Europe stretched to limit of its policymaking capacities

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November 24th 2015

Europe stretched to limit of its policymaking capacities

This year we have moved into a new chapter of Europe's rolling crisis. The first stage was
dominated by economic issues. The focus is now shifting to problems concerning borders,
sovereignty and security.
The November 13th terrorist attacks in Paris crystallise already heightened concerns
about border controls in the EU; these concerns represent a threat to European
integration.
We expect an erosion of the Schengen area, which will be starker than the limited
restrictions imposed on free movement of capital during the euro zone crisis have been.
The bloc's default policy response will remain one of "muddling through", with member
states re-imposing national border controls on an ad hoc and inconsistent basis while
region-wide policies and resources are put in place.
We expect this messy process to avert a substantial unwinding of EU integration, but it
will further sap the political legitimacy of the EU's supranational institutions and policies.
The immediate consequences of the terrorist attacks in Paris will be felt domestically in France and
Belgium; we have discussed these at length elsewhere. At a European level the implications are
broader, however. Our view is that elements of EU integrationnotably the borderless Schengen area,
in which 22 EU member states currently participateare now under profound strain, and that
policymakers will struggle to prevent a strengthening assertion of nation-state prerogatives.
A crisis of sovereignty, security and identity
There are strong links between the migrant crisis that has roiled Europe this year and the security
crisis triggered by the attacks in Paris. As far as the impact on European integration goes, however,
both are secondary to a deeper crisis relating to national borders, an issue that goes to the heart of the
legitimacy and sustainability of the process of European integration. It is a tacit assumption of the
European "project" that the borders of nation-states should have steadily diminishing significance.
This year, however, an increasing number of nation-states have begged to differ.First in response to
surging levels of immigration and then to the Paris attacks, border checks and barriers have been
re-appearing across Europe with remarkable speed and frequency. For example, just days before the
attacks, border controls were re-introduced even in Swedenwhich, along with Germany, was one of
the EU member states most open to refugeesas the number of migrants arriving reached levels that
were deemed unsustainable.
The contrast with the way in which the euro zone crisis has evolved is stark. With the euro zone crisis,

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Europe stretched to limit of its policymaking capacities

http://country.eiu.com/article.aspx?articleid=1013706685&Cou...

there has been significant resentment at the policy responses that have been required of states that
have found themselves in economic distress. But there has also been a remarkable degree of
compliancerules have tended to be stretched gradually rather than broken outright. With this year's
border-control crisis, however, states have not sought refuge in creative ambiguity in the same way.
They have openly re-instated their national borders and they have done so unapologetically.
The reasons for this are straightforward. The fiscal issues that have dominated the euro zone crisis are
largely instrumentalthey relate to what political entities do. Borders, on the other hand, are
essentialthey define political entities and the people who belong to them. Therefore the current
months-old border crisis may pose a more fundamental challenge to the process of European
integration than the years-old euro zone crisis.
In addition, although Europe's financial and border crises are distinct, they are related in important
ways. For one thing, chronology matters. The intractability of the border crisis is compounded by the
fact that it has erupted after years of grinding financial crisis. Many voters are tired, insecure and
disaffected with their political elites, a fact that has already led to a steadyand sometimes
sharprise in the popularity of non-centrist parties across the continent.Even before the Paris attacks,
France was one of the prime examples of this process, with the far-right Front national frequently
coming first in opinion polls. This is precisely the kind of environment in which a crisis of national
borders and sovereignty might be expected to have dramatic consequences, such as a collapse of the
principle of free movement of people.
A changed political dynamic
Before turning to the nature of the policy response that we expect, it is worth pausing to highlight the
potential impact of recent events on the decision-making process in Europe. In our view there are two
key areas that will be affected.
Fraying of intra-EU solidarity
The first of these is a general fraying of intra-EU solidarity, defined minimally as an ability to
make and uphold collective decisions. This will not amount to a rupturing of the EUand it
may well be interspersed with instances of significant collective action; for example, in areas
such as intelligence sharingbut, as national policymakers seek to respond to the demands of
their electorates, we expect to see a gradual ebbing of their willingness to compromise at the
EU level, particularly on core issues related to security, sovereignty and identity.
There has been a strong north-south dimension to the euro zone crisis, and east-west currents
have underpinned responses to the migrant crisis, but the geography of Europe's difficulties is
less clean-cut than this suggests. The more important trend is the willingness in recent months
of member states across the EU to act unilaterally when they have perceived their borders to be
threatened.
Germany - first among equals?
The second way in which recent events will affect supranational decision-making is by reducing
the ability of Germany to project its political preferences across Europe. As the bloc's largest
and strongest economy, throughout the euro zone crisis Germany has been a clear first among

