:
European politicians felt giddy at the idea that the euro might supplant the
US dollar as a global reserve currency. Compared to such a grand vision, the
question of whether the euro could actually work seemed trivial.
The historical context of the time when the euro was hatched is the only
explanation why otherwise intelligent and educated people fell for such
schemes. For these were the heady days immediately after the end of the
Cold War, the time when the West’s political model appeared triumphant.
European leaders genuinely believed that they walked on water, that they
could shape their destiny in any way they wished. Ironically, therefore, just
when communism died in Eastern Europe, just when Karl Marx appeared
discredited, Western Europe embarked on its biggest Marxist exercise: that
of creating a currency which defied all sound economic or political logic, on
the assumption that politicians dictate markets, not the other way around.
Karl Marx must be smiling from his grave.
The Maastricht Treaty which eventually led to the creation of the euro did
contain some safeguards: the currency is run by a fiercely independent
European Central Bank (ECB), countries which behave irresponsibly cannot
expect to be bailed out and penalties are to be applied on nations which
exceed specific budget deficit criteria. However, as John Maynard Keynes
once warned in the context of the post-First World War settlement, ‘treaties
often solve one problem, but cause the next’.
And so it proved. The ECB’s narrow mandate to ensure just price stability
without any reference to problems such as unemployment or economic
growth became part of the euro’s problem. So did many of the targets which
Eurozone governments were expected to meet.
The problem here is not so much that the safeguards were not adhered to
– although they were not – but, rather, that the targets were often plucked
out of thin air, with no basis in either sound analysis or classic economic
theory. The definition of price stability in the Eurozone as an increase of no
more than 2 per cent yearly is one example of such supposedly ‘scientific’
economic targets gone mad. No modern Western economy ever achieved
this consistently, over a long period of time. In the decade preceding the
introduction of the euro, price inflation in the US averaged 3.3 per cent, and
in Germany it was 2.8 per cent. So, a totally unaccountable institution like
the ECB was tasked with the job of achieving what, at least according to
standard historical performance, was ultimately unachievable. The same
applied to the famed limit on budget deficits, which was set by treaty at 3
per cent of gross domestic product. Few now remember that this figure was
actually simply invented by President Mitterrand in France during the 1980s,
and nobody ever explained then – or ever since – why it was significant.
In what way would, say, a deficit of 4 per cent of GDP be destabilising to
the euro system? No answer was ever provided; the figure became one of
Europe’s fetishes, and remains so to this day. Paradoxically, therefore, while
the political leadership of the euro remained non-existent, the statistical
straightjacket proved too tight.
Still, the euro could have worked, had it been limited to a core number of
nations whose economies and government standards were roughly similar.
But, as hitherto secret German diplomatic documents released for the first
time in early May indicate, the decision was taken early on to admit almost
everyone into the euro, regardless of their economic condition or record
of financial performance. When Germany’s finance ministry warned the
country’s leader in 1998 that the admission of Italy into the Eurozone carried
‘enormous risks’, the response from Chancellor Kohl was dismissive: ‘we all
share a certain love for Italy’, wrote his top adviser at that time, in an effort
to explain why his boss was not prepared to look at the economic facts.
The German magazine Der Spiegel, which obtained these secret documents,
calls the decision to admit everyone as ‘Operation Self-Deceit’. And for good
reasons: it rebounded on the Germans, and may yet doom the euro altogether.
Southern European economies have suffered from deep structural problems
well before the introduction of the euro: Italy’s governance was always faulty,
Spain’s unemployment rates were always higher, and Greece had been in
default of its debts for nearly half of its history as an independent state. Yet
all were admitted into the euro in the hope that the new currency would
persuade them to change centuries-old bad habits.
Nothing of the kind happened. The abundance of credit allowed everyone
to avoid making structural reforms. And, because interest rates were roughly
the same across the continent, nobody noticed that some countries were
sinking. The result was that, by the time the crisis struck, Greece was already
beyond salvation, while Italy was too big to bail out.
Greece Slides Out
Although few dare say so publicly, most European leaders now privately
accept that the unthinkable is about to happen: Greece will have to leave
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Rethinking Europe
the euro currency. Financial markets are already making preparations for
an event they nickname ‘Grexit’. Still, the manner by which Greece departs
from the Eurozone and the way the aftermath of crisis is handled will shape
Europe’s destiny for years. The continent’s biggest political tests are just
beginning.
In theory, Greece can still pull back from the brink. Fresh elections in June
could produce a government pledged to respect the nation’s obligations.
Furthermore, there is no provision in the existing European treaties for a
country to abandon the currency. But the reality is that the battle for the soul
of Greece is already lost. Two-thirds of the country’s voters seem to support
parties determined to stop repaying the country’s debts, while claiming that
they also wish to keep the euro. In effect, a majority of the Greek nation
wants to have its cake and eat it.
The culprits for this curious outcome are Greece’s own politicians, who
generated and sustained a collective mood of self-denial. A large number of
ordinary Greeks genuinely believe that their country is merely a victim of a
‘plot’ by bankers, who first encouraged Greece to borrow excessively, and are
now lending further money at huge interest rates in order to recover their
debts. The fact that Greece itself is responsible for its excessive borrowing,
or that the country has benefitted from the largest single bailout in history
impresses very few. Nor do many Greeks seem to understand that the €200
billion in additional help given to them over the past two years is the hardearned money of other European taxpayers; the view from Athens is that
these are funds plucked out of thin air by ‘fat bankers’. Germany, which
provided the bulk of the bailout money, gets no gratitude either; some Greeks
believe that the Germans should offer the cash for free, as ‘compensation’
for the Second World War.
It is now impossible to reverse this poisonous Greek narrative. And it is equally
impossible to see how any Greek leader can persuade his own nation to stick
with austerity policies which have already slashed the nation’s wealth by a
fifth and promise to do exactly the same again by the end of this decade. The
conclusion is, therefore, inescapable: default is looming. More ominously,
the default will not come in an orderly fashion, as the result of negotiations,
but will be a messy affair.
Greek politicians such as Mr Alexis Tsipras, the youthful leader of Syriza,
the radical left movement which sprung out of nowhere, assume that they
can blackmail Germany into continuing to offer cash without preconditions.
The defeat suffered by German Chancellor Angela Merkel in recent local
elections is also interpreted as a move away from the policies of austerity
which she is alleged to have foisted on the rest of Europe. But while a
weaker Merkel government may signify a greater German readiness to relax
austerity conditions on other European nations such as France or Spain, it
does nothing for Greece. German voters are not clamouring to hand over
their money to the Greeks and, with Greece accounting for only 2.3 per
cent of Europe’s economy, the country is dispensable. Indeed, making an
example out of Greece by rejecting any concession is almost guaranteed to
be Chancellor Merkel’s way of showing to the rest of Europe that Germany
should never be taken for granted.
The Greek default may come as soon as this summer, when the country
has pledged to cut another €11 billion out of its government expenditure,
something which is highly unlikely to happen. If the EU stops offering
money then, Greece will default almost immediately. Needless to say, Greek
politicians will blame Germany for this outcome, although the blame will
be entirely theirs. What follows after that amounts to – as one EU official
poetically put it – ‘a jump into the abyss without a parachute’. A Greek
default could trigger a Europe-wide panic, leading to the collapse of Europe’s
currency and a global economic crash.
But there are good grounds for believing that this is too alarmist. Most of
the Greek debt is already in the hands of European governments or the
European Central Bank, which means that Greece’s default will not spell a
European-wide banking meltdown. Greek banks will, of course, collapse.
The country will have to issue a new currency, which will promptly crash.
It will also have to temporarily close its borders in order to prevent capital
from fleeing. And, as unemployment soars, the chances of civil strife
inside Greece are high. The technical difficulties which could be created
by a Greek default remain mind-boggling. But although they all deny it,
European governments have spent months secretly preparing for such
an eventuality. Nor would it be surprising if we discover that Greece has
already printed an alternative currency: most countries keep alternative
bank notes in storage for a national emergency, and it may not have been
entirely by accident that the Greek national bank upgraded its British-made
printing presses last year.
The key for the rest of Europe will be to make sure that a Greek default
remains confined to that country. This will mean that other vulnerable
nations, such as Portugal or Spain, would immediately be offered additional
bailout funds even if they did not need it; the purpose should be to reassure
people that countries which observe their obligations retain the benefits
of Europe’s single currency. In the process, Europe’s credibility will suffer a
permanent blow: it will be impossible for the continent to claim that it is
an ‘oasis of stability’ after allowing one of its members to default. So, for
decades to come, Europe will have to pay a risk premium on its borrowing.
Still, Jens Weidmann, the head of Germany’s central bank, the Bundesbank,
was probably right when he recently pointed out that ‘for Greece the
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consequences would be much more grave than for the rest of the euro zone’.
Investors will conclude that Greece was a uniquely horrible case, and that
the country’s fate need not be replicated elsewhere in Europe.
Ironically, however, Greece will not escape its obligations by defaulting. If it
wishes to remain part of the EU, the country will still have to repay every cent
it owes and may have to do it the hard way, with its own devalued currency.
The Greeks will also be unable to borrow, so they will be confronted by the
rather unusual experience of having to live within their means. The nation
which invented the word ‘tragedy’ should grasp this situation pretty well.
And, as most Greeks recall, powerful tragedies are invariably followed by
catharsis, the cleansing and purging of the soul.
‘Austerity’ versus ‘Growth’
But, while the Greek drama unfolds, another battle is now coming to the fore
over the possibility of offering mutual debt, contracted and sustained by the
Eurozone states. The so-called Eurobonds would essentially offer a German
guarantee, allowing weaker countries such as Spain or Italy to borrow at
lower interest rates. The principle, as President Hollande put it, ‘is one of
European solidarity’. International Monetary Fund chief Christine Lagarde
added her voice to this chorus: ‘More needs to be done, particularly by way
of fiscal liability-sharing’ she told a press conference this week. Yet Germany,
together with a dwindling group of small northern European countries,
remains adamantly opposed, mainly because it believes that Eurobonds
would only make Europe’s current troubles much worse.
The first snag with the Eurobond concept is that it is actually illegal: under
the Maastricht Treaty (Article 125) governments are precluded from
guaranteeing each other’s debts precisely in order to ensure national
responsibility for borrowing choices. Given appropriate political will, ways
around this ban can be invented. After all, European governments have
already circumvented treaty obligations by creating a fund to save nations
from bankruptcy, and there is no reason why this fund could not issue
Eurobonds as well.
