Is there a future for the EU after
the crisis?
Olaf Cramme
Director, Policy Network & Visiting Fellow, LSE
Email: ocramme@policy-network.net
Twitter: @olafcramme
The European Puzzle
• Short-term crisis resolution in the eurozone: a consensus
is now forming about what needs to be done, but no one
seems to knows how to do it.
• Long-term predicaments for the EU: few seem to
understand what (and how profound) they are, but many
are convinced (or at least hope) they will somehow be
manageable.
The economics of the Eurozone crisis
The immediate financial/fiscal problems
• Insolvency of Greece
• Fragility of Portugal, Spain and Italy (“contagion”)
• The capitalisation and interconnectedness of European banks
The structural dilemma
• Huge macro-economic imbalances inside the Eurozone
(surplus versus deficit countries; divergence in
competitiveness; etc.)
The economics of the Eurozone crisis
Main interim measures
• Bail-out programmes for Greece, Ireland and Portugal
• ECB bond purchasing programmes (mainly for Italy and Spain)
• European Financial Stability Facility (EFSF) and European Financial
Stabilisation Mechanism (EFSM)
A comprehensive resolution package for the short-term
• More powerful EFSF and then permanent European Stability Mechanism
(from 2013 onwards)
• Greek debt restructuring plus “haircut” (i.e. debt write-down incl. private
sector involvement)
• Re-capitalisation of European banks
• Budgetary surveillance/coordination plus economic convergence
programmes (European Semester, EU2020 Strategy, Euro-Plus-Pact; etc)
• A growth and competitiveness plan, in particular for the Southern
countries
The politics of the Eurozone crisis
The origins of the crisis
1.
2.
3.
4.
Global financial crisis of 2007-08 triggered by sub-prime mortgage crisis
in the US
European banks heavily affected, forcing EU governments to step in and
bail out their “national” banks
Effects on “real economy” leading to a deep recession across the EU
(with very few exceptions, such as Poland)
Banking crisis (plus recession) triggered sovereign debt crisis in the
Eurozone, continously driven by market pressure (channelled via “credit
rating agencies”)
-> How many “externalities” can politics internalise?
The German view
The Greek view
The politics of the eurozone crisis
Cultural/attitudinal dilemmas
• Fiscally prudent North versus profligate South?
• The spectre of a “transfer union” (or debt union)
• The limits of European solidarity
Institutional dilemmas
• Inadequate decision-making procedures in the EU/Eurozone and various
member states (e.g. EFSF ratification process)
• Lack of leadership at the national and European level
Representational dilemmas
• The temporary loss of sovereignty and self-determination
• The rise of populist parties across the EU
-> Can the European political “system” deliver against this background?
The long-term: economics
Monetary question
• What inflation and interest rate policy in a non-optimal currency zone?
Trade question
• Faced with Asian export dominance and weak(er) US demand, can the
euro area as a whole become a ‘surplus bloc’ if Germany does not
balance its current account?
Debt question
• Is debt mutualisation (e.g. through Eurobonds) possible despite the
veto of Germany’s constitutional court?
The long-term: politics
• Debate about the EU’s alleged, perceived or real “democratic
deficit”
• EU democratic politics before the sovereign debt crisis (the role of
the ECJ; the absence of constitutional politics; the principle of
proportionality)
• The shifting space for EU politics after the crisis (a new
“conditionality regime”; the salience of procedural issues;
mainstream versus populism?)
Europe’s political trilemma
(Adopted and modified from Rodrik/O’Rourke)
Two-speed Europe
•
Old debate (see e.g. Schäuble/Lamers paper in the 1990s) broadly differentiating
three models:
(a) Multi-speed integration
(b) Europe à la carte
(c) Concentric circles
•
Yet implications of deeper integration in the Eurozone on the EU-27 possibly farreaching (role of economic governance, decision-making procedures; Single
Market reform; financial regulation, etc.)
•
Significant U-turn in the position of the UK: current government now openly
endorses a two-speed Europe. What will this mean for Britain?
The British view?
Scenarios for Britain
1.
The UK leaves the EU (e.g. through an ‘in or out referendum’ – but would it
be won?)
2.
The UK as a new Switzerland/Norway with access to the Single Market or
inside the EEA; or alternatively with an indefinite numbers of EU opt-outs
(e.g. by holding the Eurozone to ransom?)
3.
The UK as a critical, reserved but pragmatic EU insider: business as usual for
UK-EU relations, although future treaty changes might be used to repatriate
some powers from Brussels
4.
The UK moves closer to the EU by joining common policy programmes such
as the Euro-Plus-Pact; by taking a lead in modernising the European Social
Model; by brokering a new bargain for the completion of the Single Market;
by revitalising Europe’s defence cooperation; etc.