Robert Frost is my favorite poet. His poem ‘The road not taken’ is one of my favorite poems. In that poem, Frost writes about two roads that diverged in a yellow wood and the choice of taking one of them, as one can not travel both. The traveller from the poem stood long, contemplating which road to take. The poem ends with ‘I shall be telling this with a sigh/ Somewhere ages and ages hence:/ Two roads diverged in a wood, and I–/ I took the one less traveled by,/ And that has made all the difference. Almost a century later, Europe is the traveller from ‘The road not taken’.
Between all the debris flying around as the consequence of the worst economic, financial and political crisis in almost a century, one can see some contours of how the EU will work and look like in the new era, i.e. after the current crisis.
The rulebook on how Europe works is in the process of being rewritten as we speak. I have written here earlier on power struggle within the EU, EU member states and between and within EU institutions.
What are those contours of the future EU? For some time now, there is a debate going on whether the ECB should act as a back-stop for troubled euro area nations. This has already caused problems within the central bank and is now driving a wedge between Germany and France (with the former wanting the ECB to stay as far away from government debt as possible and the latter urging the bank to become more involved).
Yes, the ECB is, reluctantly that must be said, buying government bonds of Italy, Spain, Greece, Portugal and Ireland. But remember that the ECB is also the guardian of the euro. If the bank does not get involved more, it will risk the euro breaking apart and hence, driving itself out of business. I am quite confident that, at the end of the day, the ECB will let the German objections be what they are and step onto the plate.
To try to get the German support for something that is in no way compatible with the German view of what a central bank should do, I think the recently launched proposal by the CDU (party of Angela Merkel) with regard to the ECB will be adopted. The CDU wants to get rid of the ‘one man/woman, one vote’- rule within the ECB. The head of the central bank of Malta or Greece now has the same say as the head of the Bundesbank. What the CDU wants is to align the ECB with the principle used in almost all other European institutions, where the number of votes a country has, depends on the size of its economy and the number of people living in it.
Another change that is likely, in my view, is that the euro area Triple A countries will have more say at the expense of the lower rated ones. Just a few days ago the Finnish prime minister made a case for such a rule.
As not all euro area Triple A countries are equal, Germany will get more influence than before (being the largest and the strongest). A dominant position of Germany in Europe would not be strange and would in fact just reflect the fact that it is the largest European country, it has the strongest economy and the deepest pockets, supplemented with the fact that it is situated very strategically in the middle of Europe.
More power to the strong member states means two things. First, there will be less power to share among the weak member states. To compensate for that, the share of the power-cake so to speak, that will be divided among EU member states, will become larger. So, and this is the second consequence, European institutions such as the European Commission will more and more become executive branchish, with member states deciding what it should do, how to do it and when.
To soften the blow – and make it possible for the European Commission to argue that it has become more powerful – the Commission will get new responsibilities, but now within the new framework of member states calling the shots.
All of this will need a new Treaty obviously. This new rule book will contain rules such as that in case of troubles and/or if a country does not play by the rules, it could be put under supervision, temporarily lose its voting rights, stripped of EU cash and in extremis, expelled from the monetary union.
To avoid alienating the EU member states outside the monetary union, such as the UK and a number of countries in East Europe, the new Treaty will make a two-speed EU more of a fact than it now already is. For example, it is likely that the clause making it mandatory to introduce the euro once a set of criteria are met, will be dropped, as countries such as Poland and Czech Republic have recently clearly demonstrated that they do not want to introduce the euro any time soon, if ever.
So, who will be the losers and who the winners in this new European Union? Large member states, especially Germany, will be the winner. Smaller countries that are Triple A rated will likely see their influence enhanced as will the UK, that will most likely demand (and get) quite a lot in order to refrain from useing its veto.
On the losing side we find large countries such as France, Italy and Spain and smaller EU member states that are not Triple A rated. European institutions are likely to have less influence than before the crisis.
Now, there is one caveat. This would all be the case, at least in my opinion, assuming that the euro area does not unravel (with the most likely scenario being that the strong members will be leaving) . Unraveling of the euro area could easily cause the EU to unravel as well or at the very least blow some serious damage to the EU.
The key question for the solution to the current crisis and the future of the monetary union and the European Union then will be: when faced with the choice between inflationary policies and the current monetary union, a choice that has become unavoidable I would say, what will Germany go for?
If Germany is not compensated a lot, my answer is that Germany will choose to leave the monetary union and form a new common currency with less but stronger countries. By ‘a lot’ I mean so much that many other European countries will find that Germany will become too powerful. All minds of historical elements will then be dragged into the debate, taking the soured relationships within Europe on a whole new, and much dangerous, level.
Whether all these changes, if they indeed take place, are beneficial or not, is another discussion. It is highly possible that, given the fact that we are talking about major changes here, they will be put to some kind of plebiscite, either direct or indirect, through regular elections in member states with anti-Europe parties on the ballot lists. It is far, far from certain that the people of Europe will give their go ahead for this new Europe.