However, matters may not be so simple in Germany, where the country’s
constitutional court has taken an increasingly jaded view of such operations;
should the court decide to strike down the Eurobonds as illegal, this could
send shockwaves throughout Europe’s financial markets, potentially even
tearing the euro currency apart.
Yet for German chancellor Angela Merkel, the political hurdles remain far
more compelling than the constitutional ones. Opinion polls in Germany
indicate a rapidly-growing disenchantment with the euro; one poll shows
that a majority of German voters now consider the euro a mistake. And
huge majorities oppose the use of any additional German cash to bail other
nations.
However, even if Dr Merkel was willing to ignore these public opinion trends,
the costs involved in creating Eurobonds are mind-boggling for her country.
By assuming responsibility for the debt of other countries, Germany will
lose its top triple-A credit rating, since its overall debt liability will increase.
In effect, therefore, the Germans will pay twice: to cover debt liabilities
should others default, and for higher interest rates demanded on Germany’s
own borrowing. Mr Otto Frick, the budget expert from the German Free
Democrats, the junior partner in the coalition government, estimates that
higher interest charges alone will add €15 billion ($24.2 billion) a year to
Germany’s government expenses. Eurobonds ‘will drag us all further into the
debt swamp’, Mr Frick concludes.
Yet by far the biggest objection to the scheme is practical: it does nothing
to resolve Europe’s long-term debt problem, and could actually make it
worse. Europe has already experienced a de facto Eurobond during much of
the last decade, when all the countries operating the same currency were
able to borrow at similar and very low rates because investors assumed –
wrongly as it turned out – that Greek or Portuguese debt was as safe as
Germany’s. The result was a disaster: in Greece the government borrowed
and spent as though money was going out of fashion, while in Spain
or Ireland, ordinary citizens did the same, and ended up dragging their
national banks down. The moral of the story is that having one borrowing
rate for the continent was a key factor in the crisis: countries which fail
to administer their finances properly should expect to pay more, and
inventing Eurobonds in order to keep borrowing costs down is precisely
what should not be done.
Besides, there is no evidence that the extra borrowing which will be financed
through the proposed Eurobonds will encourage economic growth on the
continent. Indeed, precisely the reverse may be true: once granted access
to fresh lending, European governments will be tempted to postpone
politically-difficult reforms, just as they have done since the 1960s. ‘Growth
financed by debt? Those are the recipes from the day before yesterday’, says
Ms Maria Fekter, the uncharacteristically blunt finance minister of Austria,
one country which supports Germany. ‘The arguments that France’s new
president François Hollande is putting forward are nonsense, and got us into
this whole mess in the first place’, Mrs Fekter adds.
True, the German chancellor is increasingly cornered. At the recent G8
summit in Camp David, US President Barack Obama and British premier
David Cameron urged her to flood Europe with fresh cash, or ‘inject liquidity
into the system’ as the more innocuous, technical term has it. Throughout
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Europe and particularly in France, newspapers dismiss Dr Merkel’s behaviour
as that of a housewife who supposedly can do nothing more sophisticated
than just count the coins in her piggybank. Worse is still to come – at least
from her perspective – in the run-up to a European Union summit scheduled
for the end of June. But it is highly unlikely that the Germans will countenance
a Eurobond issue, unless the entire Eurozone is breaking up. Dr Merkel is
criticised for doing too little and too late, but there is a reason for this: the
crisis is not of her making, her taxpayers have no interest in bankrolling
others, European solidarity is non-existent, and the institutions which are
meant to underpin the system are not fit for the purpose.
An Even Grimmer Future
The euro may survive, even if – as seems increasingly likely – Greece is
evicted from the system; the only way a currency zone like the euro dies
is if its biggest member – Germany – loses interest in it, and that is highly
unlikely, for a whole host of historic reasons. Still, whatever happens, the
original objectives of the enterprise already lie in ruins:
• The euro was meant to push Europe towards a political union.
Nothing of the kind happened: the institutions created since the
Maastricht Treaty are all top-down, and lack democratic legitimacy
• A single currency was supposed to buttress a European identity,
through a reduction in wealth disparities. In fact, it has done
precisely the opposite, by splitting the continent between ‘haves’
and ‘have-nots’ to a degree never encountered before
• The euro was intended to remind Europeans that their political
creation is synonymous with economic prosperity. But the currency
is now associated with decline
• A single currency was supposed to reduce transaction costs,
consolidate banking services and strengthen Europe’s position as a
global financial hub. But it was London – outside the euro – which
benefitted from the explosion in financial services. Transaction costs
between European banks have not been reduced
• The euro was designed to improve intra-European trade. It has done
so, but the biggest trade growth for Germany today is not Europe; it
is China and other parts of Asia
• A single currency unit was touted as Europe’s way or remaining
relevant on the world stage. But Europe’s global decline has
accelerated, and the euro is far from being regarded as a world
reserve currency
• Finally, the euro was designed to prevent rivalry between individual
countries and, most particularly, to prevent the idea that Germany
dictates on political and economic matters in Europe. But that’s
precisely what Germany now has to do, out of necessity rather than
choice.
Seldom before has there been such a comprehensive failure. But that is what
happens when an abstract idea is pushed forward by a small group of leaders
obsessed with exorcising the ghosts of history, rather than handling present
realities.
Dr Jonathan Eyal is a Senior Research Fellow and Director, International
Security Studies, at RUSI.
9
Future Constellations of Europe: Strategic
Reflections
Werner Weidenfeld
E
UROPE has a succinct code word: ‘crisis’. These phenomena of crises have
become part of everyday life; the routine. There are debt crises, euro
crises, decision-making and approval crises. This inflation of apocalyptic
doomsday forecasts serves only to spread concern in an environment already
abundant with anxious perceptions. You can almost hear the ironic response,
‘which trauma do you fancy today?’
Europe lives with its contradictions – alongside its considerable difficulties
stand equally numerous achievements. Concern for the common currency
can be countered by a reminder that the euro remains the second most
important reserve currency of the world, with a high degree of stability.
There are complaints about ‘a normatively disarmed generation of
breathlessness’ that allegedly causes ‘Europe to remain in a frightful rigidity’
(Jürgen Habermas). The ‘incapacitation of Europe’ by the ‘gentle monster’ of
the Brussels bureaucracy is being criticised. Some exclaim, ‘Europe, where has
your magic gone?’, yet advocates of this Europe maintain their entrepreneurial
spirit. However, does the continent currently have genuine self-perception?
Stages of Evolution
What kind of political substance is behind the hysteria of our days? The
history of the European project has seen several periods of crisis when the
rationale for integration has been questioned. However, until now, an answer
has always been found to inject immense vitality into the project. This is
what is missing today. This is the defining feature of the new epoch – the
absence of an identity forming target. However, all political systems lack the
ability to act without the foundations of a solid identity. It is worth reflecting
on the previous stages of European integration.
Immediately after the Second World War, the continent was interwoven with
multiple interconnected groups, all eager to learn the lessons of history and
ensure that nationalist wars and catastrophic disasters were not to prove
their sole historical legacy. From then on, this continent marked by wide
trails of blood was meant to seek and realise the alternative to nationalism:
the unification of Europe.
Extremely demanding goals were set; political union and a European federal
state among them. After all, numerous resistance groups in the Third Reich
had already reflected on this and had provided conceptual drafts. At first,
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however, this great ambition took only a humble step, not least due to Great
Britain’s reluctance, and it was only in 1949 that the Council of Europe was
finally founded. This, however, was not a great success at the supranational
level.
Another method was applied in order to achieve this goal; modest and
specific functions were to be integrated. Subsequently, Robert Schuman and
Jean Monnet presented functionalist approaches for the European Coal and
Steel Community. In this way, the former war-time enemy, Germany, could
be controlled without being discriminated against.
The impressive success in establishing the ECSC led to similar attempts in
the defence field, but the EDC failed in 1954. Nonetheless, having a precisely
defined objective helped in times of crisis.
Alternative, functionalist solutions were ordered. In the defence arena, the
sovereignty seeking Federal Republic of Germany found other security policy
anchors, namely NATO and the WEU. In the so-called ‘Spirit of Messina’, the
European Economic Community (EEC) and the European Nuclear Community
(EURATOM) were negotiated in 1957. On the other hand, due to the existence
of a clear objective, the fundamental conflicts between France and the
Federal Republic of Germany became resolvable. Corresponding with Bonn’s
wishes, France created a common market space, and, in-line with Paris’s own
wishes, the Federal Republic of Germany accepted the nuclear component
should be removed from military control. The intent was to achieve the
extremely ambitious targets of the Treaty of Rome.
The first significant disagreement over these goals led to the first integration
crisis. In 1961, the US and Great Britain signalled their readiness to submit to
pressure from the Soviet Union concerning the status of Berlin. To Adenauer
and De Gaulle, this implied a threat to the existence of a liberal Western Europe.
A political union with a security policy component was meant to provide an
answer – as suggesting in the so-called Fouchet Plan. However, the remaining
EEC countries, which had become distrustful in the meantime, did not want to
follow this leadership. Adenauer and de Gaulle thus created a less ambitious
alternative solution, the Franco-German Friendship Agreement, which was
incomprehensible even in German domestic political circles.
The fading purposefulness of the project ‘Europe’ led to several years of
stagnation and crisis. The ‘empty chair crisis’ was partially resolved by the socalled Luxembourg Compromise of January 1966; although dissent remained
over its interpretation, it constituted a significant symbolic message. Despite
the continuing East-West conflict, this vague, perplexing arrangement did not
allow for the same type of integration dynamics that had previously existed.
The crisis-like exacerbation of the decline became known by the biting and
widely accepted label of ‘Euro-sclerosis’. At the end of the 1970s and early
1980s European integration entered an era of profound decline. Europe was
no longer able to keep pace with the dynamic international markets; it seemed
exhausted, a museum exhibit relic. Federal Chancellor Helmut Kohl and French
President François Mitterand recognised the urgent need for a strategic
departure, but an accordingly gifted political actor was required from within
the European institutional system. They found this personality in Jacques
Delors. He was a strong French finance minister and most people saw him as
the future French President. However, in 1985 he accepted the presidency of
the European Commission. As an initial step he informed the heads of state
and government that he intended to strategically consider the situation for
some time. After several months of reflection he presented his conclusion:
Europe needed a grand historical task. This could either be the reorganisation
of security or completion of the single market. In his opinion, Europe had the
strength to fulfil only one of these big tasks. The single market was adopted as
the strategic objective, requiring the implementation of almost 300 bodies of
law over a period of several years. The public was persuaded by the statistics
and arguments presented by the comprehensive Cecchini Report in 1988. The
adopted course was to be followed for several years.
