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Can the EU Bicycle Turn into a Jet Plane by 2020?

Can the EU Bicycle Turn into a Jet Plane by 2020?

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This policy brief proposes two scenarios for the EU, based on the assumption that the eurozone will move towards closer economic and political integration.
This policy brief proposes two scenarios for the EU, based on the assumption that the eurozone will move towards closer economic and political integration.

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Published by: German Marshall Fund of the United States on Oct 04, 2012
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The EuroFuture Project

September 2012

Paper Series
Can the EU Bicycle Turn into a Jet Plane by 2020?
Two Pathways for Europe
by Vivien A. Schmidt
Questions About Deeper Integration This is an existential moment for the EU not just economically, as a result of the eurozone sovereign debt crisis, but also politically. Debates rage over which, if any, of the many proposed economic solutions should be adopted, how they should be politically administered, and what could make them democratic and legitimate. Should the European Central Bank (ECB) act as a lender of last resort, buying member state bonds to control the spread, or stick more narrowly to its Constitutional mandate? Must the EU member states mutualize their debt via eurobonds, or would project bonds for new investment be sufficient? Do loan guarantee mechanisms such as the temporary European Financial Stability Facility (EFSF) or the permanent European Stability Mechanism (ESM) require more firepower, need they be folded into a European Monetary Fund, or are current arrangements and funding levels sufficient? Can any one of these measures do the trick, calming the markets, or do they need to be bundled together? And if so, which? With any of these measures of deeper economic integration comes a further set of questions about deeper political integration. Must there be fiscal compacts to ensure member state discipline, with golden rules and numerical targets for deficits? Fines and sanctions for those who don’t abide by the terms of the compact? Austerity packages and structural reform in exchange for loans and guarantees for those who need them? Or would trust and social solidarity plus growth be sufficient? Finally, how does one make any further Europeanization of authority and responsibility democratic and legitimate in the eyes of European citizens? By continuing the strong intergovernmental rule of the Council? Providing for more involvement of the European Parliament (EP)? Giving the Commission more discretion to administer the rules, or less? Election of the European President? Of the Council by universal suffrage? Or of the Commission by EP elections? Many questions, few answers as yet. As the debate continues to divide EU elites and citizens, growth is elusive, and trust and solidarity seem in short supply while the markets continue to panic. Political volatility increases. National electorates regularly turn incumbent governments out of office, while citizen disaffection grows,

Summary: The theory goes that the EU only moves forward in a crisis, and that it must do so for the “bicycle” (that the EU is seen to be) not to fall. But in order for the EU to continue to move forward, its leaders need to turn that bicycle into an airplane, to give flight to their imaginations about what the EU could and should be and do. Rather than mechanics as its means of locomotion, the EU needs aerodynamics to make its increasingly complex interdependence work successfully. The author proposes two scenarios, based on the assumption that the eurozone will move towards closer economic and political integration: 1. deep economic and political integration that produces a flourishing EUtopia; or 2. shallow economic and political integration that produces a stagnating dystopiEU.

1744 R Street NW Washington, DC 20009 T 1 202 683 2650 F 1 202 265 1662 E info@gmfus.org


The EuroFuture Project

feeding the rise of anti-European parties on the political extremes. Many citizens seem to feel they have even less say than in the past over the decisions that affect them the most. The big decisions have moved up to the EU level, as member states’ democracies have increasingly become “politics without policy” with regard to their economies. Yet, at the EU level, decision-making appears to be “policy without politics,” as member state leaders eschew the language of the left or the right to speak of their national interests while the EU Commission uses the language of technocracy.1 But could or should the EU have “policy with politics”? If yes, would the EU be able politicize so as to legitimize its policies? Or might the opposite result? Moreover, with deeper eurozone economic integration, how would EU political governance be organized? Would the eurozone be subject to the unanimity rules of the treaties, in which all 27 member states have veto powers? Or even only 17? Worse, how does the EU stay together at all with the increasingly variable geometry of a multi-speed Europe?

