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On the Road to Ruin

By Fredrik Erixon

The EU has never gained a constitutional identity and therefore cannot create the basis for legitimate representation. It is an existential problem of European cooperation that its leaders do not know how to fix.

How does international cooperation die?

The question may seem irrelevant, archaeological rather than contemporary. After all, aspirations for international cooperation are now bigger than ever. Nor has the demand for it stopped growing; the more integrated countries get, the greater the need for cooperation to manage common problems.

Ironically, even Europe’s nationalist movements have a hard time resisting international cooperation; they too band together internationally.

International cooperation can also answer for itself. Tufts professor Daniel Drezner argues in a recent book, The System Worked, that international economic cooperation during the crisis deserves a better reputation. True, many aspirations from crisis summit declarations never saw the daylight. Trade never got freed up by a successful closure of the World Trade Organisation's Doha round. Nor were the spurt in Western post-crisis financial regulations coordinated. Stimulus packages responded to national electorates rather than economic needs. Central banks eased and tightened without much synchronisation. The G20 never became a lasting substitute for dysfunctional economic multilateralism.

All of this is true, argues Drezner, but if you want to hit closer to the truth, is it not more accurate to say that the Western world balanced on the brink of economic collapse in the autumn of 2008, but the new great depression that every respectable economist predicted never happened. And much of this, says Drezner, is thanks to international cooperation that prevented governments from repeating the mistakes of the 1930s – escalating tit-for-tat protectionism, financial nationalism, and hard monetary tightening.

And, for all their faults, should not Europe’s crisis leaders be given some credit too for having averted a depression? In past crises, European governments have repeatedly succumbed to competitive devaluations, protectionism and distortive industrial-policy programmes sprinkling money over battered companies. Trade and competition have always been casualties when Europe’s crisis managers have wheeled out their response. Politicians should be faulted for their mistakes this time around too, but Europe’s economic openness has largely been shielded from protectionism. And the euro, that doomed currency, is still around – and with Greece still in the membership. Ireland has again the eurozone’s highest growth. And who imagined in late 2011, when the euro was edging towards a breakup, that the club would have grown its membership just a few years later? So the system worked.

Yet history teaches us one lesson about international cooperation: sooner or later, international cooperation always dies.

Is it not time to ask ourselves: how will the EU die?

Modern international economic cooperation has a birth year – 1944. At a conference in Bretton Woods that year, officials and leaders met to design a new system of economic cooperation for the post-World War II era, a system to promote economic stability and interdependence. Three years later, the idea from the Mount Washington Hotel in Bretton Woods had travelled to Cambridge, Massachusetts, where George Marshall, the then US Secretary of State, modelled a European identity for it. Peaceful political integration in Europe had been discussed and experimented with in interwar period, and attracted people like Jean Monnet and Robert Schumann. Towards the end of World War II, when thoughts of a post-war political order were taking shape, the proposition to unite Europe through continental cooperation was again gaining traction. Yet all Europe's governments were not convinced – especially as they had far more urgent tasks. Countries were in ruins, people were starving, and the need for reconstruction was infinite.

With the prospect of a Europe unable to recover from its war injuries, Marshall formulated a mission for the United States. The war had equalled destruction, Marshall argued in his Harvard commencement speech, but "the visible destruction was probably less serious than the dislocation of the entire fabric of the European economy". The United States had a mission to Europe – to provide resources for the reconstruction of war-torn countries – but also a mission for Europe. Europe’s side of the bargain was to create regional economic cooperation – cooperation to boost the recovery through trade and to create structures of interdependence so thick that they could temper passions for revenge. The Marshall Plan, which was launched during this speech at Harvard, was a mixture of realpolitik and Adam Smith. It was part of the Truman Doctrine, the plan to keep the Bolsheviks away from the continents, and it contained an instruction for Europe: the continent's economies must take down barriers to trade and cross-border specialisation.

This was the birth of what we today call the OECD and the EU.

It was the time when an important rule for peacetime European cooperation was established – a rule that later proved its relevance, sometime to the embarrassment of Europe’s leaders: Europe needs the guidance and assistance of the United States, not just to win civilizational wars but also to solve its own post-war problems.

