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Nosemonkey's EUtopia

In search of a European identity

The Greek crisis, Germany and the future of Europe

I’m on the other side of the world at the moment, with limited web/computer access (writing this on a combination of a mobile phone and a computer with a Japanese keyboard and operating system, so likely to be more typo-ridden and less coherent than I’d like), hence even less from me than usual. But this deserves to be noted:

“Europe is at a crossroads,” Merkel declared to the German parliament in Berlin today. “This is about no more and no less than the future of Europe and about Germany’s future in Europe.”

…In return for leading the rescue attempt, Germany is demanding new rules and penalties for the 16 countries taking part in the single currency.

The 16 could not keep muddling along turning a blind eye to the fudges and fiddling of fiscal miscreants, she argued. Instead, persistent breakers of the euro rules could be “suspended” from the single currency, fiscal sinners would have to forfeit their voting rights in EU councils, and would lose EU subsidies.

If there was no alternative, a country using the euro should be allowed to go insolvent, meaning hundreds of billions in losses for international banks and other creditors. This was seen as a warning to the markets betting on a country’s sovereign debt default, while confident that investors would recoup their money from European and German bailouts.

As a last resort, Wolfgang Schaeuble, the German finance minister, is proposing that a persistent rule-breaker be expelled from the eurozone, though not from the EU. Olli Rehn, the European commissioner for monetary affairs, is to unveil proposals next week for new rules that would give Brussels the power to scrutinise national budgets, withhold EU funds, and impose penalties in the eurozone.

The Germans support and oppose some of Rehn’s measures, but are against vesting the powers in the European Commission. Merkel’s proposals are radical and would require renegotiating the Lisbon Treaty defining how the EU works.

Many have argued that European monetary union was never going to work without far tighter centralised controls. They may now be about to be proved right.

For advocates of the euro (and I remain unconvinced one way or the other, seeing it as nice in theory but problematic in practice, as well as relatively convinced that it was a) introduced too soon, and b) too lax on entry criteria), this is a depressing time, with little space for optimism.

For advocates of the EU, it is almost as tricky to see anything positive here. Yes, this crisis may finally underscore something I’ve been saying for years – not all EU member states are equal, so it’s about time we stopped pretending that they are and start considering how to make a multi-tier EU function effectively. But after the decade-long squabbles that led to the final ratification of the Lisbon Treaty six months ago, I can’t see anyone in Europe being keen to start a fresh round of EU reform talks.

At the same time, we are likely to start to see some big shifts in the attitudes of two of the EU’s most important member states, Britain and Germany.

Britain, because of today’s general election, which may see the eurosceptic Conservative party gain power (and, more to the point, the strongly anti-EU William Hague become UK Foreign Secretary), with a number of explicit promises to scale back Britain’s already unenthusiastic involvement in EU affairs.

Germany, because of the understandable resentment from German taxpayers at having to bail out the rest of the EU combining with frustration at being the single biggest contributor to the EU project while at the same time having the smallest amount of influence (in proportion to both economic might and population).

Plus – an important point, this, as so much of Germany’s foreign policy over the last 60 years has been due to residual feelings of guilt and shame over World War 2 – we are entering the decade in which the last WWII veterans are going to start dying off. There is only so long that Europe’s largest economy was going to allow itself to be bossed around based on a geopolitical version of the sins of the father.

The decision of some parts of the Greek press to explicitly bring up the Nazi occupation of that country as a reason why Germany effectively owed them a bailout has only further underlined a feeling that has understandably been rising in Germany for some time now – “the Second World War had nothing to do with me – I wasn’t even born then, so why the hell should I be punished for what my grandparents’ generation did?”

To (only slightly) oversimplify, for the first 50 years of its existence, the EU has been shaped primarily by France and French intersts (note that it was a former French president, not a former German chancellor, who drew up the EU Constitutionh note that the Treaty of Rome contains many France-only clausesh note that France still receives a disproportionate amount of Common Agricultural Policy funds). Germany has tended to stand dutifully in the background, mostly nodding in (sometimes reluctant) agreement, due to a combination of war guilt and genuine enthusiasm for the ideas of European integration.