The lessons from this example should be considered in relation to the current
challenges: Europe needs strong political leaders and strategic thinkers.
Politicians must explain the necessary steps, within a strategic framework, in
order to sustain momentum and public support. The conclusion is obvious:
European politics must eliminate the explanation deficit. Much more time
and energy has to be spent on explanation. Whoever wins the battle of
perceptions will win the future.
Whither Europe?
But what alternative futures exist for Europe? There are indications
suggesting five different scenarios, demonstrating just how open Europe’s
future really is.
Scenario 1: ‘The Titanic’
The Titanic scenario describes a substantial threat for European integration,
which in the worst case could lead to its dissolution. According to this
scenario, the European Union is not able to address the internal and external
challenges. The diverging interests and economic performance between new
and old member states increase dramatically. The heterogeneity of member
states and competition among them appear unbridgeable. National egos are
aggravated by the severe global economic crisis. The fear of recession leads
to nationalistic, protectionist reflexes, and the exploding budget deficits
disperse the financial European solidarity of the member states’ citizens and
governing elites alike.
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Rethinking Europe
Scenario 2: Exclusive Core Europe
The scenario of an ‘Exclusive Core Europe’ assumes a lack of consensus among
the member states concerning the future development of the European
Union. At the same time, the EU’s inability to confront the pressing economic
and security policy challenges prompts its citizens to lose their identification
with the very idea of a unified Europe. However, an exclusive group of states
remain committed to intensifying intergovernmental co-operation. Cooperation within the contractual framework of treaties fails, due to the policy
of obstructionism by the periphery member states. Frustrated by the EU’s
constant paralysis, this core group of states adopts intergovernmental cooperation as the only realistic way to represent common interests worldwide.
Scenario 3: Monnet Method
In the ‘Monnet Method’ scenario, the future development of the European
Union follows the pattern of previous decades. The EU can only partially
confront the internal and external challenges. The Treaty of Lisbon merely
cures the symptoms of Europe’s political inability to act, without getting to
the very heart of the problem. The conflicts of interests and distribution
disparities of the member states persist or intensify with every enlargement
and every economic crisis. As a whole, the EU system appears lethargic, but
still not paralysed. The single market, the Schengen regime, the monetary
union as well as the awareness that the process of European integration has
brought peace and stability to the old continent hold the Union together.
Scenario 4: Open Area of Gravitation
According to this scenario, an avant-garde committed to the community
method pursues the objective of continuous immersion in integration. The
centre of gravity is constituted by the group of countries that participate in
most of the integration projects. For these advocates of substantial reform,
the Treaty of Lisbon is only an interim stage on the road to a political union.
As not all member states are committed to this approach, multiple-speed
integration becomes the central defining feature of the enlarged Europe.
Member states are enabled to advance their co-operation in specific policy
areas, both new and old, within the EU’s contractual framework. The
possibilities for ‘enhanced cooperation’, offered by the Treaty of Lisbon, are
utilised.
Scenario 5: Superpower Europe
In the superpower scenario, Europe fulfils its global power potential. The
European Union exploits its material and institutional resources to the full
extent. Economic efficiency, population numbers, military potential and the
European system of values offer the EU a substantial basis for action. Building
on the successful implementation of the Treaty of Lisbon, other reform steps
are taken to improve the EU’s efficiency, ability to act and transparency.
The enhanced comprehensibility of the EU system as well as the ability to
meet the internal and international challenges positively impacts upon the
acceptance of the Union by its citizens. In addition, the increasing crosslinking of societies encourages genuine public debate of ‘European issues’.
The construction of intermediary European structures like media and nongovernmental organisations leads to the establishment of a pan-European
demos as a foundation for a European civil society. On the basis of a growing
sense of unity within the context of a Europe of citizens, the EU continuously
develops towards a political union.
Those who bear these five scenarios in mind understand that the future
of Europe is not predetermined. Each of these five scenarios can become
a reality for the next generation; just as a mixture of factors from different
scenarios can come true as well. However, one conclusion is unavoidable:
the reorganisation of power is on the agenda.
The European profile will only be sharpened if the Union increases its ability
to act. Though the Treaty of Lisbon established an arsenal of leadership
posts, the allocation of their authority is left open. President of the European
Council, President of the Council of Ministers, President of the Commission,
High Representative for the Common Foreign and Security Policy, Chairman
of the European Council – all these posts co-exist in parallel to each other.
The heads of state and government of the larger member states, as well as
the European Parliament, which has recently acted more self-confidently,
interfere in this jungle of leadership responsibilities. An effective, targetoriented decision-making process cannot be organised in this manner.
Effective and experienced leadership are somewhat different. Therefore, the
reorganisation of power is on the agenda in Europe. The decision-makers,
who are traditionally in favour of integration, want to further strengthen the
Commission and Parliament. The European Parliament has been the real
winner in all new treaties since the foundation of the EEC in 1957. From
its point of view, this is how things should go on. It flexes its competencestrengthened muscles. Its new president, Martin Schulz, declared war
on ‘summit politics’. However, the actual impetus for the Fiscal Compact
emanated from the governments of larger Eurozone member states. Germany
and France have formed a leadership tandem. At the onset of the current
crisis, they did not have the same opinion; their political and economic
cultures are too different to allow for that. However, both recognised that an
adequate response to the crisis could only be found if they both jointly took
the initiative. And that is exactly what happened.
Yet, many immediately questioned whether Germany had taken over the
actual leadership and whether this was appropriate. The usual political
dialectic was triggered: if there is lack of leadership in Europe, it will be
claimed; if leadership is exercised, it will be criticised and deplored. It was not
unintelligent for France and Germany to repeatedly integrate Italy, governed
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Rethinking Europe
by Mario Monti, in this leadership circle. Great Britain represented another
special case. Entirely in accordance with its traditional policy, it said No to a
Community Treaty regarding the fiscal union. However, also in line with its
tradition, it participated in the elaboration at the working level.
In summary, it becomes clear that it is more than ‘just’ about the fiscal union
or ‘just’ the improved governance of the Eurozone. It is about a dramatic
power struggle in Europe. On the surface, there are appropriate smiles in
front of the cameras, but there is a tough fight for influence behind the
scenes. The leadership structure of the European Union needs additional
clarification beyond the struggle of the member states for power and
influence. However, Europe also has to advance its leadership culture. The
continent’s power structure cannot simply uphold what was once valid for
a European Economic Community of six member states. The considerably
larger Europe has to be organised in a more nuanced way.
Therefore, in the medium-term, the fundamental structural problem of
international politics remains: a discrepancy between globalised challenges,
partly international and partly national decision-making structures, and
mostly national legitimating structures. This discrepancy stresses the key
deficit of present-day politics. The drama is tangible day by day: Europe is
experiencing a historical turning point. The pivot can be compared to the
most important turning points in history. The struggle for imperial hegemony
of earlier epochs and the experience of big military disasters all gathered
similar dimensions of political depth like the first steps of the success story of
integration. The large power apparatus of the European Union is confronted
with the question of its legitimacy. The answer to this question will determine
the scenario of future Europe.
Dr Werner Weidenfeld is Professor of political science and Director of the
Centre for Applied Policy Research at the Ludwig Maximilian University in
Munich.
The Democratic Inadequacies of the Proposed
Fiscal Compact
Declan Ganley
T
OWARDS the close of the politically tumultuous eighteenth century,
Edmund Burke, the Irish intellectual giant of European and North
American politics, assessed the modern era’s first attempt at unifying
Europe under Napoleon’s Grande Armée. Burke, the vociferous defender of
the values inspiring the American struggle for independence and individual
liberty, recoiled at what he saw as the product of the French Revolution, the
very antithesis of liberty.
He was not merely a polemist when he wrote his Reflections on the Revolution
in France. He combined philosophy and a feel for the sweep of history into
political positions that were pragmatic and practical; they were capable
of being adjusted without losing their intellectual consistency. Burke saw
Europe, under the spell of Jacobin France, falling under despotism disguised
as shallow political promise, the cynical hijacking of liberté, égalité and
fraternité wrapped in the mantle of the all-powerful centralised state. Burke
could see that the Jacobins were totalitarian. They claimed to know all, and
to be the sole arbiters of all that was right and all that was wrong. If you
opposed them, you were the enemy. Loyal opposition was an alien concept.
Constructive criticism of the Jacobin system was more likely to result in
you losing your head to the guillotine than being appreciated for seeking
improvements in government. Thus, intolerance for those that challenged it
became the hallmark of the all-powerful centralised state.
Burke represents the sort of approach we need now, as we consider
the current revolution the European continent is about to undergo. His
innate conservatism is not the point; his clear-sighted ability to hold onto
a centralised idea, and articulate a pragmatic political approach to it, is
precisely what European leaders now need. Burke saw those who challenged
the consensus and status quo differently, saying: ‘He who wrestles with us
strengthens our nerves and sharpens our skill. Our antagonist is our helper.’
In the UK, the argument between so-called ‘Europhiles’ and ‘Eurosceptics’ is
frankly childish and misses the bigger picture. Burke would have understood
that developing the bigger picture means dealing with the particulars and
taking the trouble to look at the historical dynamics, what makes the issue
tick; not political point-scoring to bolster a case that politicians feel more in
their water than their head. Burke had no time for ‘vulgar and mechanical
politicians’, only those who took the trouble to think hard and sweat the detail
were qualified to be ‘directors of the great movement of empire’. He would
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have recoiled at the way European politics has once again turned Jacobin. It
proactively rejects the idea of a loyal opposition, and its bureaucracy is quick
to label as ‘anti-European’ all that dare question it. An environment has been
fostered in which political parties and governments across Europe must
subscribe to this ‘groupthink’ that is almost always reduced to the lowest
common denominator. The achievement of excellence in any field of pursuit
is thus stifled by the very design of the European Union.
It has resulted in the shrinking of democracy, the silencing of loyal
opposition, the devaluation of the individual over the collective, the
diminution of competition, of merit and innovation; and now, even the
start of an asset-stripping of current and future generations of Europeans in
order to subsidise the failure of private corporate interests. Those interests
benefit from the symbiotic relationship between some large insolvent
financial institutions and many large insolvent member state governments
throughout the EU.
The fact is that Europe, unluckily saddled with unfit leadership, finds itself
suffering from a grey-suited tyranny of the mediocre. This is manifest in
the failure of the Union’s leadership to construct those proper institutions
and laws so urgently required to save Europe from the economic spiral into
which it currently descends. Following the farce that was the Lisbon Treaty –
a treaty that even ex-French President Nicolas Sarkozy recently admitted had
failed and is not fit for purpose – the latest fiscal compact is another exercise
in empty posturing. It simply will not come even remotely close to solving
Europe’s economic crisis, designed as it was in the halls of Berlin and Paris
with one primary objective in mind – to placate electorates being fed stories
of ‘lazy Greeks’ by the tabloid press. Rather than level with their electorates,
leaders have continued a charade to feed Europeans the placebo of a treaty
with rules that are already in place under Maastricht, but transferring so
much sovereignty from individual states to the Union that even euro-devotee
Peter Mandelson called it ‘the largest measure of sovereignty that European
leaders have so far contemplated collectivising’.
That such sovereignty can be transferred in such a cavalier manner without
regard to the democratic accountability owed to the citizens of Europe, is,
in a word, shameful. And it is bitterly ironic that transferring this power to
the centre and its entity, the European Stability Mechanism (ESM) that is
literally above the law, will do nothing to solve Europe’s economic crisis.
It is instructive to quote the ESM treaty on legal immunity, from Article
32: ‘The ESM, its property, funding and assets, wherever located and by
whomsoever held, shall enjoy immunity from every form of judicial process
except to the extent that the ESM expressly waives its immunity for the
purpose of any proceedings or by the terms of any contract, including
the documentation of the funding instruments.’ The fiscal compact is the
definition of bad law and, in the words of Burke, ‘bad law is the worst sort
of tyranny’.
Europe is in dire need of courageous leadership. We need to get back to the
business of taking risks, of being prepared to embrace ‘the freedom to fail’,
both in our banking and private corporate institutions and in our politics.
The siren cry of French President François Hollande’s ‘growth’ is just another
false promise. Growth does not come from governments protecting failed
companies or imposing more taxes or expanding themselves even further.
Destroying competition and distorting markets by suffocating innovation and
stifling broad-based small enterprise job creation are always the end result
of such a policy.
Brendan Simms has written perceptively that Europe is in the midst of a
fundamental crisis of democracy. The growth of ‘economic governance’,
he says, ‘threatens to disenfranchise whole peoples’. Since the economic
crisis of 2008 began to impact across the continent, the ‘gradualist fallacy’,
says Simms – that somehow a united Europe would be built brick-by-brick
in some sort of functionalist way – has been brutally exposed. In fact, ‘the
historical record shows that successful unions have resulted not from gradual
processes of convergence in relatively benign circumstances, but through
sharp ruptures in periods of extreme crisis. They come about not through
evolution, but with a “big bang”’. This was how the Federalists in the United
States perceived their own situation when they came together in Philadelphia
in 1787. They took the trouble to look in detail at various schemes of political
union that Europe then offered, and concluded – ironically enough in light
of the present debates in the UK – that the union between England and
Scotland, the ‘entire and perfect Union’ between those two countries, was
the only logical and secure model for the thirteen former colonies. You
cannot dabble with political unions without courting disintegration; they are
either a serious project of shared sovereignty or they are not; and having
a superstructure of political union without the necessarily deep underlying
political consensus is bound to be exposed as a sham sooner or later.
This is where we now are in Europe. We have reached a point of insolvency, so
realistically we must choose either to unite in a true federal democratic union,
or see Europe unravel in an unpredictable manner that has the potential to turn
dangerously ugly. In scenarios that start with certain member states leaving
the euro, we may see a release of uncontrollable centrifugal forces that could
ignite underlying tensions and awaken the proverbial ‘sleeping dogs’ that are
strewn from the Balkans to the Baltic to the Iberian Peninsula. Even Europe’s
founding anchor states would not be immune from turmoil. So the risks of
continuing down the present perilous path of unaccountable leadership are
more likely higher than the risks of calling a halt to the current charade and
actually doing something that at least has some prospect of working.
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Rethinking Europe
The starting point is that the response to these problems is to keep our eyes
firmly on the larger objective – to create a peaceful and democratic Europe
that is also sustainable in the face of the unprecedented challenges of the
twenty-first century. But we also have to maintain a clear-eyed view of the
inadequacies of the current political and economic institutions available to
Europeans at the moment. We have to be prepared to take a number of
worthwhile risks and do several things simultaneously:
A liberal Union-wide bankruptcy law should be passed, allowing for an
eighteen month (or shorter) beginning-to-end bankruptcy.
Every financial institution that cannot repay taxpayer bailout funds recently
injected should be put through an insolvency purge, their assets sold to the
highest bidder, their non-recoverable liabilities written off.
No private company should receive state financial aid, nor should it be
afforded any protections, direct or indirect, from the full force of competition.
The EU should move immediately to a one-off full federalisation of state
debts similar to the broad blueprint used by Alexander Hamilton to federalise
the debts of the individual American colonies.
A European Union bond should be issued to finance the needs of the
Federal Union government and, where necessary, provide financing to
supplement individual member states under specific loan criteria.
Member states will be free to borrow directly from the markets on the
understanding that they will be forced into bankruptcy, with full losses
incurred by lenders, if they fail to meet repayment terms.
State borrowing would be tied to a requirement that any bond offering will
only be made with attachment to the specific means by which the debt will
be paid down/extinguished.
The position of president of the European Commission and president of the
European Council should be merged into one office-holder and should be
subject to a popular democratic election to be held no later than December
2013. This office will be a highly sought-after role and will probably attract
high-calibre candidates; it will also force competing visions of Europe to be
put to voters for their ultimate choice.
Votes should be weighted in an electoral college format so that the voters of
smaller member states are not made irrelevant. This president would serve
for one six-year-term only, and would be chief executive in the same manner
as the president of the United States.
An accommodation could be made to remaining European monarchies in
respect of their historic traditions, to allow for some ceremonial roles.
The Commission should become the servant of the executive arm, and its
members nominated by the democratically elected president, and ratified by
a newly created upper house of the European Parliament.
An upper house or senate should be created, with four representatives of
each member state, with each such state holding equal voting power. That is
to say, Ireland will have four senators, as will Germany and other states. This
upper house will be given the right to initiate legislation along with the lower
house, the current EU Parliament.
The European Parliament should be reformed to give greater balance for
population (which would favour larger member states) and should be given
the power (along with its upper house) to initiate legislation.
All lobbying of the executive and legislative branch must be registered and
transparent.
A full insolvency purge of all European financial institutions should be
immediately undertaken. A liquidation and asset sale of all unhealthy
institutions should take place forthwith. A write-down of significant size,
together with a Hamiltonian scale re-negotiation should take place on all
distressed EU member-state debts.
The federalising of all remaining state debt should immediately follow,
backed by the issuance of union bonds which are in turn backed by the entire
tax revenue of the Eurozone.
The Union civil service should be kept small and highly efficient; this should
be enshrined in Europe’s new constitutional arrangement. A debt ceiling will
also be set constitutionally.
The Union should have monopoly of external action both in soft and hard
power.
The ECB should be guaranteed full independence and a low-inflation policy
be pursued.
The official working language of the Union should be English. We
understand the major sensitivities involved, but it is necessary to have one
official language among so many, so as to remove any scope for ambiguity in
laws and regulations or their interpretations.
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An EU-wide pension plan is needed, placing citizens’ pension assets beyond
the reach of future potentially insolvent and irresponsible governments,
implemented per the highly successful Chilean model.
The automatic right of secession for any member state should be provided
for with a two-thirds majority of the polity concerned.
Napoleon and then Hitler tried in their own ways to unite Europe after a
fashion that was both unstable and objectionable, and we are now in the
midst of the third attempt in modern history to create a united continent.
This latest attempt, for the first time founded to achieve noble and peaceful
aims, should be given the chance to succeed – but only on condition that it
now subjects itself to democratic accountability, lest it depart on a road to
something far less bearable. One risk that must not be taken is to transfer
any more sovereignty to Europe (as would be the case in the fiscal compact)
without first constructing the means to hold it democratically accountable,
keeping in mind Benjamin Franklin’s words of warning: ‘Those who would
give up a little freedom, to gain a little security, deserve neither and will
surely lose both.’
Ireland is, for the short term, burdened with the failed debts of certain
fake risk takers, some of them large German, French and British financial
institutions that we have no moral duty to bear. This is a gross injustice. It
is anti-market. It is an abrogation of all of the rules of capitalism and it is
the most exploitative exercise in corporate welfare in history. It is beyond
unacceptable that anyone would even consider asking Ireland to pass a
treaty that does not cut this bank debt burden. Expecting Irish ratification of
such a patently bad deal is an insult to the intelligence and common sense of
the people of Ireland. We must not entertain saying Yes to this bad law. More
importantly, we must do our part to bring Europe to its senses and face the
hard choices that it must make. As for the empty threats that we in Ireland
will not be able to raise funding, consider that even Iceland, having gone
through a massive bank default, is now welcomed back in the markets. Any
Irish government claiming that it would be barred from markets for years
would clearly be admitting that it is incompetent to hold office. So we would
be well advised not to listen to the fear-mongers advocating surrender to
such an already outdated, vacuous and abysmal treaty formula. Take the
advice of Edmund Burke, who said: ‘No passion so effectually robs the mind
of all its powers of acting and reasoning, as fear.’
In this treaty, we have no bank debt relief nor have we the means to repair
the crisis of democracy at the heart of Europe. We should not reward
mediocrity, and both for the sake of Ireland and for Europe’s current and
future generations, I oppose acceptance of the fiscal compact in the Irish
referendum on 31 May. The future of Europe is on a precipice. Contagion from
other failures is a real possibility in present circumstances and the formula
set out by the European Central Bank – a body that remains detached and
unaccountable – will not prevent it.
Declan Ganley is an Irish technology and communications entrepreneur and
founder of Libertas, which has campaigned for radical reform of the European
Union.
Alexander Hamilton and the Debts that Helped Create the
United States
Declan Ganley and Brendan Simms
A
LEXANDER Hamilton never got to lead his country, but he did get
to serve George Washington in a position that was to become
absolutely pivotal to the survival of the United States of America – as its
first secretary of the Treasury. He trained first in the commerce of the
West Indies and later served as a remarkably heroic young officer of the
American Revolution. Hamilton was a lawyer and leading author of The
Federalist Papers and did much to weld America’s political union, founded
on firm democratic practice, before his untimely and tragic death before
he had reached fifty.
