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|How to Fix Europe|
Politico - October 2, 2015
Europe is beset by many crises, but enveloping them all is a crisis that is both broader and deeper: a crisis of public confidence in the European Union itself. Nowhere has this been more evident than over the issue of the refugees and migrants flowing across and around the Mediterranean, especially those fleeing Syria’s bloody civil war. While national governments have responded in good ways and bad, the EU response has been a fine imitation of the Keystone Kops. If the EU cannot deal with a crisis like this, people are asking all over Europe, what is the point of it?
It is a fair question. The accurate answer, that the EU doesn’t exist as an independent source of decision and action but is rather an agglomeration of 28 national governments’ views,’ decisions and actions, does nothing to reassure. The whole purpose of the EU is to facilitate and even require collaboration and co-ordination between the member governments, in pursuit of collective solutions that can be stronger, more coherent and more effective than separate national policies.
However many summits are held on the refugee issue, with policy agreements announced in the small hours, the European public still believes that the EU cannot get its act together. It sees a huge gap between the policies on which agreement can be reached–such as to allocate 120,000 refugees between countries according to quotas—and the magnitude of the issue. To many people, this looks like rearranging deckchairs on the Titanic, an action that is a diversion from the main point.
This crisis of confidence sees its most evident impact in the opinion poll ratings for anti-EU and anti-immigrant political parties all over Europe. But it also feeds into a broader disillusionment with representative government in all countries. So what, if anything, can be done about it?
Well, if I were asked to give a briefing to the governments assembled in the European Council, I would urge them to make the following five steps, as a program to rebuild confidence in them and in the EU:
Suspend Schengen, show you can control (open) borders.
No one expects the flow of refugees and migrants to end soon. But the impression most ruinous to public confidence is the sense of disorder and of ignorance about how many migrants there are and where they are going. A humanitarian response, combined with borders that are open both to legitimate asylum-seekers and to controlled levels of general immigration, must remain central to policy both at European and at national level. But the disorder and ignorance must be brought to an end. They play into the hands of extremists and xenophobic political parties, since they raise legitimate concerns among the public.
The most important action must be to put far more money behind controls on the EU’s external borders and on establishing refugee reception-centers at border hotspots. This is current policy, but the financial effort put behind it looks too meager and half-hearted for a phenomenon as vast and open-ended as the current flow of migrants.
The most important symbolic action, however, would be much easier financially: It is to suspend, throughout Europe, the so-called Schengen agreement on passport-free travel, reintroducing passport-checks on all borders. This agreement applies to 22 of the 28 EU members, plus Norway, Iceland, Switzerland and Liechtenstein. It is dear to the hearts of European idealists, for it symbolizes the idea of a unified European space, in which travel can be made as easy as it is within a nation-state. That is great in principle, but at times like this it means that no country knows who is coming and going across its borders, and no government can say accurately how many refugees and migrants have settled in their country.
Suspending passport-free travel would not be considered an unacceptable burden by most EU citizens if it were to help restore a sense of control. It would leave intact the fundamental right of free movement of EU citizens to live and work anywhere in the EU even if, as has been the case for citizens of new member states, refugees could then given a transitional period of years before they too are allowed to benefit from that right. