Random thoughts – because, let’s face it, no one knows what’s going to happen and most economic predictions over the last few years have proven utterly mistaken.

To note: I’ve always been euro-sceptic.

Yes, that was deliberately hyphenated: I’ve never been entirely convinced of the benefits of a single currency for a group of economies as diverse as those of the EU – and this even before I’d heard the term “optimum currency area“.

That’s not to say that I don’t think that a single currency would be a good thing for Europe *eventually*. But my use of “eventually” when it comes to European integration is normally looking far longer-term than pretty much any politician ever does. I’d expect pretty much everyone capable of reading this to be dead before conditions in Europe are optimal. (And that’s being optimistic…)

Anyway, lest I digress – after reading various interesting, highly contradictory articles from various self-professed soothsayers from all over Europe (and beyond) over the last few days, here’s my ranking of the likelihood of the various “what nexts” I’ve seen mooted, in approximate order of likelihood:

1) Another Greek bailout
2) Greek default & risk of contagion
3) Greece leaves the eurozone
4) Germany leaves the eurozone
5) Dissolve the euro & start again
6) Full political integration
7) Give up and dissolve the EU
8) Britain joins the euro to boost confidence & stability (yes, this really has been suggested…)

Finally, a bit of random reading – I may well keep this updated as I come across more:

Just how serious is the Greek debt problem? – Deutsche Welle asks a bunch of economists what they reckon. Decidedly more restrained than much coverage, with varied viewpoints. A handy overview, and a good starting point for newcomers.

Beware Eurosceptics bearing gifts – one of the most sensible, restrained pieces I’ve seen. From, as ever, David Rennie of The Economist. Key quote: “Pretty much every option looks bad.”

Time for Plan B: How the Euro Became Europe’s Greatest Threat – the article everyone’s been talking about, from Der Spiegel. Worth a read – while also worth noting that it only mentions the word “exposure” twice in what is a *very* long article. The omissions are as important as the (sensible) key point that the way the euro was set up was based not on sound economics, but on political wishful thinking. People who only skim the section-headings (like “The Euro is a fair-weather construct“) are likely to miss the subtleties of the – decidedly German – argument. Fascinating piece, but to be read with a critical eye.

Imperial Germany – eager to bury the euro – a Greek response to that Spiegel article. A strong response – sample quote “Berlin has shown that it wants to distinguish itself through the implementation of a selfish nationalist policy that will break nations and states that are unable or unwilling to follow in its footsteps” – but worth reading.

Banks have £1.6 trillion exposure to ailing quartet of Greece, Ireland, Portugal and Spain – from the eurosceptic Telegraph, scary numbers putting Britain’s likely £1bn contribution to a second Greek bailout (via the IMF, not the EU) into some kind of context.

Greek Debt Crisis: how exposed is your bank? – handy chart showing likely impact (could do with additional ones for exposure to Irish / Portugese / Spanish debt too, in case there’s a domino effect…)

Eurozone debt crisis – to restructure or not? – from the Centre for European Reform, a normally decidedly pro-EU thinktank that’s turning decidedly hostile (justifiably so, some might say) in recent days. Key quote: “All this could poison European politics without resolving the economics”.

Hell, for that matter, *all* the Centre for European Reform’s recent publications on the euro crisis are well worth a read…

Can the Eurozone be saved? – From Foreign Affairs back in April, but still worth a read – especially for explaining in simple terms just why this current crisis is unique and utterly unpredictable: “In the eyes of markets and skeptical observers, the European Union is more than an intergovernmental organization but not yet a state. When the European Union bickers and dithers, the markets have no idea what may happen.”

Wednesday additions – catching up with the blogs:

The gloom of having no good options – Conor from The European Citizen sums up: “At the moment the best option seems to be to accept the bad austerity and bail-out deal and forge ahead with reforms in Greece with at least the thin cushion of EU/IMF loans rather than no loans at all and hope that either (a) the EU gets its act together; or (b) the painful austerity will help Greece just enough so that it can partially default in a more managed way in a year or two when the prospects are better for it and the EU. Neither option is an inspiring or very sellable one.”

Euro(w)s… Democracy versus Sovereignty – A Bit More Complicated… shows how, well, it’s a bit more complicated, giving some much needed historical/theoretical context: “The question is that old point of “no taxation without representation”. In a bailout situation between states, it is not only the taxpayers of Greece who have a legitimate interest in how Greece handles its debts but the taxpayers of the countries providing the help via the IMF and the Eurozone… welcome to the complicated world we live in.”

Greece’s unnecessary crisis – could more decisive action have prevented this situation? Yes, argues George Irvin at the Social Europe Journal blog: “the real lesson of the Greek debacle is not that that peripheral countries should exit the eurozone (although that is now a distinct possibility); rather, it is that the current situation results from the increasingly rightward drift of Europe and the short-sightedness of our political class.”

Delaying tactics are only increasing the costs of the eurozone crisis – the Open Europe blog (rarely somewhere to avoid giving the EU a kicking) seems to agree.