The Bretton Woods conference also provided an intellectual foundation for future international cooperation, especially in Europe. The Bretton Woods institutions are frequently attacked for being the vanguards of neoliberalism, but their intellectual origins come from solid, social democratic stock. John Maynard Keynes, one of the leading architects of Bretton Woods, had in a number of speeches and books – from his Sidney Ball Lecture in Oxford in 1926, The End of Laissez-faire, up to the General Theory ten years later – developed a sharp criticism of the liberal economic order that prevailed before the First World War. That system of laissez faire was unstable and crisis-prone, argued Keynes. It promoted extreme individualism, and lacked effective institutions for international economic policy.

Keynes fashioned what later become the principal idea in Karl Polanyi’s influential The Great Transformation, that the free market economy and the nation-state together created an unstable and unfair "market society". It was the combination that was dangerous, not the market and the nation-state on their own, separate from each other. For Polanyi and many others, international cooperation was the antithesis of the market society.

This view later gained academic respectability – and now travels under the name of "embedded liberalism": a system of "global governance" based on the idea that trade should be free but counter-balanced by a welfare state. Or, to put it differently, a system where Adam Smith guides policy abroad, and Keynes at home.

Embedded liberalism not only offered the rational of a welfare state, but also gave new legitimacy to international institutions, especially those tasked to run the policies needed to correct the market state. It was echoed in the early thinking about European cooperation and was implicitly enshrined in the EU's first real treaty – the Treaty of Rome. Ever since then, Europe’s guiding principle has been "ever closer union". It has been code for the view that policies always can become more efficient if they get the embrace of European cooperation. And that principle has been infinite, neither intellectually nor constitutionally limited. It contains the grand aspiration that the EU gradually should progress towards an own constitutional identity, one that can rival the nation state in scale and scope.

The marriage between the EU and embedded liberalism has gradually strengthened. Out of sheer necessity, the EU’s first mission has been to reduce the significance of nation states, national integrity and borders – a mission about reconstituting Europe’s Westphalian faculty: from national interests and a system of balance of power, to a postmodern order based on transnational interests. It has been the real success of European cooperation – it has made war between Europe’s arch enemies history. However, that mission, and its roots of embedded liberalism, also harbours the biggest existential threat to the EU.

This idea of Europe is premised on a different vision than that of international cooperation. It is ultimately about acquiring a constitutional identity – to become a political persona representing a vision going far beyond the transactional identity typically manifested in international cooperation. Effectively, it aims to invent a new nation – a political ‘we’ that can legitimise a centralised state. A state that ultimately can command people to war and that can request – and receive – loyalty to its decisions and the way they are made. A state that, like stable nation-states, does not regularly have to justify its existence.

It is not a bad idea, but that it also what is still is: an idea. The EU is still exposed to existential risks. International cooperation die for a simple reason: the states that created the cooperation die, maybe not formally but essentially. The idea of the nation, and the culture of its politics, ceases to exist. States acquire new habits and new identities – and therefore require new representation in international cooperation.

The major thrust of our civilisation's history is often about the balance between minorities and majorities, between the individual and the collective, between what is legitimate and illegitimate representation. States and regimes have emerged and fallen when the balance has changed. The evolution has not necessarily been about taming Leviathan – but in the first place of defining it. International cooperation follows a similar path, it is born and it dies when the essential character of states change.

The European Union will also die, hopefully not in my lifetime, or as long as it continues to be serve important political demands. But ever since the crisis, the EU has been fasten the passage towards its death.

The European Union is a constitutional hybrid, but its self-perception rests on the notion that it has acquired a constitutional identity. Consequently, the EU feel it does not need to motivate its existence, and changes in its member states do not require corresponding changes in the EU. Yet the EU has never obtained a constitutional identity – and it all too often fails in creating a basis for legitimate political representation. The European Union today is a mess of institutional responsibility. No one can say who is responsible, or whom a voter should vote out if it is dissatisfied with politics. By all accounts, the EU has democratic support for its existence as international cooperation – but not as a constitutionally based entity with typical nation-state pretensions.

Europe’s leaders and the full family of European cooperation, with all its institutions and varied structures of decision-making, do not know how to respond to this existential challenge. In its absence, it chases heretics and lambasts the United Kingdom, its political mismanagement of EU affairs ever since Margaret Thatcher, and the country’s strange political composition that is about to rake the country out of the EU. But the EU's real challenge little to do with the UK. It was shaped rather when the core EU countries – France and the Netherlands – voted down the proposal for a EU Constitution. Now it has become a question about domination and the role of the great powers.