dence work successfully. What follows is a modest attempt to think about what the EU’s future may be 2020, with lift off or without. I propose two scenarios, based on the assumption that the eurozone will move towards closer economic and political integration: 1. deep economic and political integration that produces a flourishing EUtopia; or 2. shallow economic and political integration that produces a stagnating dystopiEU. I do not consider what would happen if the euro breaks up, although a third scenario could be a eurozone breakup that engenders a workable EU but no EUtopia, while a fourth scenario would be one in which a eurozone breakup proves disastrous. I leave the development of these back-pedaling pathways to others.2 My first scenario, although admittedly utopian from the perspective of today, is nonetheless a realistic possibility even if the process of getting there were to look like piecemeal management so long as member states have in mind a positive vision of what the EU could be and should become, and are intent on building trust and solidarity. My second scenario is what muddling through without vision, trust, or solidarity is likely to produce. Dire as it may sound, this scenario is staking out a middle ground compared with the option of a eurozone break-up. Eutopia: The Euro Brings Deep Integration and the EU Flourishes There is no need here to talk about how Europe got to its new EUtopia. It may have been through a creative leap in the midst of massive crisis or a slower process of adding
2 For a tour de force on a range of scenarios dealing with the foreign policy as well as internal policies and institutional arrangements for the EU’s future, including a middle way through federal and à la carte via “elective affinities,” see Constanze Stelzenmuller, “Europe Alone Again,” paper prepared for the NIC workshop on the consequences of a U.S. Strategic Decline,” (March 16, 2012). For another middle way through “ambitious muddling through,” see Janis Emmanoulidis, “Collateral Damage, Four Scenarios and the EU’s Global Role,” paper prepared for Eliamap’s 9th European Seminar 2012 “Global Europe in a Changing World: How to Avoid Irrelevance” (Poros, 21-24, 2012). For a particularly sobering account of the economics of break-up for Southern European countries and their implications for democracy, which could arguably produce a more workable EU, see Fritz W. Scharpf (2011) “Monetary Union, Fiscal Crisis and the Preemption of Democracy,” LEQS Annual Lecture Paper 2011. See also, most recently, Simon Tilford on the potential politics of breakup: “Has the eurozone reached the limits of the politically possible?” http://centreforeuropeanreform.blogspot.co.uk/2012/07/has-eurozonereached-limits-of.html

Many citizens seem to feel they have even less say than in the past over the decisions that affect them the most.
The theory goes that the EU only moves forward in a crisis, and that it must do so for the “bicycle” (that the EU is seen to be) not to fall. The theory doesn’t say anything about moving backwards, perhaps because bicycles don’t ordinarily run backwards. But for the EU to continue to move forward, EU leaders need to turn that bicycle into an airplane, to give flight to their imaginations about what the EU could and should be and do. They also need to think about what could happen if their responses to the current crisis fail to lift that plane off the ground. Rather than mechanics as its means of locomotion, the EU needs aerodynamics to make its increasingly complex interdepen1 Vivien A. Schmidt, Democracy in Europe (Oxford: Oxford University Press, 2006); and La Démocratie en Europe (Paris: La Découverte, 2010).



The EuroFuture Project

one institutional component after another. But whatever it took, and whenever, the EUtopia contained two elements that were indispensable: deeper economic integration with new instruments of economic governance along with new resources; and deeper political integration with new forms of democratic governance, new narratives and visions of the EU, building trust based on solidarity, and new vehicles for citizen representation and political participation. Deep Economic Integration At eurozone blowup minus one minute, the European Central Bank took action, its mandate to maintain stability of the euro — which in this case meant saving the euro — overriding the treaties’ interdiction to buy member state debt (which it had previously gotten around by buying debt on the secondary market). The ECB bought government debt with no limit to stop the run on the markets. Its right to do so as lender of last resort was subsequently constitutionalized by the European Council via a treaty ratified by EU member states.

and defense (so long as this was part of the joint EU ESDP effort at military modernization/rationalization). Moreover, the speed of the deficit reduction was now moderated by the rate of growth as well as of structural reform, so that national governments could have carrots as well as sticks to gain support from their publics in their reform efforts. In particular for governments required to reduce their deficits in order to receive EU funds (from the EFSF or the ESM), this meant that rather than having to cut the minimum wage while seeking to negotiate greater labor market flexibility and to disband the entrenched monopolies of, say, taxi drivers and pharmacists, they would be able to galvanize citizen support by promising their citizens that they would not need to cut the minimum wage if they succeeded in breaking the monopolies or reducing labor rigidities. For member states still at risk, EU leaders turned the old EFSF and its successor ESM into a much better funded European Monetary Fund (EMF) that was to work in tandem with the Washington based International Monetary Fund (IMF) to rescue member states in trouble and to help with their recovery. For banks “too big to fail,” or at least too big for individual member states to rescue if they failed, a European Banking Resolution facility as well as EU-wide depositor insurance were set up to ensure that any bank on the verge of breakdown would be taken care of expeditiously — by stripping out the bad debt and placing it in a bad bank — while citizens’ deposits would be protected up to agreed levels through an EU-wide deposit insurance scheme. It was also obvious that none of these measures would be enough without doing something to restart the European economy while providing for EU citizens in greatest need. The EU went forward with the project bonds called for in the Growth Protocol, to be administered by the European Investment Bank. These were used for new infrastructure projects such as the European Railway System, renewable energy, and environmental sustainability as well as newly designated industrial revitalization zones and advanced technology development cooperation groups. The old structural funds were radically revised so as to be immediately accessible by the member state regions in need, without the bureaucratic hurdles of the past. The CAP (Common Agricultural Policy) was slowly transformed, beginning with a cap on big outlays to rich farmers —

