Opinion

Europe has wasted a good crisis

The folklore has been that European integration proceeds by “falling forward.” In a crisis, when Europe stumbles, it gets up to move forward. A setback is met with a new resolve for more robust integration. Not this time.

By: Date: November 2, 2014 Topic: European Macroeconomics & Governance

See also Ashoka Mody’s reply to comments ‘In response: Aligning national interests Europe’s monetary union

The folklore has been that European integration proceeds by “falling forward.” In a crisis, when Europe stumbles, it gets up to move forward. A setback is met with a new resolve for more robust integration. Anticipation of such progression was central to the construction of the euro area, which arose from conflicting national interests as a manifestly deficient economic structure.

The recent European Parliamentary elections were a crucial test of this thesis. With the widespread damage wrought by the euro now clear to all, the test was whether European politics would coalesce around a shared vision for the greater political integration needed to support the euro. The result was not encouraging: national interests dominated, moving Europe from a financial to a potentially political crisis.

A growing east-west divide, a core-periphery rift, the rise of extremist parties and the adoption of extremist rhetoric and their policy agenda by the mainstream parties are reshaping the concept of Europe.

Eastern Europe is drifting apart. Despite a rough patch during the Great Recession, Eastern European nations—especially those that leveraged the economic and political opportunities—benefitted greatly from joining the European Union in 2004. But in some of the most successful economies, the voters were barely aware of the European elections. Less than a quarter of Polish voters showed up. In the Czech Republic and Slovakia, participation rates were in the teens.

This disconnection of Eastern European voters from the European Commission in Brussels and the Parliament in Strasbourg is mirrored in the disinterest of their leaders in the Frankfurt-based European Central Bank. Marek Belka, the governor of the Polish Central Bank, has reiterated that Poland will not join the euro anytime soon. He has also complained that the so-called “Banking Union” will discriminate against non-Euro members. The Czech Republic has similarly distanced itself from Frankfurt. 

On the Eurozone’s economic periphery, the Italian Prime Minister Matteo Renzi’s success in the European elections is viewed as a vote for reform. But a stronger Renzi does not help European integration—instead, a more robust confrontation among eurozone members is likely. The previous batch of Members of Parliament voted along national lines on key economic issues: those from the core favored more national budget discipline while the periphery sought financial relief through such mechanisms as Eurobonds. A vote for Renzi will reinforce his demands for greater fiscal latitude from Europe, which will only deepen distrust.

As these centrifugal forces strengthen, the mainstream parties are playing defense against the extremists. Having reflected on his loss two years ago to President Francois Hollande, the former French President Nicolas Sarkozy has called for a fundamental rethinking of Europe. He wants to draw new lines separating countries into inner and outer circles, repatriate “competencies” from Brussels back to national capitals and dangerously restrict the movement of people across borders.

While Prime Minister David Cameron of the United Kingdom and Chancellor Angela Merkel of Germany have raised concerns about absorbing migrants into their countries, Sarkozy has called for an immediate suspension of the Schengen area, which grants the right of free movement of people across most of Europe. Without the free movement, integration has no meaning—the very essence of what Europe stands for is undercut. And the flawed euro project would be further undermined.  

The “falling forward” view promises change at the end of a hazy, muddled-through process. Some had speculated that voters would see through that haze and rally around the prospect that the leader of the winning party in these elections would also be the next president of the European Commission. The voters discounted both the likelihood and the value of that outcome—rightly, it appears, in view of the post-election political jockeying.

The European Parliamentary elections remind us that voters primarily care about their pocket books. The emerging fault lines along national interests are an expression of despair. They reflect economic distress for many, the burden of relentless fiscal austerity on the weakest and the divergence of economic prospects across countries. Unable to respond constructively, the politics is beginning to mirror the economics, leaving the voters with few options to create positive momentum. Rather than “falling forward,” the deepening fault lines could crack European solidarity and irretrievably undo the gains so painstakingly achieved.

Wise counsel requires preemptive action to prevent the political muddle from morphing into an unmanageable political crisis. While preserving longer-term European goals, particularly free movement, considered decentralization from Brussels is needed to defuse a collision of national interests. A key step would be to downsize the elaborate and ineffective central fiscal surveillance framework, let countries assume greater responsibility of their fiscal policies and allow markets to deal with the risks of lending to errant sovereigns.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Opinion

A temporary, common fiscal stimulus to answer the mayhem of COVID-19

We are not in normal times and we have to surpass, albeit only for the duration of the COVID-19 shock, the hurdles that did not allow the euro-area to endow itself of a common fiscal policy.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: April 2, 2020
Read article More on this topic More by this author
 

Opinion

Will the economic strategy work?

