Finally, German Chancellor Angela Merkel has accepted a new form of European Union. More than ever, the EU must combine greater stability, financial transfers, and mutual solidarity if the entire European project is to be prevented from collapsing under the weight of the ongoing sovereign-debt crisis.
For a long time, Merkel fought this new EU tooth and nail, because she knows how unpopular it is in Germany – and thus how politically dangerous it is to her electoral prospects. She wanted to defend the euro, but not to pay the price for doing so. That dream is at an end, thanks to the financial markets.
The markets issued an ultimatum to Europe: either embrace more economic and financial integration on a federal basis, or face the collapse of the euro and thus the EU, including the Common Market. At the last moment, Merkel chose the sensible option.
Had the European Council’s heads of state and government taken this foreseeable decision a year ago, the euro crisis would not have escalated to the extent that it has, the total bill would have been lower, and European leaders would have been rightly praised for a historic feat. But, as I said, back then Merkel did not dare to act.
The agreement at the most recent European Council will be more expensive, both politically and financially. Despite doubling financial aid and lowering interest rates, the agreement will neither end the Greek debt crisis and that of other countries on the European periphery, nor stop the EU’s associated existential crisis. It will only buy time – and at a high cost. Further aid packages for Greece may seem impossible to avoid, because the losses imposed on Greek debt holders have been too modest.
Other crisis countries in the eurozone have not been stabilized, because Germany – fearing a domestic political backlash – has not dared to embrace a community of liability by issuing Eurobonds, even if the European Financial Stability Facility’s new role means that virtually 90% of the path has already been traveled. Once again, there has been no success in boosting confidence in the face of the dynamics of this crisis.
But the bail-in of private investors, much applauded in Germany, is of secondary importance, and is intended only for the German public and the MPs of the country’s government coalition; indeed, upon close inspection, it turns out that banks and insurance companies have made a decent profit. Their losses will remain minimal.
Still, the single currency’s collapse was avoided, and French President Nicolas Sarkozy was right to laud the establishment of a “European Monetary Fund” as a real achievement. But this bold move has huge political consequences that have to be explained to the public, because the move toward establishing such a fund – and, with it, a European economic government – amounts to an EU political revolution in three acts.
First, the two-speed Union, which has been a reality since the first rounds of enlargement, will divide into a vanguard (euro group) and a rearguard (the rest of the 27 EU members). This formalized division will fundamentally change the EU’s internal architecture. Under the umbrella of the enlarged EU, the old dividing lines between a German/French-led European Economic Community and a British/Scandinavian-led European Free Trade Association re-emerge. From now on, the euro states will determine the EU’s fate more than ever, owing to their common interests.
Second, this jump into a monetary fund and economic government will lead to further massive losses of sovereignty for the member states, in favor of a European federal solution. For example, within the monetary union, national budget laws will be subject to a European supervisory body.
Finally, it follows that in the future, Merkel and Sarkozy, in particular, will have to struggle a lot more than before for electoral majorities. Today, these majorities are less certain than ever.
If the euro is to survive, genuine integration, with further transfers of sovereignty to the European level, will be unavoidable. This historic step cannot be taken through the bureaucratic backdoor, but only in the bright light of democratic politics. The EU’s further federalization enforces its further democratization.
If the eurozone is to endure, a majority of its citizens, especially in Germany and France, must embrace the euro as their currency. This is not a technocratic issue, but a profoundly political and democratic one. To paraphrase Bill Clinton: “It’s the sovereignty, stupid!” Therefore, the first step must be to ensure a strong role for national parliaments in this process.
In Germany, there has been a broad consensus for a stability union, but not for a transfer or liability union. This is particularly true for Merkel’s electorate. From now on, governments will have to fight for majorities supporting the euro. This is good, because only then will a reliable democratic consensus on Europe’s future be reached. The German chancellor and the French president will have to present their policies openly and fight for further integration and the single currency.
The outcome will decide their fate and continuance in office. Whether they succeed is anything but certain, given the current state of European public opinion. But if they do not even try, their defeat – and that of Europe – is certain.
Copyright Project Syndicate