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  • 2017/03/27
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Where now for Europe?

by Paola Monperrus-Veroni, Economic Research Department of Crédit Agricole S.A.

Facing threats to its survival from all sides, the European Union (EU) is starting to doubt itself. Doing nothing is not an option. Regime change is the order of the day, at the least to secure Brexit negotiations by avoiding speaking with different voices. When crises hit, it is notoriously hard to think clearly – especially on existential questions.

But the EU cannot dither; it must find its vital spark again. Political projects such as these draw their legitimacy from their ability to survive. Fear in an uncertain world is not enough in itself to rebuild European cohesion. The EU needs to start telling a positive story again – about the strengths of the European project. Against diplomatic headwinds, the geopolitical context is favourable to make the case for its existence –exercise its power in international regulation, on the world diplomatic stage, keep on guaranteeing  monetary and commercial peace,  showing how shared sovereignty can be more powerful than nationalism, and how integration (monetary policy is an example) is often easier to manage than coordination (fiscal policy).

The EU also needs to recognize its weaknesses. It has over-promised without allowing for the necessary resources.  . It has tried to go too far too far – especially on EU enlargement – often getting away from its citizens. It has embraced globalized trade and finance and bowed to the might of free-market economics and its creative-destructive forces without looking after those who are left behind. And it has failed to internalize externalities of economic policy.

The EU needs to ask itself some searching questions. What does it want to be? What does it want to create? A vast trading block or a community with a shared destiny? Where should its borders lie? But before it can answer these questions, the EU needs to figure out the consequences of its choices. Britain's experience has taught us that much.

A NEW BEGINNING The European project has always been a story of fits and starts. Back in 1970, the Werner Report laid the foundations for monetary union and proposed that national budgets should be decided at the European Communitylevel. In 1977, the MacDougall Report laid out plans for a minimum common budget endowment of 2-2.5% of GDP, rising up to 5-7% once a federal budget was in place.

While these reports had a determined tone, they enjoyed scant political backing. So the subsequent Delors Commission Report stopped short of fiscal integration, proposing only monetary union without fiscal union. Next came a period of sustained enlargement before the first crisis hit, when the Treaty of Nice (2001) and the Treaty Establishing a Constitution for Europe remained unratified. The momentum picked up again in 2007, however, when the Treaty of Lisbon put the European project back on track. Since 2012, post-crisis projects such as Banking Union, the Fiscal Compact and the ESM have put the federalist narrative firmly back on the agenda.

This sentiment was confirmed in the 2015 Five Presidents’ Report,  which sets out plans to complete monetary union with a financial union and set up a European fiscal board before 2017 and, later, to establish a common macroeconomic stabilisation function and a Eurozone treasury. As things stand, the EU is well behind on its targets. And the report’s proposals are not any longer welcomed favourably by all Member States. On 1 March this year – ahead of the Rome Summit on 25 March – the European Commission published its White Paper on the Future of Europe,  setting out possible paths for the future of the EU.

Unsurprisingly, the document is not underpinned by the same pro-integration narrative – a sign that times and mindsets, are changing. Faced withing nationalist sentiment and growing criticism of EU institutions the document envisages the possibility of bouncing back and calls for an analysis of its consequences. With this unusual move the Commission’s aim is to remind governments of their responsibilities...

Yet this document also shows how the Commission has been weakened by political initiative shifting away onto national governments since the crisis. The White Paper’s goal is to spark debate, calling on governments to honestly approach it without blaming the EU for choices carrying governmental responsibility.

The Commission forces governments to rediscuss national preferences in order to reclaim appropriate the common future. But although the paper recognizes that democratic values are at stake, it nevertheless defends EU enlargement and proclaims its economic success. The answer to the question of where the EU wants its border to lie – is given unequivocally : around the EU27. On this basis, the paper outlines several scenarios for what the union could look like in the future.

THE OPTIONS ON THE TABLE

The White Paper proposes five possible scenarios. Two of these options lack realism on the grounds that they fail to safeguard the EU’s survival. A first scenario , which the Commission calls “Carrying on” where “the European Union focuses on delivering its positive reform agenda” seems to ignore the threats to the European project and across the continent more generally and does little to address the failings of the current institutional model.

This scenario implies that a virtuous inertia will somehow, miraculously, save Europe from the current crisis. But as we have explained time and again in previous articles, the EU institutions are weak precisely because they are incomplete. Under the second scenario, dubbed “Nothing but the single market” where “the European Union is gradually re-focused on the single market”, the EU capitulates and drops its political project, addressing the tough task of unravelling parts of its common  policies.

