Broken Europe

Why the EU Is Stuck in Perpetual Crisis

By Helen Thompson

The European Union has always struggled to accommodate

the democratic politics of its members. The problem
became serious in 1999, with the creation of a currency
union without an accompanying political and fiscal union.
Then, beginning in 2011, the eurozone sovereign debt crisis
turned what had been a real but manageable issue into a
predicament from which the EU has no discernible escape.
Stuck with an unworkable currency union, the EU can
neither accommodate democracy in its member states nor
suppress it. The result is likely to be the continuation of the
pattern over the last decade: crisis after crisis
with no lasting solution.

THE SICK MEN OF EUROPE

The confrontation between the Italian government and the
eurozone authorities over the size of the Italian budget
deficit is the latest example of the EU’s inability to cope
with democracy. Both parties in the Italian coalition
government, the Lega and the Five Star Movement, made
tax and spending promises during the general election last
year. But they cannot deliver on them, since doing so would
mean running larger deficits. That would break
commitments the previous government made to the
European Commission and the fiscal rules enshrined in the
treaties that set up the eurozone. Italy largely depends on
the European Central Bank (ECB) to finance its borrowing,
so it cannot simply defy the EU. 
Yet the majority of Italian voters will not readily acquiesce
to European control over Italian politics. Indeed, it was only
after 2011, when the ECB and German Chancellor Angela
Merkel pushed Italian President Giorgio Napolitano to fire
the recalcitrant Italian Prime Minister Silvio Berlusconi and
appoint a technocratic government, that the Five Star
Movement began its spectacular rise. Today, the Italian
government believes that the more it stands up to the EU,
the more votes it will win in next May’s elections to the
European Parliament.    
Despite the euro’s obvious structural flaws, its member
states cannot agree on what is wrong with it—let alone how
it might be fixed. French President Emmanuel Macron has
presented his proposals for eurozone reform as a practical
necessity to equip the bloc for the next crisis. But his
conviction that his solutions are indispensable mistakenly
assumes that there is a consensus on what needs setting
right.
Beyond some technical questions about the banking
union, reshaping the euro is a political issue, and any
change will have to be democratically legitimated by the
countries that will bear the burden of reform. Macron wants
a substantial eurozone budget, for example, which would
have to be funded by the taxpayers of northern and central
Europe. But those countries won’t go along. Several of them
formed an alliance earlier this year, the New Hanseatic
League, which comprises Estonia, Finland, Ireland, Latvia,
Lithuania, and the Netherlands (and, for non-euro matters,
Denmark and Sweden). They want stricter and better-
enforced controls over national budgets, which would
constrain southern European countries and probably
France, too. The conflict won’t be resolved until one side or
the other explains to their national electorates that as long
as the eurozone includes countries with divergent
economies, one set of members will have to bear a greater
political burden than the others. Unable to confront the
problem, the Eurogroup of national finance ministers
earlier this week provisionally concocted yet another fudge. 

EUROPE ISN'T WORKING

The eurozone’s problems are structural. It is part of a
multicurrency EU that is an effective labor union thanks to
freedom of movement. And its financial center, in London,
stands outside it. The path to the EU’s biggest rupture,
Brexit, began in the problems these structural faults
generated for British Prime Minister David Cameron’s first
government. Once the eurozone crisis began in 2011, the
economic fates of a large part of the eurozone diverged from
that of the United Kingdom thanks to the differences in
monetary policy between the ECB and the Bank of England.
The ECB’s conservative approach pushed the eurozone into
recession, while the Bank of England helped the British
economy consolidate its recovery from the financial crisis.
The United Kingdom then became the destination for
people who could not find jobs in southern European
countries where unemployment remained sky-high. British
democratic politics had to absorb the consequences. The
result was an EU referendum that turned in large part on
the question of immigration.