Because even thriving companies can be killed in a matter of weeks by a recession of the magnitude now confronting the world, advanced-economy governments have reacted in a remarkably similar fashion to the COVID-19 crisis. But extending liquidity lifelines to private businesses and supporting idled workers assumes a short crisis.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: April 1, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

The macroeconomic policy response to the COVID-19 crisis

From the European Stability Mechanism (ESM) to "coronabonds", the EU seems to be struggling to find an appropriate mechanism to tackle the economic crisis created by the COVID-19 pandemic. What is really the best option? And how do we ensure that, once the pandemic is over, we return to sustainable debt levels and competitive economies? This week, Giuseppe Porcaro is joined by Lucrezia Reichlin, professor of Economics at the London Business School, Grégory Claeys and Guntram Wolff to discuss the macroeconomic policy response to the COVID-19 crisis.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 31, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: The macroeconomic policy response to the COVID-19 crisis

Which macroeconomic policy response is the best option to deal with the crisis currently unfolding and will ensure that the recovery will be as quick as possible?

Speakers: Grégory Claeys, Giuseppe Porcaro, Lucrezia Reichlin and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read about event
 

Past Event

Past Event

CANCELLED: How adequate is the European toolbox to deal with financial stability risks in a low rate environment?

Bruegel is delighted to welcome the governor of the Central Bank of Ireland, Gabriel Makhlouf. He will deliver a keynote address about how adequate the European toolbox is to tackle financial stability risks in a low rate environment. Following his speech, a panel of experts will further discuss the topic.

Speakers: Gabriel Makhlouf, Guntram B. Wolff and Agnès Bénassy-Quéré Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read article More on this topic More by this author
 

Blog Post

The fiscal consequences of the pandemic

The likely economic depression triggered by coronavirus will pose a serious fiscal challenge to some euro-area countries. Given the special circumstances of the pandemic, a European solution is needed, involving more European Central Bank purchases, a significantly increased European Stability Mechanism and some degree of mutualisation of the pandemic-related economic costs.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 30, 2020
Read article Download PDF More on this topic
 

External Publication

Facing the lower bound: what will the ECB do in the next recession?

In responding to the global financial crisis, the ECB has pushed its monetary policy into unchartered territories . Today, it appears increasingly constrained by persistently low interest rates. This paper seeks to understand this challenge and assess whether its toolkit would allow the ECB to weather a European recession.

By: Aliénor Cameron, Grégory Claeys and Maria Demertzis Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article More on this topic
 

Opinion

Europe needs a Covid-19 Recovery Programme

Policymakers need to think long-term and start planning a broad investment scheme to reboot the European economy.

By: Grégory Claeys, Simone Tagliapietra and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article
 

Blog Post

COVID-19 Fiscal response: What are the options for the EU Council?

It is time for the EU Council to make quick progress on the fiscal front and announce something as soon as possible to show that it taken full measure of the severity of the situation.

By: Grégory Claeys and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 26, 2020
Read article More on this topic More by this author
 

Blog Post

What the EU should do and not do on trade in medical equipment

The European Union has introduced export controls on some medical supplies. This was a mistake. It should announce that it is withdrawing the measure, and call on other countries to do the same.

By: André Sapir Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article More on this topic
 

Blog Post

Coronavirus and the politics of a common fiscal instrument

Coronavirus means many European Union countries will soon face major increases in their sovereign debt burdens, exacerbated by the sudden collapse of economic activity. What should the European Union do to address these debt problems?

By: Mark Hallerberg and Stavros Zenios Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article Download PDF More on this topic
 

External Publication

How has the macroeconomic imbalances procedure worked in practice to improve the resilience of the euro area?

This paper shows how the Macroeconomic Imbalances Procedure (MIP) could be streamlined and its underlying conceptual framework clarified. Implementation of the country-specific recommendations is low; their internal consistency is sometimes missing; despite past reforms, the MIP remains largely a countryby-country approach running the risk of aggravating the deflationary bias in the euro area. We recommend to streamline the scoreboard around a few meaningful indicators, involve national macro-prudential and productivity councils, better connect the various recommendations, simplify the language and further involve the Commission into national policy discussions. This document was prepared for the Economic Governance Support Unit at the request of the ECON Committee.

By: Agnès Bénassy-Quéré and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 24, 2020
Load more posts