On taking office in 1789, shortly after the conclusion of America’s War of
Independence, Hamilton found himself facing the challenge of shaping
the economic framework upon which the nascent and very bankrupt
United States would either perish or prevail. Hamilton’s country had been
ravaged by war and saddled by debt. On top of that, he had to find a way
of paying off an army that, in many cases, was awaiting years of backpay. In addition to domestic concerns, there were major foreign lenders,
including some of the very largest and most powerful players in global
finance at the time – French and Dutch bankers. With redcoats on the
Canadian border still holding western forts and the Royal Navy ruling the
Atlantic, Hamilton quickly understood that the union’s credit rating would
play a large part in deciding whether or not America really had a future.
As secretary of the Treasury, and under Washington’s protection, Hamilton
was given the scope to establish the economic structural basis of America.
That simply would not have been possible had Washington and the other
Founding Fathers not already put in place the initial mechanisms for
government by consent. Without Hamilton – or his patron, Washington
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Rethinking Europe
– the superstructure facilitating the fantastic nineteenth-century burst of
American economic growth would simply not have been built.
Benjamin Franklin’s argument to the British in the 1760s was that a unified
America would be an economic powerhouse and that they would be foolish
in the extreme to risk losing it for the few seats the colonists wanted in the
British Parliament. That hard-headed denial by the British elite, to bow to
granting their colonies government by consent of the governed, was to
have major consequences.
On dealing with the most pressing matter of government debt, Hamilton
was faced with the fact that the thirteen founding states of the United
States all had separate and disparate debts, built up during their times as
separate colonies during the course of the War of Independence. As the war
had been waged in some states more than others and as the contributions
of the states to the war effort and cost had varied greatly, even that portion
of debt that was directly attributable to a form of ‘joint enterprise and
expenditure’, was not evenly or proportionately disbursed across all of the
states. On top of the states’ debts, there was already a federal debt, which
had been used to finance some of the cost of Washington’s triumphant
Continental Army, as well as some other federal borrowings.
Hamilton knew that he possessed limited short-term financial resources
and that these many debts would have to be re-structured, while
enhancing America’s reputation as a borrower. One dilemma was that
many securities had changed hands at significant discount, raising potential
moral dilemmas. Weighing his options, Hamilton decided that security of
transfer, and its repercussions for private property, were paramount to
establishing credibility, thus assisting a favourable credit rating.
He then made the bold decision to federalise all of the state debts in
distress, doing so to ensure the survival of the whole, rather than the
sacrifice of any member state. Interest on the (already incurred) federal
debt was then between 4 and 5 per cent and Hamilton understood that
for the sake of American credibility, this debt, all owed to foreign lenders
and primarily made to finance America’s war effort, must be paid in full.
Nevertheless, the various interest rates on the debts of the thirteen
states were higher, at 6 per cent or more. Hamilton knew that his ability
to raise revenue was simply not sufficient to allow the servicing of the
combined states’ debts. He also knew that bondholders sitting on state
debts were exposed to a broad range of growing risks, of which they
were well aware.
Hamilton also saw the opportunity to shift the loyalty of those creditors
by giving them a stake in preserving a federal government by having it
federalise the state debts and thus make those creditors commit risk onto
the new United Sates.
However, given the fact that combined state debts and interest were
just too high to sustain, Hamilton decided to deliver a federal ‘haircut’
on assumption of the states’ debts. Hamilton took the path of offering
‘voluntary’ haircuts in a variety of options that largely boiled down to a
partial payment at 6 per cent interest, a partial ‘equity swap’ (in Hamilton’s
case, for Western land that at the time was relatively valueless but had
prospects), or payment at a lower interest rate, over a longer term but
sweetened by quarterly, rather than yearly payments and paid from taxes
specifically earmarked for the purpose of paying those bonds.
The creditors did the pragmatic thing and accepted Hamilton’s offers.
Hamilton drew those creditors into supporting his new country, while at
the same time rescuing many of his thirteen member states. Through his
federalisation and re-structuring of unsustainable state debts, Hamilton
helped cement the disparate states together to form their ‘more perfect
union’.
Hamilton’s hands-on experience with a potentially catastrophic sovereign
debt crisis caused him to leave some wise advice for posterity that growing
debt ‘is perhaps the natural disease of all governments. And it is not easy
to conceive anything more likely than this to lead to great and convulsive
revolutions of empire’. He also wisely advised that he ‘ardently wishes to
see it incorporated as a fundamental maxim in the system of public credit of
the United States that the creation of debt should always be accompanied
with the means of extinguishment’.
As a means to finance debt, Hamilton set up ‘sinking funds’, revenue that
was stored up to service debts and which he prudently and quietly used to
buy back large amounts of government debt at bargain prices (Hamilton
understood the Central Banker’s art of ‘creative ambiguity’).
Bailouts were not Hamilton’s modus operandi. At King’s College (later
to become Columbia University) one of Hamilton’s friends and an early
companion in the Treasury Department was William Duer. But Duer had
quickly departed his assistant secretary role at the Treasury to engage
in private banking and speculation, becoming a major New York ‘market
maker’ in the process. In 1791 and 1792, Hamilton was faced with America’s
first banking and government securities crisis. Amid the financial fallout,
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his powerful financial industry friend, Duer, had ended up in the position
of needing a government bailout for his banking and financing interests or
he would ultimately face debtors’ prison.
Hamilton, though empathising with Duer, would not provide the bailout.
The end result was that Duer ended his days in a debtors’ prison, sometimes
visited by Hamilton but paying the ultimate price for Hamilton’s allowing
‘the freedom to fail’, which in the eighteenth century had steeper personal
consequences than in the world of today.
Hamilton’s most recent (and excellent) biographer, Ron Chernow, summedup the completion of Hamilton’s time in office:
It is popular today for Europeans to look back at the early formation of
the United States of America and to say that it was inevitable, unique
and took place in an already cohesive homogenous society. The facts
of the matter are more complex. The thirteen colonies that made up
the first states were disparate in their composition and had seen their
existence in relation to ties with London, more greatly than they did
to each other. American cities were filled with immigrants from all of
Europe’s cultures, speaking a multitude of languages, with English and
German being the most dominant. Great cultural differences existed
between the states, perhaps the most acute being in their attitudes to
slavery.
The early institutional success of America’s union was more due to the
willingness and courage of a principled minority of gifted leaders (formed
in a more meritocratic environment that, for its time, was somewhat less
constrained by the sclerosis that often afflicts old establishments) who
were motivated by a common bond of morals and a pioneering willingness
to make sacrifices and take risks for the greater good.
Declan Ganley is founder of Libertas.
Brendan Simms is Professor in the History of International Relations at
Cambridge University.
Adapted from Declan Ganley and Brendan Simms, ‘A Europe for the People
by the People’, Sunday Business Post, 10 January 2012.
Could America’s Founding Fathers Save Europe?
Joel Faulkner Rogers and Sean Kirwan
I
N early 2012, the university polling centre YouGov-Cambridge worked in
collaboration with Professor Brendan Simms of Cambridge University and
Declan Ganley, founder of the Irish think tank Libertas, to measure public
response to the ‘Ganley-Simms proposals’, as they will be called here.
These are eleven proposals advanced by the two Irishmen, adding up to a
bold argument that only full democratic federalisation will ultimately resolve
Europe’s current crisis. This includes fiscal as well as monetary union, the
pooling of greater sovereignty in key policy-areas and the collectivisation
of European debt through the issue of Union bonds backed by the entire
tax revenue of the Eurozone. Whichever direction it takes, add Ganley
and Simms, the next phase of the European project will only succeed if
it produces a more direct form of democratic participation in the style of
America’s constitution.
EU Government for the People by the People?
YouGov-Cambridge put several of the Ganley-Simms proposals to nationally
representative samples of the population in Britain (1,523 respondents),
France (1,518 respondents) and Germany (1,553 respondents). This included
asking to what extent respondents would support or oppose the following
measures for the European Union (EU) as a whole:
• A democratically elected EU president, who is chief executive in the
same manner as the President of the United States of America, and
directly elected by citizens across Europe
• Turning the EU into a fully integrated ‘United States of Europe’, with
a central European treasury and common rules on national budgets
• The creation of a single European military, with an elected civilian
authority that decides when European nations go to war and take
military action
• A single seat to represent the entire EU at the United Nations, instead
of individual seats for each member
• An automatic right to leave the EU if a majority of voting people from
that country say they want to do so.
At one level, answers mirrored broader diplomatic trends, with a divergence
in approach between Britain and the Eurozone core. Despite so much trauma
for the European project since the onset of the financial crisis, FrancoGerman opinion is notably receptive to certain proposals for new and deeper
approaches to integration, albeit with German limits on the potential for
economic activism and an overall reluctance in both polities to cede national
Rethinking Europe
28
control in a handful of key policy areas. Meanwhile, significant majorities in
Britain continue to push in the other direction, with calls for at least some
revision of relations with Brussels.
The response to the Ganley-Simms Proposals
When asked to what extent they would support the introduction of a
democratically elected EU president as Chief Executive, 41% of Germans
and 46% of French supported the idea (versus 28% and 23% who opposed
respectively). In comparison, only 25% of Brits supported the idea.
Figure 1.
25
44
UK
41
46
28
23
Germany
France
Total oppose
Total support
28 Feb - 4 March 2012
Nearly 40% of French and over 1/3 of Germans said they support turning the
EU into a fully integrated ‘United States of Europe’, while only 10% of Brits
said likewise.
Figure 2.
10
35
38
32
31
65
UK
Total Oppose
Total Support
Germany
France
28 Feb - 4 March 2012
Where 41% of Germans and 43% of French said they support the creation of
a single European military with an elected civilian authority to decide when
European nations take military action, just 18% of Brits said the same.
Figure 3.
41
43
28
30
Germany
France
18
Disagree
54
UK
Agree
28 Feb - 4 March 2012
On the question of representation at the United Nations, German and French
respondents were largely split between support and opposition towards the
idea of a single UN seat to represent the entire EU, instead of individual seats
for each member, with 34% of Germans in support versus 34% in opposition
and 34% of French in support versus 32% in opposition. By comparison, just
11% of Brits showed support versus 57% who opposed.