The road to “new European reunification” runs through Greece – The German Marshall Fund blog does a superb job of putting a complex situation into some kind of context, and is worth quoting at length:

“EU Commissioner for Economic and Monetary Affairs Olli Rehn rightly stressed in late May, “There is a certain aid fatigue in all of northern Europe [and] a certain reform fatigue in southern Europe.” Nearly a month later, nothing has changed. Yet both the United States and China have upped the ante by signaling that an uncontrolled debt spiral and string of defaults in Europe could be disastrous for their own economies. So what should the EU do? And, importantly, what will be the lasting legacies of any measures it takes?

…the fear of a financial and economic chain reaction has accelerated the EU’s integration by pushing institutions and member states to quickly decide on issues of governance, accountability, and leadership; essentially to agree on the politics of European economic policy. Through this process, all involved are framing the limits of their powers and responsibilities. This week, European leaders will set the new terms of Europe’s economic union. In a year’s time, they have been asked to agree on strategic decisions they have postponed for decades. Beyond the Greek sovereign debt crisis lies the more profound issue of European political integration; Europe needs a “new reunification,” this time of the North and South. Yet with the economic and social struggles ahead, and in the face of a slow recovery, Europe also needs strong political leadership to look beyond special interests. Only tough political choices today will make the sound policies of tomorrow.

“…It is not just about the economics. Today’s struggles have a lot to do with regulating economic policy and affirming institutional power. In this sense, the “invisible Brussels” might not easily restore public trust in the EU, but profound changes are underway. Hasn’t the ECB already emerged as a central actor to any economic decision? Hasn’t the Eurogroup become the true hub of European economics? Hasn’t the European Parliament used the opportunity of reforming economic governance to promote further Commission oversight of national economies? Whatever one calls it, the EU is in a period of adjustment or transition or adaptation to a new paradigm — there will be a new equilibrium calling for new policies. Europe will be stronger because it will be different.

“…The European debt crisis and its repercussions might be this generation’s tragedy, but it might also be its opportunity to deepen the EU’s integration. It could be its New Deal, its Marshall Plan, its Reunification. European leaders owe their people a political stance — the time has come for a new Declaration, not just another Statement. EU “founding father” Jean Monnet believed that “we only have the choice between changes we are forced to make and those we wanted and were able to achieve.” This week, paradoxically, Europe will be forced to make the changes it always wanted but never dared to achieve.”

Worth reading in full, that one. One of the most interesting pieces I’ve seen on this whole mess.

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.

Another small hurdle for the much-beleaguered treaty to overcome:

the Act Extending and Strengthening the Rights of the Bundestag and the Bundesrat in European Union Matters (Gesetz über die Ausweitung und Stärkung der Rechte des Bundestages und des Bundesrates in Angelegenheiten der Europäischen Union) infringes Article 38.1 in conjunction with Article 23.1 of the Basic Law (Grundgesetz – GG) insofar as the Bundestag and the Bundesrat have not been accorded sufficient rights of participation in European lawmaking procedures and treaty amendment procedures. The Federal Republic of Germany’s instrument of ratification of the Treaty of Lisbon may not be deposited as long as the constitutionally required legal elaboration of the parliamentary rights of participation has not entered into force.

And so the ratification of the Lisbon Treaty is to be yet further delayed while Germany rejigs a few bits and pieces of its own constitution to accommodate it. Which, depending on how long Germany takes to sort this out, could mean that the treaty is delayed long enough for there to be a Conservative government in the UK before Lisbon has been fully ratified, which would mean a UK referendum, which would mean Lisbon’s rejection by Britain and yet another crisis for the EU. Fun fun fun.

There’s lots more in this genuinely fascinating ruling that is pretty much guaranteed to be seized upon by those of an anti-EU persuasion – even though the real issue here is as much Germany’s strict constitution as any problems with the expansion of EU powers. The ruling also helps clarify a number of issues, as well as point to more issues of the EU’s structure and identity that really need to be clarified by the EU itself.

First up, the EU’s crisis of identity and purpose – as I’ve noted many times, the EU itself doesn’t know what it is for, so little wonder it’s got a rather confused structure:

The structural problem of the European Union is at the centre of the review of constitutionality. The extent of the Union’s freedom of action has steadily and considerably increased, not least by the Treaty of Lisbon, so that meanwhile in some fields of policy, the European Union has a shape that corresponds to that of a federal state, i.e. is analogous to that of a state. In contrast, the internal decision-making and appointment procedures remain predominantly committed to the pattern of an international organisation, i.e. are analogous to international law; as before, the structure of the European Union essentially follows the principle of the equality of states.

Note, dear eurosceptic friends, that “analogous to a state” does not mean “is a state” – and note also that “a shape that corresponds to that of a federal state” does also not mean “is a state” (and also that federal states can take many forms – their defining characteristic being the importance placed on devolved, state/regional levels of governance over that of a central authority).

Indeed, this ruling seems to utterly preclude the creation of a European superstate – at least, not without a fundamental change to the German constitution, ratified by referendum (that’s how I read this, anyway):

As long as, consequently, no uniform European people, as the subject of legitimisation, can express its majority will in a politically effective manner that takes due account of equality in the context of the foundation of a European federal state, the peoples of the European Union, which are constituted in their Member States, remain the decisive holders of public authority, including Union authority. In Germany, accession to a European federal state would require the creation of a new constitution, which would go along with the declared waiver of the sovereign statehood safeguarded by the Basic Law.

…The peoples of the Member States are the holders of the constituent power. The Basic Law does not permit the special bodies of the legislative, executive and judicial power to dispose of the essential elements of the constitution.

…The authorisation to transfer sovereign powers to the European Union pursuant to Article 23.1 GG is, however, granted under the condition that the sovereign statehood of a constitutional state is maintained on the basis of a responsible integration programme according to the principle of conferral and respecting the Member States’ constitutional identity, and that at the same time the Federal Republic of Germany does not lose its ability to politically and socially shape the living conditions on its own responsibility.

That, to me, pretty much categorically rules out any EU superstate – while allowing for further integration, up to an indeterminate level (yet to be defined, but before the stage at which Germany’s ability to “politically and socially shape the living conditions” of its people is lost) at which a popular vote and alteration of the German Constitution would become necessary. Later, the EU’s current nature is more clearly defined:

With the present status of integration, the European Union does, even upon the entry into force of the Treaty of Lisbon, not yet attain a shape that corresponds to the level of legitimisation of a democracy constituted as a state. It is not a federal state but remains an association of sovereign states to which the principle of conferral applies…

With the entry into force of the Treaty of Lisbon, the Federal Republic of Germany will remain a sovereign state. In particular, the substance of German state authority is protected.

There we have it – fairly categorical, that. And if anti-EU types are happy to use German politicians to claim that 84% of laws stem from the EU, I think it’s only fair for those of us of a less vehemently anti-EU persuasion be allowed to quote these German judges repeatedly when countering claims that the EU is becoming a superstate.

Moving on, the European Parliament also comes in for some stick, largely for still being ineffective, under-developed, and uninfluential – though this is seen as a good thing, as too powerful a European Parliament, runs the logic, could claim greater democratic legitimacy within the EU decision-making process than the governments of the member states working together behind the scenes via the Council and Commission, and thus reduce their freedom of action (the EU’s “democratic deficit”, in other words, is actually preserving the sovereignty of the member states…):

Neither as regards its composition nor its position in the European competence structure is the European Parliament sufficiently prepared to take representative and assignable majority decisions as uniform decisions on political direction. Measured against requirements placed on democracy in states, its election does not take due account of equality, and it is not competent to take authoritative decisions on political direction in the context of the supranational balancing of interest between the states. It therefore cannot support a parliamentary government and organise itself with regard to party politics in the system of government and opposition in such a way that a decision on political direction taken by the European electorate could have a politically decisive effect. Due to this structural democratic deficit, which cannot be resolved in a Staatenverbund, further steps of integration that go beyond the status quo may undermine neither the States’ political power of action nor the principle of conferral.

And, just to underline yet further how an EU superstate is not on the cards:

The European Union must comply with democratic principles as regards its nature and extent and also as regards its own organisational and procedural elaboration (Article 23.1, Article 20.1 and 20.2 in conjunction with Article 79.3 of the Basic Law). This means firstly that European integration may not result in the system of democratic rule in Germany being undermined. This does not mean that a number of sovereign powers which can be determined from the outset or specific types of sovereign powers must remain in the hands of the state. European unification on the basis of a union of sovereign states under the Treaties may, however, not be realised in such a way that the Member States do not retain sufficient room for the political formation of the economic, cultural and social circumstances of life. This applies in particular to areas which shape the citizens’ circumstances of life, in particular the private space of their own responsibility and of political and social security, which is protected by the fundamental rights, and to political decisions that particularly depend on previous understanding as regards culture, history and language and which unfold in discourses in the space of a political public that is organised by party politics and Parliament. To the extent
that in these areas, which are of particular importance for democracy, a transfer of sovereign powers is permitted at all, a narrow interpretation is required. This concerns in particular the administration of criminal law, the civil and the military monopoly on the use of force, fundamental fiscal decisions on revenue and expenditure, the shaping of the circumstances of life by social policy and important decisions on cultural issues such as the school and education system, the provisions governing the media, and dealing with religious communities.

Oh, and we’ve also got a categorical rejection of that myth that the Lisbon Treaty has the potential to become a self-amending enabling act – for this would be against German constitutional law:

The Basic Law does not grant the German state bodies powers to transfer sovereign powers in such a way that their exercise can independently establish other competences for the European Union. It prohibits the transfer of competence to decide on its own competence (Kompetenz-Kompetenz). The act approving a treaty amending a European Treaty and the national accompanying laws must therefore be such that European integration continues to take place according to the principle of conferral without the possibility for the European Union of taking possession of Kompetenz-Kompetenz or to violate the Member States’ constitutional identity.

There’s lots more of interest there – though precise interpretations of the significance of many of the details are a tad tricky for me to provide with my, *ahem*, less than perfect knowledge of German constitutional law. Nonetheless, it’s a bit of EU geek heaven – and, I’m sure you’ll agree, a lot of those definitions of what the EU’s competences are and should be (as well as the implicit restrictions made on certain aspects of future European integration) are likely to prove invaluable in the years to come as the EU continues to try and work out its purpose and direction.

Because, lest we forget, Lisbon actually is really little more than the tidying-up exercise that it has been claimed as. Yes, it introduces a few new aspects that some may see as worrying – but it still hasn’t solved the fundamental problems of EU governance and the relationships between the member states that have arisen since the expansion to 25 (now 27 – and soon likely to be 29). Almost as soon as Lisbon is ratified, work will have to begin on its successor – and these rulings by the German Constituional Court will, with any luck, provide useful guidelines for the next batch of EU reformers.

The European Union emerged, as we all know, as a response to the Second World War. One of the earliest aims of the founding fathers was to prevent France and Germany from ever going to war again by integrating their economies so closely that to do so would become impossible.

As a result – as well as, arguably, thanks to prolonged feelings of guilt about what the country got up to during the 30s and 40s – Germany has long been at the forefront of European integration. Germany remains one of the most enthusiastic EU member states – despite also having the strongest economy in the EU, formerly having one of the strongest currencies, paying the most into the EU budget, getting the least back, and being by far the most under-represented (by population) in the European Parliament.

It’s long been the case – albeit usually unacknowledged – that if Germany got fed up with the EU the entire project would be in danger of tumbling down. The EU could survive largely unchanged if almost any other member state decided that enough was enough (hell, if France pulled out it would arguably be improved, as the vast chunk of Common Agricultural Policy money that gets syphoned off by Paris could be redirected to more needy countries – and many more enthusiastic europhiles argue that if Britain jumped ship then the brakes the UK keeps putting on closer integration would finally be lifted, and the EU could reach new heights). If Germany gives up on the EU, all kinds of problems would kick off – not least because the European Central Bank runs out of Frankfurt.

Well, Germany hasn’t yet got the hump, and doesn’t show any signs of doing so just yet – but it could still throw a spanner in the works. Because oddly for a country in which nationalism and national self-interest have been so deliberately, systematically repressed (unsurprisingly, considering…), its constitutional court could yet rule that the Lisbon Treaty – and, by extension, many of the principles of the way the EU currently works – is illegal for providing ways for the German national parliament to be overruled.

And so it is one of the few remaining areas of German law that looks to the German national interest could end up being the brake on the current mode of EU integration, which itself originally started to prevent Germans looking too much to their own national interest.* Whoops!

As much as the anti-Lisbon Treaty crowd have got a bad reputation in certain quarters of the Brussels beltway – not helped by the lunatic fringes to right and left (as so often) being the ones who have shouted the loudest, and the recent announcement of anti-Lisbon party Libertas’ proposed candidates for the EU elections (mostly hard-right and nationalists, making a mockery of the “broad coalition for democratic reform” claims) – the German politicians who have brought this case before the constitutional court do have a point.

After all, if a national parliament (especially one from a country with a population the size of Germany’s) – elected by the people based on long-standing principles of representative democracy – can be overruled by the EU, an organisation whose democratic legitimacy is disputed to say the least, then what place for democracy in Europe?

And so, where the last time German nationalism reared its head to threaten the peace of mind of European states it was in the form of fascist dictatorship, this time German nationalism could well be rising up in the name of democracy. Democracy based around the principle of the nation state (something I can’t profess to be overly happy with), but democracy nonetheless.

The very fact that such a case merits the constitutional court’s attention shows that the legitimacy of EU decisions and powers has not yet been universally – or even legally – acknowledged. The argument that the EU is a method of overruling democracy, meanwhile, will continue to be made as long as the European Parliament remains the weakest of the EU’s principle institutions. (Will the upcoming EU elections reverse the trend for successively declining turnouts and so strengthen the case for the EP to be given more powers? I very much doubt it. It’s a catch-22 – the EP is perceived as being weak, so people don’t bother voting, so its claims to be the people’s voice diminishes along with its ability to assert influence. Such is the joy of EU democracy.)

So I ask yet again – when is the EU going to go for the kind of radical, democratic reform that is so vital for it to maintain support, and stop tinkering about with unsatisfactory compromises like Lisbon and Nice? Without the people behind it, the EU is doomed to fail. If the people were behind it – and had a sufficiently large voice in its decisions – then cases like this German one could never be brought, and complaints about the EU’s democratic deficit would become the preserve of nutters alone.

Two interesting – and thematically related – pieces look at past conflicts in relation the the Georgia / Russia spat over the last couple of days have prompted some thoughts along the old comparative history line (always an interesting intellectual exercise, as long as you don’t take it too seriously or literally).