In this version of events, the limited cooperation within EMU would weaken the single currency. Another scenario, entitled “Doing less more efficiently”, suggests that the EU should do more and faster in a narrower range of policy areas, doing away with some single market regulation while bolstering the single currency, border controls and defence. In this case, the EU27 would need to reach an initial deal on these priority policy areas – something that seems unlikely as things stand today.

The Commission also proposes a “Those who want more do more” scenario, where Member States create “coalitions of the willing” to progress in specific policy areas. This model would imply differing citizens’ rights, limit transparency and complicating exifying the decision process, but would ensure better respect of individual countries’ preferences.

Under this scenario, some Member States would pour supplementary resources into their preferred policy areas, with complementary budgets. The proposal envisages strengthening the Eurozone governance, and would likely require Member States to cede more sovereignty and more risk-sharing, demanding governments to strike the right balance between fiscal responsibility and solidarity. This is what is known as a “multi-speed Europe”. The final, and most ambitious, scenario is entitled “Doing much more together”. In this case, the EU27 decide to progress more closely together across all policy areas, sharing more resources and investing the European institutions with even more power.

This scenario is much more in keeping with the ever-closer union aspired to by the EU’s founding fathers. But we know how the introduction of the possibility to exit the EU with Article 50 of the Treaty of Lisbon, rapidly seized by the UK, has undermined this project. And today’s centrifugal forces make this somewhat utopian vision unlikely in the short run. If anything, the Commission did not do enough in its White Paper to push the envelope. It could have outlined the risks of each option and set out more negative scenarios – something that would not have demanded much imagination.

For example, there is no mention of the EU falling apart after other Member States leave the union, or it disintegrating gradually as governments secure ever more opt-outs across different policy areas. And growing nationalist sentiment could easily fuel two other, equally plausible scenarios – a “zombie EU” with no power to enforce its values, standards and decisions or, worse still, a return to intergovernmental dealings between populist majorities.

MULTI-SPEED EUROPE

These scenarios are a long way off. As things stand, the most likely outcome is the “coalitions of the willing” model, with Member States working together to press ahead in specific policy areas. This has wrongly been labelled a “two-speed” or “multi-speed” Europe. Instead, it is a form of differentiated integration, with a group of countries leading the pack in some areas and others having the option to join if they wish. This model would add a few degrees of freedom to a complex intreagration equation. In itself, this proposal is nothing new. We already have differentiated integration, with the Eurozone (EU19), the Banking Union, the Fiscal Compact, the ESM and the Schengen Area (EU22 plus four associated members).

Right now, closer cooperation is seen as an ad-hoc solution, applied case-by-case and often burdened with specific opt-out clauses. The challenge is to harness this model as a genuine strategy for integration, asserting the principle of ever-closer union but with a multi-speed approach, and allowing only opt-in clauses and temporary exemptions. The success of the leading pack would set an example to the others, encouraging more Member States to join the group. A Europe of concentric circles or a “pick and mix” menu of options would simply push countries further to the periphery, eroding their sense of belonging to the EU.

And a concentric circle model is entirely at odds with the principle of democratic legitimacy  founded on the uniqueness city of institutions with  unique legislative, legal and executive bodies covering the whole of the EU and which cannot be fragmented up to serve different perimeters. The leading pack would need to abstain from any negotiation that might water down the founding ambitions of European integration in order to adjust to the  the interests of Member States with opt-out rights – something we have seen all too often throughout the EU’s history. So what would differentiated integration look like?

One answer is to focus on a small number of urgent or mission-critical projects that are “institutional anchors” of the EU. The first item on the agenda could be to complete the Economic and Monetary Union – the EU’s most robust political institution, yet at the same time weakened by the crisis. Another priority could be to shore up the Schengen Area, reforming the Dublin system for asylum seeker transfer and creating a clearer set of rights and responsibilities. And there is now a growing consensus around common defence policy, with the Permanent Structured Cooperation (PESCO) setting out clear spending obligations. In the quest for democratic legitimacy, the EU needs to maintain its unitary institutional structure – Commission, Council and Parliament.

There is no need to duplicate institutions, perhaps other than new configurations within the Council (along the same lines as the Eurogroup). And the EU could also maintain its unitary parliamentary representation model, setting up special committees and separate budgets in the interest of transparency. Economic and Monetary Union – a fundamental institutional anchor – will act as a testing ground for the new EU. The outcome will reveal just how willing Member States are to pursue political (not just economic) integration – and how much effort they are prepared to put into creating a more united Europe.

 i Completing Europe's Economic and Monetary Union, report by Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, European Commission, 2015

 ii White Paper on the Future of Europe. Reflections and scenarios for the EU27 by 2025, European Commission, March 2017

 iii N. Pirozzi, P.D. Tortola, L. Vai, Differentiated Integration: A Way Forward for Europe, Istituto Affari internazionali, March 2017

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