This sensibility is further indicated by recent research conducted with
YouGov’s Euro-tracker Survey in April, 2012: 57% of German voters said they
would vote to remain in the EU versus 25% who said they wanted Germany
to leave; 47% of French voters said they wanted to remain compared with
32% who wanted to leave. Significant numbers of both French and German
voters also reflected a long-term commitment to European Monetary Union
(EMU), with pluralities saying their country should always be a part of the
single currency.
Figure 4.
SURVEY COUNTRY should withdraw from the
Eurozone immediately and return to using our
old currency
43
45
SURVEY COUNTRY should stay a member of
the Eurozone for now, but DEFINITELY leave
the Eurozone eventually and return to our
own curency
20
16
8
13
SURVEY COUNTRY should always be a
member of the Eurozone
15
France
13
Germany
SURVEY COUNTRY should stay a member of
the Eurozone for now, but MAYBE consider
leaving the Eurozone eventually and returning
to our own currency
28 Feb - 4 March 2012
29
30
Rethinking Europe
The German Limits on Economic Activism
When considering the political viability of European federalism, however,
ostensible commitment to the single currency should be seen in the wider
context of German economic, cultural and historic attitudes.
Perhaps with little surprise, survey-results (collected between 28 February
and 4 March 2012) showed that German voters are currently generally more
economically confident than their French counterparts. 47% of Germans
said their economy is currently in good condition, versus only 20% who said
it is in bad condition, while 5% of French respondents said the economy was
doing well, versus 77% who said it was doing badly. German respondents
were also notably less concerned about unemployment. Only 40% said
unemployment is an urgent issue facing their country, versus 70% of French
who said the same. More so than other European polities, German public
opinion appeared unforgiving towards problem-ridden weaker members
of the Eurozone. 51% of Germans said Greece should leave the Eurozone,
versus 29% of French who said the same.
Accordingly, while Germans are more economically confident, they show
higher concern about inflation and the need to curb it. 51% of Germans
said the main priority for the economy should be to curb inflation with less
government spending, while 56% of French said that the main priority for
the economy should be reducing unemployment with more government
spending.
If the Ganley-Simms vision advocates a vastly more integrated European
polity along the lines of a comprehensive federal model, this would
presumably include common taxation, common budgetary control and
potentially enormous fiscal transfers from richer to poorer areas. Speaking
in the purely practical terms of the reality of public opinion, their largest
obstacle in these deeper initiatives for economic integration would be
German public opinion. While Germans show noteworthy interest towards
proposals for more direct forms of democratic participation or the pooling
of sovereignty in areas such as military action, survey results also show a
continued German commitment to the concentration of economic pain on
debtor states, and less support for the expansion of economic crisis-fighting
initiatives such as greater monetary easing, Eurobonds to mutualise the
debt-stock or the economic implications of expanded bail-out funds and
fiscal transfers. Where 51% of French supported making it easier for EU
countries to borrow from the European Central Bank, only 30% of Germans
supported this. 60% of French respondents supported lower interest rates
for the EU as a whole compared with 40% of Germans. One third of French
respondents also supported the idea of Eurobonds compared with only
17% of Germans.
The Nuances of British Retreat
Survey results of British public opinion, meanwhile, reflect a continued
desire to renegotiate the terms of EU membership, at least to some extent.
In the same breath, however, it must also be noted that there are important
distinctions between what these figures do and do not say.
On the broad question of European integration, we see a familiar divide
between Britain and the Eurozone core, with 47% of French voters and 62% of
German voters wanting either continued union as now or more integration,
compared with only 27% saying the same in Britain.
Figure 5.
SURVEY COUNTRY staying as a
full EU member and working for
a more integrated Europe than
now
40
31
14
13
16
22
22
16
40
SURVEY COUNTRY staying as a
full EU member but using the
power of veto to block any
moves towards a more
integrated Europe
SURVEY COUNTRY withdrawing
from the EU altogether
8
13
SURVEY COUNTRY having a
looser arrangement with the
EU, based on maintaining trade
and cooperation on some
common policies
20
UK
France
Germany
28 Feb - 4 March 2012
Hence, a large number of British voters clearly want ‘less Brussels’ in
some regard. But survey results also emphasise continued support for
co-operation across a range of policy-areas, which challenges popular
suggestions of late that British voters might be ready to go ‘Swiss’ or
‘Norwegian’ in a new outer Europe that equals little more than an amplified
free-trade area. The difference lies between attitudes to control and cooperation.
YouGov-Cambridge posed a similar question to two nationally representative
samples of the British population in slightly different ways. In the first instance,
respondents were asked whether they thought a list of specific policy-areas
should be controlled by the EU as a whole or by national governments each
deciding for themselves.
31
Rethinking Europe
32
In this context, a majority of respondents strongly opposed European control
in most policy areas, in bold contrast with France and Germany where
respondents showed significant support for allowing more of these to be
EU-controlled. These areas included financial regulation, military action and
recovering from recession.
Figure 6.
80
12
Laws on TUs and strikes
74
17
Agriculture
Crime & justice
8
85
Tax rates & national budgets
4
89
74
16
Financial recovery
68
23
Regulating ﬁnancial institutions
47
44
Terrorism & international crime
Controlled by EU (%)
69
22
Military action
Controlled by UK government (%)
28 Feb - 4 March 2012
In the second instance, however, respondents saw the same list of policyareas and had to choose whether European countries should co-operate
more closely together, or should loosen their links and handle the issue more
at the national level, or if the present balance was about right. In this case,
respondents preferred more co-operation in nine out of sixteen policy areas.
In seven of these, preference for control and co-operation actually indicated
trends in different directions, with a majority preferring national control in
the first question while a majority or plurality preferred more co-operation
with Europe in the second.
Figure 7.
54
15
47
23
Agriculture
44
30
Crime & justice
57
13
28
Military action
39
Financial recovery
41
34
38
37
67
11
EU countries should cooperate more closely (%)
EU countries should loosen their links on this issue (%)
15 - 16 February 2012
These results arguably suggest two distinct themes to British public opinion
on Europe: first, that a significant section of the public wants a serious
debate on – and potential revision to – the balance of control in key policy
areas; second, there is little evidence, however, that this points all the way
to a drawbridge mentality for reducing British-EU relations to mere terms
of trade.
The Limits of Federalism
It should also be noted that results from both question-frames highlighted
key areas of statecraft where overall public desire lent towards both national
control and less co-operation with the EU – namely national budgets, crime
and justice, and the basic means of national production, such as agriculture,
the rights of workers and laws on trade unions and strikes.
Here British voters share ground with their French and German counterparts,
where survey results reflect a similar desire to maintain sovereign control
over these same areas. (Note the top four items in both cases in Figures 8
and 9).
Figure 8.
France policy control:
19
70
Agriculture
28
63
Crime & justice
30
63
21
70
Military action
51
39
Financial recovery
49
41
52
39
72
21
Controlled by French government (%)
28 Feb - 4 March 2012
Figure 9.
Germany policy control:
22
79
31
Agriculture
61
38
Crime & justice
56
25
68
Military action
57
34
Financial recovery
54
38
61
76
32
17
Controlled by German government (%)
28 Feb - 4 March 2012
33
Rethinking Europe
34
The Democratic Deficit
Another area in which British trends compare with Franco-German results is
the basic sense that Europe’s crisis is democratic as well as economic. Only
small numbers in each case think they have a voice that counts in the EU – an
opinion that seems to unite European populations and British parties alike.
Figure 10: Cross-country consensus.
My voice counts in the EU
11
66
20
49
32
41
Disagree
Agree
UK
Germany
France
28 Feb - 4 March 2012
Figure 11: Cross-party consensus in the UK.
My voice counts in the EU
11
7
67
71
25
51
Disagree
Agree
Lab
Con
Lib Dem
28 Feb - 4 March 2012
In a list of words and phrases about ‘what the EU means to you personally’,
only 15% of French, 21% of German and 10% of British respondents chose
‘democracy’, and only 12% of French, 16% of German and 12% of British
respondents chose ‘a way to protect citizens rights’. By comparison, 44%
of French, 58% of German and 56% of British respondents chose ‘a lot
of bureaucracy’ and 51% of French, 43% of German and 39% of British
respondents chose ‘a waste of money’.
By a similar token, establishing an ‘automatic right to leave the EU if a
majority of voting people from that country say they want to do so’ was the
one Ganley-Simms proposal that saw a majority of public opinion pointing in
the same direction across Britain, France and Germany: 68% of British, 53%
of French and 55% of German respondents said they supported it.
In conclusion, more than two years of European economic crisis have
so far failed to prevent significant numbers of French and German voters
from aspiring to an ever closer union. According to the polls, this might
conceivably include the pooling of greater sovereignty, expanded control
of certain policy-areas by the EU as a whole, and more direct forms of
democratic participation such as presidential elections. But Ganley and
Simms take note: we also see clear limits on both sides of the Channel in the
public will for pooled sovereignty in certain key policy areas. Lest we forget
in this context, the US Founding Fathers never had to meet the challenges of
modern, networked public opinion, which is evidently and finally finding its
voice as a chief mechanic of the European project.
Dr Joel Faulkner Rogers is the Director of YouGov-Cambridge and author of
several books and US/UK government studies and academic materials.
Sean Kirwan is a Senior Research Fellow at YouGov-Cambridge, educated at
Cambridge University and UCL in International Public Policy and Research
Methods.
35
A Sceptical Perspective
Malcolm Rifkind
T
HE economic crisis of the Eurozone has been exacerbated by the
acute manifestation of a chronic political problem that has dogged the
European project for decades – our old friend, the democratic deficit.
European integration has always been a self-consciously elite project, forged by
men traumatised by Nazi tyranny and a totalitarian ideology that had claimed
legitimacy through elections and referenda. In the early stages of integration,
national governments shared sovereignty to find common solutions
concerning coal, steel, atomic energy and agriculture, and this was not hugely
controversial. However during my political career I have witnessed (and on
occasion participated in) the notable acceleration of the integration process,
from the Single European Act to the treaties of Maastricht, Amsterdam, Nice,
the Constitution fiasco, and most recently the Treaty of Lisbon.
Setting aside the relative merits of each step along this process, can one
reasonably assert that attempts to either mitigate or deny an increasing
crisis of democratic legitimacy in the European Union have been successful?