First, over at Fistful, Douglas Muir looks at the Second Balkan War of 1912, and the impact Bulgaria’s failure to win had on that nation’s subsequent history (short version: bitter resentment, paramilitary reprisals, fighting on the losing side in both World Wars, more bitter resentment). Georgia’s failure to reassert her dominance over South Ossetia, Douglas posits, is decidedly comparible to Bulgaria’s failure to retake Macedonia and other “Bulgarian” territories in the Balkans. Or, as Douglas puts it,

“losses of national territory are hard for any nation to accept”.

Then, on BlogActiv, Stanley Crossick looks at the post-Fukuyama return of history and the possibilities of Cold War Mk.II:

“Cold War II may soon be with us – indeed will be with us – if we have still to learn the cost of humiliating the Russian Bear… Vladimir Putin has stated that the collapse of the Soviet Union was the worst geopolitical disaster of the 20th century: he means it.”

Russia was on the losing side in the Cold War – hell, Russia WAS the losing side in the Cold War. Russia is now weak, with a shaky economy that relies largely on the money of her erstwhile enemies. She has lost large chunks of her former territory, and has to see ethnic Russians and Russian speakers scattered throughout the lands of near neighbours where once those lands belonged to her. Meanwhile, her old enemies in NATO are pushing ever closer to her borders, sucking in former allies and making new treaties with countries that used to be Russia’s friends.

For any country, such post-defeat humiliation would be hard to bear, and breed ever more resentment of the victors – both among the politicians and the people. For a country like Russia, with a long macho culture, such humiliation is even more unbearable. But have we learned our lesson? For we have made this mistake before:

From Harold Nicholson‘s diary, written while he was a junior diplomat at the 1919 Paris Peace Conference (from the Wednesday, 28 May entry):

“The more I read the [German peace treaty], the sicker it makes me… If I were the Germans, I shouldn’t sign for a moment. You see it gives them no hope whatsoever, either now or in the future.”

As the old USSR fell apart during the 90s, the US-backed “shock therapy“, designed to push the country towards neoliberal capitalism and democracy, humiliated and alienated the Russian people just as did the reparations clauses of the Treaty of Versailles the Germans. Resentment grew, especially of the “oligarchs” – prompting first the 1993 constitutional crisis, where Yeltsin sent in the special forces against the Duma, then (arguably) the First Chechen War of 1994-6. The 1998 financial crisis (followed swiftly by the Second Chechen War) was, for many, the final proof that the Western way of doing things had failed. It was, with hindsight, to post-Soviet Russia what the Wall Street Crash was to Weimar Germany – the final catalyst to spark the reaction. With Putin’s 1999 rise, the reforms of the Yeltsin years began to be swept back. He determined not to tolerate Chechnya’s de facto independence any longer, to clamp down on the oligarchs, to reassert state control over companies left, right and centre. Russia had been humiliated and exploited enough.

And yet now, despite the failures of the 1990s, the West is demanding that Russia return to that self-same path of neoliberal reform. We’re still saying the same things that we were in ’89, in ’91, in ’93 and in ’98. And all the while, the influence of the West has been advancing – the expansion of NATO into the old Soviet / Warsaw Pact sphere in 1999 and in particular the 2004 expansion of the EU (and NATO) to include old USSR territories Estonia, Latvia and Lithuania – bringing the borders of the EU to within 80 miles of Putin’s home town of St Petersburg. Just as Weimar Germany saw parts of its territory go over to its erstwhile enemies, so has Russia. Hence the desperation to hang on to Chechnya. Hence the sabre-rattling over the US missile defence shield. Hence the ongoing meddling in Ukraine and Georgia.

For the duration of the Soviet Union, Russians were raised to distrust the West, to regard it as decadent and full of corruption. Russia’s experience of rampant neoliberal reform during the 1990s merely confirmed this as the rich got richer and the poor stayed poor.

And still the West persists with pressurising Russia. With the best intentions, no doubt. But democratic reform cannot come about if the people themselves don’t want it. Free markets will only be enthusiastically adopted if the people experience the benefits, rather than just entrepreneurs who swiftly become insanely rich oligarchs through dodgy deals and exploitation.

By trying to impose our will on the defeated side, we will only foster ever greater resentment that the war was lost. Russia is unlikely to breed a Hitler; but the rise of extremist nationalism, the tentative nibbling at the edges of former territories, the economic resentment – all these we have seen before in other times, other places.

The First World War’s bad peace was the primary cause of the Second World War. Let’s try to avoid the Cold War’s bad peace sparking a sequel as well. If we don’t want Russia to get ever more resentful, ever more humiliated, threats and punishments are not going to do the job.

After the news that non-EU European country Iceland has been looking in to the possibility of joining the Eurozone, another example of how just because you’re not a member of the EU it’s still likely to have a major impact, courtesy of Liechtenstein.

This particular example, however, is somewhat more timely, following Kosovo’s independence. Because Liechtenstein is one of Europe’s smallest countries, with a population of just 35,000 (compared to Kosovo’s 2 million) – yet has a very healthy economy indeed. For why? Well, like any sensible mini-state (see, for example, Monaco, Andorra and semi-states the Isle of Man and the Channel Islands), it’s become a tax haven – one of the best possible ways for a tiny country to lure in vast amounts of cash. (Supposedly Liechtenstein has more registered companies than people.)

But wait – hold up Kosovo! Before you get all excited about the possibility of becoming the Liechtenstein of the Balkans, be warned…

Because tax havens occasionally end up having problems – such as the current German financial scandal. Here, Germany has gained access – through some well-placed payments to known criminals, it would seem – to Liechtenstein’s records in order to hunt down a bunch of German citizens it wants to prosecute for tax evasion.

Liechtenstein is, naturally, not best pleased that the German state has deliberately accessed its confidential commercial and financial files. It’s hard, really, not to sympathise with Crown Prince Alois when he berates Germany for acting illegally (even if he does slip into hyperbole from time to time). Their country, their rules – and their sovereignty should be respected, right?

Well, not if you’re the EU, it would seem – because the European Union is not only backing Germany’s actions, but is now joining in the anti-Liechtenstein rhetoric:

Luxembourg Prime Minister Jean-Claude Juncker said in Berlin Tuesday that Germany’s controversial tax dragnet is likely to put tax evasion on the agenda of the next meeting of the European Union finance ministers.

Juncker, head of the Eurogroup of 15 countries sharing the euro currency, called on Liechtenstein to “plug its existing tax loop holes.”

…German Finance Minister Peer Steinbrueck says Germany will now push for a pan-European solution to tax evasion…

The Organization of Economic Cooperation and Development, a policy forum for industrialized countries, weighed in to identify European tax havens Leichtenstein, Andorra and Monaco as effectively providing a basis for illegal tax evasion.

And so the pressure mounts. Are we about to see a concerted EU-backed effort to force even more sovereign states to abide by EU rules? It rather looks like it – and it’s really nothing new.

Because if you want to trade with the EU, you pretty much have to abide by the EU’s rules and regulations – something to which both Switzerland and Norway can attest, in case you’re thinking that this could only happen to smaller countries. For European countries, with external trade fairly naturally dominated by their near neighbours, doing what the EU says is pretty much the only option – unless you follow the Belarus route and suck up to Russia instead.

Is the EU using its dominance of the European market to bully its non-member neighbours into doing what it wants? Yep – of course it is. It’s acting as would any sensible economic power – it’s trying to ensure that everything runs to its own best advantage. And it will continue to do so, it it’s got any sense.

Which is precisely why the UK is far better off in.

What with the ongoing spat with Russia (hyped out of all proportion, I reckon, and hope I’m not proved wrong), the fact that our dear new Prime Minister has made his first overseas jaunt while in office seems to have been largely forgotten. The fact that Brown managed a solid three weeks in the UK before nipping off abroad – approximately 400% longer than Tony Blair ever managed during his ten years in office* – has likewise received little comment. (Blair’s first overseas visit, by the way, was to the US, which could be significant…)

But why, with so much to do in Europe, Germany? Why suck up to Angela Merkel, with her relatively unstable coalition and two weeks after she passed the EU presidency on to Portugal? Why not follow the EU presidency itself? Why not head to Brussels and meet Commission head Barroso? Why not try to form a good relationship with Europe’s most secure and powerful politician, Nicholas Sarkozy (who he’s due to meet on Friday)? Why not Sarkozy and Merkel at the same time, in an EU big three spitroast?

Well, according to Der Spiegel, it’s an indication of a newly-strengthened bilateral love-in between the UK and Germany, largely revolving around Merkel herself, and primarily thanks to her stewardship of the EU treaty talks that ended up with something with which Britain (if not British eurosceptics) can be fairly happy for its (relative) lack of radical changes. Back in the UK, the Times has dubbed the Brown/Merkel love-in a “new European axis” – though one can only assume that the pun was unintentional…

But is that all? While Brown was in Berlin, one of the areas specifically mentioned was terrorism and the need for closer cooperation across the EU. Merkel was elected, in part, on a tough on terror stance, and has long been spouting hard rhetoric that – to wishy-washy liberals like me – could sound a tad concerning:

“Our open, liberal societies have proven useful retreats for terrorists. The assassins made use of the civil liberties they were offered without adopting in any way whatsoever the civil values associated with this social order… it is important to strike a new balance between liberal, civil rights on the one hand and measures that ensure the protection and security of the citizens on the other.”

That was back in 2002 – and it’s a relatively safe bet that had Merkel been Chancellor back then, Germany would have been far more actively involved in The War Against Terror, rather than ending up lumped in with France as terrorist appeasers.

Meanwhile, having had a couple of failed terrorist attacks within a couple of days of taking office, Gordon Brown must feel like he has to do something to prove that he’s going to be tough on terror. He’s always been a fan of the controversial idea of 90 days detention without trial to help combat terrorism, and is currently under fresh pressure to reintroduce the rejected legislation. It remains, however, a highly contentious issue, and there’s no guarantee that he’d be able to get it through the Commons – and a defeat this early in his premiership would be highly damaging.

