krauss44_thierry monasse_pool_getty Images_merkel

Europe’s Faustian Bargain

Nov 23, 2020 Melvyn Krauss

Lost behind the news of the European Union's budget and recovery fund is a long-awaited improvement in the eurozone's internal balance. The convergence between north and south is such an important development that it is likely to take precedence over guaranteeing member states' adherence to the rule of law.

NEW YORK – The second wave of COVID-19 infections has struck Europe harder than many expected. The hope of a V-shaped recovery has been replaced by the fear of a double-dip recession, implying that there will be no quick return to normal European Union budget rules. More worryingly, Europe now finds itself forced into a tradeoff between two objectives, both of which are critical to its long-term viability as a supranational political and economic bloc. Now more than ever, the EU’s commitment to the rule of law appears to be on the chopping block.

The news is not all bad. Owing to farsighted policy decisions by EU leaders, north-south relations within the Union are on a firmer footing than they have been for many years. One sign of this is that the spreads between German and Italian interest rates are at a record low, indicating that Italy’s position in the euro is now rock solid. “Spread anxiety” about the sustainability of the euro has abated across the entire southern tier of the eurozone.

Forget the political hurdles recently introduced by Central European member states with their threats to veto the EU’s budget and new COVID-19 recovery fund. Sustaining the long-awaited north-south political and economic convergence will be the EU’s top priority in the weeks and months ahead.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Already have an account? Log in

Support High-Quality Commentary

US President-elect Joe Biden may have promised a “return to normalcy,” but the truth is that there is no going back. The world is changing in fundamental ways, and the actions the world takes in the next few years will be critical to lay the groundwork for a sustainable, secure, and prosperous future.

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world’s foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 10 in all 10 Comments on this article

j. von Hettlingen Nov 30, 2020

Melvyn Krauss fears the EU - now under the presidency of Germany until end of the year - might trade its commitment to the rule of law for “its long-term viability as a supranational political and economic bloc.” Critics say Angela Merkel could be soft on Hungary and Poland, which have threatened to block the passage of the EU budget and new COVID-19 recovery package, unless the bloc “drops its demand that disbursement of EU funds be conditional on member states’ adherence to the rule of law.”
Hungary and Poland - two illiberal regimes - have been major recipients of EU money, while trampling on the rule of law. They are aware of Europe’s dire economic situation, and refuse to ratify the signed treaties, putting the distribution of funds on hold. They oppose a new mechanism that allows for the reduction of EU funds if member states severely violate rule of law principles. Poland and Hungary - partially backed by Slovenia - claim that Brussels is trying to bully more conservative countries that do not toe its line.
Options have been discussed how to bypass Hungary and Poland. The rule of law mechanism - which has widespread support - only requires a qualified majority to pass. However unanimous backing is required to allow the EU to raise funds to finance the aid package and 2021-2027 budget - known as the Next Generation recovery plan. EU’s Southern and Eastern members are desperately waiting for recovery-fund money. One important goal for the EU to improve its “north-south” relations is to close the financial gap between the two regions.
One alternative is to buy off Hungary and Poland - the two spoilers - assuring that they will not lose the funds. However, the European Parliament made it clear two weeks ago that it would make "no further concessions" to the rule-of-law mechanism. Yet both hostage takers are determined to wield their veto power, knowing that this may probably be their last, best chance to forestall the imposition of conditionality on the disbursement of EU funds in the future.
Hungary and Poland have been able to thrive politically, because the EU had left them to develop into autocracies within the bloc during the last decade. It will takes years or decades to forge a radical turnaround - which an intergovernmental solution that does not demonise the opposition would be. It remains to be seen what Angela Merkel plans to do - either caving in to Hungary and Poland or facing them down. She had been criticised for failing to speak out against the two regimes.
One reason is the strong economic ties and the influence of German companies, which have big investments in both countries. The other reason is political, with historic undertones. Merkel does not want Germany to be accused of bullying its eastern neighbours. Despite repeated anti-German rhetoric by Poland’s ruling nationalist-conservative Law and Justice party, Merkel has worked hard to keep relations between Berlin and Warsaw on an even keel - and between Berlin and Budapest as well.
Germany and all those other EU countries supporting the rule-of-law mechanism should seriously consider withholding funds going to Hungary and Poland. As Germany wraps up its presidency in December, and Merkel steps down next year, this surely is her moment to end the blackmail and defend the democratic institutions that Hungary and Poland seek to dismantle at home and In Brussels.
According to the author, Jean Monnet, one of the early exponents of European integration after World War II, famously observed that the European project “always moves forward through crisis.” In this regard, the pandemic represents a “unique opportunity to advance European integration like never before. Even if Europe’s illiberal populists in Hungary and Poland appear to avoid accountability yet again, their position may be more tenuous in the future. An EU that no longer needs to worry about the euro’s collapse will have much more time, energy, and resolve to take on its enemies within.”
Indeed, compromising on the rule of law for the sake of good relations is a flawed short-term policy and a long-term strategic weakness. It poses a threat to the viability of the European project if member states undermine the basic values and principles on which the bloc is built. Moreover, if Hungary and Poland are not sanctioned for violating EU law and norms, it gives a green light to other member states to follow in their footsteps.
A new reply to this comment has been posted.
Gábor Csonka Nov 25, 2020

Taking people of different opinions as enemies within is quite illiberal. I hope the EU officials will vigorously reject this quite shameful interpretation of the author.
A new reply to this comment has been posted.
Robert Wolff Nov 25, 2020

The "Rule of Law" is in question. The Rules of Law are determined by the winners in military conflicts. The adverse is also true: that a rule of law set by the winners of the previous war can be overturned by the military when it changes the "Rule of Law" to support its own successes, versus political failures.

