The Future of European Integration

A range of respected and expert panellists, from the spheres of politics, journalism, academia, diplomacy and business, met in Prague to assess the value of EU solidarity, the lessons learned from the recent economic crisis and visions for the future of the EU. The idea to bring together speakers from various countries, with various backgrounds and with different opinion on the EU was initiated and later organized by Friedrich Naumann Foundation for Freedom in cooperation with European Liberal Forum.

Solidarity and irresponsibility

Solidarity among member states is one of the crucial values of the European integration project but it should not be abused, it should not foster irresponsibility and moral hazard in some countries (especially those in the Eurozone). State Minister Jürgen Martens (FDP) from Saxony (Germany) said that the principle of mutual help among member states should remain conditional and never lead to an unlimited liability. Richard Sulik (Freedom and Solidarity) from Slovakia argued, however, that though a belief in solidarity is important, the crucial values of the EU should always be the four freedoms within the common market (the free movement of goods, capital, services, and people). He posed the following question: is it fair that Slovaks must pay for Greeks, who are much richer than them and who only got into difficulty by their own fiscal irresponsibility?

The common sense definition of solidarity is that the rich should help the poor. What causes much irritation today is the fact that the situation is quite the opposite: not only have the rich countries, such as Germany, to bail out Greece and other troubled economies, but much poorer countries, such as Estonia or Slovakia, are compelled to help as well. Yet, as economist Iliya Lingorski (Liberal Institute for Political Analysis) from Bulgaria pointed out, solidarity is (contrary to the common-sense definition) not about one-way transfers from the rich to the poor, but rather about sharing mutual benefits and burdens alike.

So far, all the member states have enjoyed the positive effects of their mutual trade cooperation and increasing economic integration. At present, however, many European countries are also experiencing the darker side of this growing co-dependence. The challenges that some of the countries in this club of 27 member states currently face can easily spill over to others. The bankruptcy of Greece may be followed by the default of Cyprus, Portugal, Spain and even some major countries’ economies. The threat of the domino effect now calls for a coordinated European approach.

Fair weather Eurozone

Frank Hoffmeister of the European Commission was keen to talk on a more positive note since the EU had already made some progress in fiscal governance (such as the ‘European semester’, the ‘two-pack’, the ‘six-pack’ and the ‘Fiscal compact’). Much of this progress, however, has gone unnoticed by ordinary citizens.

As the speakers in every panel agreed, in Europe the ever-deepening economic integration had been decoupled from the equally fast political integration. This asymmetry now increases the EU’s difficulties in solving the crisis. The current problems of the Eurozone clearly demonstrate the lack of political support in the monetary union. What the Eurozone lacks is an executive branch; it should have a ‘government’ rather than the vague concept of ‘governance’. Various methods of coordinating the economic policies of the member states have failed to fulfil the role of a government. What is more, the basic rules and principles of the fiscal union (namely the Stability and Growth Pact) have been violated many times by both small and large member states. The Stability and Growth Pact was watered down by France and Germany in 2005 when both states struggled to meet the criteria of fiscal discipline.  Moreover, there was no authority to enforce the rules: the Council of Ministers failed to apply sanctions against any state.

As a result, the Eurozone proved to be only a fair weather construction – it worked nicely during times of growth but stumbled upon its first real test during the recession. That, however, according to Ludek Niedermayer, former vice-governor of the Czech National Bank, does not mean that the whole idea of a common currency was flawed. Without the Euro, Europe would hardly have attained the growth and prosperity it reached during the last decade. Furthermore, an economic union without a common currency would be subject to other types of economic challenges: the constant threat of depreciations would lead to inherent instability increased by the speculations of financial markets.

A Confused debate

The conference panellists also looked beyond the immediate need for tools to solve the current crisis by discussing the ways of preventing such crises in the future. Some expressed hopes for an increase in the power of the European Commission to monitor the activities of the EU member states, but this may inadvertently lead to an even greater democratic deficit in the European Union. Others thought the prospect of a federal Europe, which at present remains no more than a vision, as vague as it is unattainable.

Even the term federalism is perceived quite differently across Europe, which only creates more confusion. In Germany and in many of the Western European states, federalism is linked with the political consolidation of democracy, autonomy for regions, and with economic prosperity. In Eastern Europe, however, federalism as a legacy of communism evokes a defunct centralistic model leading to unjust transfers.

Yet another term that complicates the debate is ‘sovereignty’. Increased sovereignty for nation states is an argument embraced not only by populist politicians.  In a globalized world, the traditional idea that sovereignty resides in nation states turned out to be an illusion. Spanish political institutions may have had the competencies to deal with the problems of the Spanish banks, but they had neither the tools nor the capability to respond effectively. Europe faces a paradox: politicians voted for by national elections feel threatened by Brussels’s ever-expanding controls, but Brussels remains too weak to have a sufficient impact when dealing with the crisis.

On top of that, Europe as a whole seems to have lost its narrative. So far, each move towards a deeper integration in Europe has been backed by a specific story: in the 1950s and 1960s it was the peace-project, the 1990s were characterized by efforts to reunite Western and Eastern Europe. How should European leaders sell a possible new treaty to reluctant populations?

Creeping or inadvertent?

The founding fathers of the European project were all federalists, but were seldom explicit about it.  Since the idea of a federal Europe was too bold at that time, they wanted to reach federation slowly so that nobody would really notice. Similar to what we might call a “creeping federalism”, we witness today a kind of “inadvertent federalism”: we are forced by circumstances to move in the direction of a federal Europe, but nobody really wants it (see the definition of “Merkozy”). Now these methods have reached their limits. True, the American federation was also born out of a financial crisis, but there is one big difference: there were keen minds, later known as federalists (Jefferson, Madison and Hamilton), who shaped the political discourse towards the acceptance of the federation. Europe lacks the leaders who would stand up for a compelling idea why further integration is beneficial.

There is another equally, if not more, important lesson to learn from the U.S.: the federation would have never have become reality had there been the condition of unanimous agreement by all states of the confederation. Thomas Klau, the director of European Council on Foreign Relations in Paris, had a clear recommendation for the future: the unanimity in the sphere of institutional redesign should be removed to break the current institutional deadlock.

Similarly, the EU should reform its constituency. Without that, the EU will not overcome the democratic deficit. An introduction of pan-European elections may in short term lead to a lower turn-out, but it would change the political landscape of the EU for the better. The prevailing bureaucratic and diplomatic methods could be matched by more transparent democratic voting procedures.