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Europe stretched to limit of its policymaking capacities

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equals. It has determined the official account of the reasons for the crisis and, therefore, has
been instrumental in shaping the policy response. Admittedly there has been some policy
slippage, and much resentment, but the extent to which debtor countries have fallen into line
with Germany's requirements has been striking.
The same is not true of the border-control crisis, for at least the three following reasons. First, as
discussed above, member states are much less willing to cede control in policy areas that touch
on the essentials of statehood. Germany will continue to be a key policymaker on the migrant
crisis in particular, but it will face greater pushback from other member states than it is used to.
Second, whereas the German chancellor, Angela Merkel, enjoyed significant domestic support
for her stance on the euro zone crisis, she has over-reached domestically with her open-arm
response to the migrant crisis. If current refugee numbers persist, at some point Germany's
stance will begin to resemble its neighbours' policies, rather than vice versa. Third, although
Germany is an unrivalled economic powerhouse in the euro zone, in military and diplomatic
terms it is a second-rank power within the EU. Insofar as the Paris attacks cause a shift in the
EU's policy focus away from economic issues and towards security and foreign policy issues,
France and the UK rather than Germany will be the dominant players.
Undermining Schengen will come at a cost
There is no potential policy response open to Europe's leaders that would neatly resolve the bordercontrol crisis. We expect Syria to be in violent turmoil throughout our medium-term forecast period,
even if a step-change in the extent of Western military involvement were to lead to a rapid
degradation of the capabilities of Islamic State (IS). This means that Europe will continue to receive
large inflows of refugees. On the basis of the evidence thus far, we do not believe that the EU's
member states will be able to agree a workable system of redistributing migrants across the bloc. As a
consequence, the policy line of last resort will remain the re-imposition of national border controls,
whether in a continued ad hoc manner as at present, or with a more formal agreement to roll back
aspects of the Schengen Agreement.
Neither a partial nor a complete erosion of Schengen would represent a fatal blow to the EU, but
either would be damaging. There would be a direct economic impact on member states seeking to
restore control of their borders, although our view is that this would consist of a range of frictional
costssuch as interruptions to integrated labour markets and supply chainsrather than a
macroeconomic shock. There would also be substantial opportunity costsunwinding Schengen
would be a major distraction from the other policy challenges facing Europe's leaders, particularly as
most of these are widely agreed to require a response involving more rather than less integration.
The EU will struggle to remain relevant
More generally, weakening Schengen would represent a symbolically important decision to curtail
one of the fundamental pillars of the EU. The consequences are shrouded in uncertainty, and that in
itself is a significant risk, as it hinders the ability to plan for the future. In the same way that one of the
risks of "Grexit" is that no-one can be certain that the process of euro zone integration is strong
enough to withstand a period of moving backwards rather than forwards, so a curtailment of free
movement across the EU creates significant uncertainty as to whether there will be centrifugal
spillover effects in other policy areas.

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Europe stretched to limit of its policymaking capacities

http://country.eiu.com/article.aspx?articleid=1013706685&Cou...

There have been restrictions on the free movement of capital during the euro zone crisis, but these
have been highly localised and they have been implemented as a last-ditch measure after numerous
other policies have failed. The pace of events during the border-control crisisfirst in response to
migrant inflows, more recently in response to IS terrorismhas been very different: numerous
member states have moved swiftly and unilaterally to reinforce their borders, regardless of whether or
not this is compliant with their obligations under EU law. If this pattern were to persist, it would soon
raise existential questions about the future of European integration. The EU has a history of working
well in functional policy areas where long-lasting compromises can be crafted slowly. If we are
moving into a period characterised by swift unilateralism driven by issues of security and identity, the
EU will struggle to remain relevant.
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