At eurozone blowup minus one minute, the European Central Bank took action.
But it was clear that to stop further meltdown, the long term vulnerabilities had to be addressed. Pooling of member state debt through eurobonds began shortly thereafter, to alleviate pressure on the countries at risk of contagion, to bring interest rates on bonds down to the low levels to be expected for such a large regional economy, and to take member state debt off the ECB books. The debt itself was dealt with by creating different categories of bonds that differentiated the servicing of old debt — to be paid down over the very long term at very low interest rates by the member states that had incurred it — from new, which were to be jointly decided by the new EU bond board, with a certain percentage guaranteed for each member state. EU leaders also made the “Fiscal Compact” and its “Growth Protocol” more workable. To do so, they agreed to allow the member states to keep all reasonable investment off the books in calculating the deficit, e.g., in infrastructure, R&D, training/education, energy modernization,



The EuroFuture Project

through the equivalent of a “millionaires” tax. While part of the fund remained to promote sustainable agriculture, the bulk of it was slated for a poverty alleviation scheme for all citizens. Other automatic macroeconomic stabilizers were added to ensure that where eurozone member states no longer had the capacity to protect the welfare of their own citizens, the EU would kick in. These stabilizers included an unemployment insurance fund that worked across borders plus a EU employment agency to facilitate cross-border movement. But all of this required much more money for the EU Commission and related agencies. The funds did not come from a significant increase in member states’ contributions but, rather, from new revenue streams that came from the value-added that the EU as a whole provided for member states via the Single Market as well as the eurozone. Thus, EU leaders finally passed the much-discussed financial transaction tax (the so-called Tobin tax) to add to funds for banking and financial market failures pledged by member states as well as a cross-border transaction tax on goods and services to pay for the spillover effects of the Single Market, geared to environmental, urban, and social problems. Additional funds came from a “Solidarity Tax” levied on all citizens and residents of the EU, which added to the converted CAP funds targeted for poverty alleviation and intended to build a sense of citizen-to-citizen solidarity. This, plus the market generated taxes, were to ensure that no longer could anyone claim that the EU was a “transfer union” in which one or more member states paid for the rest. This also meant that the citizens would expect more democratic access to decision-making on the grounds that there be “no taxation without representation,” while the member states expected guarantees of fiscal probity from one and all. Indeed, in order to make any of the above work, the EU itself needed deeper political integration. But what kind of “political union,” in the words of German Chancellor Angela Merkel, would be able to make the economic union work? And how to get the citizens to buy into this, in particular given the rise of Eurosceptism across Europe? New narratives, better communication to the public, and more democratic representation and participation in EU governance practices were all part of the political side of the new EUtopia. But there were also new ways of envisaging EU organization and rules.

Deep Political Integration Most positive scenarios for deeper political integration assume a “Federal Europe” or even a “United States of Europe.” Not this EUtopia. Given the EU’s history and the continuing importance of “nationhood” and sovereignty for EU member states and their citizens, the EU continued to be seen as sui generis, as a new kind of international structure with a new system of supranational governance. The EU came to be known as a “Region State,” a regional union of nation states in which its nation state members have over the years become “member states,” while the EU itself has gained significant state-like qualities. Political integration is necessarily looser than in any federal state because it is based on a multi-speed, variable-boundary union. This is, however, neither a two-speed Europe nor a core Europe with concentric circles around it.3 Rather, it is a Europe of many over-lapping policy “communities” or clubs with overlapping memberships in which different policy communities have different rules and different degrees of integration for their members. This was actually already the case in 2012, given the differing memberships in, for example, the eurozone, Schengen, and the European Defense and Security Policy.

Most positive scenarios for deeper political integration assume a “Federal Europe” or even a “United States of Europe.” Not this EUtopia.
By 2020, this differentiated “Europe of communities” had become much more extensive as a result of the principle of “enhanced cooperation,” first introduced in the Amsterdam Treaty but made workable in the Lisbon Treaty. Although initially designed for defense and security through “permanent structured cooperation,” it had become immensely helpful in the completion of the Single Market. This was the “community of communities” to which all member
3 See the proposal put forth on a “two speed” EU by Jean-Claude Piris, The Future of Europe: Towards a Two-Speed EU?, Cambridge: Cambridge University Press (2012).