In that case, we’ll however also have another new Europe at our hands, so one way or the other, Europe will embark on a new road. Whether that will be the road more or less travelled by, will indeed make all the difference.
#1 by Victor on November 18, 2011 - 2:58 am
Reading this kind of articles shows why the President of the European Council talks so much about avoiding drama.
The crisis has been ongoing for a few years now, so what has happened:
1) Merkel has had to acquiesce to more bailouts (with Constitutional Court and bipartisan approval);
2) ECB is purchasing state bonds;
3) strengthening of EFSF was approved in all parliaments;
4) purchasing of bonds will be institutionalized in the ESM Treaty;
5) six pack economic governance package strengthened the Commission against the Council;
6) Commissioner Rehn was made Vicepresident for the Euro, Van Rompuy President of the Euro summit and there will be a stand alone President of the Euro group;
7) governments that were playing populism or were standing in the way of reform have been fired (Portugal, Spain, Ireland, Slovenia, Slovakia, Italy, Greece);
9) UK Conservatives had to shove their referendum plans and work with the most pro-EU UK party;
10) Germany is pushing to strengthen the Court of Justice by giving it jurisdiction in EMU sanctions (which just requires a one sentence deletion in the TFEU).
So in the end the traditional institutions are being given more powers, even as new mechanisms are being created, which will in all probability eventually be integrated into the Treaties (as happened with Schengen and with the very idea of the Euro).
The EU is also still expanding (Croatian accession) and deepening (Schengen and Euro zone enlargement).
While it is true that Germany will push for a further reform of ECB Governing Council voting rules, the Protocol on the ECB already foresees abolishing the one state one vote rule and the Governing Council already now uses its own QMV for several purposes, so this is not too radical. Furthermore, there is no single QMV in the EU, but several (Athena, enhanced cooperations, Schengen, ACP, etc).
The proposal to give Euro opt-outs to the new member states is unnecessary, as Sweden has shown the decision to join the single currency can’t be imposed. A Euro exit or expulsion/suspension clause isn’t something new either, as the Treaties already foresee unilateral withdrawal from the whole EU and the argument that Greece couldn’t leave the Euro unilaterally was legalistic and not very convincing even at that.
The proposals for linking Cohesion funding with EMU sanctions have already been tabled by the Commission and there hasn’t been too much of a fuss.
Parliament’s proposals for Eurobonds will get their air also with Commission proposals and Germany appears to have softened its stance.
The financial transaction tax and the common consolidated corporate tax base proposals also tabled. No civil war yet. Probably enhanced cooperation, like happened with the patent and divorce proposals.
The most radical proposals are the ones over the EU examining and potentially modifying national budget. The part about examination will just be a strengthening of the current regime, nothing radical. The part about unilateral modifications will not see the light of day. There is no need for it anyway now that Berlusconi is gone and Greece defaulted.
The whole issue of suspension of voting rights in EMU will also dither away or end up in a compromise requiring several rounds of voting (like in the new economic six pack). The members of the Council/Euro group don’t even vote anyway most of the time, with the EU still being very much consensus based in its workings.
Just like proposals for a “European” credit rating agency or to suspend sovereign ratings were shelved, these proposals are made as part of the normal back and forth between member states.
The Tories can’t push for anything in the EU without the risk of a general election, so how will they be able to get anything in this parliamentary term? Cameron has already shown he is all talk.
The crisis in Europe isn’t a particularly European crisis. The markets are just having their way because they can, because governments have/had been unwilling to really defend each other and the Euro.
The real crisis is the world wide jobs crisis. The real crisis for Europe and the rest of the West is the challenge of dealing simultaneously with aging populations and youth unemployment while Asia rises.
What is happening in Europe isn’t about the Euro, it’s about austerity. Germany used to think it could impose austerity without giving anything in return. Its thinking is also changing. It has agreed not only on the above, but also on further Cohesion funding and therefore abandoned its blockage of several initiatives in the Council.
With France and Italy losing their AAA credit ratings, Germany stands alone. Having very good economists, it knows its economy will suffer if the Euro zone breaks and decides to devalue or its members plunge further into recession.
With the Euro overvalued and inflation still manageable (and there being little risk of significant wage inflation), there is leeway for Germany to cater for its partners needs as it has started doing.
Germany’s model of austerity is doomed unless it increases stimulus. It has also already started moving in this direction with tax cuts.
In the end this crisis is a crisis of democracy. The problem with the EU is not, as the eurosceptics argue, that the misnamed European Parliament (it is just one Chamber of the bicameral asymmetrical powers legislative -France has also brought up the problem of non-Euro states delegations voting in Parliament over Euro zone legislation-) doesn’t work or that the Commission and the President of the European Council are unelected.
The problem is that the most powerful actor in the EU is the Council, which although elected, isn’t elected all at the same time.
The other problem is of course the unanimity rule, but this has proven to be actually more manageable than usually thought. Multispeed Europe was a matter of fact since the beginning (remember EFTA, the never approved Defense Community, etc).
