The European Union: Pretension without Power

February 7, 2011 • Commentary
This article appeared in Forbes on February 7, 2011.

American domination seemed under threat. Not only was China rising, but Europe was unifying. On Dec. 1, 2009, the Lisbon Treaty took effect. European Union leaders thought they finally had answered Henry Kissinger’s dismissive question: What is the phone number for Europe?

Little more than a year later the 27‐​member E.U. faces a much dimmer future. The Eurozone is in danger of splintering. The E.U. remains focused on political process, with “Euroskepticism” on the rise not only in Great Britain but across the continent.

Europe still is important, but as a geographic aggregation, not a geopolitical unit. While the Eurocrats — a gaggle of bureaucrats, businessmen, intellectuals, journalists, politicians and other elites — hope to use the continent’s economic crisis to achieve increased political consolidation, most Europeans want to move in the opposite direction.

The European Project, as it is oft‐​called, began as an antidote to centuries of war. A pan‐​European organization, it was thought, could knit formerly warring nations into a prosperous collaboration. Hence the long‐​lived “Common Market,” the precursor to the E.U.

But ideological Eurocrats wanted political union. Europe should be a Weltmacht. Few have grander ambitions than French President Nicolas Sarkozy: “Europe cannot be a dwarf in terms of defense and a giant in economic.”

The euro, though most obviously an economic institution, was created in 1992 to advance political objectives as well. If Europe was to be a nation, it needed a national currency.

Then the Lisbon Treaty was advanced to create a consolidated continental government. A formal constitution was proposed but defeated by skeptical voters in France and the Netherlands in 2005. So Eurocrats turned the constitution into a treaty, which did not require popular approval. The convoluted text reduced the requirement for unanimous consent, shifted national responsibilities to Brussels, increased the authority of the European Parliament, and created positions akin to a president and foreign minister.

Eurocrats celebrated when Herman van Rumpuy of Belgium and Baroness Catherine Ashton of Britain were selected as the President of the European Council and High Representative for Foreign Affairs, respectively. But E.U. fans soon discovered that while the organization had gained some powers, national sovereignty remained paramount. Few Europeans outside of Brussels see themselves as Europeans first. Adding a couple of well‐​paid bureaucrats to represent Europe abroad merely highlighted the E.U.‘s limitations.

Worse, the financial crisis is threatening European unity. The Euro enterprise, which created a common currency without a common fiscal policy, always was risky. German Chancellor Helmut Kohl called the system “a castle in the air,” while his successor, Gerhard Schroeder, believed the Europeans eventually would be forced to abandon “some erroneous ideas of national sovereignty.”

That didn’t happen, however, and a number of European states adopted fiscal policies irresponsible even by European standards. When default threatened Athens — and, by extension, the balance sheets of banks across the continent — the E.U. approved an expensive bail‐​out.

The E.U.‘s refusal to leave Greece to its own devices, whether default or departure from the Eurozone, reflected the central role of the Euro to the objective of continental consolidation. Explained Chancellor Angela Merkel: “If the Euro fails it’s not just the currency that fails, but Europe and the idea of European unification.” French President Nicolas Sarkozy added: “The Euro is Europe, and Europe is 60 years of peace on our continent.”

So the Eurocrats ignored a ban on bail‐​outs to save Greece. They established a nearly $1 trillion temporary European Stabilization Mechanism and European Financial Stability Facility, which then was used to aid Ireland, the next economic domino to fall. The European Central Bank began buying the bonds of financially troubled states, including Portugal, the next likely candidate for aid.

The bailouts have so far have postponed rather than resolved economic crisis. Greece and Ireland actually owe more money than before and face years of slow or no growth. Many observers believe a debt default or write‐​down to be inevitable. Moreover, warns Gideon Rachman of the Financial Times, the bail‐​outs “impose a financial strain on countries that fund the emergency loans but are themselves heavily indebted.”

In fact, the specter of failure by Spain or Italy, with much larger economies, sends shivers across the continent. Even Belgium, the home of the E.U., is heavily indebted and potentially vulnerable. No worries, though, says Van Rompuy. If the contagion spreads “my answer is simple: in this case, we’ll do more.”

However, Europeans are asking who is “we”? The London‐​based organization Open Europe calls the E.U. “a de facto debt union.” It is becoming a de facto transfer union as well.

Which largely means taking money from Germany and giving it to irresponsible spendthrifts along Europe’s southern tier. However, Berlin’s resources and patience are not limitless. Most Germans agree with Philip Plickert, economics editor of the Frankfurther Allgemeine Zeitung, who decried the “wild party” that occurred at German expense.

Other Europeans have responded by trying to make the Germans feel guilty. Greek Prime Minister George Papandreou spoke of tools to “help Europe achieve its objectives.” Italian Romano Prodi, former European Commission president, criticized Berlin’s “lack of solidarity.” Jean‐​Claude Juncker, Prime Minister of continental powerhouse Luxembourg, complained that the Germans “are losing sight of the European common good.”

At the end of last year, the E.U. approved the European Stabilization Mechanism, but so far Chancellor Merkel has rejected proposals for Eurobonds, which would turn Germany’s credit rating over to Greece, et al. However, continuing ECB purchases of depreciated national debt achieve much the same end.

The Eurozone’s biggest problem remains a common monetary policy without common fiscal policies. Chancellor Merkel and President Sarkozy both have proposed deeper “political cooperation.” That means giving the E.U. control over national economic decisions. For instance, European Commission President Jose Manuel Barroso said “we should not only be a monetary union, but also an economic union.”

The Eurocrats have been exploring proposals, including imposing financial penalties and suspending national voting rights, without having to amend existing treaties. Joining Great Britain in opposition have been smaller members, which view such measures as an attempt by Berlin to extend its control.

At the latest E.U. summit this weekend, a majority of E.U. members rebuffed Germany and France when the latter two proposed a so‐​called “grand bargain,” joining increased funding with a “competitiveness” initiative to limit deficits, lower retirement ages, restrict pensions, and more. However, Berlin is unlikely to agree to a bigger bail‐​out fund without increased controls. With another summit expected in March, no one knows how the E.U. game of chicken will end.

The alternative to more German‐​funded rescues could be the collapse of the Eurozone. A majority of Germans would like to restore the D‐​Mark. Options include creating a two‐​tier euro, separating stronger and weaker economies. Or the weaker links could leave (or be expelled). Such a process would be economically painful and likely kill further political consolidation.

However, the EU has less political credibility today than before the Lisbon Treaty. The body remains fractured, with three “presidents” and an ineffective “foreign minister.” The organization also fails to field a military, and member states, including Great Britain and France, are shrinking their armed services. The E.U.‘s objective of becoming the globe’s third Weltmacht, alongside America and China, looks ever more like a fantasy.

That was never a realistic objective, however. Europe is not a nation. No matter how much the Eurocrats huff and puff, the European Project no longer is the Europeans’ project.

Europe still matters because the Europeans matter. But the E.U. likely will remain a “dwarf power,” in State Department parlance, with more pretension than reality. Europe finally has a phone number — but no one in Washington has much reason to call.

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