The EuroFuture Project

states belonged, but which had hit the limits of integration in areas such as labor markets, social services, and individual cross-border citizen concerns such as divorce.4 New “cooperation zones” came to flourish, such as “enhanced labor mobility zones,” in which member states with reconcilable arrangements in pensions, health care systems, and labor contracts created a more integrated labor market through harmonization and/or various forms of reciprocal arrangements. There were also new “public services zones,” in which countries with strong state-delivered services, such as medical care, developed new cross border cooperation and mutual recognition. With all this variable geometry, some might think that the new EUtopia had become Europe à la carte. Or that it would have the amorphousness of a modern-day equivalent of the Holy Roman Empire.5 Not only did the EU have too much “stateness” for the latter, it had much more cohesiveness than the former, because there was a significant “soft” core of members that remained part of most if not all the overlapping communities. Differentiated Europe was also not centrifugal Europe. To the contrary, the EUtopia’s openness of membership ensured the Union’s continued power of attraction not only for countries within the geographical boundaries of Europe but also for those outside — not only Norway, Switzerland, Iceland, and the Balkans, but also Turkey, Georgia, and the Ukraine. For these countries, instead of the longstanding “in” or “out” of membership, a system of graduated membership was instituted in which participation in particular policy communities was allowed even before full membership was considered. The only requirement was that they be democracies that respected the rule of law, had a free market, and were committed to joining the Single Market. Once this was established, every time “graduated” members closed a chapter in the accession process, they were invited to sit at the table, have the right to speak, and even vote in the particular policy sector in question. As a result, such partial members or prospective entrants were socialized into EU mores while full EU members became familiarized with them — making ultimate membership a non-issue once all chapters were closed. Plus, it ensured
4 Divorce was the first instance of enhanced cooperation, agreed by 12 member states in 2011, when Sweden, with the most liberal divorce laws, and Malta, with no divorce, refused to agree to a harmonized directive for couples from different countries. 5 Such as the “neo-medieval empire” elaborated by Jan Zielonka, Europe as Empire, Oxford: OUP, 2006.

The EUtopia’s openness of membership ensured the Union’s continued power of attraction.
that the agreement of new standards and rules was not imposed on non-members who participated in the Single Market or other policy communities, but was democratically legitimated through their voice and vote. By the same token, member states could no longer block agreements where unanimity was required via a single country’s veto. Although the unanimity rule for treaties was still on the books, it was no longer used. The United Kingdom’s 2011 veto of the “Fiscal Compact,” which had led to an agreement outside the treaties of 25 of the 27 EU members, had inadvertently (at least with regard to the intentions of the veto player) put an end once and for all to the notion that one or two member states could force the EU to delay, dilute, or abandon initiatives that they felt compelling. Just as De Gaulle’s “Empty Chair” crisis had established the inviolability of the member state veto, Cameron’s “Fiscal Compact” crisis went down in history as the beginning of supermajorities made up of fourth-fifths or more of members plus opt-outs. Henceforth, whenever one or two member states were adamantly opposed to a particular initiative, they were given the option to withdraw from the discussions and opt-out of the initiative — assuming, of course, that their opt-out did not deleteriously affect the proper implementation of the initiative. Where it did, ways were found to accommodate the member state while ensuring the proper operation of the directive. But where was leadership, then, in this regional state with differentiated community membership? Rather than the extreme intergovernmentalism of the Franco-German couple, the EU developed shifting leadership groups, ménages à trois or even of four member states, depending upon the area (e.g., defense included the UK, France, and Poland; the environment was mainly Scandinavia). In the eurozone, the ménages à trois was made up of the traditional couple of France and Germany, plus Italy, becoming four when Poland became a member.



The EuroFuture Project

Most importantly, the “gouvernance économique” of the eurozone community developed significantly. Instead of the automaticity of numerical targets, golden rules, and fiscal compacts, the Council and EP now engaged in yearly exercises to define the outlines of EMU targets, on the basis of recommendations from the EU Commission and in coordination with the ECB. The EU Commission itself, moreover, with the reform of economic governance, became an important player again. Now it was no longer limited in the eurozone to acting like a secretariat applying automatic rules but rather became a body that truly administered the European Semester, with in-depth assessments of the budgetary needs and best practices for the member states in their different varieties of capitalism. Membership in the eurozone was also bigger and more open than it had been in 2012. It had welcomed a number of new members from Central and Eastern Europe as well as Denmark and even Sweden (but not the U.K.). All eurozone members under IMF-EU loan arrangements (i.e., Greece, Ireland, and Portugal) had opted out after referenda, but without the deleterious consequences that would have occurred had they done so before all the other economic safeguards had been put into place. None suffered economic collapse, default, and penury, nor did their opt-out lead to contagion for the other vulnerable members. A couple had even already opted back into the eurozone after having returned to economic competitiveness once having successfully reformed their labor markets (by balancing flexibility with security), massively reduced corruption, and begun to have high rates of tax payment. The creation of eurobonds had eliminated the risk of market contagion, while the new EMF enabled countries to leave the eurozone, and thereby to regain competitiveness through devaluation of the currency, while having their debt renegotiated and their financing needs provided for temporarily. This also averted the failure of French and German banks at risk, were Spain or Italy to default on its debt. A major economic revival fund — akin to the Marshall Plan of the 1950s — was also deployed, while the safety net provided by the EU’s various solidarity funds protected the most vulnerable citizens against rising social inequalities.6

