A decade of crises – Is the EU hit and sunk?

“Yanis, You must understand this: France is not what it used to be. And the EU is no longer France”

French Finance Minister Michel Sapin to Greek Finance Minister Yanis Varoufakis February 2015

Yesterday we woke up with this headline “Child dies as migrant and refugee crisis escalates on Greek-Turkish border”. The problem is larger than the current situation in Greek-Turkish border; the problem is that we as Europeans are beginning to be used these types of headlines, which is a clear proof that our European values are at stake. Europe is no longer the cradle of democracy and solidarity. How have we arrived here? Why are our European values in danger? Now we have just started 2020 and that UK has recently left the EU it is a good moment to think about what has happened in the last ten years and why the European Union is in danger of disappearing as we know it.

In order to understand the current situation and the potential future of the EU we need to briefly mention where brought us here. We cant forget that the European Union is a unique politico-economic project in the world, created to bring peace and economic prosperity to its members. Initially focused on solving the “German problem” (Franco-Prussian war and two world wars since the first German unification) and the “Soviet problem” (emerging Cold War), the creation of mutual economic ties between France and Germany would make war among them -and therefore among Europe- more unlikely. Paul-Henri Spaak, Belgian Foreign Affairs Minister said in 1956 that “European integration is above all the real way to resolve the German problem. .[..] A Germany integrated into the European bodies and by them into the Atlantic Alliance is protected against nationalism and also against the temptation to approach the Russians by itself to try to resolve their contentious issues directly with them. […] It is not just an alliance, but a peace treaty“. German leaders also saw it this way – Ex-Chancellor Helmut Schmidt said in 1993 “If our country does not want to isolate itself, if Europe is not to return to a policy of forming coalitions as a counterweight to Germany, then we Germans need to be integrated into an EU that functions effectively“.

“European integration is not just an alliance, but a peace treaty”

Paul-Henri spaak, Belgian foreign affairs former minister

Since its creation in 1951 (ECSC), the European Union project has evolved into something that everyone should be proud of: the EU today represents one-fifth of world economy, is the world’s biggest trading bloc, constitutes the world’s biggest or 2nd biggest FDI recipient, is the world’s biggest development aid donor, has the world’s second most important currency, and presents the world’s largest social expenditure budget (with only 7% of the world population represents more than 50% of the world social expenditure). Additionally, EU has achieved its initial objective: the times we are living are the longest period of peace among its members ever.

But unfortunately peace or economic prosperity has not been enough. In the last decade Europe had faced three big crises that has eroded European identity and provoked disaffection towards the European project: 1) Eurozone financial crisis (2010-), 2) The migration or refugee crisis (2015-), and 3) the Rise of populism (2016-; in which we could place Brexit crisis).

1. Eurozone crisis

The Eurozone crisis cant be understood without understanding the euro. As David Webber says, Euro was a French project with German design. In June of 1989, in Madrid, President Mitterand and Chancellor Kohl discussed about a common European currency, an instrument that would bring a controlled inflation and  would sent a clear statement towards European unification:

  • Mitterrand: You have to support monetary union …
  • Kohl: Abandoning the Mark is a big sacrifice for Germans. Public opinion is not ready for it yet!
  • Mitterrand: I know – but do it! European opinion is waiting. You are going towards German unity. You must show whether you continue to believe in Europe or not.

Ten years later the Euro was launched and soon rather than later it achieved its objective: inflation was low all across Europe, trade exchanges got rid of FX risks, monetary policy was unified, and credibility of the German Central Bank extended to more undisciplined countries. In the 2000s when the market around the world was booming with high volatility, the Euro and the European project seemed healthy.

The economy is cyclical and after a bubble there is a burst; but this burst was a catastrophe of unknown scale. The governments who usually have two tools to face crises, now have only one given the Euro did not allow them to laucnh any monetary stimilus to gain competitiveness (e.g. depreciate the currency). With fiscal policies as the only solution, Governments started spending wildly trying to mitigate the effects of the worldwide crisis. A huge increase in national budget deficits arose doubts of bankrupcy, shooting up countries risk premiums and making it more difficult to issue debt. What originally was a real estate bubble burst evolved into a national debt financial crisis.

In 2012 the situation was critical, with some countries already bankrupt (Greece, Portugal, Ireland) and others about to be (Spain). The absence of a fiscal transfers system between strong and weak members and the incapacity of the ECB to play the role of “lender of last resort” (it was not within its mandate) made the situation unbearable. Until the ECB finally reacted. Mario Draghi held a press conference on July 26, 2012 in London and said the magical words: “the ECB is ready to do whatever it takes to preserve the euro – and believe me, it will be enough“. Markets calmed down immediately, risk premiums decreased. ECB started a heavy ‘lender of last resort’ and ‘quantitative easing’ policies, a bailout fund was created (ESM) to lend money, and an agreement to accelerate banking union was agreed – all of it conditional on austerity and structural reform to debtor states. ECB did not only save the Euro, but the European Union, but at what cost?

