I watch as Europe stumbles from one supposedly crucial summit to the next, always deciding too little too late. Mainstream interpretation now migrates from an emphasis on personal and sovereign debt—the double wave of insolvency and illiquidity—to the weakness of the banking sector, as if the two were separate. Shifting interpretation brings, too, an irrational focus on the supposed misbehavior of Europe’s “South”, as if no “Northern” banks or governments have had anything to do with current circumstances. The protracted bickering among key EU members, not least the core duo of Germany and France, was punctuated by the high-pitched solo of the United Kingdom’s single “no” vote at the Brussels Summit on December 9. As a dyed-in-the-wool EU advocate who has had the privilege to serve on both sides of the fence—holding different institutional positions in Brussels as well as having served as Spain’s Minister of Foreign Affairs—I cannot help but wonder: Is this it? Is “Europe” lost?
Learned experts provide us with continuous analysis of the supposed underlying issues and the drivers of the EU crisis. However, in their vast majority they fail to go beyond the convenient logic of economics very narrowly defined, with a dollop of “geographical determinism” tossed in for good measure. No sooner had the news of Greece’s troubles broken than talks of Southern fiscal incontinence emerged, embroiling Spain, Italy and Portugal in scenarios of impending doom. This was before Ireland had been granted membership into the infamous PIGS (Portugal, Italy, Greece and Spain) “club” created in the run-up to the Euro. This belittling acronym waned briefly only to reemerge with Ireland included (PIIGS) at the first hint of deeper economic trouble in Greece. But, just as the new acronym began to wear in, questions arose about the financial viability of Belgium and Austria; rumors that even France might lose its AAA bond rating quickly followed. Those rumors were vindicated in January, when Standard & Poor’s downgraded France’s rating, among eight other eurozone countries.
Just as 2011 came to an end, the original PIGS saw dramatic changes in political office. In the cases of Italy and Greece, these changes proceeded not by dint of the democratic process but rather by the dictates of the markets. Much as some would like to bestow tangibility on the amorphous character of financial markets, their prominence in the European governance equation today whiffs of a revival of enlightened despotism. Perhaps political cowardice has something to do with their outsized influence: What prominent politician wants to assume responsibility for the thankless task of telling people they need to sober up and face the fiddler? Nevertheless, what is a concerned observer to make of unelected technocrats in Rome and Athens becoming Prime Ministers of democratic polities?
Whatever the reasons, a tectonic shift is taking place in Europe. Italy, Spain, Portugal and Greece have each embarked on sobering reforms in the administrative, fiscal, labor and banking areas, albeit in different measures. These reforms have garnered praise from the European Commission, the European Central Bank (ECB) and the International Monetary Fund. Spain furnishes a notable example. Its newly sworn-in Prime Minister, Mariano Rajoy, announced within a week of forming his government a first round of tough measures that prove the resolve of the Partido Popular (PP) team to curb the deficit and meet EU targets.
Spain is by no means out of the woods, however. In the short run, at least, its competitiveness will falter dramatically as tax rates surge. In some of Spain’s autonomous regions the marginal tax rate is expected to reach 56 percent, among Europe’s highest. While Spain has accepted the yoke of fiscal austerity (in large measure to placate Germany), Mr. Rajoy’s clear determination has instilled a modicum of faith and market confidence that Spain will soon meet the target objectives of the Growth and Stability Pact, compensating for the unhinged profligacy of the Zapatero era.
Permit me to admit a sense of déjà vu. The fiscal discipline and political resolve of the South was already in dispute back in 1996 during the run-up to European Monetary Union (EMU). I can never forget the reaction of Germany’s then all-powerful Finance Minister Theo Waigel upon hearing, during a May luncheon in Brussels, my account of the strenuous efforts of Spain’s government—like today’s newly elected PP government, inheriting a challenging economic reality—to satisfy the Maastricht criteria (the precursor to the Growth and Stability Pact). My assurances met with little more than a patronizing smile and a quick dismissal. As it turned out, events proved Herr Waigel wrong: Spain met the criteria, and joined the EMU.
The Germans may prove wrong again, too. Germany’s didactic fiscal narrative, insisting that states “live within their means”, overemphasizes the link between strict fiscal compliance and growth. Spain is still confronting high yields in the sovereign bond markets even though its debt-to-GDP ratio is substantially lower than that of other countries, such as the United Kingdom. This is in part because other economic indicators—namely high unemployment and low competitiveness—make markets pessimistic, but these problems have other, structural causes apart from fiscal policy. In other words, fiscal indiscretion may be a culprit, but focusing on it exclusively—especially in the geographically determined tense—isn’t even the whole economics story, let alone the whole real story.
he real story is about politics and what motivates it, within and among European countries, and between Europe and the United States. We often forget that the methodology of European construction has rested implicitly on the systemic stability of great power opposition during the Cold War. We also tend to forget that the way forward has always been to sneak integrationist-minded “Trojan horses” into each new treaty. Any student of the history of the European construction knows of the cumbersome process preceding the adoption of any major change in the EU edifice.
The euro itself illustrates perfectly the signature process of European construction: establish a bridgehead and build on it. The Delors Committee laid out its substance in 1988 and the Maastricht Treaty of 1992 formally introduced it, but it was not “implemented” until 1999 and did not actually appear until 2002. Alas, between the Cold War days of 1988 and the globalization era that had burgeoned by 2002, much had changed. If the euro was ill-conceived, as so many now say, it only looks that way through a post-Cold War prism. Nobody foresaw that the rock-solid foundation of that period would soon erode into shifting sands. The European Union has never adjusted its procedural metronome to the much faster tempo unleashed by the end of the Cold War world. Its ponderous processes could work when protected by a stable U.S.-guaranteed edifice; they cannot begin to keep up with the world as it is now.