All of this substantively ensured more democratic legitimacy at the EU level, with policies that worked resulting from much more efficacious governance processes. The only question remaining was how to ensure that the EU’s economic governance also had the legitimacy that comes through greater citizen representation and participation in policymaking, new narratives to bring citizens together, and an all-encompassing vision of what the EU was and where it was going.

The only question remaining was how to ensure that the EU’s economic governance also had the legitimacy that comes through greater citizen representation.
More Democracy The EU had finally developed “policy with politics,” politicizing as it legitimized. It did this first by ensuring that the EP became more clearly representative and participatory. EU leaders recognized that the best way to channel citizens’ EU-related concerns was through European elections, fought on left vs. right visions for how to solve the crisis. The elections were now about electing a president of the EU Commission as well as commissioners. The new system excited the electorate. Top national politicians ran for the EP within the different European party groupings, as part of competing slates of candidates for the president and the members of the Commission. And national parties therefore had to coordinate closely with their EU sister parties, to put together a slate and a party platform, as well as to designate their national Commission candidate. The leader of the majority party in the elections became the natural nominee for EU Commission president, and was duly agreed by the Council. The Commission president then apportioned Commission portfolios to the winning national candidates on the basis of talent and track record, in consultation with the Council. All this served not only as a way of tying citizens closer to the EU, as another level of

6 See Scharpf, “Monetary Union, Fiscal Crisis and the Preemption of Democracy,” for how this might work.



The EuroFuture Project

representation in which they could make their voices and vote heard. It served also as a first step to ensuring that the Commission gained a kind of democratic legitimacy for its decision-making. Only now could it be seen as legitimately providing political orientation to its implementation of the “European Semester,” whether progressively focused on growth or conservatively on austerity. It also gave it greater claim to legitimately engage in “economic governance,” as opposed to having to accept the technocratic automaticity imposed on it by the Council heretofore. This move toward greater democratic legitimacy began with the 2014 EP parliamentary elections, which were preceded by major debates among the candidates in every member state, ensuring that the EU level manifestos of the different parties were complemented by national manifestos. Moreover, the electoral discourse itself changed, recharged by new ideas. There were new visions articulated for a more deeply integrated Europe along with new narratives about the eurozone crisis that went beyond national storylines to emphasize “prosperity through solidarity.” Moreover, in place of the economically neo-liberal discourse focused on efficiency and rules, a more neosocial liberal discourse prevailed. This discourse discredited the long-standing neo-liberal paradigm for having failed to ensure economic stability while greatly increasing social inequality, as it described a new paradigm that would promote growth together with social fairness within liberalized markets. Both conservatives and progressives embraced this new paradigm, making forward movement possible at the same time that much room for political debate remained on the means and modalities by which to institute them. The new set of ideas, conveyed through persuasive discourses and lively debates by EU leaders in the presidential elections, together with an improving economy, served to neutralize the political extremes.

As a result, the European Parliament along with the Commission became more legitimate and representative through the contested elections. But the EP in particular still needed more of a direct link to national Parliaments, so as to counter the loss of national parliamentary control over EU decisions. This was solved when the European parliamentary affairs committees of national parliaments established everyday working relationships with the EP through the Lisbon Treaty’s provision to ensure consultation between EP and national parliaments. In addition, specialized national parliamentary committees across a wide range of areas also had yearly meetings with their counterparts at the EU level, for consultations, information sharing, and discussions of future plans. In the interim, the Council itself increased its own indirect representativeness as member state governments created new, more direct channels of communication for their citizens to express their preferences for national government positions on EU matters, ministry by ministry. At the same time, member states encouraged national interest groups and social movements to go to Brussels to make their voices heard, providing civil society groups with information, administrative support, and financing in order to promote greater pluralism in EU policymaking processes. When it came to any major Treaty-based reforms, moreover, the EU adopted the approach of the Constitutional Convention of the mid 2000s by mandating wide-spread citizen consultations in all member states first, followed by a Convention to work out the final recommendations, which would then be considered for adoption by the Council and the European Parliament. The rule of supermajorities plus opt-out would then apply. This approach had the benefit of avoiding the uncertain results of one-off referenda, in which one or two “no” votes had in the past thwarted a positive majority, without thereby denying citizens qua citizens a voice in EU treaty-making. All of these steps helped ensure that the highly integrated economy with its complex structure of EU decisionmaking was seen as legitimate. Furthermore, it worked better because the politics helped create a consensus on the kinds of economic policies needed. This was accompanied by a clear sense of political purpose and common goals for the European project. Getting to this point had required building both trust and solidarity among EU leaders as well as among EU citizens. It was achieved by

The new set of ideas, together with an improving economy, served to neutralize the political extremes.


The EuroFuture Project

calling on the reserves of trust that had been built up over the years, which had made it possible for the European nations to overcome the enmities of war and destruction. More than 70 years on from World War II it was time to revive collective memories of those terrible times, to celebrate the accomplishments of the EU since then, and to develop a narrative that reminded everyone that bad things happen in bad economic times. Also even if rescuing fellow member states from bad times might cost money now, it would be infinitely less costly than if they were left to fester. This rather negative vision, however, was joined with the positive one of how to move forward together, economically and politically. As a result, confidence returned and the markets settled down, national economies across Europe revived while citizen trust in their leaders was rebuilt. The cross cutting cleavages that had added pro- and anti-European divisions to the normal left/right party divide also declined to manageable levels, while the divided visions of the EU between an open, more cosmopolitan idea of Europe and a closed, more xenophobic view were attenuated.7 Political elites had become very good at making the cosmopolitan, pro-European case, and they were now aided in this by interest groups and social movements that had switched from Euro-critical, if not anti-European, stances to proEuropean ones, as a result of their improved access to and influence in EU decision-making venues. In short, the EU was back on track, so much so that proEuropeans could return to writing panegyrics about the European “dream,” in which the EU’s “normative power” along with its “powers of attraction” would enable it to “run the 21st century.”8 DystopiEU: The Euro Brings Shallow Integration and the EU Stagnates, or Worse No one was surprised that the EU ended up in DystopiEU. Trust was in short supply, social solidarity was non-existent, EU leadership remained hesitant, and the EU did not make its rendezvous with history. The euro stumbled along, eurozone governance continued to
7 Hooghe, L. and Marks, G. (2009) “A Postfunctionalist Theory of European Integration: From Permissive Consensus to Constraining Dissensus,” British Journal of Political Science 39 (1), 1-23; Kriesi, H., Grande, E. and Lachat, R. (2008). West European Politics in the Age of Globalization Cambridge: Cambridge University Press. 8 See, for example, Jeremy Rifkin, The European Dream London: Polity Press, 2004; Mark Leonard, Why Europe will Run the 21st Century New York: Harper, 2005.

Trust was in short supply, social solidarity was non-existent, EU leadership remained hesitant, and the EU did not make its rendezvous with history.
“muddle through,” and the EU suffered from a lost decade economically, with no end in sight. Shallow economic integration did not reassure the markets, as the EU halfheartedly backed into one new instrument after another in response to crisis after crisis. Shallow political integration meant that EU leadership had neither the mandate nor the will to do what everyone knew was necessary: the leap of faith into EUtopia. And in the interim, dystopiEU gained momentum in the absence of new EU narratives and vision and with the decline of EU legitimacy, made worse by the neo-liberal paradigm pushing austerity program after failed austerity program. A downward spiral of the economy was created together with rising economic misery and social inequality. This in turn ensured that the political extremes had a field day, and democracy itself came to be at risk in a number of member states. Shallow Economic Integration As the EU lurched from crisis to crisis, it backed into some of the major innovations found in EUtopia, but never developed them extensively enough to reassure the markets or to solve the problems that only a fully integrated European economy with real economic governance could handle. Every time a major crisis hit, the ECB did buy government debt. But instead of acting as a lender of last resort — by holding on to as much debt as necessary so long as it was necessary — it kept selling it on. It did this because it clung to a narrow interpretation of its mandate and because it wanted to maintain pressure on the member states whose bonds it bought to continue with their austerity programs and their structural reforms. It also wanted to guard against inflation, in the absence of Eurobonds or any other macroeconomic stabilizers. Project bonds did see the light of day, but they did little to change the growth prospects of the EU. Moreover, there were no



The EuroFuture Project

new taxes for the EU, and certainly no “Solidarity Tax.” The European Banking Resolution facility was set up, however, along with depositor insurance, which is why the eurozone had not already gone down in flames. But as more and more banks across Europe had to be rescued, member states began wondering whether they given up too much sovereignty and authority, especially as credit dried upon for their businesses, exacerbating their economic problems. In the interim, the austerity measures agreed upon in the fiscal compact kicked in, adding to the misery. Deficits were calculated on the basis of all monies spent, with no exceptions for growth producing investment. Deficit reduction was still expected to be radical and rapid. And governments had only sticks and no carrots. This meant that structural reforms, which would only be felt in the medium term, became increasingly difficult to negotiate as governments were pressed to make radical cuts to public sector salaries, the minimum wage, welfare benefits, and social services, deepening their countries’ recessions.

