12 August 2011
Suffering from the symptoms brought on by the transition towards a multipolar world, Europe is having to juggle its internal cohesion and maintain its international credibility. In the past, unity was one of the inoculants that boosted the European Union’s immune system against international shocks, but now the markets are punishing Europe over the economic and financial crises for not going far enough with integration.
Many EU member states gave a free rein to banking and finance to the detriment of manufacturing, with the result that the Union as a whole now finds it difficult to compete with China and other East Asian economies to supply the global economy and raise its own employment levels.
The sovereign debt crisis in the eurozone and the United States has only further muddied the water; it has put under the microscope economic (mis)management and revealed once more the dominance of market confidence.
The markets are just not convinced that the eurozone has the political and financial means to simultaneously bail-out Italy and Spain, Europe’s fourth and fifth largest economies respectively. Neither are they convinced that the European Financial Stability Facility, initially set up as a mechanism to help bail out Portugal and Ireland, is a reliable lender of last resort given Germany’s underwriting of it and the political difficulties Angela Merkel has in justifying bail outs to her domestic population.
But the current sovereign debt crisis in Europe also raises serious questions about the Union’s ability to increase growth, and in turn to lower unemployment levels and ease income disparities. China’s rise and the US’ relative decline means that Europe now has to compete with both of these powers for growth and jobs by innovating in new sectors, but doing so with strained public budgets and decreasing amounts to spend on education and R&D.
Europe and the US also find themselves increasingly dependent on countries such as China for natural resources to fuel their high-tech sectors and to produce defence equipment. But Europe has no natural endowment of precious metals as yet, and whereas the US will have to think about re-opening mines to ease supplies, in the long-term both are short of the “economic vitamins” needed to stimulate growth and maintain strategic dominance.
Globalization has also revealed Europe’s weaknesses in adjusting to a multipolar world. For better or worse globalization has opened up the world, yet many European states, dissatisfied with their small size, recoil away from European integration in the hope that going it alone will bring comfort in a congested world. Perceived assaults to national identity were accommodated in the past, so long as the economic gains kept on being made. Now that the gains have gone, so too is patience with globalization.
Indeed, the Hungarian government’s abuse of a parliamentary majority to curtail media openness, Denmark’s decision to re-erect its once open borders in fear of immigration from eastern Europe and France’s and Italy’s wrangling over immigration from North Africa are symptoms of this recoiling away from globalization and the process of European integration. British antipathy towards Europe has also tended to resemble this phenomenon of wanting to hand-pick the benefits of globalization without having to deal with any of the side-effects.
The manifestation of these public discontents into policy in turn weakens the desire for more political integration in Europe, bringing it back full circle to the means it has at its disposal to reassure the markets and to ensure growth jobs. This vicious circle also undermines the EU’s international credibility and weakens its overall foreign policy. Europe cannot hope to achieve its political objectives without having the material additives supplied by a strong economy.
The EU, not just defined as a set of institutions located in rainy Brussels but as a collective remedy to the bankruptcy of the nation state in Europe, should be seen as a positive moral hazard. The Union is “too big to fail” precisely because each of the member states is individually “too small” to fully adjust to a multipolar world. Indeed, if even the US finds it difficult with all of their strength and will to adjust to multipolarity then how is, say, Finland, supposed to?
Europe now faces a decisive test of political leadership. European political leaders will now increasingly be asked by markets and domestic populations to prove that they can adjust to a multipolar world through credible long-term decisions. It will take great nerve to be frank and honest with citizens over the costs they will have to bear to restore market confidence in the eurozone. Equally courageous and difficult however, and most probably at the risk of losing elections, will be to offer citizens a common narrative based on more a purely economic rationale.Daniel Fiott is a Research Fellow with the Madariaga-College of Europe Foundation in Brussels. His other publications include: "After Athens, Europe Must Get Real," published in European Daily, July 20, 2011; and "The Political Economy of European Defence," Europe’s World, January 25, 2011. More details on his work can be found here.