I recall with bemusement the lengthy procedures and interminable debates we had on minor matters that occupied our time in the Presidium during the drafting of the ill-fated EU Constitution. This was tedious but harmless. Today, with the EU house on fire, it is not so amusing to hear stories of lengthy discussions among the leadership on the exact title or right adjectives to present the treaty that is supposed to save the eurozone. One has to wonder whether our mostly Northern leaders recognize the yawning gap between the urgency of the matter at hand and the hopelessly slow process we still rely on to address it.
The obvious implication is that for Europe to adapt its outdated blueprints for the future, it needs to revamp its obsolete operative methodology as well. The substance of Europe cannot realistically be reformulated unless the processes are reformulated, too. When the U.S. Federal Reserve acted with dispatch during times of emergency in 2008–09, no one raised legal challenges to its authority. By contrast, the European Central Bank is constrained both formally and informally in myriad ways. To some, perhaps, the endless deliberations, lengthy discussions and profound ruminations of Europe’s best and brightest made up for the democracy deficit widely acknowledged to be (at least temporarily) at the heart of the construction enterprise. The challenge now is to streamline at least some aspects of the EU decision processes without making the democracy deficit worse. It is a daunting challenge because it is by no means clear that the domestic politics of several key member states are amendable to any streamlining that smacks of diminished sovereignty.
he Transatlantic dimension is just as problematic. Notwithstanding the trillions of dollars’ worth of daily Transatlantic exchange, and both the intricacy and intimacy of that which binds the West together, the East is rising, and U.S. attentions are shifting accordingly. Since its early days, the Obama Administration has signaled that Europe is neither the problem nor the solution to the challenges Washington confronts today. Its body language reminds us Europeans periodically that it can no longer be our unconditional and generous security guarantor.
As someone who forged and enjoyed a privileged relationship with my counterparts in Washington, I can appreciate the psychological adjustment inherent in this new reality. We face not an irrevocable and catastrophic loss, but rather an opportunity to come to terms with our new place on the international arena. We retain still unparalleled assets in many domains, not least in the area of governance and the rule of law. The United States still needs Europe, not as a self-doubting deadweight but rather as a realistic and poised ally. Then, the United States will rediscover its irreplaceable value.
So how do we do that? We start with the problem, that we are plagued by deep-running relativism, cynicism and skepticism against the backdrop of a sense of entitlement vis-à-vis the welfare state. The combination is striking: The Europeans doubt everything foundational about their collective social lives while expecting the state to shepherd them securely, even matter-of-factly, from cradle to grave.
So here we are, a continent of Sartres and Hamlets who comprise the healthiest, most-educated, freest segment of the world population. Our prosperity and democracy are not just hallmarks of contemporary European society, but also the main measures of the legitimacy of the European project. Launched to avoid another round of internecine bloodshed on the continent, it has succeeded beyond the dreams of the founding Europeanist generations. This makes the waning popular support for the collective endeavor among the core EU states all the more puzzling, as newcomers are eagerly knocking on the door of the Union. (Most recently, Croatia voted with a sweeping majority in support of joining the EU.)
Yet that may turn out to be the least of our problems. Beyond the economic crisis, which undermines the association between general prosperity and the Union, alarming threats to democracy have recently emerged from unsuspected corners of Europe. Hungary’s new constitution, infused with authoritarian motifs, invites unpleasant comparisons and memories. Along with the overall rise of the nationalist Right, notwithstanding the heartening results of the latest Finnish elections, the drift in Hungary today is foreboding for the whole continent. In this context, preoccupied as it is with economic survival, EU leaders need to be more vocal in protesting and more efficient in countering the quiet erosion of democratic principles. To mention leadership brings us, finally, to Germany.
hether Germany wants to be a leader or not—and all signs suggest not—its size and wealth demand its leadership. The recent words of Polish Foreign Minister Radek Sikorski, calling on Germany (in Berlin of all places) to assume greater responsibility in the eurozone, still echo across the continent. The crisis that is shaking the Union to its very core could have remained a mild shock had Germany acted decisively and sooner, before the Greek crisis metathesized through the European banking system to afflict the entire continent. Fixated on minimizing the specter of moral hazard, Berlin seems paralyzed by memories of the Weimar Republic. Perhaps more importantly, its postwar search to always find its interest within the European endeavor has transformed into a political syntax, in which rewarding a lack of virtue has become almost unthinkable.
In the end, after the Brussels Summit, the Germans did loosen the spigots to liquefy the European banking system, at least to some degree. But Europe needs an unequivocal signal of unflinching support and willingness to defend the euro, and that it does not yet have. Only the Germans can deliver that signal under current circumstances, though the ECB has a key role to play as a backstop. Despite its built-in aversion to proactive measures, it must back the currency, notwithstanding the possible cost in future inflation. A new Great Depression would put an end to the European project, and much else besides. It would probably pitch us into a downward spiral of disintegration.
Changing our narrative and modus operandi, adapting to the realities of a Pacific-weighted world, and forging a new relationship with our Transatlantic partner requires leadership—not just economic leadership but political leadership, and the two cannot be disentangled. That is what we have not had in recent years on the pan-European level, and it will never happen if Germany is not a part of it. Europe’s wealth is not just material, but also symbolic. It embodies one of the most ambitious collective endeavors of humanity in the last hundred years. As such, it falls upon our generation to fulfill our responsibility