“The ECB is ready to do whatever it takes to preserve the Euro – And believe me, it will be enough”

mario draghi, former president of the ecb

Thanks to the intervention of an independent and credible agent as the ECB, the EU was saved of financial collapse, but the price that the European population had to pay was extremely high. Austerity recipe was widespread applied to control national budgets and recover credibility of the markets.  While there was no many other options, cutting expenditure when the economy was shrinking worsened the problems that arose with the crisis, increasing unemployment and lowering social benefits. Politicians were unable to communicate why austerity was the least worst option and people felt abandoned by their Governments. The establishment was hurt, paying a high price in the following elections, in where populist outsiders saw their chances to gain political power: from 2009 to 2019, in only 10 years, votes to populist parties (extreme right or extreme left) more than doubled, reaching more than one forth of total votes (see third crisis described below).

2. Refugee crisis

While 2008 financial crisis is essentially over (we are still facing its -especially political- consequences, but financial figures are back to normal), the refugee / migrant crisis is even more alive than ever. To give a bit of context, after the Arab Spring and the wars in Syria and Afghanistan, thousands of people tried to come to Europe asking for asylum. These people were not illegal immigrants, but refugees who were displaced from their home due to war. The intention of most of those migrants was basically to find a peaceful and secure place to establish. Knowing that if they are granted asylum in one EU country then they could travel around Europe freely thanks to Schengen agreement*, in 2015 when the situation in their home country was unbearable, there was a massive exodus towards Greek and Italian borders.

*Free movement of goods and people, which Schengen Area (SA) facilitates, is one of the EU’s most popular achievements. 26 member states with 420 million citizens can cross freely more than 50,000 km of coastal and land borders – every year there are 1.3 bn border crossings, including 57 million  trucks. Restoration of border controls could be equivalent to a 3% tax increase on any trade operation.

2014-2017 there were 4 million refugees asking for political asylum. Germany took 1.6 million of them.

Collapsed by the situation, West Balkan states opened borders, allowing refugees to move North, even if it was not allowed by the current law (according to Dublin Regulation, by default, the first member state that an asylum seeker entered and in which they have been fingerprinted is responsible of that person – if the asylum seeker then moves to another member state, they can be transferred back to the member state they first entered, putting a lot of pressure on those states controlling EU’s external borders. Germany and Austria, facing a sudden influx of people from Hungary that was unmanageable, tried to agree on a common EU policy to ‘relocate’ a proportion of refugees to each country. The EU, after lots of debate hours, agreed on how many refugees should each country accept, based on a country’s population and resources.

However, time passed by and some Central and Eastern Europe states refused to implement the refugee relocation decision took by EU institutions . They maintained their refusal even after European Court of Justice ruled about it in 2017. They did not stopped there and, given that the refugee influx continued, seven member states reinstated “temporary border controls”; even Austria, initially one of the countries supporting a refugee allocation solution, closed its West Balkans route making it more difficult for the migrants to move to other parts of Europe. Germany, unable to cope alone with this influx and with the public opinion against the government, baked an EU agreement with Turkey to keep the refugees in Turkish territory on exchange of money (+€3bn) and some benefits towards the EU (e.g. both sides agreed to “re-energize” Turkey’s bid to join the European bloc). The agreement was signed in spring 2016.

This was a shameful (in theory temporary) patch to cover up a critical situation. The problem is that paying other countries to keep misery away is the opposite of the European Union’s DNA. The greater development aid donor in the world is unable to agree on humanitarian basics for thousands of refugees knocking on EU’s door.

The main issue with the Turkish-EU agreement is that Turkey was the one calling the shots. Turkish authorities knew it and they have continuously been overstepping the mark until in October of 2019 Turkish armed forces invaded the north-eastern of Syria. This was too much for the EU not to reply, so member states initiated trade sanctions against Turkey. European Council summarized EU position as follows: “Turkeyʼs unilateral military action in North East Syria which causes unacceptable human suffering, undermines the fight against Daʼesh and threatens heavily European security.” Turkey, fed up of EU double standards, threatened to open borders and let the refugees go to Greece. Finally, after months of tensions, last week Turkish authorities confirmed they would no longer stop refugees from crossing into Europe. In one week, more than 10 thousand refugees collapsed Greek border, which provoked the closure of Greek frontiers.

