Thursday, December 31, 2015

Is Europe disintegrating?

In this end of year, economic optimism can bring some reason for hope. Most economists and international organizations urged Germany to increase its public investment to offset a dramatic contraction of demand in the rest of Europe.  This is finally going to happen: public expenditure is set to increase  - albeit modestly and too late - not just for boosting European growth but due to the massive arrival of refugees.  

Europe is facing two big crises - the eurozone and the migration crisis that are intertwined . As the president of the Commission Juncker reckoned,  without free movement of people, the single currency that the same people can spend in any part of the euro area does not make sense. The Schengen agreement has been put into question by the massive wave of refugees going from one country to another and by the terrorist threat beyond borders. This argument has also been used by populist parties to call for closing borders to the refugees.

These crises did not just occur in sequence. The long crisis of the eurozone has actually deprived governments of the will and capacity to act as well as their capital of trust and credibility which would be needed today to address the borders crisis. AS Germany plays a key role in both crises, Greece is  again seen as a scapegoat.

But, as P. De Grauwe points out,  the euro and migration crises have common features and flaws . In both cases, Europe's response has been partial. In the first case, the single currency was introduced but national budgets remained separated. During recessions, debt and deficit soar in vulnerable countries and capital flows  move toward stronger countries creating more divergence within the eurozone.   In the case of Schengen, borders were abolished but police and intelligence bodies remained separated and today there are no common coastguards  and border controls  The consequence is that with the euro, governments confronted to uncontrolled capital movements  cannot guarantee economic stability. While regarding Schengen, without a real integration of police forces, the same governments cannot guarantee security to their citizens. Furthermore, the concentration of powers on national governments rather than on the European Commission made decision processes more cumbersome and ineffective. 

Europe's founding fathers assumed that building a process of cooperation among States to resolve common challenges would inevitably lead to a closer integration in the absence of any alternative. But this is what happens today : if these common tasks remained unfulfilled , it does not mean that they will be brought to completion in a near future; it might go into  reverse and  even lead to the disintegration of Europe. 

As Ph. Legrain put it, " .EU leaders are weak, divided, and seemingly incapable of setting out a credible vision of the future benefits that European integration could provide, without which they cannot rally popular support and convince recalcitrant governments to bear their fair share of current costs. In the absence of an effective, common response, Europe’s crises fester, feed on each other, and foment unilateralism". Common solutions require at least four criteria: "a correct shared understanding of the problem, agreement on an effective way forward, willingness to pool more sovereignty, and political leaders able to drive change forward."

As these criteria are now missing, Europe has to reinvent itself . It has no fixed identity and is always remaking itself and will move over time. But the question is whether it will continue deepen its integration process on the road to a federation or alike or go backwards to the predominance of sovereign States.