Germany has invested more in the EU – both financially and philosophically – than any other member state, yet has hed comparatively little say in how the project has evolved.

With the Greek crisis, this could all be about to change. Germany has long had a moral right to have a greater say in EU affairs – this may be the moment when she starts to assert that right.

I, for one, am hopeful that this could prove very positive indeed. Not in the short-term, perhaps – but in the medium-term this may, with any luck, see the EU reconstituted on more sensible grounds, where weak economies are no longer able to drag down the strong, and where rather than progressing at the pace of the weakest or most reluctant member state, those that are stronger or more enthusiastic for further integration can finally be allowed to truly flourish.

Update: The Centre for European Reform seems to be thinking on similar lines about the Germany-EU relationship… Key quote:

It is hard to see how the EU could make progress on anything – whether it is services market liberalisation or a common energy policy – with a reluctant, grumpy and inward-looking Germany at its heart.

It is time for some damage limitation.

9 Comments

  1. Hmmm..

    The Convoy system was designed to ensure the survival of the greatest number in trying times for shipping. It meant that all travelled at the speed of the slowest in order that more would complete the journey.

    In 1939 the faster stronger ships travelled at their own speed, with the immediate effect that the weakest were picked off. Then without the weaker bullet catchers, the faster, stronger ships found themselves more vulnerable to attack.

    The convoy was the result of hard experience.

    For the convoy of the Euro, and indeed by extension the EU to move to a system you describe, would I fear lead to a similar situtation in the current climate.

    We in the UK are semi-detatched, we could go on own way (which is the route I would prefer – set our own course for our own destination) but the Continent is as they often say themselves all travelling to the same destination. So their route is well marked, and thus more vulnerable.

  2. Nice analogy, but what is the “destination” that you think that “the continent” is heading towards, exactly?

    And why, if the UK can break off from the convoy, can’t the rest of the convoy split into two or three different groups, heading to several different destinations at different speeds? This makes perfect sense to me.

    Because the other thing about a convoy is that it means that your ships are all grouped together in one place – the danger is that if a storm comes, they can all be sunk.

  3. A better analogy than a convoy would be a raft: a collection of independent nations lashed together in by a mind boggling spider’s web treaties all pushing in different directions, with some now getting swamped by the wakes of others and starting to sink. It would be good if some of these ties were broken so that the strugglers stopped being pushed under by them. If that happened and the EU transformed itself into collection of independent states integrating, or not, to whatever degree is best for them then that would be great, but that would require a complete change of tack for an organisation that has been up until now been determined to force itself along the path of ‘ever closer union’. Given the difficulty that the political class had getting the contents of the EU Constitution in place, even though that was a far smaller change to the status quo than switching to an a la carte EU, the chances of the EU reforming itself have got to be very small.

  4. It’s not that much of a leap, Chris. Schengen and the Eurozone have already set the precedent for multiple levels of integration, while Maastricht introduced the subsidiarity principle (which can, in theory, be used to challenge the EU’s right to legislate in any number of areas), and I thing I’m right in saying that the Lisbon Treaty removes any mention of “ever closer union”.

    There is hope for fundamental EU reform – and the likelihood of it happening is constantly, if slowly, increasing.

  5. Nosemonkey,

    “Ever closer union” is still there (Article 1 TEU) in the Lisbon Treaty, as it has been since the Treaties of Rome, indeed (with slightly different wording) in the Treaty establishing the European Coal and Steel Community.

    This is what the UK signed up to, when it joined, contrary to deception myths.

    However, your real argument about Germany assuming a new role is an interesting one. Sarkozy and Merkel have penned a letter on economic governance ahead of the summit tomorrow. Let us see what comes out of it.

    Gawain and Chris: By the way, if cutting loose your log from the raft is the sensible thing to do, the UK with its famed financial expertise is shortly (i.e. after the election) going to wake up to the fact that its accumulation of debt is at the level of Greece.

