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Thomas Mayer — The merry-go-round of crises in the European Union

European Union flags flutter outside the EU Commission headquarters in Brussels on April 20. © Reuters


The answer of politicians to each crisis in the European Union or the euro area is more European integration. Over the years we moved from customs union to exchange rate management, currency union, and banking union. Yet, the crises became ever more severe. From the crisis of the exchange rate system we moved to the euro crisis and the migration crisis. Now, a political crisis is in the making as anti-European political movements gain strength. The exit of the United Kingdom from the EU has become a distinct possibility. Somehow it seems that the drive towards “ever closer union” does not solve but create crises. In this case, less rather than more integration would be needed to prevent the break-up of the EU.

For the European political order the peace of Westphalia agreed in 1648 after a devastating 30-year war was essential. In the peace settlement, the different parties agreed on two key principles: the respect of national sovereignty and the balance of power among the nation states. In the course of history, these principles turned into the cornerstones not only of the European but also the global political order. Imbalances of power emerged again and again over time, leading to breaches of national sovereignty. But the restoration of the balance of power and respect of national sovereignty each time allowed the return to peace.

The political order of Europe after the two wars in the first half of the last century was equally determined by the Westphalian principles. In the whole of Europe, balance of power was upheld by the division into a western and eastern zone of influence; in Western Europe, the creation of the EU ensured balance of power among democratic nation states and secured respect for national sovereignty. However, with the fall of the Soviet Union and the demise of the Eastern European order the balance of power came into disequilibrium again. A number of European states regarded the reunified Germany as a potential threat. Their answer was an even stronger integration of unified Germany into an EU controlled from the center. Their means of integration was the common currency, which was supposed to allow European control of German economic power. However, this response to the challenge posed by German unification was a tragic mistake, because it led to the hollowing out of both Westphalian principles.

In the European Monetary Union Germany developed to the economic and hence also political hegemon as the common currency allowed the more efficient German industry to outcompete its less efficient European competitors. This is now distorting the balance of power. Moreover, the common currency led to the weakening of sovereignty of the European nation states. In Germany, the loss of sovereignty is painfully felt in the domain of monetary policy, where a mistrusted European monetary bureaucracy is imposing interest rates that are widely seen as against the interests of the country. In Germany’s neighboring countries the loss of sovereignty is perceived as emanating from European rules for fiscal policy or from financial rescue operations run by bureaucrats from the IMF and European institutions.

In this environment the drive for more European integration is like increasing the speed of a merry-go-round that is on the verge of going out of control. Political forces are gaining strength that aim to destroy the EU and return to nation states. But the end of the EU will not by itself restore the Westphalian principles. To the contrary, without the EU new conflicts about the balance of power and respect for nation states will emerge. Hence, what is needed is not the return to nation states but a reform of the EU. Reform would need to focus on devolving power from the center to the national level. Thus, the concept of a single mandatory European currency would have to be modified to that of a common currency that can exist alongside national currencies. Failure to reverse the drive towards centralization of power is likely to lead to the destruction of the EU.

Thomas Mayer is founding director of the Flossbach von Storch Research Institute in Cologne, Germany.

http://asia.nikkei.com/Viewpoints/Viewpoints/Thomas-Mayer-The-merry-go-round-of-crises-in-the-European-Union

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