Monday, November 24, 2014
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Europe’s Litmus Test

DUBLIN – The European Parliament election is grabbing headlines worldwide, as it highlights a new skepticism in the European politics and raises concerns about the future of the  integration project. But the real litmus test for the European Union is to be found elsewhere – in the health of its smaller economies, especially Greece and Ireland.

Both countries are small and highly indebted, with weak domestic industrial structures and faltering banking systems. Both suffered massive financial crises – rooted in egregious economic mismanagement in Greece and a massive asset-price bubble in Ireland – which were amplified by the eurozone’s structural shortcomings. And both countries had somewhat venal political systems, dominated by two large parties.

Of course, Greece and Ireland also have their share of differences, and have weathered the crisis with different degrees of success. But both are being celebrated as examples of the EU’s achievements: Rapidly recovering Ireland is being lionized as a model for other troubled economies, while the still-fragile Greece is being held aloft in defiance of those who warned that the EU would crumble.

This sense of “mission accomplished” is premature and dangerous. For starters, the EU has drawn the wrong conclusion from the experience: austerity works. This belief ignores the critical role in calming markets played by European Central Bank President Mario Draghi’s pledge to save the eurozone, just as it overlooks austerity’s high cost in terms of lost economic potential and social stability.

More worrying has been the dearth of high-level debate regarding the eurozone’s structural deficiencies. At the height of the crisis, debates raged over fiscal, political, and banking union; but, as the distressed countries’ bond yields have fallen, reforms have become increasingly unambitious. Furthermore, the rally in periphery markets has acted as a fig leaf, obscuring policymakers’ failure to examine the eurozone’s structure and membership. The risk is that, in its current form, the eurozone framework is a machine that can again inadvertently crush its smaller members.

Viewed from Ireland and Greece, it seems that the future of the EU project is geared toward its success in engineering a growth rebound – credit for which goes largely to monetary policy. In this sense, the fact that Europe’s political leadership has not dismissed out of hand talk of more dramatic monetary policy from the ECB – inspired by quantitative easing in the United States – provides some hope.

But, on a political level, the European project is losing its resonance with Irish and Greek voters, with many now viewing Europe as something to endure, not a conduit to a brighter future. And deeper integration – the proposed mechanism for restoring faith in the European project – lacks credibility.

The fact is that there remains a vast lacuna between the intellectual argument for more integration and its practical appeal to ordinary people in Cork or Thessaloniki, who find it difficult to trust the EU and its leaders. For them, it is hard to imagine a coherent and practical form of European citizenship or a political union in which national politicians work together for the common good.

This trend has fueled the rise of Euroskeptic political parties, not only in peripheral countries like Greece, but also in “core” countries like France and the Netherlands. Given these parties’ success in the European Parliament election, Europe’s leadership will likely lack the ability – or the desire – to drive the EU forward.

In this context, the question should not be whether to integrate more deeply, but how to integrate more effectively. One imaginative approach – in the spirit of groups like the seventeenth-century British Levellers – is to ground the rationale for workable integration in an inclusive, accessible form. Here, popular sovereignty would buttress the battered concept of national sovereignty, with the consent of the European people forming the basis of the EU’s authority.

To this end, Europe needs a more responsive leadership, one that citizens can access and influence through institutional channels. And it needs a constitution, created through a bottom-up process, based on a shared understanding of where individual countries end and Europe begins.

Moreover, EU policymakers must pay closer attention to their actions’ effects on small countries, and institutionalize mechanisms to enable these countries to offset the negative effects of, say, monetary policy. This demands strong fiscal institutions in peripheral countries – not more centralized fiscal control.

The European Parliament election may not be the most critical event shaping Europe’s future, but it does serve as a reminder that support for the European project is fading – and thus amounts to a call to action for Europe’s leaders.

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