    Vulnerability is a relative matter, to say the least.

  6. Pingback: The Latest Posts « My Europe Week

  7. Nosemonkey: Reform of the EU might be possible, but I still don’t see it as at all likely. For example the result of the current crisis is going to have to be some system for fiscal transfers between the members of the EU (the only other option is Greece leaving the Euro, which isn’t going to happen even though it should). This transfer mechanism should have been set up when the Euro was, because the single currency was never going to work without it. However along with this fiscal transfer mechanism some kind of fiscal oversight mechanism is going to have to be built as well, to do otherwise is politically impossible. This is another centralising step.

    It took decades to get a partial reform of CAP, even though CAP was basically indefensable. Reforming to a properly a la carte EU is a much bigger reform and so likely to take even longer, if it happens at all. Ever closer union is just too deeply ingrained, and the EU is to big and its systems too complicated to change. Hence my deep scepticism that it can actually be acheived without starting again from scratch.

    Ralf: The UK was always going to have to cut the size of its debt (and the size of the state that created all that debt) back down to a sustainable level. Not being in the Eurozone leave more methods for doing this for example: letting the currency devalue and so reducing the value of the external debt, or letting inflation eat it. Devaluing the currency also means that exports become more competitive so leading to more growth and making it easier to pay back the rest. Inside the Eurozone the only option is to pay back the debt in total after a period of wage deflation to regain competitiveness. Debt and deflation is a very bad combination. So, yes, the looser ties are going to be better for the UK.

  8. I’ve watched the €urozone crisis unfold over the last few weeks with mixed feelings.

    Sometimes dread as the potential for an unravelling of the most obvious manifestation of European integration, sometimes a feeling of “I told you so” inner smugness.

    This is a highly complex issue, suitable for entire books by persons far more learned, clever and informed than I but for what it’s worth, here are some remarks I posted earlier today in response to this Guardian article .

    Needless to say no one responded to them, which is a fairly typical reaction to anyone espousing radical ideas about how to reform the institutions of European governance. Very few people it would seem can comprehend a world outside the orthodoxy provided by the Nation State unit of political organisation.

    So the European integration process continues to bumble along, lurching from crisis to crisis, either unwilling or simply incapable of confronting the geo-political elephant in its European room?

    —————————————————————–

    European optimists hope the way to save the eurozone will be to complete the project by agreeing much closer fiscal and political union between the single currency members. In future, the hope is Germany would no more allow Greece to get into this mess than it would Bavaria.

    Exactly!

    The € is a currency looking for a country – until that country emerges as a more formal entity, the pressure for reform will continue.

    In order that formal entity of this nature can exist and maintain credible public confidence, ie. government by mutual consent, it must exhibit an institutional structure founded in democracy – that means elections leading directly to the establishment of a government operating exclusively within the European arena.

    To cut a very long story short, the obvious conclusion is some form of federal arrangement whereby certain defined (by a constitution?) policy fields are managed and funded at one level (European) and others at a different level (more geographically immediate).

    That’s the simple truth here and until the European public is engaged with this reality, we’ll simply lurch from one crisis to another – the only groups benefitting from this geo-political vacillation are the speculators, betting on potential outcomes driven by uncertainty.

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  9. European Union was the best thing for Europe. One currency no stop from Country to Country and the Nations grew. Greece prospered like a rich kingdom. Two cars for every Greek and a motorcycle above 750 cc for every cyclist. But then greed came in. The politicians took all the money and then they wanted more. Scandals, first Siemens, then the Greek Church-Vatopethio and then the Euro. Greece managed to sink every Europeans hope to lower than the BP Exxon oil well. And they continue. With strikes and defying reality and with our (US Government) not instructing them and telling them that without Dollars and Greek Americans and help with problems with Turkey, Greece will sink and the terrorist will take over completely….(they are almost there like during their civil war of the fifties.) The end to greed is always near…that is the greed of the politicians and not of the Greek People who work harder than ever to supply Swiss Francs to launder their politician’s sins.