The process of integration has always had some frontrunners. When the Treaties didn’t give way, new treaties were signed, not just reformed, just like is happening now.
In the current juncture the only truly foreseeable problem will be how to deal with Ireland, which as a member of the Euro zone could stand in the way of reinforced governance. For all the other issues, the Lisbon Treaty made enhanced cooperation more easy and created the passarelle clauses. The other usual suspects aren’t truly in a position to stand in the way.
The EU should be judged by what it does, not by what is debated. At least most citizens are smart enough to understand than in this globalized world it is better for Europeans to be together.
Furthermore, this real crisis of finances could lead to more effective cooperation in diplomacy and security, with states at last seeing value in the External Action Service, European delegations, EDA and better cooperation with Nato. As France, Germany, Spain and the UK review the working of their consular networks and development aid, there will probably be a gradual push to give this tasks to the EEAS.
All the talk about the Commission being a glorified Council Secretariat misrepresents history. This is what the Commission has always been. The Commission has never had true autonomous powers. It is guardian of the treaties, while the states remain its masters. And yet, with the Lisbon Treaty it has become a bit more influential in legal terms. With its new delegated and implementing powers, it is able to do more behind the scenes (and more quickly), were it is so able to influence policy.
The Commission never was a directorate, this is just the member states using it to deflect responsibility. The accusation that it is not in the driver’s seat of European integration is also absurd. The Commission has only been in that position when the states allowed it or delegated to it. Delors didn’t create the Euro, Mitterrand and Kohl did.
The medium countries will never count in a strategic sense. They can only use their power to keep things as they are. But with the threat of them being in the same position of vulnerability against the markets, why would they risk it?
Switzerland had to swallow its pride and adopt an exchange rate against the Euro, it also joined Schengen and de facto applies a lot of EU legislation. Norway and Iceland are stuck in the European Economic Area where they mostly take orders from the EU. The Scandinavians may be joyful now, but they know what a financial crisis is. And the Eastern Europeans still recognize for the most part that without the EU they would still be stuck in the Russian sphere of influence and their banking sectors are in a precarious situation. So what kind of power can these states wield exactly?
There is no way of there being a mini-Euro zone without France. And France will not stay in if Italy or Spain leave. Why would Finland, Ireland and the Benelux (all exporting countries and direct competitors of Germany) want to remain tied up to a redenominated and probably further appreciating Mark/Euro?
There is one scenario that hasn’t been explored and this is that Germany should leave the Euro zone. This would probably work better for all concerned. The Euro could then depreciate and France have its way on economic governance. This would in a way be a back to the future scenario, where the purpose is to deal with Germany being too big to fit in the EU and too conservative in its comprehension of economics due to its unique economic history. Then the Euro and Eurobonds could be a source of protection to the weak Mediterranean countries against the indomitable financial markets.
But for all the speculation, in the end there will be no referendums and no significant elections (except for the ones in France and Germany). Going into next year’s elections, we will probably see less concern for austerity in both countries and more for jobs (we already see the CDU even talking about minimum wages).
With right wing populists in government in Spain, Ireland, Portugal and probably Greece, the threat of elections in Italy, a new left-wing government in Denmark, a reelected “liberal” administration in Poland, and the ballots in Germany and France, the EU is certain to start paying more attention to social issues in the near future, which is just what is required to regain its credibility after having been seen as an instrument of austerity for so long. The Tories are certain not to like this, so this is maybe the only scenario where they could actually get the social opt-outs they want, so as to not stand in the way.
#2 by Michael on November 18, 2011 - 1:56 pm
None of this will happen, and if an attempt is made to create a Europe like this, it will be the end of the EU.
in Ireland we require a referendum on all changes to our constitution, we have a real democracy and the people will vote against changes that move the power to Germany, and they will vote against it at any cost.
I can imagine an EU in the near future consisting only of Germanic countries (minus England), and only one of them will be a happy member.
#3 by sjb on November 18, 2011 - 2:55 pm
Euro Maverick wrote: “[...] countries such as Poland and Czech Republic have recently clearly demonstrated that they do not want to introduce the euro any time soon, if ever.”
http://www.ft.com/cms/s/0/178ca3a4-0644-11e1-8a16-00144feabdc0.html#axzz1e45R6jK5
#4 by Niels Thue on November 29, 2011 - 1:10 pm
A two speed Europe, might be the only solution. But it has to be democratic, or else it will surely fail.
EU should consist of Core-countries and of Rim-countries, thus creating a federal room and a confederal room in the European house.
To become a Core-country, you would have to be part of a much more integrated euro-zone with a common economic government. This government should be formed from a majority in the European Parliament, only Core-countries would hold seats in the new European Parliament.
Rim-countries would have only a say in the EU-Council, but wouldn’t hold seats in the European Parliament. After all Rim-countries like Britain and Denmark have opt-outs on critical parts of the EU-project and shouldn’t interfere in the governing of the Core-countries.
This would give the EU-project a much needed democratic legitimacy.