The most recent meeting of the EU heads of state and government perfectly illustrated the strain under which the European project currently finds itself. Today the European Union is facing the most challenging period in its 60- year history. Its mission to establish ever greater convergence between its members is looking less and less achievable. This is particularly true in the wake of the 2008 financial crisis, which exacerbated an already-widening gap in national living standards, economic resources, and development potential between EU states.
In effect, the concept of a ‘two-speed Europe’ also appears to have failed. The Union’s original objective, the safeguarding of peace in Europe following two devastating world wars, has been achieved and is now widely taken for granted. 2015’s uncontrolled influx of migrants highlighted the need for more secure borders and, even more pressingly, to address the EU’s inadequacies when it comes to handling asylum seekers. As a consequence, the EU saw one of its biggest accomplishments, freedom of movement within the Schengen area, become subject to harsher restrictions.
The financial crisis and its aftermath brutally revealed the shortcomings of this union of nations, and the migrant surge only exacerbated existing tensions. Both the high number of refugees and the introduction of free movement of labour helped stoke fears among the population of an excessive strain on public services, of growing unemployment, and of being overwhelmed by foreigners. This was all fuelled by a steadily rising scepticism towards globalisation and free trade, which created the perfect mix for nationalist, chauvinistic opinions to take hold that not only questioned the legitimacy of the EU but international agreements and treaties in general.
The euro, supposedly the crown jewel of European integration, is now at the core of Europe’s crisis. The EU played a part in creating social and economic imbalances between Member States, and this was only made worse through the introduction of the euro. Thanks to low interest rates and easy access to loans, the single currency allowed many countries to increase public and consumer debt, but this also led to misspent funds and financial bubbles. Moreover, there was nowhere near enough harmonisation of national economic policies, which is vital for a currency union. In recent years, Europe has also become a popular scapegoat for problems at the national level.
It was these failings that, in part, led the British public to narrowly vote in favour of leaving the EU. What was long considered a marginal position held by an eccentric minority has now become reality: the United Kingdom, a former world power, the third-largest Member State and the EU’s second- biggest economy, will leave the European Union by 29 March 2019. But agreeing on the terms under which the country departs, and the shape which any post-Brexit relationship will take, is proving to be seemingly impossible for the remaining 27 Member States and the soon-departing British. The gaps that Brexit will create in the EU budget are just one of the many issues yet to be resolved.
After years of recession and fragile recovery, the Eurozone and EU economies are starting to once again show signs of growth. This is not least attributable to a flexible interpretation of the rules concerning budget and debt levels, efforts made by the European Investment Bank and via the ‘Juncker Plan’ (i.e., the European Commission Investment Plan for Europe), and, most of all, the ECB’s expansive monetary policy. In July 2012, ECB president Mario Draghi declared: ‘within our mandate, the ECB is ready to do whatever it takes to preserve the euro’. This entailed a bond-buying programme and other quantitative easing schemes that had long been successfully trialled by other central banks. In the years since, the ECB’s balance sheet has increased by a third and it is now applying negative lending rates. This unconventional monetary policy has succeeded in calming the markets, but it has not addressed the structural issues within the economic and financial system. What is more, these measures entail damaging side effects. When borrowing costs are too low, this can lead to poor investments, which creates fertile ground for new value adjustments and crises.
Europe’s politicians have failed to tackle the structural problems of the current monetary union. The long overdue restructuring of the European banking sector is happening but at a sluggish pace. State budgets are underfunded, but until now this has been masked by the ECB’s low interest rate policy. In both Greece and Italy industrial output has fallen by a quarter, and unemployment remains at an unacceptably high level.
The EU’s promise to harmonise economic and social conditions within the Eurozone has not been backed up with the appropriate measures. When the single currency was introduced, Germany took advantage of a crucial factor: competitive divergences could no longer be offset by increasing or decreasing the value of domestic currencies. Successive governments’ policies of one-sidedly fuelling Germany’s export-driven economy, and subsequently its economic growth, by exploiting collective demand within the European internal market was given a substantial boost by the currency union. As economically weaker neighbours were no longer able to devalue their currencies, they were now subjected to growing pressure to reduce costs internally by aggressively cutting wages. Countries that refused to take this step saw public debt rise. For just under a decade, this ‘creditor-debtor’ relationship seemed to work.
In March 2017, the EU initiated a new discourse on the future of a united Europe, publishing a White Paper that sketched out possible scenarios for how the Union could evolve in the coming years. Five reflection papers were also compiled, including one on the social dimension of Europe and on the deepening of the economic and monetary union.
