November 2012

Without growth, Europe will unravel

Written by Mark Mazower

The eurozone crisis has exposed the conflict between economic needs and sovereignty. If there’s no recovery, all bets are off. ‘You never want a serious crisis to go to waste,” Rahm Emanuel, Barack Obama’s chief of staff, quipped in late 2008 as Wall Street descended into chaos in the waning days of the Bush presidency and the new administration prepared its response. Four years on, many influential figures in Europe feel the same way, judging from president of the European Commission José Manuel Barroso’s widely discussed call this month for closer integration and “a democratic federation of nation states”.

Europe’s handling of the crisis to date has been nothing if not faltering and disjointed. According to a recent paper by economist Edwin Truman at the Washington-based Peterson Institute for International Economics, the lack of timely co-operation among members of the eurozone has led to a shortfall in world output of about $1.1 trillion, of which Europe itself has suffered $730 billion – more than 3% of its total GDP. But what kind of opportunity has the sovereign debt crisis provided? The newly enhanced role of the European Central Bank has emerged as a firefighting measure, a means of damping down the flames and calming the markets. Beyond this, both Barroso and German chancellor Angela Merkel see the muddling through of the last two years as a prelude to a necessary longer term strengthening of European solidarity through new institutions and powers at the European level: a union-wide system of banking supervision to begin with; later, perhaps, some kind of European treasury or finance ministry, a greater pooling of border policing, and a leap forward to the kind of co-ordinated diplomacy that will allow the EU to punch at its weight on the international stage.

Of course, a large number of people in Europe will resist any further drift towards federation. To Eurosceptics, the new proposals simply confirm the omnipresent nightmare of a superstate in the making. They see both the commission and the German chancellery as embarked on a long-term power grab, and they have no time for Barroso’s argument that, in the age of globalisation, pooled sovereignty means greater power for individual members. Indeed the nationalist response across Europe is to claim the opposite – to insist that both political virtue and economic interest demand a halt to integration and a reassertion of the powers of national legislatures. They are perhaps half right. For Europe’s dilemma is a historically  unparalleled one. The intense pace of global financial integration during the last 30 years poses an acute political challenge. Can the members of the union, traditionally so wedded to their national institutions, keep these intact and remain globally influential? Not even the Germans would have the kind of standing they now enjoy if the union were to disintegrate.

 So here is the rub. Economically, there can be little doubt that some sort of enhanced co-ordination is desirable for Europeans to prosper in a multipolar world. But politically, the likely outcome is a further shift in power from elected representatives to unelected technocrats and a further weakening of democracy; and greater powers for bankers at the European Central Bank and lawyers at the European court of justice – along with the civil servants in Brussels who interpret their judgments.

The 11 EU foreign ministers who last week put out a report on the future of Europe are alive to this danger. They want the European parliament to be consulted more, and they talk about improving democratic legitimacy. But they are short on ideas for doing this, and their proposal to streamline European decision-making by reducing member states’ veto powers pushes further in the opposite direction. As for a powerful directly elected European president – another of their proposals – this might attract voter interest but would still be only tangentially connected to the political parties which dominate national politics. The eurozone crisis has made this conflict between the logics of global economics and national politics emerge starkly. In the early years of the euro, electorates were willing by and large to pool sovereignty, and hence give up their right to be consulted, when the payoff was greater prosperity and mobility. But if austerity measures leave the continent floundering in a Japanese-style recession for the next decade, all bets are off. In such circumstances, with high levels of unemployment across much of southern and eastern Europe, electoral sentiment may move sharply away from Brussels and demand instead that their politicians protect their national economies.

In short, unless there is a plan for integration that prioritises recovery and growth, what we may end up with is not a Europe that is a “democratic federation of nation states” at all but a gradual unwinding of the entire integration process. A prospect to make some Eurosceptics rejoice, no doubt, but replete with dangers of its own. Europeans thus have a tough choice to make: the historic preservation of their national institutions, or greater co-operation and derogation of powers. If, as the Dutch elections suggested last month, they would still mostly opt for the latter then the real argument becomes about the nature of the new institutions, their powers and thephilosophy behind them.

This is where the battle is now joined – as François Hollande’s pro-growth France battles Merkel’s inflationobsessed Germany, and Mario Draghi’s European Central Bank tussles with the German Bundesbank. It is the critical struggle for anyone concerned with the preservation of the European model of social welfare. What a sad commentary on the state of British diplomacy that what David Cameron’s government thinks about this remains entirely irrelevant.

Mark Mazower teaches history at Columbia University. His book, Hitler’s Empire: Nazi Rule in Occupied Europe (Penguin) won the 2008 LA Times book prize for history. Governing the World: The History of an Idea is published in September 2012.
This article appeared in the Guardian Newspaper on 24/9/12