A Euro for Your Thoughts*

By Sol W. Sanders
Monday, June 9th, 2014 @ 11:43PM

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The European Union has entered a multifaceted and what promises to be an extended crisis.

It will reshape European politics, and its outcome will have far-reaching effects on the world economy and international politics. Resolution of the crisis will come with even more difficulty since the Europeans, for the first time since the end of World War II, cannot count on a strong role of Washington as mediator and mentor.

First off, it is important to remember that despite all the propaganda to the contrary about newly arriving power centers — and the weaknesses exposed by its current troubles — Europe remains the force in world affairs unmatched except by the U.S. Its more than half a trillion population with almost a quarter of the world’s total economic activity, enormous cultural diversity and heritage, with infinitely fecund research and technological innovation, and with a diminished but technologically powerful military still dominates the world scene.

When we speak of “Europe”, of course, we are lumping in a set of complicated relationships as well as groupings. The geographic Europe is everything west of the Urals in mid-Russia, but for the moment Russia has excluded itself from the European family. That’s in part because the European Union now includes all the countries of Western Europe except Norway and Switzerland, and, more recently central, northern and parts of Eastern Europe for a total of 28 countries (with four more former Yugoslav states soon to join).

The EU institutions include the European Commission, the Brussels-based appointed executive, the Council of the European Union, its upper house of parliament composed of executives of member states, the directly elected European Parliament, the lower legislative house, the Court of Justice, the European Central Bank and the Court of Auditors. At least theoretically, these countries now have a common market and are moving toward a standardized legal system. The passport waver program (Schengen area)) includes Switzerland. England and Ireland opted out.

Eighteen of these countries — with the exclusion of the U.K., Denmark, Sweden and Poland — are part of the Eurozone, using the Euro as their currency. (Seven additional states are obliged under their treaty obligations to join the common currency at a later date.) Since the international economic crisis of 2007-08, the European Central Bank has become a mini-International Monetary Fund. It has taken on a role of handing out emergency Euro loans to some of its members in deep trouble and is helping to work out individual national economic reform agendas. Through it, purchase of national government bonds — Germany has blocked Eurobonds — indirect help is also given in the management of the finances of the individual members.

Rather suddenly, a series of problems have grown acute, testing to their limits these and older European institutions in a way not seen since the onset of The Great Depression and the resultant collapse of much of Europe into authoritarianism. These developments put into question whether national interests can be subsumed in a superstate which has become the aim of many of the proponents of further European economic and political integration. Or whether, as an alternative, national and regional sentiments within some older nation-states will scotch this movement, or, indeed, reverse the whole effort.

The problems are, of course, interrelated and will require new efforts at international collaboration as well as mobilization of resources to move on to another stage whatever that may be. It’s no wonder, then, that any attempt to describe the ideological and more practical conflicts of the various constituents looks like a cat’s cradle of connections which (alas!) are not likely to fall apart as quickly as success at that old string game.

Putin’s challenge, after more than a half century with sometimes bitter but relatively minor wars, has Europe faced with the continuing threat of naked aggression by a major power, Russia. An unstable Moscow regime glories in its inability to assimilate politically to the European consensus. But unlike its autarchic Soviet predecessor, for which many of its leaders (and, unhappily, its citizens) have deep nostalgia, Putin’s Russia is not only directly intertwined with the world economy but virtually totally dependent on its sale of fossil fuels to the rest of Europe. (Recent feints to the East to China are just that with so-called trumpeted agreements falling far short of their ballyhoo.)

Using methods that could have been copied from the aggressive pre-World-War-II Fascist and Communist dictatorships, Moscow’s bluffs at least temporarily have overwhelmed European (and American) leadership. Neither Brussels, the national capitals, nor Washington have found an adequate response, thereby inviting further aggression from Putin’s ad hoc agenda to restore what he claims is Moscow’s hegemony in Eastern and Central Europe if not Russia as a superpower. The fact that Ukraine has become the focal point for the conflict is symptomatic, for it is the irresistible attraction of participation in the European movement toward integration that draws Kyiv away from its traditional domination by Moscow.