The long-term problem of the lack of democratic accountability in European
decision-making will indeed be exacerbated by the further extension in
coming years of the use of qualified majority voting in the Council of the
European Union, under the auspices of the Treaty of Lisbon. How should
a national electorate hold their government to account if it has opposed
a measure seen not to be in the national interest, but is outvoted in the
Council? We were told that the introduction of the European Parliament, and
then successive attempts to legitimise it through granting more and more
powers, would ease such problems. But the Parliament’s failings in capturing
the imagination of the European electorate have only served to discredit the
assumptions of those who argue that rapid integration will be endowed with
a retroactive legitimacy by a grateful public.
Nor has the introduction of the euro helped to produce a unified Eurozone
polity as many had hoped. Instead, its structural flaws have produced not
just the current economic crisis, but tensions between creditor and debtor
nations and between elites and electorates that prevent an effective response.
Europe’s leaders therefore find themselves caught in a vicious circle. On
the one hand, Berlin, Brussels and the bond markets demand austerity and
integration. On the other hand, citizens are resisting what is perceived as the
undemocratic manner in which these solutions are being imposed, as well
as the solutions themselves. This risks a wholesale rejection of mainstream
parties willing to do what is necessary to resolve the economic crisis, which in
38
Rethinking Europe
turn risks exacerbating the crisis, thus giving further impetus to increasingly
radical populist political forces around Europe.
The fear of this spiral has led to political paralysis across the Eurozone,
and in the case of Italy and Greece, the suspension of normal democratic
practice, followed in Greece by an incoherent result in their general election.
This paralysis has fed disenchantment and the airing of increasingly radical
‘solutions’. These radical populist solutions ‘from below’ in Europe’s political
margins on the far left and the far right and the rising popularity of figures
such as Jean-Luc Mélenchon and Marine Le Pen in France, and Geert Wilders
and the far-left Socialists in the Netherlands, have been well documented
in recent times. Their programmes must of course be resisted. Not so well
documented are the radical federalist solutions ‘from above’, borne of elite
disenchantment with Europe’s present predicament.
Impatient with the failure of incremental solutions, some in political and
academic circles call instead for Europe’s own federalist Great Leap Forward.
Taking inspiration from the founders of the United States of America such
as Alexander Hamilton, Europe’s leaders are urged not only to press ahead
with bold federal solutions required to resolve the euro crisis, but to take the
opportunity to create a democratic superpower with a monopoly over foreign
and defence policy, and install English as the superpower’s official language.
And they say Tories are on a different planet. It may come as no surprise to
the reader that I consider the idea that such a development is more likely to
resolve than to exacerbate the popular disenchantment that threatens both
resolution of the euro crisis and the European Union to be, frankly, laughable.
The misty-eyed invocation of the foundation of the United States of America
is also highly inappropriate. The inhabitants of the European Union are not
New World settlers, in a state of extreme political and cultural flux and with
the promise of a virgin continent stretching ahead of them. It ultimately took
a very bloody civil war to hold the Union together – a fact frequently left out
by those who cite the American example. Even if one was able to take such
suggestions seriously, an attempted leap forward of this kind would be the
most appallingly reckless gamble, risking all notions of European unity, and
ultimately its security.
I plead guilty to caution. But I am quite aware that the status quo is untenable.
Those who will continue to resist long-term visions of deeper integration
across the EU must nevertheless acknowledge both the severity and the
immediacy of the current crisis, and the need for some form of fiscal union
in the Eurozone to complement its ill-judged monetary union.
The British government has long accepted this. In an interview with the
Financial Times last summer, George Osborne conceded:
We have to accept that greater Eurozone integration is necessary to make
the single currency work and that is very much in our national interest.
We should be prepared to let that happen.
I concur with this view. In case anyone needs reminding, British bank exposure
to just the Eurozone periphery (Ireland, Spain, Portugal, Italy and Greece) is
equivalent to almost 15 per cent of the UK’s GDP. That is a higher exposure
as a proportion of GDP than Germany. The Chancellor of the Exchequer did
not wake up one morning thinking he was Jean-Claude Juncker. Nor is his
acceptance of the need for integration in order to save the euro a British
attempt to sabotage European solidarity by driving a wedge between
Eurozone and non-Eurozone members. Instead, his position is the result of
a sober analysis of both economic and political realities and, I suspect, an
acceptance of the least bad of the EU’s available options.
In November 2011, Mark Leonard of the European Council of Foreign
Relations outlined four possibilities in his paper, ‘Four Scenarios for the
Reinvention of Europe’. They were: (1) the current system of incremental
solutions led by national leaders and without treaty change; (2) breaking
up or reducing the number of members of the Eurozone; (3) folding the
necessary integrative moves into the European Treaties; and (4) a legally
binding intergovernmental agreement signed by members of the Eurozone
outside the scope of the EU treaties. Leonard concludes his summary of
these four options as follows:
Thus each of the four routes to fixing Europe’s institutional crisis has
advantages and disadvantages. The first is the easiest to achieve but it
risks failing to solve the crisis as well as exacerbating the resistance of
European citizens. The second solution could be more sustainable and less
painful for the citizens of countries such as Greece, but it could unleash
a tsunami of panic that results in the unravelling of the euro. The third
would be the most complete and durable solution but also has the greatest
risk of spectacular failure, as a rejection of the treaty by parliaments or
referendums could lead to the rapid disintegration of the EU. The fourth
solution could give the Eurozone what it needs while sidestepping the
resistance of non-euro members, but it could lead to a new gulf within
Europe and the slow marginalisation of the EU itself.
It is within this context that David Cameron’s veto in December 2011 should
be understood. Because of the very nature of a veto, David Cameron’s non
was widely regarded as an inherently negative move – the final act of a
desperate prime minister under pressure from rowdy backbenchers and
having suffered a diplomatic checkmate at the hands of his opponents.
But there is another interpretation – that Britain’s veto was simply a
recognition that the risk of a new gulf slowly opening up within Europe
39
40
Rethinking Europe
was preferable to that of a EU-wide treaty solution which not only placed
intolerable demands upon states that had not opted to join the euro, but
which also carried the greatest risk of spectacular failure, with disastrous
consequences for all.
The argument that ‘it can’t be a veto if nothing was stopped’ completely
misses the point. Firstly, it was not Britain’s aim to stop an intergovernmental
treaty from being signed. Speaking of Britain in his now famous Berlin
speech of November 2011, Poland’s Foreign Minister Radoslaw Sikorski said
that, ‘we would prefer you in, but if you can’t join, please allow us to forge
ahead’. Britain duly obliged – in this context, the veto was more tak than non.
Secondly, Britain did stop that intergovernmental treaty from being folded
into existing EU treaties, carrying the risk of an effective response to the
Eurozone crisis being strangled by another interminable round of EU-wide
institutional reorganisation. In doing so, Britain kept alive a positive vision for
the EU – that of a more flexible union better suited to a twenty-seven-plus
membership.
David Cameron had outlined this vision in a speech delivered before Britain’s
veto. Although much more attention was given to the fact that he uttered the
words ‘we sceptics’, of much greater significance was his case for an EU ‘with
the flexibility of a network, not the rigidity of a bloc – whose institutions help
by connecting and strengthening its members to thrive in a vibrant world,
rather than holding them back’.
Instead of a constructive discussion about this vision, the post-veto debate
was almost entirely about another old friend, the spectre of a ‘two-speed’
Europe. I have always been sceptical of this imagery. Indeed, I reject the
very notion of ‘speeds’ of European integration. It carries the assumption
that although countries may be moving at different speeds, they all expect
eventually to reach the same destination. I do not believe this to be the
case. This does not mean, as some will try to suggest, that I believe that
EU members should all pull in totally different directions. It is a matter of
distance, rather than speed or direction.
The idea that all EU members have hitherto been travelling at the same speed
towards the same destination is manifestly false in any case. The EU was not
split in two by the introduction of the euro – it has always been divided
along numerous axes. Members can be categorised in terms of Eurozone
and non-Eurozone, Schengen and non-Schengen, NATO and non-NATO,
creditors and debtors, more interested in Mediterranean Union or Eastern
Partnership, Social Chapter and non-Social Chapter, pro-Community method
or intergovernmentalist, and so on. The sheer complexity of today’s European
Union of twenty-seven members must therefore be acknowledged, and a
more flexible approach to European governance developed accordingly. As
Jean-Claude Piris, a former legal adviser to the EU Council, has argued:
Beyond the question of the euro, the fact remains that it is not able to
function efficiently within its present legal framework and that it is not
able to answer the needs, interests, and wishes of all its Member States
at the same time.
The wrong conclusions are easily drawn from such analyses. In November
last year, Nicolas Sarkozy called for the formalisation of a split between
a federal Eurozone core and a confederal non-Eurozone periphery. This
would reverse the achievements of enlargement and the single market –
a disastrous regression. It would in fact be the exact opposite of what is
needed: a deepening of the single market, which would not only encourage
growth, but also provide the common interest and focus for all members of
an enlarged, more flexible European Union.
This is not an argument to say that Britain should just be allowed access
to a European single market and have nothing to do with other forms of
co-operation. It is naïve to suggest that Britain can disengage from Europe
but still get a deal from the rest that is in the national interest. People who
fantasise of Britain as a Switzerland with nuclear weapons underestimate just
what a raw deal Switzerland gets when it attempts to negotiate on market
access with a united front lined up against it.
Those who say that Britain has always been a reluctant partner or outlier
in Europe are also mistaken. It played a central role in the establishment of
the single market and European enlargement – Europe’s big success stories
of the last few decades, and neither of which were responsible for Europe’s
current woes. One look at the ECFR’s annual scorecard for achievement in
EU foreign policy in 2012 will demonstrate the UK’s current engagement –
under a Conservative prime minister and foreign secretary, might I add. True,
we were branded a ‘Slacker’ on ‘Formats of the Europe-China dialogue’ and
‘Reciprocity in access to public procurement in Europe and China’. But we
earned the mantle of ‘Leader’ in ‘Relations with China on the Arab Awakening’,
‘Relations with China on climate change’, ‘Rule of law and human rights in
Russia’, ‘Relations with the US on the Libya operation’, ‘Relations with the US
on climate change, ‘Relations with Turkey on regional issues’, ‘Rule of law,
democracy and human rights in the eastern neighbourhood’, ‘The Egyptian
revolution’, ‘The Libyan uprising’, ‘The Syrian uprising and Lebanon’, ‘Middle
East Process and Palestinian statehood’, ‘European policy on the ICC and ad
hoc tribunals’, ‘Climate change’, ‘Development aid and global health’, ‘Famine
in the Horn of Africa’, ‘Sudan and RDC’, and ‘Afghanistan’.
