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: Macroeconomic policy

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 about event More on this topic
 

Upcoming Event

May
25
14:30

How can we support and restructure firms hit by the COVID-19 crisis?

What are the vulnerabilities and risks in the enterprise sector and how prepared are countries to handle a large-scale restructuring of businesses?

Speakers: Ceyla Pazarbasioglu and Guntram B. Wolff Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

May - Jun
31-1
10:30

MICROPROD Final Event

Improving understanding of productivity, its drivers and the way we measure it.

Speakers: Carlo Altomonte, Eric Bartelsman, Marta Bisztray, Italo Colantone, Maria Demertzis, Wolfhard Kaus, Javier Miranda, Steffen Müller, Verena Plümpe, Niclas Poitiers, Andrea Roventini, Gianluca Santoni, Valerie Smeets, Nicola Viegi and Markus Zimmermann Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event
 

Past Event

Past Event

[Cancelled] Shifting taxes in order to achieve green goals

[This event is cancelled until further notice] How could shifting the tax burden from labour to pollution and resources help the EU reach its climate goals?

Speakers: Niclas Poitiers and Femke Groothuis Topic: Green economy, Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 12, 2022
Read about event More on this topic
 

Past Event

Past Event

How are crises changing central bank doctrines?

How is monetary policy evolving in the face of recent crises? With central banks taking on new roles, how accountable are they to democratic institutions?

Speakers: Maria Demertzis, Benoît Coeuré, Pervenche Berès, Hans-Helmut Kotz and Athanasios Orphanides Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 11, 2022
Read article Download PDF More by this author
 

Book/Special report

European governanceInclusive growth

Bruegel annual report 2021

The Bruegel annual report provides a broad overview of the organisation's work in the previous year.

By: Bruegel Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: May 6, 2022
Read article Download PDF
 

Policy Contribution

European governance

Fiscal support and monetary vigilance: economic policy implications of the Russia-Ukraine war for the European Union

Policymakers must think coherently about the joint implications of their actions, from sanctions on Russia to subsidies and transfers to their own citizens, and avoid taking measures that contradict each other. This is what we try to do in this Policy Contribution, focusing on the macroeconomic aspects of relevance for Europe.

By: Olivier Blanchard and Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: April 29, 2022
Read article Download PDF More on this topic
 

Working Paper

The low productivity of European firms: how can policies enhance the allocation of resources?

A summary of the most important policy lessons from research undertaken in the MICROPROD project work package 4, related to the allocation of the factors of production, with a special focus on the weak dynamism of European small and medium-sized enterprises (SMEs).

By: Grégory Claeys, Marie Le Mouel and Giovanni Sgaravatti Topic: Macroeconomic policy Date: April 25, 2022
Read article More on this topic
 

External Publication

What drives implementation of the European Union’s policy recommendations to its member countries?

Article published in the Journal of Economic Policy Reform.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: Macroeconomic policy Date: April 13, 2022
Read article Download PDF More on this topic More by this author
 

Working Paper

Measuring the intangible economy to address policy challenges

The purpose of the first work package of the MICROPROD project was to improve the firm-level data infrastructure, expand the measurement of intangible assets and enable cross-country analyses of these productivity trends.

By: Marie Le Mouel Topic: Macroeconomic policy Date: April 11, 2022
Read about event More on this topic
 

Past Event

Past Event

Macroeconomic and financial stability in changing times: conversation with Andrew Bailey

Guntram Wolff will be joined in conversation by Andrew Bailey, Governor of the Bank of England.

Speakers: Andrew Bailey and Guntram B. Wolff Topic: Macroeconomic policy Date: March 28, 2022
Read article
 

Opinion

European governance

How to reconcile increased green public investment needs with fiscal consolidation

The EU’s ambitious emissions reduction targets will require a major increase in green investments. This column considers options for increasing public green investment when major consolidations are needed after the fiscal support provided during the pandemic. The authors make the case for a green golden rule allowing green investment to be funded by deficits that would not count in the fiscal rules. Concerns about ‘greenwashing’ could be addressed through a narrow definition of green investments and strong institutional scrutiny, while countries with debt sustainability concerns could initially rely only on NGEU for their green investment.

By: Zsolt Darvas and Guntram B. Wolff Topic: European governance, Green economy, Macroeconomic policy Date: March 8, 2022
Read article More on this topic More by this author
 

Opinion

The week inflation became entrenched

The events that have unfolded since 24 February have solved one dispute: inflation is no longer temporary.

By: Maria Demertzis Topic: Macroeconomic policy Date: March 8, 2022
Load more posts