And here’s where Merkel and her long-term support for radical approaches to tackling terrorism could well come in – not to mention Germany’s long post-war tradition of stifling civil liberties in the name of security through its banning of swastikas, Nazi salutes and the like to discourage fascism. (Not that the policy has worked, but since when did failure discourage the faith of the ideological?)

As has been noted here before (and at length by me elsewhere), Labour under Blair were always rather keen to use the mechanisms of the EU to avoid the necessity of votes in the British parliament on controversial issues, often revolving around clamping down on civil liberties in the name of The War Against Terror.

If Brown and Merkel team up to introduce new anti-terror measures, the combined influence of Europe’s two biggest economies could well be enough to convince the rest of the EU that their proposals are worthwhile. Because, let’s face it, one of the best ways in which the EU can prove its usefulness beyond being just a customs union is to help combat international crime, of which terrorism is the most high-profile example. It’s in the interest of any pro-integration types to back tough counter-terrorism measures, which is why there have been so many attempts to bring in EU-wide terrorism legislation in the last few years.

So, is Brown sucking up to Merkel to get the 90 days detention idea put through at an EU level? They certainly don’t seem to have had much to say about the new EU treaty, which Merkel got through a few weeks back, nor on the future of the EU in any broad sense.

Considering that Brown, during his time as Chancellor, always appeared to have seen the EU as a nuisance that’s best ignored and sidelined as much as possible, is the emphasis on the meeting being between nation states, rather than “EU partners” also significant? Will his meeting with Sarkozy reveal any new strategies? Or is it still – as I suspect, despite all this speculation – far too early to tell just what Brown’s got planned?

* May be a lie

Since the initial expansion to 25 member states back in 2004, the future of the EU has been wildly uncertain. The constitution was supposed to sort everything out but, as we all know, that little project has failed dismally. For the last three years, the European Union has been in a state of growing stagnation, with no obvious way out thanks to the various petty spats and disagreements.

In Britain – rarely a country to seek active engagement in EU politics – Blair’s been on his way out for what seems like forever. Everyone’s known that Gordon Brown was likely to succeed even before Labour failed to find a viaible candidate to oppose him. But with the UK economy beginning to show signs of faltering and discontent with the government steadily rising, few would be keen to put too much money on Brown being returned with a working majority at the next general election, now most likely in 2009. Neither Brown nor opposition leader David Cameron, in any case, are likely to focus too much on the European Union in the next few years, as the issue is simply far too contentious – and with a tight election on the cards, neither can risk alienating the electorate by engaging too closely with Brussels. Expect no EU leadership from the UK.

In Germany, despite her best efforts during her current EU presidency, Angela Merkel has made little headway in pushing through EU reform, and is also still in the tricky position of ruling via a fragile coalition that could fracture in a moment, given the right point of contention. With Poland and – especially – Russia to worry about to the east, Germany is in any case too threatened by immediate problems to really care too much about theoretical long-term development.

In Italy, as always in that perennially unstable country, the government is still on the brink of collapse. Romano Prodi may be far and away the most EU-experienced national leader, but his domestic troubles mean that no one in the wider EU can rely on him to be in office in six months, let alone the few years it will doubtless take to push through major EU reforms.

Poland, the only new member state with a large enough EU vote to be a serious contender in shaping the future of EU reform, is currently led by a pair of twin maniacs set on purging their country of anyone they dislike – be it suspected former communists or homosexuals. With ever increasing lurches towards hard right authoritarianism, Poland has firmly positioned itself as the black sheep of the European Union – largely ignored with embarrassment, the rest of the time more or less gently being chastised by the other member states. The KaczyÅ„ski twins (one as President, one as Prime Minister) have only been in power for a year and a bit, and are likely to stick around for a while, but with a new model Polish nationalism increasingly at the heart of their politics, constructive engagement with the EU is highly unlikely to be on their agenda any time soon.

In Spain, meanwhile, the only other EU country even close to being large enough to exert any influence, Zapatero’s socialist government has increasingly been coming into conflict with the right – and now faces the threat of fresh ETA attacks, following the Basque terrorist group’s decision to drop their ceasefire last week. Having allowed the naturalisation of thousands of illegal immigrants – without consultation with the rest of the EU – Zapatero is also not flavour of the week in Brussels, and the recent elections of the right-wing and more pro-American Sarkzozy in France and Merkel in Germany have destroyed his previous European strategy of forming a bloc with those two countries. While friendly with Prodi (for as long as he’ll be around), Zapatero’s anti-US and pro-EU constitution rhetoric ensures he’s unlikely to find an ally in Gordon Brown, and the brief period where it looked like Spain may have some influence over the future of the EU seems to have come to an end.

So who does that leave? Surprise surprise – the country that ALWAYS seems to shape the future of the EU… France.

Six months ago, Sarkozy’s succession was highly doubtful. Chirac seemed opposed to him, Royal looked to be gaining popularity, and there was that whole potential scandal over the Clearstream affiar lurking in the background which could easily have ended his hopes of nomination, let alone election.

Now, however, Sarkozy seems to have the most secure political position of any leader of the major European powers. By all accounts, the French parliamentary elections are going to end up a landslide for the UMP – the first time in 30 years that an sitting French government has been returned with a majority.