Nothing about the EU’s institutional development is inevitable. After the
Cameron veto, some countries tried to raise the temperature of the debate in
41
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Rethinking Europe
order to encourage a diplomatic rift, in the hope of formalising Europe’s split
in two. But in general these moves were resisted, and the Treaty on Stability,
Coordination, and Governance in the Economic and Monetary Union of
30 January did nothing to formalise such a rift. The risk of a gulf emerging
that prevents all of the EU’s members from co-operating constructively
when necessary can be addressed by proactive moves to address relations
between the seventeen and ten, for example guaranteeing the ten access
to discussions between the seventeen, avoiding the damage of mutual
suspicion and pre-arranged bargaining positions.
The prize is the fulfilment of Europe’s pledge in 2000 to find ‘unity in
diversity’ – a Europe held together by its shared interests and focused on
the practical benefits of voluntary co-operation, rather than the myopia and
resentment of co-operation by compulsion in an increasingly rigid block.
Britain’s different historical experiences to continental Europe may mean
that it is less prone to thinking of Europe as a ‘blessed plot’, and less likely
to succumb to vague talk of solidarity. But this is as much, if not more, of
an asset than a hindrance. Britain has consistently worked for a more open,
liberal and outward-looking European Union, and it will continue to do so.
The vision of a more flexible Europe à la carte, held together by a shared
interest in the health of certain core European institutions, would not mean
a radical transformation but a means to preserve Europe’s strengths, while
recognising its chronic weaknesses.
These are discussions for the medium term, as the biggest threat to Europe,
whether of one-speed or two-speeds, is the immediate economic crisis.
Europe’s leaders must do the absolute minimum necessary to save the euro,
mindful of the risks of going too far. The Eurozone now has the institutional
tools to push for the necessary integration, but it will be extremely difficult.
Their governments must spell out the potential risks and rewards to their
populations of the strategy they are pursuing. They must gain consent at
the national level for the substantial sovereignty that will necessarily be
forsaken. If the Eurozone is to become smaller, which is increasingly likely,
there must be a sensible debate as to whether the risks of the potential
shock to Europe’s financial system are tolerable.
A more useful figure to bear in mind than Alexander Hamilton is Mikhail
Gorbachev. Misunderstanding the complex interplay between the economic
and political crises during his time in power, he attempted a radical
constitutional reorganisation at the same time as forcing through painful but
necessary economic reforms. He thought it would buy him time and political
legitimacy. We all know how that went.
Sir Malcolm Rifkind is the Conservative Party MP for Kensington and Chair of
the House of Commons Security and Intelligence Committee.
Europe’s Halfway House
Michael Stürmer
W
HILE the month of May is traditionally celebrated as one of joy and
hope and merry-making, things will have looked different when
seen from the office of Angela Merkel on the sixth floor of the Federal
Chancellery. It is not only the common currency that is at stake in the present
crisis, but also the entire architecture of Europe, the balance of power and
the smooth working of democratic institutions. The shockwaves of the global
economic crisis continue in all directions and will leave nothing unchanged;
globalisation has no pity for the losers. It is time for an agonising reappraisal
and policy that recovers trust and confidence lost.
The Greek elections brought the long-simmering woes of a failed state to
breaking point. France sent François Hollande to the Élysée Palace; while the
incumbent, Nicolas Sarkozy, seemed to inspire more trust in his economic
competence, it was not to be and his shortcomings cost him the presidency.
Moreover, France has decided that austerity is too high a price for fighting
inflation and strengthening Europe, and instead is being seen as refuge
from German demands and the rigours of globalisation. Perhaps worst of
all, elections in North Rhine Westphalia (with 17 million people, the largest
of the German Länder and once upon a time the industrial powerhouse
of Germany) returned a Socialist-Green coalition back into office that over
the preceding two years had distinguished itself through excessive deficit
spending and, on top of everything else, had run afoul of the Constitutional
Court – so much for the oft-mentioned German fear of inflation.
Come 2013 and the next Bundestag election, the best Dr Merkel can hope
for is – should the SPD and Greens fail to win a majority – a grand coalition
with the Social Democracts. But, as Harold Wilson famously said, a week is
a long time in politics. There could be a double-dip recession in the US; war
could break out in the Middle East; the Eurozone crisis might go from bad to
worse. For the time being, support for the chancellor’s fiscal compact and its
accompanying austerity is waning throughout Europe; while at home, in the
motherland of fiscal virtue, things do not look too promising either. No doubt,
Dr Merkel, enjoying a well deserved reputation as the greatest of political
tacticians, will eventually give way and approve a mixed menu of Germanstyle fiscal rectitude and state-propelled public spending à la francaise – and
to hell with the tough bargain at the centre of the fiscal compact: money for
virtue. Northern EU states will continue to finance current deficits and the
southern states will refuse to shape up. Britain will be an uneasy spectator.
Meanwhile, watch out for the strains in the Franco-German balance:
Germany has to carry most of the burden, and once the Germans find out
44
Rethinking Europe
the extent of the bill they have to foot, they will resent it and suspect that
politicians will make inflationary policies the panacea for all financial woes
present and future. Even in Germany, the finance minister – regardless of his
conservative credentials – encourages the unions to take a big ladle when
serving the soup. France under Mr Hollande, meanwhile, will continue to
avoid the tough reforms needed to liberalise many professions, will not allow
longer working hours, and will fail to raise the pension age. This is bound to
create irritation, friction and ill-concealed bitterness.
But separation is impossible; both sides know this, and France can bring
enormous pressure to bear as the Mediterranean countries will more
or less follow its lead. Germany will be alone, at best together with the
Netherlands, Finland and perhaps Austria, in the virtuous camp – but not
for long, because it is a lonely place. Moreover, politics kicks in: A Germandominated Europe would be self-destructive, with France in permanent
opposition and humiliation, yet able to throw spanners into the works.
That would destroy what the Germans see as their greatest achievement:
European integration. Sonderweg never again – this has been Germany’s
raison d’état since Chancellor Konrad Adenauer, almost seventy years
ago, brought Germany back from the realm of the dead. The essence of
German interests is still to be captured in three imperatives: to sleep in
peace, to eat well, and never to be alone.
It is in this context that the chancellor announces that ‘more Europe’ is the
way to salvation. Germans, however, are not sure whether, in the present
crisis, this is more a threat than a reassurance. Dr Merkel is also on the
record saying that ‘if the euro fails, Europe will fail’ – her way of keeping the
Germans loyal to the European project although her immediate objective
is, first and foremost, to save the fiscal compact, signed after excruciating
negotiations. But what lies beyond stabilisation of the common currency is
kept deliberately vague. Only one thing is for sure: the common currency
alone, without the cultural and political wherewithal, is not enough to
transcend the nation-state. The logical consequence of the fiscal compact
is a more federal Europe – but this also poses the risk of Britain and others
declaring that enough is enough, and anything beyond a free-trade zone de
luxe is unacceptable.
The Germans, in spite of reunification, still tend to believe that nationstates are a thing of the past. They are, and they aren’t. For sure, they are
no longer the proud towers of power and prestige, but they guarantee –
or pretend to guarantee – the livelihood of the citizens and protect them
against hardship. The social contract that keeps everything in balance is
not established between the EU and the European citizens, but inside the
nation-state.
Nation-states are still the guardians of social stability. The common currency,
meanwhile, has been set up as a stateless medium, with the European Central
Bank the guardian of price stability. But stability and democratic consensus
have turned out to be in conflict, and the outcome is forever uncertain.
While the fiscal compact – like the now-defunct Maastricht Criteria and
Growth and Stability Pact – is meant to extend German fiscal virtue to the
wider Eurozone, it is seen in Germany, by elites and the man in the street
alike, as the essential guarantee of sound money, growth and prosperity.
Unfortunately, most of Germany’s neighbours do not share this view.
At present, adherence to the fiscal compact could make or break the
common currency. But it is not a mould for the future. The chancellor
admitted as much when she honoured the twentieth anniversary of the
Maastricht Treaty in a lecture to students – surrounded, of all things, by
Greek statues – in a Berlin museum. She went beyond her usual self and
proclaimed a vision of the Europe for an unknown future. ‘Without doubt,
we need more and not less Europe’, Dr Merkel said, repeating a familiar
phrase. But then she went on to say something extraordinary: ‘That’s
why it is necessary to create a political union, something that wasn’t done
when the euro was launched’.
Helmut Kohl used to mention the political union of the future but never
went into detail, knowing full well, as he explained time and again to close
advisers, that there was little in terms of instruments and even less in terms
of moral support among the Europeans, Germany included, to give political
union substance and power. The Maastricht Treaty on Political Union is,
compared with Economic and Monetary Union, no more than a shadow.
That the fiscal compact would one day grow into a fully fledged political
union, giving the EU state-like appearance and quality, requires, for the time
being, an act of faith. Europeans in their vast majority are simply not ready
for what they would perceive to be a leap in the dark. The fiscal compact can
at best remedy the weaknesses of the original European construct; to expect
it to create the union that should have preceded it is fantasy.
But there are lesser steps that can be taken to strengthen the European
Union and transform it into a global player. First of all, Europe needs an
integrated, multi-dimensional energy policy. But this cannot be built on the
German quasi-religious anti-nuclear posture – now massively under attack
from industry and the trade unions – while the British and the French swear
by nuclear power to secure a sufficient supply of electricity.
Second, Europe needs to be serious in terms of military security and
defence. The US has other business to attend in the Middle East and around
the Pacific, is financially overburdened and, after two wars, is overstretched.
Third, culture and education would offer another avenue towards a better
45
46
Rethinking Europe
understanding of Europe’s unity in diversity. Infrastructure, fourth, would
offer powerful incentives to work together.
In short, instead of a revolutionary bid for federalism which runs against the
grain of most Europeans, a step-by-step, trial-and-error concept needs to be
developed, and accompanied, paradoxically, by a lot of self-restraint on the
part of the Commission. Today, Europe is in crisis and simply not ready for the
challenge of political union on federal lines. But, once the various building
blocks are in place and working, meaningful political union will come into its
own.
Michael Stürmer is a German historian, holding several prominent academic
appointments, and former advisor to West German Chancellor Helmut Kohl
and currently chief correspondent for Die Welt.

the report - Royal United Services Institute

Transcription

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