The EU had momentum: the euro was widely viewed as a success; the EU’s leaders were
working to save its constitutional treaty; and Bulgaria and Romania were preparing to join,
while Turkey – then a shining example of a successful Muslim democracy – was negotiating
seriously to follow them. With Tony Blair as prime minister, few questioned British membership
of the Union.
Ukraine was an exasperating neighbour but a sovereign state. And though Russia's creeping
authoritarianism was somewhat worrying, it seemed to understand that it needed to work with
the West. The Arab world was dominated by stable, autocratic regimes. The US was fighting
difficult wars in Iraq and Afghanistan, with sometimes reluctant European support, but was
undoubtedly the dominant global power. And China was rising.
So much has changed since then, though China is still rising. Europeans have stopped
believing, with Voltaire’s Pangloss, that they live in the best of all possible worlds. Hugo Brady
captured the shift in bulletin 79 (August 2011): “The EU in its current form and the euro were
born during a unique period between 1989 and 2008. This was a time of steady economic
growth and freedom from existential threats. Agreement on European integration was relatively
easy against this benign background. It no longer is.”
The West as a whole is now less confident about its ability to shape global events. Barack
Obama’s insight that since the US could not run the world it should become a more modest
super-power was correct. But unfortunately Obama has sometimes handled foreign policy in
ways that make the US look weak. Neither the US nor the EU could prevent the failure of the
‘Arab Spring’ (Tunisia excepted), the growth of authoritarianism in Turkey, the dismemberment
of Ukraine or the resurgence of militaristic nationalism in Russia. As for the EU, enlargement is
off the agenda, almost nobody (outside the European Parliament) wants a major new
integrating treaty and the euro is widely viewed as having been economically ruinous for
several of its members. Anti-EU populism is surging in many countries and British
membership of the club is now precarious.
The mismanagement of the euro accounts for several of the EU’s current difficulties. As Simon
Tilford wrote in bulletin 71 (April 2010): “In order for the eurozone to become stable, three
things need to happen: South European member-states must boost productivity growth;
northern ones – notably Germany – have to strengthen domestic demand and reduce their
current-account surpluses; and there should be greater institutional integration.” We have had a
little, though not much, of the first and third things, enabling the euro to endure. But the CER
has argued again and again that without quantitative easing (QE), more flexible fiscal rules,
greater sharing of risk, structural reform and more public investment, the eurozone would
stagnate and trust among governments would erode. Sadly – though QE is now, belatedly, on
its way – we have been proven right.
We also read the political consequences of the euro crisis correctly. As Katinka Barysch wrote
in bulletin 74 (October 2010), these were “a Union in which governments are in the driving
seat, large countries matter more than small ones, and more decisions are taken by subsets of
member-states. The crisis has also weakened the Franco-German alliance and revealed a
growing sense of German euroscepticism.” I added in bulletin 81 (December 2011) that
“France and Germany make no secret of wanting less Monnet and more de Gaulle”, and that
this weakening of the European Commission vis-à-vis the member-states was dangerous for
the EU. I noted that Germany is emerging, for the first time in the EU’s history, as the
unquestioned leader. France is having to adjust to a subordinate role.”
Germany is now central not only to EU policy on the euro, but also Russia. After Russia
invaded Georgia I argued in bulletin 62 (October 2008) that its economic weakness would stop
it becoming a serious threat to the West: it could not overcome its dependency on hydrocarbon
exports or improve its lacklustre services and manufacturing industries. I also noted its
strategic isolation, citing George Kennan’s ever-valid dictum that Russia’s neighbours had to
choose between becoming its enemies or its vassals. I urged Western leaders to make clear
to Russia that it would pay a price if it compromised the territorial integrity of its neighbours.
The current sanctions over its actions in Ukraine are making it pay that price. And the impact of
very cheap oil on an undiversified economy will prove extremely painful.