The function of the Military is to maintain Nationalism when there is political failure to ensure the Sovereignty of "The Nation".

I.e., a Military takeover in any country is the "Failure of Politics" to provide economic and social guidelines that maintain national solidarity and security.

Few Americans realize how close We are to the failure of the US political system (what we call Democracy) to provide National Security and Economic Affluence to the American Peoples.
A new reply to this comment has been posted.
Peter Schneider Nov 24, 2020

The globalists call it "integration" and "solidarity". For the populists, however, it is taxation without representation and paying for other people's debt. According to the treaties, bailouts are strictly forbidden, maximum debt is 3% of GDP per year and 60% of GDP in total, and government financing by the central bank is not allowed. But, obviously, the treaties are worthless. Why would you be member of a club where the rules are broken all the time - for decades? No, it would be better to leave this club and take back control of your own matters. The "EU" no longer needs to worry about the euro's collapse - really? Maybe the "EU" then needs to worry about popular support?
A new reply to this comment has been posted.
Henk Crop Nov 24, 2020

Ever since the unification of West and East Germany France has been pushing for a common currency. The Germans initially objected, they did not want to give up their solid Deutschmark.
However France, supported by Italy, succeeded to introduce the EURO because they wanted to keep control over economical strong Germany.
In the Eurozone Germany has a GNI of 30 %, France 22 % and Italy 17 %.
A common currency with very diverse economies is, according to leading experts, unsustainable. The reckless introduction of the EURO has already cost us a huge amount of money.
The EURO has tied the members much more than when they were in the common market (EEC). The rule of law is therefore more essential. One rule was that every member would be responsible for it's own government debt. In other words they should not spent more than they can afford.
Right from the start France and especially Italy did not obey that rule. The EU Commission did not dare to make remarks about it.
It would be fair that Italy now with a debt of 135 % ( the target is 60 % GDP) leaves the Eurozone.
The author thinks we should move the rule-of-law off the table. However it would bring back Europe to the medieval constellation it tries to escape from.
I think it is the right moment for a reflection on the future of the EU.
The behavior of France and Italy require more of a discussion than that of Hungary and Poland. Also the role of the ECB and the European Commission need clarification.
The ECB presidents over the past years have all been from money spenders France and Italy. They maneuver us in commitments many members do not want.
My estimate is that if the EU wishes to survive, it has to go back to the EEC but retain some of the useful institutions. We need an "EEC+plus". There is time for it, because countries in need can be temporarily paid from the ESM fund.
( see also PS Elizabeth von Hammerstein, Lit.: Ashoka Mody, the Eurotragedy )
A new reply to this comment has been posted.
Gunnar Eriksson Nov 24, 2020

In spite of historic precedents about fig leaves; I believe that you are wrong this time.
Enough member states have come to that if we do not stop fascism inside the EU now it may be too late. The result of the US election has greatly improved the possibilities for success
A new reply to this comment has been posted.
Bernhard Kopp Nov 23, 2020

Mr. Krauss appears to have very rosy sunglasses. Financially, the Eurozone is a zombie funded by the ECB. No structural discrepancies and conflicts are resolved. Hungary and Poland are not blocking the EU-budget since they do not want the " rule of law ". They oppose a so-called " rule-of-law-mechanism" which is not a law, but the attempt of ultra-liberal fanatics of political correctness to define politically what " the rule of law " should or must be, to commence an investigation against any presumed violator under the financial threat of a funds-freeze, a sentence before the investigation and any valid verdict. This is the new " rule-of-law-philosophy" Anybody who does not want to be as " woke " as the well-organized and publicly funded activists define it, should be starved to (political) death, as the German vice-president of the so-called European Parliament unashamedly said. This is a culture war that may well break the EU.
- Alistair Newton Nov 28, 2020
  
  It was the Maastricht Treaty and the introduction of the Euro which turned me into an ardent Brexiteer. I would be extremely keen for the UK to return to the EEC were it reformulated!
  - Bernhard Kopp Nov 29, 2020
    
    It is quite possible to organize a union of sovereign member states, even an " ever closer union " on such a principal. Unfortunately, the hidden agenda behind Maastricht was always the " federal state ", with the Commission the central government, and the so-called EU-parliament as the legislature, and even an EU-Court. This conception totally ignores that EU-27, with 22 languages, and hence no common public sphere, and all the different historic experiences with state, law and democracy, cultural differences, and last but not least extreme economic differences from Bulgaria to Luxemburg, cannot possibly become a " federal state ", a USE. Back in the 90s I was still hoping that the " EU-project " might still find the right turn, but became more and more skeptical - thanks also to English friends, who did not believe in EU-statehood, and not the Euro either. More than 20 years on it would require a devastating shock to dismantle what there is, and to stop the multi-billion €/year gravy train for EU-functionaries, and the temptation for a power grab with a unsurmountable distance from any real parliamentary control, from voters and from public scrutiny. The so-called EU-parliament is the biggest honey pot for political activists.
    A new reply to this comment has been posted.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.