after member state, while market volatility only grew, in particular as Greece came back for a third, a fourth, and a fifth bailout. Each time, the eurozone members reluctantly agreed to another bailout for Greece and a small increase in the ESM for other member states subject to contagion. But they were certainly unwilling to move to a European Monetary Fund. By this time, of course, with no growth, all the eurozone members including Germany were feeling the pinch, and were reluctant to pay any more money into a communal pot that seemed to all like a black hole. But Germany had in fact created the very “transfer union” it feared most, because there was no end in sight to the crisis. And yet, Southern European countries could not be allowed to exit the euro. Were the eurozone to be much smaller, the price competitiveness of Germany’s own exports would decline as the value of a “Northern euro” climbed. By now, the Stability and Growth Pact, the “Six pack,” and the “Fiscal Compact, had been joined by another three such agreements, the “Pact for Stable Growth,” the “Super Pact for Sustainable Stability,” and the “Super Growth and Sustainable Stability Pact,” all more and more explicit about the numerical targets, the fines, and the sanctions for the increasing number of member states now subject to excessive budget procedures and under the surveillance of the Troika (IMF, ECB, EU Commission). Technocratic automaticity was the rule, and the EU Commission came to be despised as the hard-nosed implementer of impossible rules that only brought greater misery to an increasingly impoverished EU citizenry. Shallow Political Integration Under such circumstances, there was no thought to giving the EU Commission even more power or flexibility in implementing the rules via any real “economic governance.” This would have been impossible in any case, and not only because of the ruling of the German Constitutional Court in Karlsruhe against further transfer of powers until the EU was more democratic. This is because the constitutional courts of one member state after another followed Karlsruhe’s example in imposing conditions on further transfer of powers, but different ones. Only a full-scale democracy at the EU level would now satisfy national constitutional courts, but where the French Court expected majoritarianism, the Belgian demanded federalism, and the Italian expected something entirely

Structural reforms became increasingly difficult to negotiate as governments were pressed to make radical cuts, deepening their countries’ recessions.
Southern Europe, as a result, was suffering greatly, not only from a growth crisis but also a competitiveness crisis. It could not compete with Northern European manufacturing goods — and by now its infrastructure was crumbling along with its tourist industry. This had a knock-on effect for the Northern European countries that had long depended on South Europe as markets for their goods. Northern Europe also started declining, in particular since China had become no longer just a supplier but also a competitor in high value-added manufacturing. As growth slowed in country after country, the ratings agencies continued to downgrade European member state



The EuroFuture Project

different, which no one could quite figure out. But while these rulings may have all helped guarantee national democratic legitimacy, they came at the expense of further development of EU level democracy. In any case, any push toward greater democracy was politically impossible because the unanimity rule was still operative for the Council, and there was always at least one member state that was set to veto any such initiative. Intergovernmentalism, as a result, continued to be dominant. But decision-making had become even more balkanized. Forget the Franco-German couple, let alone any threesomes or foursomes of leadership. The consensus culture that had permeated the Council had largely broken down over increasingly serious disagreements over what to do. The same had happened in the EP, which had become a major obstacle to the co-decision policymaking process. Eurosceptic parties on the extreme right and left had become too big to marginalize or ignore. Needless to say, enlargement of any kind (beyond the Balkan states) was stopped, given the unanimity rule in the Council, the opposition of a sizeable majority in the EP, and the threat of referenda in France and Austria. Referenda, for that matter, had increasingly become the decision-making vehicle of choice for major EU reforms in some countries, often as a substitute for leadership. The results were generally resounding “no” votes, as citizens used these to voice their objections to all and sundry EU policies that they could not otherwise affect, adding yet another obstacle to EU decision-making. National politics had also become increasingly unmanageable. For the growing numbers of governments in receipt of loan guarantees — and therefore tasked with deflating wages, cutting public spending, and cutting public sector jobs — endless political volatility was the only result. Rolling cycles of protests, strikes, and demonstrations accompanied every new round of measures, but never seemed to have any impact on government policy. Government after government came in pledging to renegotiate the demands of the EU bailout board, failed, and were booted out at the next election — until they stopped trying to renegotiate, and simply claimed that they would not do as Brussels ordered. By now, of course, the extreme right and the extreme left had come to power in one member state after another. With that, democracy itself, at national as well as European levels, was threatened.

