This EU Won't Work

The EU continues to pursue its ambition to achieve – and to run – a supranational state in Europe:

“The euro is more than just a currency. It is a political and economic project. All members of our Monetary Union have given up their previous national currencies once and for all and permanently share monetary sovereignty with the other euro area countries. … This common destiny requires solidarity in times of crisis and respect for commonly agreed rules from all members.” (Jean-Claude Juncker, President of the European Commission, in the Five Presidents Report.)

Note that France and Germany consistently break the agreed rules on running current account deficits (France) or surpluses (Germany) without retributive action being taken; meanwhile for most Greeks and Italians EU “solidarity” doesn’t mean togetherness but rigidity.

   

Reactions to the EU’s ambition range from energetic support through hesitant support to outright hostility.

“No currency union can survive if there aren’t instruments for convergence.” (Emmanuel Macron, President of France.)

“We want to make sure that liability and risks go together. We agree that solidarity is needed but that competitiveness is also necessary.” (Angela Merkel, Chancellor of Germany.)

“The [European] Union must function as an alliance of free nations and give up on its delusional nightmares of a United States of Europe.” (Victor Orban, Prime Minister of Hungary.)

One of Macron’s ideas for an instrument of convergence is to transform the European Stability Mechanism (ESM), the EU’s inter-governmental bailout fund, into a kind of European Monetary Fund (EMF). However, Germany is less than keen on this idea as it would require them to share their wealth (surpluses) with poorer EU states. Merkel may be inclined to be a bit more generous, because she is both a liberal and a europhile, but her position is much weakened and her opposition very strong.

Nevertheless, France and Germany have pledged to forge a joint position on euro reform by June, despite German reluctance on deeper monetary union, which may push back deadlines for proposals on eurozone reform. German opposition could even sink the Commission’s ideas on deeper monetary union, solidifying Europe’s north-south economic divide. But:

“There are always different starting points when it comes to the opinions of Germany and France.” (Angela Merkel) That’s a nice way to put it; others are clearer:

“If this step [a EMF] would undermine the member states’ existing right to have a say, it would have to be rejected because then liability and action would diverge – because it’s the member states that are providing the guarantees for the risks taken by the ESM.” Jens Weidmann (head of Germany’s Bundesbank and a top candidate to replace Mario Draghi as the chief of the European Central Bank (ECB) next year). And:

“We are so far apart that hardly any results can be achieved at the EU summit in June.” Ralph Brinkhaus (deputy head of Germany’s CDU/CSU). That will leave them time to focus (in solidarity) on not agreeing to anything that the UK proposes for a post-Brexit relationship.

The need, under pressure from countries led by Germany, to first increase the eurozone’s risk-reduction capacities has been the main obstacle so far to reform plans, in particular those pushed by Macron. On Friday 25 May EU finance ministers agreed a compromise package to reduce risks in the banking sector; this falls well short of the risk-sharing that is the aim of the EU and Macron but remains firmly opposed by Germany, which is not surprising considering that German savers already risk losing a trillion euros if Italy defaults and dumps the euro currency.

“Everyone was equally dissatisfied, but agreed that it was best way to go forward,” noted Bulgaria’s Vadislav Goranov, who chaired the meeting. (Becoming “equally dissatisfied” seems like an unintended win for Ever Closer Union.)

“We don’t know the details or the consequences of their discussions,” an EU diplomat said. “France-German compromises often come to a result that is satisfying for these countries, but not to others.”

So some at least in the EU have spotted the imbalance but presumably have no idea what to do about it, wishfully thinking perhaps that the ‘others’ will come around to share the vision of the mighty duo. This is echoed in the continuing culture wars that bedevil the Union; here are our three wise ones again:

“…within our states there are serious doubts [about the EU] and strong nationalistic visions … this is a moment that is decisive for the future of Europe.” (Macron)

The EU has to defend “European democracy, the European system of values … the dignity of each individual, in short everything that constitutes European identity.” It also had to guard against “narrow-minded, backward-looking nationalisms and authoritarian temptations.” (Merkel)

“We [i.e. Hungary, we assume] have replaced a shipwrecked liberal democracy with a 21st-century Christian democracy, which guarantees people’s freedom, security.” (Orban)

If, as seems likely as we write, the Italians have to go back to the polls to try again to elect a national government then, given how fed up the voters are with EU-directed austerity and with their own elites, there is every likelihood that they will vote even more convincingly for the League and the Five-Star Movement, making the EU and its eurozone yet more insecure.

A crisp summary of the fragility of the Union was provided by Dr Pedro Schwartz, a Spanish economist, in 1996; we will leave him with the last word:

“The Germans want the Union to stop them from falling into Nazi ways. The French want to be cured of an inferiority complex. The Italians want to become a nation. The Spaniards want to bury Franco … I sometimes think that the Common Market should have been founded not in Rome but in Vienna, on Dr Freud’s couch.”