Soul-searching as the EU turns 60

The European Union has arrived at the 60^th anniversary of its founding act, the Treaty of Rome, with more soul-searching than determination about its future. The long crisis of recent years has weakened the EU, not only economically but also politically. Looking ahead to another six decades is entirely illusory when the future seems to depend on what happens in the next six months.

Ever closer union has been replaced by ever shorter cycles of political survival. In 2014, various euro-sceptic forces increased their representation in the European Parliament at the expense of the centre-left, the centre-right and the liberals. More recently, the UK referendum triggered the first ever departure from the EU. And the US has elected a president whose language and behaviour runs contrary to the key principles of European integration and the liberal world order in general.

In Brussels-speak we often call a shock a “wake-up call”. Surely without intention, this implies that the normal functioning in the EU is sleeping, unless something extraordinary happens. It has also been observed that quite many in European politics have a remarkable ability to fall asleep again after any size of a “wake-up call”. This has been demonstrated in the last year after both the UK referendum and the US presidential election.

Of the two 2016 earthquakes, Brexit requires more urgent action, but for the long-run, the winds of change from Washington signal a greater shock for Europe that necessitates deeper structural adjustment. With Brexit, the EU and the UK still have the chance to replace a controversial membership with a beautiful friendship. With the rise of US President Donald Trump, on the other hand, the EU needs to do what has not been done in 25 years: find out how the US could be allowed to diminish its presence in Europe and establish new structures to guarantee security, prosperity and sustainability.

Today and probably also tomorrow the White House is more inclined to challenge rather than support the EU - and specifically Germany - as an economic powerhouse. Current US policy under Trump (and perhaps a new US/UK partnership) takes aim at the trade surpluses of countries like Germany and China, but this view is driven by a misunderstanding of the origin of German and Chinese surpluses (manipulation of currencies and exploiting a liberal world economic order in general). US and UK trade deficits are rather due to having too much finance and military and not enough industrial policy. Besides, rampant inequality is doing more harm than good for their economic performance.

The US today does not have an economic or social model that can be exported to the rest of the world. And after the Brexit launch and under Donald Trump, the new US/UK position vis-a-vis the eurozone bilaterally and through the IMF will be entirely different. Making the euro self-sustaining is a lot more urgent than most people would believe.

At this stage, EU leaders must be fully awake to see and deal with the simultaneous challenge of a new global reality and the trend of internal weakening. Consolidation and improved functioning require not just minor repair-work, but bold innovation and a complete overhaul in some areas, like the European Monetary Union (EMU). The EU can live with imbalances, but it cannot live with sustained divergence. Simply “managing expectations”, and selling a long-lasting crisis as a “new normal” can only reinforce the trend of disintegration.

The long financial and debt crisis vindicated Anglo-American economists regarding the feasibility of a monetary union that hardly goes beyond currency board arrangements. The recent book by Nobel prize winner Joseph Stiglitz leaves no doubt that at Maastricht the EU introduced the wrong model for  monetary union.

In expert communities, much progress has been made in recent years concerning necessary reforms. In politics, this seems to be an uphill struggle. Wedded to the wrong narrative, leading politicians of “surplus countries” still cannot sell to their publics what is needed to make monetary union sustainable: risk-sharing instruments and a counter-cyclical fiscal capacity. In the absence of those, the Eurozone is still swimming naked towards the next economic crisis.

The EU - and in particular the Eurozone - needs to stabilise itself, while at the same time investing more in stabilising its neighbourhood. This does not simply require more spending in the areas of defence and migration management, but an integrated agenda of security, mobility, economic reconstruction and development. A renewed policy would redefine Turkey as part of the EU neighbourhood (especially if the current slide into an authoritarian regime turns out to be irreversible), and keep the focus of enlargement negotiations on the western Balkans.

The noble goal of the European Union is to create unity out of diversity. Diversity has grown, and the community has become not only much larger,but also more heterogeneous and imbalanced. But ever-deeper economic integration among nation states still holds the key to peace and prosperity in Europe. Probably very few question this most basic principle of the union. However, what form of economic integration is best in a given period and a given composition, is not so obvious.

There must be debates about alternative scenarios. The new White Paper by the European Commission supports this endeavor. Options exist, and if muddling through remains the preferred mode of operation for centrist political forces, they can no longer blame fringe parties. In order to rekindle confidence in the EU, they must choose a model that engages better with its citizens, protects them from global risks and helps improve economic perfomance together with social standards. This will regain the trust that is required.

On stage recently at the Hertie School, and in the company of German philosopher Jürgen Habermas, French presidential candidate Emmanuel Macron and German Foreign Minister Sigmar Gabriel again committed to a Franco-German investment partnership, calling it a European New Deal. The expression might be overused, but the idea and its implementation are absolutely vital. Though security is a legitimate concern as well, the biggest mistake the EU could make this year is to simply replace the New Deal with a War Deal. If fiscal constraints have to be reformed for more investment, growth and jobs, this should indeed be a priority.

There is such thing as treaty fatigue but the treaty does allow for improvements and innovations. It has allowed already for some initial steps to establish a banking union or to implement an investment plan. The EU can move ahead without treaty change in the short term, but it cannot move an inch without vision, leadership and determination.