Germany will also play a pivotal role in any British attempt to renegotiate EU membership. In
bulletin 88 (February 2013) Philip Whyte shot down a major canard of the eurosceptics, that
the EU holds back the UK economy. Using OECD data, he showed that “despite the alleged
shackles of EU membership, the UK’s product and labour markets are among the freest and
least regulated in the developed world.” He also pointed out that none of the main supply-side
constraints on the British economy – poor infrastructure (notably transport), skills shortages
(reflecting high drop-out rates from secondary school and poor vocational training) and rigid
planning laws (distorting land use and pushing up rents) – were the fault of the EU.
Philip often refuted conventional thinking. In bulletin 59 (April 2008), he asked whether liberal
economic reform really caused social problems. He demonstrated that the member-states with
the most regulated markets – in Southern Europe – had the highest levels of poverty, inequality
and long-term unemployment in the EU. And “the reason the Nordics and the Dutch are the
most egalitarian societies is that they provide the best education”.
When the financial crisis struck, Philip wrote in bulletin 65 (April 2009) that “many Europeans
were quick to treat the event as a morality tale. Americans were paying for their profligacy and
for their heartless model of capitalism”. But Philip explained that the crisis was rooted in poor
financial regulation and global imbalances rather than Anglo-Saxon capitalism and liberalising
reforms per se. “The US was mistaken to allow parts of its financial sector to thrive with little
regulatory oversight. But it does not follow that there is nothing in the US worth emulating.” For
instance, the US easily out-performs Europe on productivity.
Outside contributors wrote some of the most original pieces. Nick Butler, who co-founded the
CER, explained in bulletin 64 (February 2009) that the high volatility of oil prices in 2008 had
damaged much-needed investment in new hydrocarbon production and in renewables. He
called for global governance in oil markets: a new institution should curb volatility by “holding a
cushion of reserves. These stocks would be augmented as prices fell and released gradually
as they rose.” The halving of the oil price since mid-2014 has strengthened the case for such
mechanisms.
The EU certainly faces bigger challenges than it did when the CER was founded or when the
bulletin completed its half-century. But the CER will not flinch from continuing to provide both
rigorous and sober analysis, and innovative policy proposals.
Charles Grant
Director, Centre for European Reform
sourche: http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2015/bulletin_100_cg_article2-10517.pdf
working to save its constitutional treaty; and Bulgaria and Romania were preparing to join,
while Turkey – then a shining example of a successful Muslim democracy – was negotiating
seriously to follow them. With Tony Blair as prime minister, few questioned British membership
of the Union.
Ukraine was an exasperating neighbour but a sovereign state. And though Russia's creeping
authoritarianism was somewhat worrying, it seemed to understand that it needed to work with
the West. The Arab world was dominated by stable, autocratic regimes. The US was fighting
difficult wars in Iraq and Afghanistan, with sometimes reluctant European support, but was
undoubtedly the dominant global power. And China was rising.
So much has changed since then, though China is still rising. Europeans have stopped
believing, with Voltaire’s Pangloss, that they live in the best of all possible worlds. Hugo Brady
captured the shift in bulletin 79 (August 2011): “The EU in its current form and the euro were
born during a unique period between 1989 and 2008. This was a time of steady economic
growth and freedom from existential threats. Agreement on European integration was relatively
easy against this benign background. It no longer is.”
The West as a whole is now less confident about its ability to shape global events. Barack
Obama’s insight that since the US could not run the world it should become a more modest
super-power was correct. But unfortunately Obama has sometimes handled foreign policy in
ways that make the US look weak. Neither the US nor the EU could prevent the failure of the
‘Arab Spring’ (Tunisia excepted), the growth of authoritarianism in Turkey, the dismemberment
of Ukraine or the resurgence of militaristic nationalism in Russia. As for the EU, enlargement is
off the agenda, almost nobody (outside the European Parliament) wants a major new
integrating treaty and the euro is widely viewed as having been economically ruinous for
several of its members. Anti-EU populism is surging in many countries and British
membership of the club is now precarious.