In the short term, the Commission plans to reform the banking union and create a capital markets union by 2019, and in the medium term (from 2020 to 2025), the body hopes to restructure the Eurozone’s financial framework, the European Stability Mechanism (ESM), and the architecture of the monetary union. In order to realise an effective financial union in the medium term, the Commission has claimed that further risk-reduction and -sharing measures are required. The Commission thus rightly criticises the fact that there are no existing joint safe assets in the Eurozone that are on a par, for example, with US treasury bonds. Member States’ government bonds generally have different risk profiles, which impacts bank balance sheets in periods of crisis and leads to different credit and interest rate structures in the various states. To eliminate such differences, the Commission argues that the introduction of a European safe asset should be considered.
In the medium term, the Commission is also arguing the case for the creation of a European macroeconomic stability mechanism, which serves to supplement national budgetary stabilisers when heavy asymmetrical shocks hit individual states, but does not include permanent transfers. This could take a number of shapes, argues the Commission: one option would be a protection regime for the public investments of those states hit by a crisis. The Commission is also considering the establishment of a European Unemployment Benefits Scheme that would supplement national instruments, or a ‘rainy day fund’ that states could access to limit the impact of a shock. Finally, the Commission argues that an autonomous Eurozone budget could also help ensure stability.
The Commission has also hinted that it might alter the structure of the Economic and Monetary Union. This would include the introduction of a European Treasury that would be responsible for overseeing the Eurozone’s economic and financial policy, macroeconomic stability, and the euro budget, as well as issuing European safe assets. The Commission also argues that a European monetary fund (set up as an alternative to the Washington- based International Monetary Fund) could help stabilise the Eurozone.
French President Emmanuel Macron has also weighed in on the discussion surrounding how deeper integration of the Eurozone and the EU could be achieved. Given the difficult political situation in France and other EU Member States, his aim is to begin a process of profound transformation through joint investments in the future. Macron’s proposals, which include a Eurozone budget and finance minister as well as new funding ideas, all follow the same objective. A budget for the Eurozone that encompasses a range of financing methods remains a priority. Macron argues that this instrument could be used to set up permanent budgetary transfers from the most economically sound countries to those who have been disadvantaged by the Eurozone’s austerity policies and/or who would otherwise be at risk of becoming economically isolated. He envisages a joint budget that would be funded through tax revenues collected by individual states. A separate Eurozone parliament would also ensure the requisite political oversight and trust. A properly resourced body such as this would then allow countries like France to increase infrastructure spending and create jobs without violating the budgetary deficit limit.
In principle, the French president’s political offensive should be welcomed. However, his road map for greater integration goes far beyond what is achievable in light of the current situation. Macron’s macroeconomic approach to financial policy diverges starkly from that of the German government. His idea to restructure the European Stability Mechanism and his decision to distance himself from austerity policies show that he can offer a solution to overcoming the EU and the Eurozone’s structural deficits that serves as an alternative to the choices offered by former German finance minister Wolfgang Schäuble. I believe it is crucial to support Macron in his efforts to reform the EU, even if his labour market changes back home have rightly triggered a wave of protests.
A budgetary union would certainly make sense and would at least offer the Eurozone a sensible way out of the impasse in which it currently finds itself. But Macron’s approach is not only inspired by a different vision of the European project; it is also a prerequisite for the success of his own domestic economic plan: without increased fiscal flexibility within the Eurozone, France will not be able to resolve the issues currently plaguing its labour market. The success of Macron’s presidency thus hinges on the cooperation of the German hegemon. President Macron appears to have already laid out his challenge to the expected German response: ‘Without transfers, you will not allow the periphery to converge and will create political divergence towards extremists.’
This process of convergence could be the catalyst for a precursor to a Eurozone budget – a feature inherent to any functioning currency union. This budget would have separate financial resources at its disposal (e.g. a joint financial transaction tax as well as a small portion of a harmonised corporate tax), and raising loans based on this framework would also be possible. To overcome the existing structural defects, it is crucial that the currency union take an approach that utilises Community financial resources to tackle ongoing investment restraint. The aim should thus be to establish a legal framework for a restructuring of national debt that is both lawful and in line with regulation. At the same time, the ESM needs to be included in European Community Law and transformed into a functioning European monetary fund. These changes could be the start of a new Eurozone architecture, one that is increasingly based on Community institutions. A ‘special euro Commissioner’ could serve an additional executive function in a strengthened Eurozone.
The current debate in Brussels concerning the future of the EU and the Eurozone still falls far short of what is needed and lags far behind the challenges posed by what has now become a deep economic and political crisis. EU leaders recently met in Gothenburg to sign the ‘Proclamation of the European Pillar of Social Rights’. Equal opportunities and access to the labour market, fair working conditions, as well as social protection and inclusion are to be the core principles of a new, more socially conscious European Union. With this proclamation, the EU hopes to take the wind out of the sails of the populists and the Eurosceptics whilst also tackling the continent’s growing social divide. In stark contrast to the reality on the ground, President of the European Commission Jean-Claude Juncker stated, ‘Our Union has always been a social project at heart.’ For him, it was ‘more than just a single market, more than money, more than the euro’. The EU commissioner for social affairs, Marianne Thyssen, added that ‘social Europe is the way forward’.
But what will this new ‘social Europe’ look like? The EU states, the European Commission and the European Parliament have jointly committed to fulfilling twenty rights and principles with the aim of applying them throughout the Union. The list includes a right to lifelong learning and equal pay between men and women.
As it stands, this agreement is sadly nothing more than a non-binding declaration of intent as countries are not legally obliged to apply the ‘social pillar’. Each member is ultimately responsible for ensuring these standards are reached across the Union. The head of Germany’s Trade Union Confederation (DGB), Reiner Hoffmann, has rightly called for a long-awaited ‘binding European bill of workers’ rights to significantly strengthen the social dimension of the internal market’. He went on to say that ‘the weak, non-binding provisions currently in place must be turned into a solid cornerstone of social rights’, that the ‘social pillar’ needed to be made legally binding, and that adequate financing should be made available for the implementation of the standards.
This plan shall remain nothing more than a pipe dream unless Germany radically alters its attitude towards the EU. The clear nationalist rhetoric espoused by the Bavarian State Minister for European Affairs, Beate Merk (from the Christian Social Union), makes this plain to see. She continues to insist that each country should take responsibility for itself: ‘We cannot have a situation where German pensioners and taxpayers are having to pay for increased welfare benefits in Greece and Bulgaria.’
For several years now, the citizens of Europe have observed that regardless of who they vote into power, nothing improves; in fact, much has gotten worse. Whilst corporations and shareholders rake in billions in profit, pay little to no tax, and pocket government subsidies, across Europe those in the lower third of the income pyramid desperately compete for low wages whilst witnessing the dismantling of their protective rights.
The bitter irony of all this is that the EU institutions are in no way directly responsible for the actual cause of their hardship; the blame lies with national governments. It is ultimately the government apparatus and the political elites of various countries who have subscribed to the logic of austerity for decades and, in so doing, have hindered efforts to create a single market that is structured and run socially and democratically. That is the reason why, to this day, there is no minimum tax threshold for corporate earnings – national governments would rather engage in race-to-the-bottom corporate taxation – and why the EU has so far failed to implement a common social policy: there are always enough governments that stand in the way due to such policies not squaring with their national strategies.
It is thus no wonder that Europe is once again at risk of being consumed by a contagion of nationalism. In a joint working paper, German Social Democrat Sigmar Gabriel and President Macron conclude: ‘We have to find and implement the means by which European general interest will stop appearing different from national interest. Our common goal is to render it unthinkable for any country in pursuit of its national interest to consider a future without Europe – or within a lesser union. We can achieve this goal through a union of solidarity and differentiation. France and Germany have the responsibility to lead the way, because Europe cannot wait any longer.’ The blame for the current wave of crises we are witnessing does not chiefly lie with the EU’s bureaucrats in Brussels: these events were primarily triggered by rising pressure caused by globalisation and technological change combined with political failure at the national level in Member States, including the United Kingdom. The financial and banking crisis stemmed from inadequate regulation and supervision of domestic financial markets and from the irresponsible conduct of many banks. National governments should have kept ballooning public debt in check as stipulated by the European regulations (which were shamelessly flouted). In EU Member States, national- and municipal-level politics have become marred by corruption and an inability to reform.
The questions now being asked about the European Union’s legitimacy, which are partly due to a lack of transparency and of meaningful social policy on the part of Europe’s economic and political elites and partly result from the ire of emboldened right-wing populists, mean that the political left needs to treat the Europe issue as a priority both now and in the future.
There are solidarity-driven European alternatives to neoliberal austerity policies and solutions proposed by nation-states. Proponents of renationalisation are quick to overestimate national governments’ scope for action, seemingly unaware of the deeply interlinked nature of the global economy. They play down the costs entailed in reversing existing European integration, particularly in terms of the euro. Against the backdrop of free movement of capital and goods, and a shared currency, it is impossible for national governments to go it alone and single-handedly implement progressive ideas in central policy fields such as the economy, welfare, and wages. However, close cooperation between the largest economies (e.g. Germany, France, Italy) would be an opportunity to create greater scope for action. But it should be noted that the most radical renationalisation measure – the reintroduction of national currencies –– is neither economically viable nor is it politically desirable. This would entail drastic transition costs without effectively strengthening a government’s hand to enact more progressive policies. The alternative to less Europe is more Europe, but with a slight difference: the aim is to build a democratic and social Europe that breaks with the neoliberal logic enshrined in the Maastricht Treaty.