It is high time for Europe to speak about Germany.

Joseph Brodsky, the Russian poet, drafter the problem already in the 1960s when, during a visit to Kaliningrad, previously part of East Prussia but then a subject of Moscow, noted nothing but a mini-Germany; buildings and souls that breathed Germany. Kaliningrad, wrote Brodsky, was “still whispering in German".

The EU now whispers in German. That is not Germany’s desire. It is a change that does not spring from a conscious German decision about the future of Europe but from profound changes in the balance between states within the EU. EU member states have changed in the past decade; old states have died and new states have emerged, not formally but essentially.

In recent years, European cooperation has become a guessing game about what Angela Merkel wants. The new commissioners who recently moved into the Berlaymont building have scoured the premises in search for Germans to hire. Their first trips are to Berlin. Jean-Claude Juncker, the new commission president, was elected on a German mandate, not because Merkel thought he was a particularly good candidate, but because others suspected that he was acceptable in the eyes of Berlin. The elections of the EU’s new leaders were a remarkably quick affair, free from the usual controversies, because the other countries that traditionally have aspired to leadership had resigned in front of uncontested German dominance.

Europe has recent experience great power politics. In the post-war period, Europe has been a junior partner in the transatlantic firmament, for the most part willing to conform to American leadership. But it has been cooperation without constitutional aspirations, without the idea of a shared polity with own structures of legitimate political representation. Now, however, the emerging great-power structure of the EU is causing big frictions.

Nor does Germany have the ability to be the leader of Europe. The leadership it offers is about negation – about saying no. Neither Merkel nor Sigmar Gabriel has a positive idea about the EU, let alone one that can win the hearts and minds of Europe. Few countries in Europe are as ambiguous as Germany in its EU policy, so uncertain about how to position itself without causing controversy at home.

Post-war Germany has died. It was a country with few aspirations beyond prosperity and stability in Europe. It had an instinct to seek answers in continental cooperation, whatever the political problem it was confronted with. Modern Germany has other ambitions. One part of Germany looks out to the world rather than to Europe. Another part, much smaller than the first, has become more parochial. Germany has generally globalised – and changed its political persona in a way that many other countries in Europe have not done.

Germany does not want to whisper in Brussels, it wants to speak to the world.

Partly as a change of Germany’s political culture, its politicians and public opinion are moving towards a transactional approach to European cooperation. At the same time, Germany is the first patron of a currency union that requires a stronger constitutional identity in order to survive. Ovbiously, this divergence of politics and reality is not sustainable. Germany is trying to balance external demands and internal opposition by exporting its economic culture to other countries. But other countries do not always want it.

Sustained international cooperation is based on a convergence of interests. This has been the signature of the EU as well as other forms of successful international cooperation since the end of the Second World War. In recent years, however, the union is experiencing divergence, particularly economic, divergence.

Greece's gross domestic product (GDP) has fallen by a quarter during the crisis. Italy has not added more real wealth since the turn of the millennium. Spain and Portugal have become poorer – and have an unemployment rate that is greater than during the Great Depression; their competitiveness is low, the possibilities of exporting their way out of the crisis small, and the appetite for economic globalisation has decreased, moreover, from an initially low level. The ability to avoid rapid economic contraction has ultimately been due to decisions by the European Central Bank in Frankfurt to expand its balance sheet and fuel money into banks.

Many troubled eurozone countries have been at risk of state collapse –corruption, political patronage, and endemic inefficiency have been eating up the loyalty of electorates to governments. The problems of the state cannot be addressed by embracing a German economic model, or be forced to it through the programmes of financial assistance offered by the EU and the IMF. France is occupied by large internal conflicts, slowly but steadily eroding the country's capacity for leadership. Some speak of the pending or coming fall of the Fifth Republic’s. All these countries need to change their economic behaviour, but too often it the ordination is seen as coming from Germany and not addressing the core problems of the state that are at the heart of their crises.

Many of the crisis-hit countries were hoping for a new start for European cooperation after this spring’s European elections and the autumn’s appointments of new leaders. What they got, however, is a Brussels that whispers in German.

Fredrik Erixon is Director at The European Centre for Political Economy.

NR 9 2014

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