The North-South divide is now being replaced by a more worrying East vs West confrontation. The European project is in the midst of its most severe crisis since the Treaty of Rome was signed by the six founding members in 1957.
This virtually existentialistic crisis came not as a result of the incomplete monetary union, as so widely predicted in recent years, but because EU members outside the Eurozone are turning inward and nationalistic precisely at a time when the European solidarity, from which they themselves have benefitted from in recent years, is now asking for a contribution from them.
For decades the attraction of European integration has been vividly on display: in 1973, the UK, Denmark and Ireland joined the six founding members; in the 1980s, Greece, Spain and Portugal joined after their dictatorships were replaced by democracies; in 1995, Austria, Finland and Sweden joined following the end of the Cold War; and in 2004-07, ten former communist Central European countries and Cyprus followed. Latest, Croatia joined the EU in 2013.
Naturally, expanding the club to 28 countries, thereby more than doubling the population to 500 million people with vastly different income levels and cultures, was bound to complicate the underlying objective of deepening European integration towards “an ever closer union”.
Far-reaching integration policies, including the establishment of the currency union and passport-free travel (Schengen), were decided as ‘big policy ideas’, overruling economic and other practical impediments with half-baked commitments to national policies which were supposed to make the incomplete constructions work.
Not surprisingly, when the first major storm came – in the form of the financial crisis in 2008 – the trouble with one interest rate for a group of greatly diverting countries, without sufficiently off-setting fiscal policies (or macro-prudential measures), was revealed via the housing collapse in Ireland, Spain and Portugal. As the storm matured, the fallacy embedded in the inter-dependencies of banks and sovereigns came to light, and as the peripheral sovereigns came under pressure, Greece revealed its extremely poor institutional capabilities.
But the European leadership rode to the rescue. Where fiscal transfers were not available, unprecedented amounts of lowcost loans were disbursed to the crisis countries, including by the quickly and purpose- built ESFS/ESM. Monetary policies were adapted, most importantly with the introduction of the OMT programme. And the European banking union was designed and is being rolled out. By all normal measures, the Eurozone crisis is under control, if not over.
Then the second major storm hit Europe in the form of the greatest refugee crisis since the end of the Second World War, displaying the inconsistency of border- free travel without a common externally controlled border.
But this time, attempts to agree on and implement a common European response have failed. The European Commission, Germany, Italy and Greece have all led attempts to formulate a shared European policy to deal with the more than one million people having arrived in Europe during the last year. But their attempts have been met by firm resistance, and outright refusal of EU agreements, by other European leaders, particularly in Central Europe, but also in the UK and Denmark.
As a result, tens of thousands of refugees are stranded in camps, and those coming through the screening processes are not being distributed even remotely evenly around Europe. In many places, bor der controls have been re-established, de facto suspending Schengen, at least temporarily. Eventually, a legally questionable deal was agreed with Turkey and, in early April, unregistered refugees in Greece were shipped back to Turkey.
The refugee crisis has caused an East– West divide of Europe, which to a large extent has replaced the North-South divide that characterized Europe during the financial and sovereign debt crisis. And contrary to the general perception, this new East-West divide may be much more dangerous for European cohesion than what was feared during the North-South divide.
Since joining the EU ten years ago, Central Europe has received 3%-5% of GDP per year in transfers via various funds from the EU, supporting stronger growth rates than in Western Europe. The implicit deal was that as ‘part of the European family’ Western European solidarity justified these transfers.
Needless to say, the shock and disappointment in Western European capitals was therefore easily audible when the entire Central Europe blankly refused to participate in a European solution to the refugee crisis. To add insult to injury, the newly-elected Polish government made no secret of its turn of policies more generally away from the course plotted by Berlin, Paris and Brussels to try instead to lead a few Central European countries as a counter-weight to the established EU powers; a strategy guaranteed to fail.
It is far from inconceivable that taxpayers in Western Europe will start to raise objection to a continuation of these sizable transfers to an increasingly hostile and uncooperative Central Europe. Faced with such a prospect, Central Europe may dig in their heels and turn still further inwardlooking to a degree where continued EU membership could even become questionable – or they might reverse back into the core of the European family. Too early to tell.
And as the core of the Eurozone struggles with this new East-West divide, the UK is heading to the polls to decide whether to remain a member of the EU, an issue I’ll return to next month.
“Ever closer union” is what all 28 EU members signed on to when joining the EU. Almost a dozen of them seem to have gotten second thoughts.
The North-South divide is now being replaced by a more worrying East vs West confrontation. The European project is in the midst of its most severe crisis since the Treaty of Rome was signed by the six founding members in 1957.
This virtually existentialistic crisis came not as a result of the incomplete monetary union, as so widely predicted in recent years, but because EU members outside the Eurozone are turning inward and nationalistic precisely at a time when the European solidarity, from which they themselves have benefitted from in recent years, is now asking for a contribution from them.