Less Democracy At the national level in the member states, there were also some very worrying developments for democracy. What had happened in Hungary and Romania — which were two of the three Central and Eastern European countries sent to the IMF for a bailout in 2008 —with the rise of anti-democratic governments by 2012 also happened elsewhere. By 2016, proto-fascist parties on the right and radical socialist parties on the left had taken over governments first in Central and Eastern Europe and then in Southern Europe, with sizeable minorities in opposition in Continental and Northern Europe as well.

At the national level in the member states, there were some very worrying developments for democracy.
At the EU level, the EP was increasingly politically immobile, given a thinning center hemmed in by the political extremists of the right and left. Under these circumstances, electing a Commission President via parliamentary elections was widely seen as politicizing only to delegitimize the Commission and the EP. EP elections were now already fought on EU issues, and the Eurosceptic parties, with their easy message of “no more Europe,” were increasingly attractive, in particular since the mainstream had no coherent vision of their own to present. Moreover, because the EU Commission president had come to be despised by the EU citizenry as a technocratic bully, having that position elective via EP elections was too risky in terms of giving the extremes of the right and left an opening to EU leadership. Instead, the notion of a directly elected president of the Council came to be more and more popular among member states, which were still concerned about the democratic deficit. Many argued that this was also the answer to citizens’ continued dissatisfaction with the EU, and the need to make it more legitimate. Others felt that this would once and for all make it clear that the member



The EuroFuture Project

state governments in the Council were in charge. And it seemed an easy solution to national Constitutional Courts’ demands for increased EU level democracy. 2019 was the year for the direct election by universal suffrage of the Council president, just before the EP elections. A number of dull Eurocrats declared themselves candidates, along with a number of former national presidents and prime ministers, including Nicolas Sarkozy and Tony Blair. But the problem was that there was no cross-national support for these candidates. So who was to be the winning candidate? A few Eurovision song contest winners declared their intentions to run, to little enthusiasm. But finally a candidate with real cross-European appeal emerged. This was someone around whom the citizens generally could coalesce. David Beckham, the former British football star. Beckham was elected president, with a very high majority. Three years later, he crowned himself emperor, to great popular acclaim. Conclusion Marx once wrote that history repeats itself the first time as tragedy, the second as farce, referring to Napoleon I’s nephew, Louis Napoleon, who was elected in 1848 in the first French election by universal suffrage, and who crowned himself emperor three years later, in 1851. Could history repeat itself a third time, this time for the EU’s first direct election? And if so, would it be even more of a farce? Or a return to tragedy? DystopiEU’s ending may seem exaggerated. David Beckham’s crowing as emperor is certainly farcical. But up until then, the scenario dystopiEU is not unlikely. The challenges the EU is facing today are monumental, the economic and political problems described in dystopiEU are a reality. And the more such problems are reported in the news every day, the more inured we all seem to be to the portents of the trouble to come. DystopiEU is a scenario of negative “muddling through,” where leaders fail to exercise the necessary vision, the trust, or the solidarity. That said, although today there is little sign of a leap into EUtopia, there are small, encouraging signs of a creep toward it in the declarations of leaders supportive of different pieces of the solution laid out in EUtopia. EUtopia itself, after all, need not come all in one piece but could, rather, also come

about via piecemeal management, as a positive “muddling through.” But this would require developing a narrative not only about what could happen if nothing happens, but also about what should happen. What the EU needs are ideas about how to solve the eurozone crisis once and for all, along with a renewal of trust, a commitment to solidarity, and an aerodynamic vision of how to turn that EU bicycle into a jet plane. Without a leap, or even just a creep, into EUtopia, history may indeed repeat itself.

About the Author
Vivien A. Schmidt is the Jean Monnet Chair of European Integration at Boston University. She is a Professor of International Relations and Political Science, and the Founding Director of the University’s Center for the Study of Europe. Her areas of interest are European political economy, institutions and democracy, as well as political and institutional theory.

About The EuroFuture Project
The German Marshall Fund of the United States understands the twin crisis in Europe and the United States to be a defining moment that will shape the transatlantic partnership and its interactions with the wider world for the long term. GMF’s EuroFuture Project therefore aims to understand and explore the economic, governance and geostrategic dimensions of the EuroCrisis from a transatlantic perspective. The Project addresses the impact, implications, and ripple effects of the crisis — in Europe, for the United States and the world. GMF does this through a combination of initiatives on both sides of the Atlantic, including large and small convening, regional seminars, study tours, paper series, polling, briefings, and media interviews. The Project also integrates its work on the EuroCrisis into several of GMF’s existing programs. The Project is led by Thomas KleineBrockhoff, Senior Transatlantic Fellow and Senior Director for Strategy. The group of GMF experts involved in the project consists of several Transatlantic Fellows as well as program staff on both sides of the Atlantic.


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