Watching Ursula von der Leyen, the new German President of the European Commission, present the European Recovery Package to the European Parliament this week was to receive a history lesson.
“Europe is a story about generations,” she began. “Each generation of Europe has its own story,” she continued. Pointing backward to three political generations before her—first, that of the founders, then of the creators of the single market and common currency and finally that of the uniters of east and west with enlargement—von der Leyen cast herself, and those assembled, in the role of the coronavirus generation.
“We owe it to future generations,” she implored her listeners. The stakes could not be made clearer. Will the generation of Angela Merkel, Emmanuel Macron, and Guiseppe Conte write themselves into the European history books in this recovery, or will they fail?
Talk of the latest “eurocrisis” can trigger eye-rolls in Washington. Von der Leyen’s proposal should not. The intense negotiations that led to the breakthrough Franco-German proposal, which permitted the Commission to launch the European Recovery Package, had been marked by deep fissures appearing in the Union, which should alarm this generation of U.S. foreign policy hands.
Washington needs to take stock. The real significance of the plan is not economic but political. These proposed new resources are to be made available thanks to unprecedented massive borrowing by Brussels. It also opens up the possibility for the European Commission to raise its own resources through taxes down the line. This clearly opens the door to an eventual European treasury, greatly strengthening the federal powers of Brussels. But is it enough, now?
This is significant ammunition to fight Europe’s immediate crisis. The European Recovery Package, armed with roughly €450 billion in new grants and transfers, buttresses the Union against the upfront impact of the coronavirus. New resources equivalent to roughly 2 percent of European GDP are being made available this way.
Still, it probably is not big enough. Even this injection still pales in comparison to the likely jump in the debt-to-GDP ratio in most member states by 2021—estimated to get up to roughly 20 percent in the most affected countries. By this calculation, as little as 10 percent of the costs of fighting the crisis will be mutualized. The plan is thus far from enough to avoid a second decade of depression and austerity in Europe’s south.
Europe’s populists have little reason to fret about their future political prospects. With French, Italian, Spanish, and other weaker member states’ debt levels set to soar, and with the ECB’s critical bond-buying program running into legal difficulty in Germany’s constitutional court in Karlsrühe, the EU’s coronavirus generation’s grand compromise can still fail.
And what is more, this compromise plan cannot solve Europe’s deeper crisis: the growing economic chasm between north and south, which has been greatly exacerbated by this crisis. The single currency, without either mutualized debt or a single fiscal authority, has become a device pushing EU states apart and engendering conflict, not cooperation. To put it even more bluntly, the euro, in its current form, is the biggest threat to the European Union.
Americans would be wrong that this internal European dispute is none of their business. Its outcome is critical to the future of Europe, and, as a result, to the health of the Transatlantic alliance. It has direct implications on the renewed geopolitical contest with China and Russia. For too long, the current generation of Washington policymakers have been aloof to developments in the EU and have failed to see the link between European economic crises and the kind of political instability on the continent that makes member states weak allies.
Washington has its work set out for it. Reviving and sustaining the Transatlantic alliance after Trump will require more than just restoring diplomatic norms with Europe and recommitting to NATO. It will require a sustained and far-sighted euro policy. And in order to achieve this, America needs to rediscover its own “European” foreign policy heritage, from a previous generation, whilst working consistently to promote the necessary policies to fix the Eurozone and relaunch the European economy. Above all, the United States needs to support Europe taking on a share of its members’ debt. In a word: The U.S. should back the creation of Eurobonds.
The next Democratic administration faces a world in disarray. Why should U.S. policymakers tune in to an economic management crisis in one of the richest parts of the world? The short answer is that a well-functioning Europe can prove to be a valuable partner and strategic asset for the United States in the coming decades, while a hobbled Europe will end up being not only a costly problem to manage, but a real vulnerability.
This is a political problem whose origins lie in the response to the previous crisis. The German-led reaction following the 2008 crash consisted of forcing several Eurozone countries to adopt crushing austerity measures. As economic historian Adam Tooze has argued, this fueled the rise of illiberal populist political movements that in the past decade have upended Europe’s once more consensual politics and threatened to break up the European Union. Now, after a lost decade of seeking to adhere to strict austerity, voters in southern Europe are fed up. The center-right Giuseppe Conte in Italy, the center-left Pedro Sanchez in Spain, and the centrist Emmanuel Macron in France are all pro-EU. And they all face the specter of a renewed populist assault amidst a protracted depression.