The mismanagement of the euro accounts for several of the EU’s current difficulties. As Simon
Tilford wrote in bulletin 71 (April 2010): “In order for the eurozone to become stable, three
things need to happen: South European member-states must boost productivity growth;
northern ones – notably Germany – have to strengthen domestic demand and reduce their
current-account surpluses; and there should be greater institutional integration.” We have had a
little, though not much, of the first and third things, enabling the euro to endure. But the CER
has argued again and again that without quantitative easing (QE), more flexible fiscal rules,
greater sharing of risk, structural reform and more public investment, the eurozone would
stagnate and trust among governments would erode. Sadly – though QE is now, belatedly, on
its way – we have been proven right.
We also read the political consequences of the euro crisis correctly. As Katinka Barysch wrote
in bulletin 74 (October 2010), these were “a Union in which governments are in the driving
seat, large countries matter more than small ones, and more decisions are taken by subsets of
member-states. The crisis has also weakened the Franco-German alliance and revealed a
growing sense of German euroscepticism.” I added in bulletin 81 (December 2011) that
“France and Germany make no secret of wanting less Monnet and more de Gaulle”, and that
this weakening of the European Commission vis-à-vis the member-states was dangerous for
the EU. I noted that Germany is emerging, for the first time in the EU’s history, as the
unquestioned leader. France is having to adjust to a subordinate role.”
Germany is now central not only to EU policy on the euro, but also Russia. After Russia
invaded Georgia I argued in bulletin 62 (October 2008) that its economic weakness would stop
it becoming a serious threat to the West: it could not overcome its dependency on hydrocarbon
exports or improve its lacklustre services and manufacturing industries. I also noted its
strategic isolation, citing George Kennan’s ever-valid dictum that Russia’s neighbours had to
choose between becoming its enemies or its vassals. I urged Western leaders to make clear
to Russia that it would pay a price if it compromised the territorial integrity of its neighbours.
The current sanctions over its actions in Ukraine are making it pay that price. And the impact of
very cheap oil on an undiversified economy will prove extremely painful.
Germany will also play a pivotal role in any British attempt to renegotiate EU membership. In
bulletin 88 (February 2013) Philip Whyte shot down a major canard of the eurosceptics, that
the EU holds back the UK economy. Using OECD data, he showed that “despite the alleged
shackles of EU membership, the UK’s product and labour markets are among the freest and
least regulated in the developed world.” He also pointed out that none of the main supply-side
constraints on the British economy – poor infrastructure (notably transport), skills shortages
(reflecting high drop-out rates from secondary school and poor vocational training) and rigid
planning laws (distorting land use and pushing up rents) – were the fault of the EU.
Philip often refuted conventional thinking. In bulletin 59 (April 2008), he asked whether liberal
economic reform really caused social problems. He demonstrated that the member-states with
the most regulated markets – in Southern Europe – had the highest levels of poverty, inequality
and long-term unemployment in the EU. And “the reason the Nordics and the Dutch are the
most egalitarian societies is that they provide the best education”.
When the financial crisis struck, Philip wrote in bulletin 65 (April 2009) that “many Europeans
were quick to treat the event as a morality tale. Americans were paying for their profligacy and
for their heartless model of capitalism”. But Philip explained that the crisis was rooted in poor
financial regulation and global imbalances rather than Anglo-Saxon capitalism and liberalising
reforms per se. “The US was mistaken to allow parts of its financial sector to thrive with little
regulatory oversight. But it does not follow that there is nothing in the US worth emulating.” For
instance, the US easily out-performs Europe on productivity.
Outside contributors wrote some of the most original pieces. Nick Butler, who co-founded the
CER, explained in bulletin 64 (February 2009) that the high volatility of oil prices in 2008 had
damaged much-needed investment in new hydrocarbon production and in renewables. He
called for global governance in oil markets: a new institution should curb volatility by “holding a
cushion of reserves. These stocks would be augmented as prices fell and released gradually
as they rose.” The halving of the oil price since mid-2014 has strengthened the case for such
mechanisms.
The EU certainly faces bigger challenges than it did when the CER was founded or when the
bulletin completed its half-century. But the CER will not flinch from continuing to provide both
rigorous and sober analysis, and innovative policy proposals.
Charles Grant
Director, Centre for European Reform
sourche: http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2015/bulletin_100_cg_article2-10517.pdf
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