Democracy Quotient. The EU’s original deadly fault — top-down imposition of a new regulatory regime on self-governing societies — has finally climaxed in the candidacy of a new president of the Brussels bureaucracy. Tiny Luxembourg’s former prime minister, the lackluster politician Jean-Claude Juncker, has by happenstance become the nominee of the European parliament for the presidency of the EU on the claim that his party now has a majority in that assembly. That claim, reinforced by the lack of other major alternate contenders, in effect would establish parliamentary supremacy against what has been a tradition of hand-picked appointed Brussels bureaucrats.

But Juncker’s advocacy of more “federalism” — further political as well as economic integration — challenges London’s opposition to a stronger federal union at the same time its most ardent advocate is Germany. Furthermore, a clutch of anti-EU parties — some of them proto-fascist — now hold a fourth of the seats in the European parliament.

Britexit. The sweep of anti-EU skeptics of the British delegation in a just completed Europe-wide election for the European parliament threatens to increase the growing minority in the U.K. who want to leave the EU. Conservative Prime Minister David Cameron, increasingly threatened by an anti-EU, anti-immigration, nationalist swell on the right, has promised a 2017 referendum on leaving EU membership. At the moment, British public opinion remains divided with apparently a small majority for remaining in the EU, but continuing as a limited partner. However beleaguered is  sterling currency, most Brits count themselves lucky they stayed out of the Euro and thereby reinforce the role of The City as perhaps the foremost international financial center.

Germany, a proponent of further integration, nevertheless makes preventing the departure of the British, its main ally in opposition to French and other EU partners’ statism, its highest (if contradictory) priority. Britain’s exit would, of course, have enormous repercussions inside the EU beyond its role as the main opponent of further bureaucratization, feeding skepticism which exists in Scandinavia, for example, and may even be growing in Germany, where it has been a dogma of the post-World War II regime.

Economic Malaise. European Central Bank president Mario Draghi’s imposition of a negative interest rate — that is, the national central banks’ deposits into the Euro would be charged interest — is a groundbreaking effort to stimulate growth  Theoretically, it would force the central banks to loosen their lending policies. It is an attempt to counter the austerity policies throughout most of bankrupt southern Europe’s economies and the resultant high unemployment, low growth rates, and increasing political instability.

Draghi’s policies are bitterly opposed by Germany with its paranoia about inflation from the deadly post-World War I experience. Meanwhile, as by far the largest EU economy, it continues to maintain a budget surplus through its “beggar your neighbor” trade policies. (Germany rolled up the highest trade surplus in the world at $270 billion in 2013 despite the fact that 60 percent of its exports went to other EU partners. If Germans sanctimoniously blame their southern partners’ profligacy for their situation, it was German-financed exports that in large part brought on the disaster.]

Germany’ situation is almost unique in the region. Its per capita income is 23% above the EU average, with more than a fifth of the federation’s gross development product. That it is inimitable to Draghi’s grand strategy sets up an enormous conflict inside the EU at a moment of economic crisis.

Nor is it at all clear that Draghi’s effort will help, given that the bulk of the Euro’s transactions still remain in national budgets, most of them already in deficit. That, of course, is the long term argument for further integration, welding differing financial strategies into a whole behind the Euro. But Berlin’s notorious historical incapacity to lead a democratic alliance contradicts Germany’s hegemonic economic role inside the EU, another reason why its effort to keep Britain inside the union is considered by many, even in Germany, so critical..

This welter of crosscurrents takes place at a time of a growing perception — probably realistic — among European leaders that the U.S. is retreating from world politics, and when the world engine of growth, the American economy, is sputtering.

Any of these various issues and contradictions could at any moment flare up into the kind of crisis that would feed popular sentiment and the 24-hour media, overshadowing the general confusion of these more complex economic and political issues. That question of unexpected events now dominates the European and, ultimately, the world scene.


* A version of this column will be published Monday, June 9, 2014, at yeoldecrabb.com.  http://yeoldecrabb.com

Categories: ACD/EWI Blog, Economics, Europe, Latest News, U.S. Foreign Policy

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