Even in Berlin, it is plain to see that the age of austerity failed. The result has been economic contraction and deflation for much of Europe, with the doctrines behind it widely discredited. While the EU is preparing to throw substantial resources at the crisis, the fundamental problem with the euro architecture remains: Northern states have benefited from the adoption of the euro, which has made their exports cheaper. Southern states, on the other hand, have lost competitiveness, which has hindered their growth, in turn worsening their debt burdens. This dynamic existed before the 2008 crisis but was made worse by a decade of austerity. Not all states have the same capacity. Some hardly have any room to borrow, while some can do so dramatically. Already stretched states face looming retrenchment, even if the ECB’s bond purchasing program survives the challenge from the German court.
A sharpened economic and political divergence looms. Medium-term, European countries simply do not have the same firepower to sustain their economies after the crisis has passed. Many risk austerity. Only considerable issuance of mutualized debt “in peacetime,” in the form of Eurobonds, can provide the cushion necessary to avoid a protracted depression on the other side of the pandemic. Given historically low interest rates, and the comparative safety that a Eurobond would represent, paying for the stimulus package for the whole of Europe in this way is an arithmetic no-brainer. And the move makes not only economic, but political sense, too: the explosive cycle of debt crisis followed by austerity has fueled the populist backlash.
Support for the EU has already plummeted within Italy. A decade of economic stagnation, crushing debt burden, and a perceived lack of EU solidarity during the coronavirus crisis has been seized on by anti-EU populist Matteo Salvini, who is now calling for an EU referendum. A recent poll showed that now just 44 percent of Italians want to remain in the EU, compared to 65 percent just two years ago. Should elections happen soon, the return to power of Salvini, this time as Prime Minister, would be a watershed event. Domestically, it could see the EU’s third-largest economy follow Poland and Hungary’s pathway toward illiberalism. On the European level, it could see the euro threatened. Internationally, Russia’s Vladimir Putin and China’s Xi Jinping would have a new opening into Europe. America’s ability to shape global norms, heavily reliant on a functioning European partner, would take a serious blow.
Washington should not let the confident demeanor of Emmanuel Macron trick them. The French President’s energetic optimism masks the real risks that European liberalism faces on all fronts. Macron’s own popularity has taken a hit as a result of the coronavirus, and Marine Le Pen has polled as high as 45 percent in projected second rounds of the French Presidential election in 2022.
A populist cascade is quite conceivable as economic prospects curdle across Europe. Guarding against such an outcome should consume Washington. The structural “eurocrisis” is not only a matter for economists. It is undermining the future of the Atlantic alliance.
Americans need to look back to previous generations for lessons. The reality is that the European project is very much an American project as well. The process of European integration after World War II was pushed by a U.S. foreign policy generation through the Marshall Plan, which required the breaking down of economic barriers between countries in the pursuit of fostering cross-national political collaboration. This “European” generation continued to push European states to integrate, supporting the formation of the European Coal and Steel Community, and pressing for political and even military integration. America’s security umbrella helped enable Europe’s integration, and indeed was deployed with that outcome in mind.
So determined was this generation that West German Chancellor Konrad Adenauer famously quipped “Americans were the best Europeans.” Yes, some amount of self-interest was in play—the United States was facing off against the Soviet Union, and a weak and divided Europe was seen as a liability in the contest. But it was certainly an enlightened self-interest, as European success was seen as the best bet for prevailing in the geopolitical struggle.
This enlightened self-interest needs to be rediscovered by our own coronavirus generation. The Democratic Party may face disagreements among its foreign policy ranks, but both the so-called “restrainers,” who would like to see the United States scale down its military presence in Europe, and the “restorers,” who would like the United States to reclaim its leadership role on the continent, have a strong interest in a strong, united and effective Europe. Just as in the Cold War, Europe can end up being either a liability or a source of strength in the emerging global great power struggle.
A new Democratic administration needs a new diplomatic approach. It should not return to business as usual. But in order to get there, it must first learn from the Obama Administration’s mixed results in engaging Europeans after the global financial crisis. As Greek debt threatened to take down the euro and send another shockwave through the global economy, the Obama Administration tried to reach out to its EU counterparts. More often than not, their overtures were rebuffed by those in Berlin who saw the crisis as American-made and fueled by debt.
The Obama Administration took the European Union for granted as a geopolitical fact. In hindsight, this was a mistake. President Obama was seen by Europeans as disinterested in Europe. Obama, after all, “pivoted to Asia,” skipped an early U.S.-EU summit, and generally adhered to the view that the European project was up to the Europeans. America engaged Europe after the financial crisis not because it worried about the political fallout in Europe, but because it worried about the economic, and therefore political fallout, in the United States.
After the crisis subsided, Obama’s closest partners in Europe, Merkel and UK Prime Minister David Cameron, became the architects of austerity. Obama never articulated a political vision for Europe, and Washington stood aloof from various EU reform efforts. The United States did not appreciate the intense stress European political systems were under due to economic mismanagement and austerity until it was too late—when Britain voted to leave in 2016.
To engage Europe now, America should do so once again as the generation of “the best Europeans.” This means repeatedly stressing that America wants to see a united, more cohesive Europe as an equal partner, a global power in its own right. This means pressing European leaders to prioritize strengthening the EU over their more parochial interests. And strengthening the EU ultimately means doubling down on the euro, which in turn ultimately implies support for Eurobonds.
A rebuff from a decade ago could influence an incoming Biden Administration to think twice about prodding its allies, especially Germany. Why push, the thinking might go, if all it does is generate ill will—especially after President Trump had been rubbing salt in wounds for the past four years? Timidity, however, would be a mistake. Time has passed, and things have changed. For one, Biden’s cachet with Europeans is substantial given his record as a committed Transatlanticist. The nominee’s instincts hark back to the generation of the “best Europeans.” Coming on the heels of four years of Trump, the contrast will be all the starker. But perhaps more importantly, the United States has more openings and cards to play today than a decade ago.
Germany, for one, has changed. The United States would not be seeking to reverse a near-consensus but instead would encourage a process gathering pace. In a recent analysis, Die Zeit drew attention to three forces unlocking this emerging new mood. First, a new German economic intelligentsia is rejecting the old orthodoxy. Second, a German establishment is increasingly worried its global export strategy is in trouble, with rising awareness that only a prosperous EU market, both north and south, can sustain them. Third, there has been a noticeable shift in German politics.
The German Green Party, as well as key politicians in Merkel’s junior coalition partner, the social-democratic SPD, have spoken out in favor of mutualized crisis debt and pushed the Franco-German deal behind the scenes. There had even been conciliatory noises coming from within Merkel’s own CDU party towards the issuance of so-called “coronabonds.” German public opinion is no longer monolithically opposed to mutualizing European debt.
The geopolitics of the pandemic presents a further opportunity not only in Berlin but in Brussels, Paris, Rome, and in other member states as tensions with China continue to rise. As both the United States and Europe seek to decouple from economic reliance on China, they will need each other’s markets to thrive. To that end, the United States needs to clearly state that it sees the euro as a pillar of not only financial stability but as the bedrock of the Transatlantic relationship.
All this will require a significant diplomatic push by Washington. This will mean putting financial diplomacy at the heart of how the United States deals with Europe. But this does not mean these issues should be delegated to the Treasury Department or National Economic Council officials, as they often were during the Obama Administration. At its core, this is a political dispute over Europe’s future direction and that will require engagement from the top, as well as the diplomatic drive of the State Department, National Security Council, and even the Pentagon. Avoiding or defusing the next European sovereign debt crisis is that important.
The United States will also need to build a new strategic partnership with Brussels and build close ties with EU institutions and leaders. But Washington cannot and should not ignore Europe’s capitals. In addition to traditional shuttle diplomacy between Berlin and Paris, the United States will need to persuade the more frugal countries like the Netherlands and Sweden while strengthening collaboration with countries under stress like Italy and Spain.
The current generation of Europeans has tended to write America out of the history of the European project. The EU’s official history, for instance, does not mention America. The conventional wisdom is that Europe moves forward when France and Germany want it to. Yet America has also played a critical background role in many of Europe’s advances, from its support for German unification to the formation of the EU to its expansion eastward. When America became disinterested or offered opposition to the EU’s efforts to expand into defense, almost no advances have occurred.
The door towards Eurobonds has been opened. The Franco-German alliance, which has always been necessary to drive integration forward, has revived with the European Recovery Package. Yet still missing, for now, is that other ingredient present in all previous breakthroughs: American support for a stronger European Union. American influence in Europe is greater than any other region in the world. U.S. leverage in Europe remains significant despite the huge blow to American prestige in recent years. The impact, should the United States’ support return, could be profound. Given what is at stake should the euro continue to drive European nations further apart, it should be a priority for our own coronavirus generation in foreign policy. Not only does Europe need Americans to be the “best Europeans,” but America, in turn, needs a strong European Union.