Eurozone Heaves Sigh of Relief – For How Long?

The European Union’s heads of state avoided disaster for the time being, preventing impending collapse of Spanish banks and offering assistance to Italy, too. Europe has decided to move toward a more complete integration. The steps are cautious, but “the USE – United States of Europe – would seem to be the ultimate destination, in fact if not in name,” explains Jean-Pierre Lehmann. Yet nobody has stepped forward with a vision for a united Europe and a plan of action. Germany, as the strongest and most dominant economy, will demand self-discipline from the other states. The project of a constitution for Europe, trounced by sizable numbers of Europeans, would have created a common foundation. Too many Europeans question if integration entails more layers of bureaucracy, incapable of providing efficiencies. Europe put bureaucratic integration into place before finalizing a constitution with unifying principles. “Adding erections on weak foundations makes the edifice more not less fragile,” Lehmann notes. He questions whether the continent has the leadership and vision to inspire Europeans to move forward as one – essential for the eurozone’s long-term survival. – YaleGlobal

Eurozone Heaves Sigh of Relief – For How Long?

Existential danger remains as no leader offers a vision for a united Europe
Jean-Pierre Lehmann
Tuesday, July 3, 2012

No for a united Europe: French voters rejected the European constitution in 2004 (top); European leaders fail to see eye to eye (below)

LAUSANNE: Following the summit of the EU heads of state last week, European governments and markets heaved an audible sigh of relief. Armageddon is postponed – at least until the next summit.  Like many such moments of relief in the past two years, this could be a temporary reprieve.

German Chancellor Angela Merkel appears not to have steadfastly held on to the famous standard of the Iron Lady, aka Margaret Thatcher: “The lady is not for turning.” The media heralded the outcome as a defeat for Germany hence a victory for Italy and Spain.   

“IF,” and it is a big “if,” the eurozone were eventually to emerge as a solid, sustainable and credible grouping, the summit of June 2012 will be seen as a step-change. It was the first summit that exceeded expectations rather than failing to meet them. It must be said, though, that expectations were very low. Still, the near-term apocalypse of a banking collapse in Spain has been averted for the time being. The decision was also made to provide assistance to Italy. Perhaps one of the most important features of this summit is the appearance of some degree of consensus, which, in turn, could have been borne out of a greater sense of solidarity among the political leaders, even if still tenuous and hesitant.

The underlying existential question at the summit was, Will there be a European Union or does the future entail a return to a motley collection of states? The EU stands at the proverbial fork in the road – one direction is more Europe, the other is no more Europe. Europe’s leaders on 29th June 2012 seem to have opted for the path of more Europe. Down this road will be more integration, more federalism, more supervision and more control. The “more Europe” road is one that clearly heralds supranational governance based on EU collective interests as opposed to national sovereignty based on narrow domestic interests. The alleged “defeat” of Germany at the summit notwithstanding, the road is in fact more German, one that Berlin has advocated for some time, one that imposes greater discipline and austerity.   

Yet doubts about the long-term sustainability of the euro have much to do with the nature of the euro-edifice itself. The experience of the past four years has shown that the foundations are weak:  Adding erections on weak foundations makes the edifice more not less fragile.

The story of the euro stands in stark contrast to the story of the origins of the European Economic Community, or the EEC. The solid foundation of the EEC lay in the establishment of the European Coal and Steel Community in 1950, only five years after the end of World War II. Initiated by France and Germany, it was joined by the other four states that together eventually formed the initial membership of the EEC: Italy, Belgium, the Netherlands and Luxembourg. In the course of succeeding years and decades, the establishment of the European Union with the Treaty of Maastricht in 1992 proceeded on an incremental basis combining idealism, vision, leadership and pragmatism. The EEC house was built on rock. Of course, there were occasional challenges – notably following the unexpected breakup of the Soviet bloc and German reunification – but the house stood. The house also got bigger. Whereas in 1950 the number of democratic European countries were few, today Europe represents a huge democratic space encompassing the EU and beyond.

While the EU has been indubitably an outstanding success in the second half of the 20th century, there is reason to doubt whether it has adapted to the 21st century and whether it is sustainable. That the EU was losing its way seemed evident in 2004 with the proposal to promulgate a European Constitution. Despite great pressure exerted by European governments, the constitution was unpopular; it was rejected in referendums by citizens of two of the EU founding member states: France and the Netherlands Undeterred by their failure to win public opinion for a more integrated Europe through a constitution, the political leadership compromised by promulgating a treaty that was supposed to accomplish roughly the same goals as the constitution.  At that point the EU project was disconnected from the people: The democratic deficit took on the proportions of a chasm.

Governance in the EU has become labyrinthine. The treaty that replaced the constitution requires an EU president. That person now exists. Few Europeans, however, know who he is – Belgian Hermann van Rompuy. And if they do, few know what he actually does, especially since the president of the European Commission, Portuguese José Manuel Barroso, still holds office. When the crisis hit, Merkel and then French President Nicolas Sarkozy grabbed the limelight in a duo that became known as “Merkozy”; following Sarkozy’s defeat, Merkel has been seen recently either alone or in the company of the Italian and Spanish heads of government; neither van Rompuy nor Barroso have been particularly visible. So the question arises: Who’s in charge in the EU?

The main lesson from the 2004 Constitution kerfuffle was that Europeans at that stage wanted less, not more Europe; they wanted slower, not faster integration. Yet vox populi was ignored. Whatever heads of European states and the Eurocrats get up to, the main problem with Europe is that there is no sense of popular solidarity; there is no real sense of a common community of concern; there is no sense of shared identity. There are European teams, but there is no European team.

To put it bluntly, there is no trust.

The euro is an egregious case of putting the cart before the horse. The first step should have been to seek popular legitimacy. Initially the euro was welcome for reasons of convenience: The currency made it easier for the Dutch to go on holiday to Sardinia and not feel as though they might be swindled in the exchange with the Italian lire. But whatever the compelling vision for the euro was, this was never communicated. The second step was to establish the necessary political institutions required for a solid and resilient monetary union. That’s the horse; the euro is the cart.

Essentially what the summit decided is retroactively to place the horse before the cart. Can this be accomplished? It’s a tough proposition. It could be possible, but only through strong leadership and EU-wide popular support. And here lies the nub of the euro’s, and the EU’s, existential problem. Just as there is no European community, there is no European leadership. As we have seen, van Rompuy and Barroso don’t count; otherwise all other leaders are national – French, Italian, German, Spanish, Irish and more – defending national interests without an overarching vision of a common Europe.

On the basis of current circumstances and trends, the euro seems unsustainable. In this perspective, in reality the summit has succeeded only in postponing the day of reckoning. Only a profound transformation through the emergence of strong, credible, legitimate and popular genuine European leadership can the euro survive. There is no alternative.



Jean-Pierre Lehmann is emeritus professor, IMD, Lausanne, and senior fellow, Fung Global Institute, Hong Kong.  

Copyright © 2012 Yale Center for the Study of Globalization