It is wrong to unilaterally force through structural adjustments to the Eurozone’s national economies by introducing wage reduction and austerity policies that ultimately lead to economic depression. Europe needs social and ecological restructuring as well as sustainable economic growth. And Germany needs to rethink its leading role, which until this point has mainly consisted in the widespread imposition of austerity; the economic powerhouse should step away from its current-account surplus-driven economic policy (which thus also entails rising debt levels abroad and the export of unemployment) and embrace a new trajectory towards a more even-handed trade balance.
To effectively counter the justified criticism levelled at the EU’s policies, as well as the current discontent with the Eurozone and the policies of the European Central Bank, institutional and instrumental measures are imperative. This will also require a fundamental shift in economic and social policy.
Here the main points will be:
In the medium-term, certain institutions and instruments crucial to handling crises need to be further enhanced:
In the long term, the objective is to replace the current transitional (hybrid) character of the Eurozone with a European economy (European process of total reproduction) with cross-border economic regions for the reproductive recreation of value and material, and to fully realise the concept of a European federation through a social union (underpinned by value-creation processes and transfers) that aims to achieve equal living standards in participating states and to materially guarantee these objectives. Within the context of such efforts to turn an economically consolidated Eurozone into a European economy, there is scope to open up membership to other countries.
Such considerations would allow the political left to make a meaningful contribution to the political debate surrounding Europe’s future and to support existing visions, such as those proposed by the French president, that offer the potential for alternative reforms.
Translationand proofreading: Nivene Rafaat and Lydia Baldwin at lingua•trans•fair
Bofinger, Peter et al., Eine Strategie für mehr Investitionen, mehr Wachstum und Beschäftigung in Europa, ‘Restart EUROPE now!’ working paper, Berlin 2017.
Bsirske, Frank and Klaus Busch, ‘A Concept for Deepening the Social Dimension of the European Union’, Social Europe Journal, 14 August 2013.
Bsirske, Frank, Klaus Busch, Oliver Höbel, Rainer Knerler, and Dieter Scholz (eds), Gewerkschaften in der Eurokrise – Nationaler Anpassungsdruck und europäische Strategien, Hamburg: VSA, 2016.
Busch, Klaus, Axel Troost, Gesine Schwan, Frank Bsirske, Joachim Bischoff, Mechtild Schrooten, and Harald Wolf, Europa geht auch solidarisch! Streitschrift für eine andere Europäische Union, Hamburg: VSA, 2016.
Busch, Klaus: Das Versagen Europas – die Euro- und die Flüchtlingskrise sowie die ‘brexit’- Diskussion, Hamburg: VSA, 2016.
European Commission, Reflection paper on the deepening of the economic and monetary union, Brussels 2017.
European Commission, Reflection paper on the social dimension of Europe, Brussels 2017.
European Commission, Proposal for an interinstitutional proclamation endorsing the European Pillar of Social Rights, Brussels 2017.
Höpner, Martin, Fritz Scharpf, and Wolfgang Streeck, ‘Europa braucht die Nation’, Die Zeit, 39/2016.
Juncker, Jean-Claude et al., Completing Europe’s Economic and Monetary Union, Brussels 2015.
Macron, Emanuel at https://www.ouest-france.fr/politique/emmanuel-macron/exclusif-emmanuel-macron-l-europe-et-la-france-indispensables-l-un-l-autre-5130477 and http://www.faz.net/aktuell/politik/ausland/emmanuel-macron-appelliert-an-deutschland-15103946.html.
Schwan, Gesine, ‘Ein Weg aus der aktuellen europäischen Misere in der Flüchtlingspolitik – als Chance für einen europäischen Neuanfang’, 5 May 2016, at http://restart-europe-now.eu/2016/05/05/ein-weg-heraus-aus-der-aktuellen-europaeischen-misere-in-der-fluechtlingspolitik/.
Stiglitz, Joseph E., The Euro and Its Threat to the Future of Europe, London: Penguin, 2017.
Troost, Axel and Lisa Paus, ‘Eine Europäische Ausgleichsunion – Die Währungsunion 2.0’, Institut Solidarische Moderne, Denkanstöße 13, March 2011.
Varoufakis, Yanis ‘Wenn wir nicht nachgeben. Die europäische Linke nach dem Brexit: Die Perspektive der DiEM25-Bewegung’, Neues Deutschland, 5 September 2016.