3. Rise of populism crisis

This is probably the most dangerous effect of the two previous big crises: the rise of populism in Europe. This apparently new populism is just old wine in a new bottle: populists are nationalist, usually right-wing, anti-immigration, anti-European, and in some cases anti-globalisation. They are openly against political establishment and promote a dilution of national identity in Europe. These populist and far-right parties have become a plausible alternative across European parliaments, uniting up to 40% of the vote in some cases (like Austria, Hungary, etc.). In the last European Parliament elections, nine right and populist parties have formed a new bloc, called Identity and Democracy (ID), while other new far-right parties have joined the European Conservatives and Reformists Group (ECR); all these new parties got around 15% of total seats.

Europe nationalist parties - graphic

Why have they gained so much support during the last years? We need to understand that the European Popular Party and the European Socialists have governed European Parliament and Commission during most of EU’s lifeM; there was a break 1999-2004, but the rest of the time a”Grand Coalition” of these two parties has governed. After a decade of disastrous crises with people losing 20-30% of their purchasing power and social benefits heavily hurt, European citizens felt abandoned by political elites. As a French citizen claimed in a street interview during the day of the European elections in May 2019: “(Being a member of the EPP or ESP) it is the best job in the world – no matter if you do well or not, you know you will rule cause anything but you are extremists. Im fed up, I will vote for the so-called extremists, it cant be worse” (Le Figaro).

The EU has failed to generate a strong European citizen feeling among Europeans, which has been used by populist parties who claim that national identity is under attack and that losing sovereignty towards European institutions was a big mistake. Again, David Webber points it accurately: “European Union has become a kind of European state, underpinned by high economic interdependence, but its 28 member-states do not share a very strong common European identity. There is a growing tension between centripetal logic of economics working for greater unity and centrifugal logic of national identity that tends to keep or drive EU states apart.” Everyone understands that economically might be logical to stay together – but the social price paid during the previous crises and the sense that some politicians/political parties are never accountable for their mismanagement have tired the population. Populism threatens to blow-up current European Union as we know it.

Fighting populism is one of our most important challenges as Europeans. As Stanford political scientist Anna Grzymala-Busse says “populist politicians and governments view the formal institutions of liberal democracy as corrupt creations (…) so they systematically hollow out and undermine these institutions, such as the courts, regulatory agencies, intelligence services, the press, and so on.” They claim they represent “the people”, but whatever they define as ‘people’, usually excluding vulnerable and marginalized populations. For example, in Hungary the government constant attacks to LGTBQ community leaving them out of their concept of “family”; in Austria, France and Spain, some parties constant attacks to immigrants, leaving them out of the social welfare state they claim; in Italy “Italians first” was continously heard in many demonstrations supported by Salvini and his followers… Finding a common enemy and blaming him or her for every harm in the world is as old tactic which has always been effective. The European Union and in particular the new coalition (PP-S&D-Lib) needs to react quickly, or it will be already too late to react.

My philosopher friend Pablo Alzola explained me once that movie director Terrence Malick often uses windows to separate moments in life, to show how some characters have matured and can only see some things from the distance. For example in Badlands, the main character, after having intimate relations for the first time, oversees from the first floor of the house how some children play outside while she is smoking a cigarrette. Holly has matured and is no longer a child; she can only see childhood through the window of memories.  The European Union woke up last week seeing some refugees from the window of the first floor and hearing how some populists forced the back door of the house. The same European Union who has been paying a third party, Turkey, to keep these refugees out its garden trying to control the populists. With headlines like the one above, it is clear that the EU and its current leaders have matured and have lost its political innocence, EU is no longer a political child. The current European Union has threaten, actively or passively, those values it claims to defend. Current European leaders. the ones who see poverty from the first floor, from a window they pretend they can close, havent realized that is better to have some children playing in your garden than a bunch of bums dining in your kitchen. Which headline will wake up us from our lethargy?

Published by Gonzalo

🌏 From Bilbao, currently living in Madrid | 📖 MBA @INSEAD 19D, MSc in Economics @UNAV | 💡 Passion for politics, economics, and social impact.

One thought on “A decade of crises – Is the EU hit and sunk?

  1. Hi Gonzalo! Great job, I hope it will be followed by one article identifying the main steps EU may face in the next decade in order to comply with the purpose it was created to and of course to recover EU citizens confidence on it.
    Regarding the populism, i am missing a reference to probably one of the main challenges EU members are also facing and it is related to the influence of radical left party on some governments and the role they play threatening many of democratic pillars that support the EU.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: