The European Dream is Over. What Will Replace it?

The imminent collapse of the Euro is a symptom of a broader and potentially terminal malaise in the EU. This latest, fourth failed effort this year, signals the beginning of the end.

Failure was inescapable: European countries apparently cannot come together any more to act proudly as a beacon of light and hope to their citizens. National economic interests, particularly in Germany, France, and the UK still pre-dominate; 2000 years of history show that monetary unions without a fiscal union involving transfers to deficit/troubled regions or countries have always failed. Proper monetary union requirements, particularly central EU political control and necessary recapitalisation of national banks (especially in Germany whose banks have many political links) or the ECB acting as a normal lender of last resort, were not even on the table at this latest summit.

To understand why this failure was inevitable, you need to understand the changing background, the canvas on which this crisis is being painted. Basically neither the EU not Germany is what many of us think they are.

Let us look at the EU first.

The EU today is haunted by four fundamental ambiguities present from its inception: the relationship between ethnicity and European identity; how Europe should be governed; what its territorial boundaries should be; and above all politics. Hans W. Maull1 of the University of Trier sums it up well: “The European Union will simply be unable to ‘get strategic’ [to solve its core problems] until those fundamental ambiguities are addressed through politics, at the national and European levels. The peoples of Europe will need to be persuaded that they need the European Union, and they will have to be given a say in how that union works.”

Now Germany.

Post-reunification Germany has changed in a number of ways. After the Berlin wall came down, it has become less multilateral, less “Western”, while its EU partners are now considered a burden. Germany is not only increasingly defining its national interest in economic terms, but also increasingly using its economic power to impose its own preferences on others in the context of a perceived zero-sum competition within the euro zone, according to Hans Kundnani , editorial director of the European Council on Foreign Relations.

He concludes-the “German question” is back on the table.

What no one wants to acknowledge is that underlying these changing attitudes is a strong resentment against the (rest of) the West. This unfortunate, never mentioned, and deeply emotional reaction led to a number of German political analysts and commentators attempting to reverse or ameliorate it. They sought to return Germany to its pre-unification approach to Europe, the US, and multilateralism, and when they failed in that effort, this led to their internal and external exile in and from Germany, all highly reminiscent of the 1930s. The euro zone crisis is only one manifestation of this emotional, gut resentment and is frequently seen as a normal growth in German nationalism. It is unfortunately much more than that.

A recent interview with Helmut Kohl, former chancellor of Germany, in the leading German foreign affairs journal Internationale Politik and the recent comments by another former chancellor, Helmut Schmidt are clear indicators of a Germany that is adrift from its three core moorings of the past (multilateralism, the EU, and the relationship with the USA) and in search of a new identity/role in the world. The same magazine, in the September/October edition, published a survey showing that although 33% of those surveyed think Germany should maintain its political co-operation with the West, 31% think it should favour relations with Russia, China and India over the West.

As George Soros, Wolfgang Munchau, Paul Krugman and others, including myself, have set out elsewhere, the crisis in the euro zone started in October 2008 when Angela Merkel insisted that the banking system in Europe should be saved by each country individually rather than by the EU itself. Once each country was forced to look to its own interests first, the European dream was in peril. The fact that Germany in essence provoked the crisis by wishing to maintain political control of its own deeply troubled banks (see the comments by Peer Steinbruck the German finance minister at the time), even if not spoken of in polite company, has had a significant impact on political thinking both in Germany and in the rest of Europe.

This fundamental change in the rules of the game (which unfortunately started a new game of 17 little Indians – in the end each of the Indians, including Germany, will end up dead or at least seriously damaged) was but a symptom that the European project as previously envisaged was reaching its final act. Germany (always at the core, or the “ cause “ of the push for European unity) has fundamentally changed. Neither of these core issues is being focused on in the current discussion on the euro zone crisis. Failure is therefore foreordained.

All of this adds up to a significant political problem not just in the EU but also in each individual member state. Respect for democracy is declining as its continued “capture” by special interests (banks, the public sector, elites, and the interests of political parties) and the transfer of power to faceless bureaucrats or the “Merkozy” junta in Europe, erodes support for democracy just as nationalism rears its ugly head again, and we face into the probability of a Europe wide recession or even depression. The oft-quoted “democratic-deficit” in the EU is a much broader challenge today, with the failure of democracy in Europe itself now a possibility.

Following the decision by the UK and a small number of other countries, the EU is now two-speed. The euro zone will also fundamentally change in the near future. There will either be a disorderly break up or a two-speed euro zone will be effectively created by France and Germany, each of whom needs each other as “cover” for their differing current national interests. I understand that Germany’s finance minister, Wolfgang Schauble, would, for historic reasons, prefer this two-speed euro zone option. A three-speed Europe, on top of another failed summit of EU leaders, will reduce further the minimal confidence the markets have in the capacity of euro zone states to solve their problems. The odds on a disorderly breakup have increased significantly by this fourth 2011 failure to address the euro zone crises.

The continued incompetence of “Merkozy” (in what other field of significant endeavour would one be given a fourth opportunity to get it right having got it consistently wrong in the previous three?), the lack of understanding of how markets really work (particularly in the case of the East German Merkel), their pandering to the lowest common denominator in their own national interests/psyches, make both Angela Merkel and Nicolas Sarkozy unfit for this task.

Finally, it is clear that this latest and continued failure to solve the European crises, and the fact that such was predictable in advance and so swiftly understood afterwards (see the almost immediate comments from the US) is the clearest indicator yet that Europe as we know it is coming to an end. Unless we are very lucky Europe will pay a steep price for having the wrong leaders at the wrong time.

1 Hans W. Maull, chair for International Relations and Foreign Policy, University of Trier, current issue of Survival, The International Institute for Strategic Studies.

2 Article, Germany as a Geo-economic Power, Washington Quarterly, Summer 2011.

See also:

Tagged , , , , , , ,

Leave a Reply