Any attempt to resolve the EU's fundamental

contradictions will only end up rupturing it.
The EU’s structural imbalances have been compounded by
the ways in which the eurozone crisis shifted political power
inside the EU. EU states that were not members of the
eurozone could not shape the response to the biggest
existential crisis the EU had ever faced. Moreover,
Germany’s position as the main creditor in the bailouts of
other eurozone members—and the fact that the ECB was for
so long held back from launching large-scale bond
purchases by fear of the response from the German
government and Germany’s Federal Constitutional Court—
dramatically increased German influence within the EU.
For several years in the middle of this decade, European
politics appeared to be a matter of waiting for Merkel to
decide what to do. Would she expel Greece from the euro?
Would she welcome migrants and refugees or negotiate
with President Recep Tayyip Erdogan to keep them in
Turkey? Would she make concessions to the United
Kingdom to avert a potential Brexit? 
Together, these two facts—the concentration of power in
Merkel’s hands and the structural contradictions of the EU’s
multicurrency union—provided the final push necessary for
the Leave campaign to win the British EU referendum.
Cameron’s ill-fated efforts to renegotiate the United
Kingdom’s position in the EU before the referendum
campaign began sought to reclaim some aspects of British
sovereignty while remaining within the union. Cameron
invested his hopes in Merkel’s influence. But the EU was
unable to accommodate the United Kingdom’s domestic
problems, and all Cameron delivered to the British public
was a perfect demonstration of the limits of British political
power within the union. Cameron asked Merkel to decide
what the EU wanted its relationship with the United
Kingdom to look like. But the EU could not respond to the
risk of British secession since it was, in practical terms,
incapable of reducing unemployment in southern Europe
and, in constitutional terms, unable to allow the United
Kingdom to put any limits on the treaty-based rules that
ensure freedom of movement for all EU citizens. 
Now Brexit has split the EU again. Although the EU has
remained united over Brexit itself, the prospect of the
United Kingdom’s departure has helped produce the New
Hanseatic League by pushing the countries that previously
allied with London over the regulation of the single market
into an alliance with the two remaining non-euro northern
European states, Denmark and Sweden. This new group has
only added to the eurozone’s political difficulties. When
Macron took office in 2017, what appeared to matter in
eurozone politics was what concessions the German
government could make in order to reestablish a working
French-German partnership. Now, however, the eurozone
has another well-organized veto player in the New
Hanseatic League. France has reacted to the emergence of
the league by making explicit what used to pass unsaid: the
long-standing French assumption that the EU rests on a
hierarchy in which France and Germany take the lead and
other countries avoid making factional alliances that might
get in their way. But the EU is rhetorically invested in the
idea of European unity, so governments will have a hard
time explaining to their electorates why they have to
knuckle under to France. 
One way the eurozone might end its perpetual crises would
be to form a fiscal union that would be able to respond to
democratic politics. But there is not enough public support
within the EU for the further loss of sovereignty over
national budgets and the debt sharing that such a union
would require. On top of that, the eurozone crisis has shown
that the EU is now politically unable to make changes that
require revising its treaties. In response to crises, EU
institutions have had to adopt ad hoc emergency measures.
The most prominent example is the ECB’s program of
quantitative easing, which has proved crucial to supporting
indebted southern European states. The program has left
the ECB in an uncomfortable situation, as its new powers
have not been legitimated by national governments. When
normal deliberative politics cannot adapt to changing
circumstances, the improvised responses that emerge
invariably reflect the current distribution of power and
avoid democratic accountability, fueling further discontent
among the electorates of the weaker states. 
But neither can the EU take the opposite tack—returning
some powers to national governments to reestablish
democratic responsiveness there. Doing so would require
the very treaty changes that are so difficult without a
political consensus that does not exist. Moreover, the EU
has already lasted long enough to compromise the
democratic legitimacy of its constituent nation-states,
especially when countries’ elections exclude EU citizens
who do not also hold national citizenship but are otherwise
free to live and work there. The inescapable conclusion is
that the European Union is trapped. In its current state, it
cannot respond sufficiently to democratic politics because
its set rules must be enforced whatever national electorates
decide. But people naturally expect that national politicians
should have the final say over EU officials. Since the EU
cannot move either decisively toward closer union or
decisively away from it, any attempt to resolve its
fundamental contradictions will only end up rupturing it.