Saturday, October 25, 2014
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Europe’s Market-Led Integration

BERLIN – For two years now, one European summit after another has ended with assurances that – at long last – the necessary measures for containing the eurozone’s sovereign-debt crisis have been taken. Most were publicly portrayed as breakthroughs, though they were nothing of the sort. As a rule, it took about three days before markets caught on and the crisis entered another round.

Because Europe’s political leaders have failed to manage the crisis effectively, the cost of ending it has risen. Indeed, an easily manageable financial crisis in Greece was allowed to grow into a life-threatening emergency for the states on the southern periphery of the European Union – and for the European project as a whole. This was statecraft at its worst, for which most of the blame can be laid at German Chancellor Angela Merkel’s door.

Indeed, prior to the European summit in Brussels in December, the stock of trust in the European Council had become so depleted that no one seemed to take its decisions seriously. Of course, it could be that the United Kingdom’s veto of the summit’s proposed changes to the EU’s Lisbon Treaty drowned out all else, while further increasing distrust on the part of the public and financial markets of a divided Europe.

But talk about an EU split is nonsense. No British prime minister could consent to a treaty change to create a fiscal union without having to call a referendum at home, the outcome of which would force the UK to withdraw from the EU. And no EU leader in his or her right mind could have any interest in that. The UK has every interest in ending the crisis and preserving a strong euro, just as Europeans on the continent need the British inside the EU.

So it has been clear for months that a legally binding basis for moving toward a European fiscal union, while indispensible, could only take place outside the framework of the Lisbon Treaty, namely on an intergovernmental basis and as an EU-17 or EU-17+, as has just happened. Moreover, alarmist talk of a “split” overlooks the reality that the EU and the monetary union have long been moving at different speeds.

The British veto, and the hullabaloo that it caused, is thus something that Europe could have done without, and Cameron will soon be sorry that he offered himself up as a hostage to his Euroskeptic backbenchers. Strengthening them will drastically weaken the UK’s influence in the EU.

That is all the more true because the Brussels summit flung open the door to a fiscal union for the EU-17+. If a new treaty is negotiated by March 2012 and ratified in the following months, the EU will have taken a remarkable step forward – indeed, only one step away from a real political union, which will have to follow if Europe is to end the crisis for good.

And yet confidence in the recent decisions taken in Brussels remains low, owing not only to dissipated trust and the fuss about the British veto, but also to the apparent absence of measures to intervene in the current crisis. But this, too, is a misconception.

If one reads through the decisions taken in Brussels, one immediately notices that Germany and the EU’s other rich countries received all the stability mechanisms and guarantees that they had previously requested, leaving them no reason to continue to refuse crisis-intervention measures, including appropriate financial guarantees. The recent summit in Brussels opened the way to a fiscal union, including both a stability pact and – critically important – a liability pact. In Germany, none of this has yet registered at all.

In the short term, the liability union is to be implemented by the European Central Bank, whose independence will once again be held up as sacred in Berlin, providing a European fig leaf for Germany’s domestic-policy priorities. From this point of view, Merkel should be grateful to Cameron for the distraction that he created in Brussels.

And whom do we have to thank for all this European progress? Do we owe it to the wisdom of Europe’s political leaders, particular that of the “Merkozy” odd couple of Merkel and French President Nicolas Sarkozy?

Unfortunately not: progress resulted almost exclusively from the pressure of the much-maligned financial markets. Just as former Italian Prime Minister Silvio Berlusconi was brought down not by political opponents, but by jittery investors, it was the markets, not European leaders, that opened the door to European fiscal and political union.

That is no cause for celebration. On the contrary, it reflects European politicians’ lack of sufficient strategic vision and courage in dealing with the eurozone crisis – and also in regulating the markets.

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