On the domestic front, this gives Sarkozy carte blanche to put in place pretty much any reforms he likes – be it increasing the 35 hour working week, cutting immigration, cutting taxes, reducing the civil service, or reordering the criminal justice system.

But from the European Union perspective, this double endorsement of the Sarkozy approach likewise gives him a pretty much indisputable right to tell Brussels that what he says goes. Having rejected the EU constitution, French voters have now endorsed a president and a party which proposes a “mini treaty” approach, a president who has publicly declared the existing constitution “dead”. With Sarkozy now doubly endorsed, the stake has been driven well and truly through the constitution’s heart.

French opinion can (perhaps sadly) never be ignored when it comes to reforming the EU – a fact that Romano Prodi noted this time last year when he stated that any revision of the current plans could not possibly take place until after the French elections. Notably, since Sarkozy’s election, the formerly pro-constitution Prodi has begun to back the mini-treaty idea, and has even hinted at a multi-tier Europe. Surely even the nuttily pro-constitution Luxembourg Prime Minister Jean-Claude Juncker, who’s been performing frantic constitutional CPR for the last couple of years, can’t try and keep the thing alive now?

What this all means, therefore, is that Sarkozy is pretty much going to be able to dictate terms to Brussels. He will get his mini-treaty – at least in some shape or other. Gordon Brown is likely to back the idea, if not the detail. So is Prodi. So will – most likely – the Netherlands, Denmark and the Czech Republic, just to name a few off the top of my head.

And so we’re about to enter into another period of delaying tactics and discussions of a new direction. Despite Merkel’s hopes of sorting out the detail this summer, the mini-treaty is unlikely to be finalised until at least this time next year – most likely some time after July 2008, when France (conveniently enough) takes over the EU presidency.

That will then give Sarkozy another four years in office to sort out the longer-term fix for the EU that is increasingly desperately needed. Hell, if he gets close to the mini-treaty he wants, he may even go one step further and try his hand at broader diplomacy, and try to reignite the old special relationship between France and Russia with Putin’s successor, scheduled to take over in March 2008. So far, the signs are good, Sarkozy offering himself as mediator, and trying to position himself firmly as an unbiased party in the US / Russia missile bases dispute. Hell, he’s even been getting drunk with Putin – surely a good sign?

Possibly, just possibly, Sarkozy could be the answer to the EU’s prayers. A strong, secure leader of one of the most influential EU member states, with a cabinet that shows he’s willing to compromise and work on bipartisan terms despite his large majority, who’s regarded as both pro-US and rationally pro-EU, who looks to be cultivating friendship with Russia, and whose very first act on becoming president was to jet off to discuss the Union’s future.

I never would have thought I’d be saying this six months ago, but Sarkozy is by far our best hope for a workable European Union. Even more shockingly, I’m coming to respect this guy quite a bit.

Les Fatales Picards are a work of absolute genius. That bald guy – perfect! Sadly no cheerleaders during the live finals, but still. Fantastic stuff – they’ve single-handedly revived my interest in pop music:

Update: Actually, sod that – maybe Ukraine… Genius also (though in a rather more contrived way, for which I’ll deduct points – France still my favourites…):

Update 2: But more importantly, why the hell is the German entry all about ruling the world? Should we be getting nervous? (And unless my ears deceived me, in their appeal for votes they said something along the lines of “we conquered you…” Erm…)

Update 3: The German entry’s lyrics. It IS all about ruling the world! Or maybe Angela Merkel. I’m not sure any more…

DK has the best roundup and overview of this latest EU-wide attack on freedom of speech from our dear German chums (60 years on still not realising that you don’t fight fascism by banning things), with the International Herald Tribune providing a nice summary of the issues (with a bit less of the invective).

Personally, I think we should extend this even further – if we’re banning Holocaust denial, let’s ban other forms of denial that contributed to the Holocaust.

So, let’s make it a criminal offence for Germans to claim “yes, I/my father/grandfather was a member of the Nazi party, but I/he didn’t really BELIEVE any of it, honest” – and, while we’re at it, also ban French people from going on about the glory of the Resistance without simultaneously adding the qualifier “but of course the vast, vast majority of the country either just kept their heads down, and did nothing to stop the Nazis from carting off thousands of French Jews, Homosexuals, etc. – or actively collaborated, like the large chunk of the country that was part of the Vichy regime”.

But, of course, as adding on the denial of Stalin’s genocides as an offence was explicitly rejected, there’s not much chance of that. This new law, in other words, merely sweeps the ills of Europe’s recent past under the carpet, and continues to raise the Nazi regime onto an almost sacred pedestal. Hatred of Hitler is in danger of becoming Europe’s new official religion.

In other news, my computer’s still dead, so Andy of Siberian Light will be hosting the Euroblog Roundup this week – entries, as usual, to EUroundup [at] gmail [dot] com – ta! (And yes, I’m fully aware that Siberia is not, by any stretch of the imagination, part of Europe. Shush…)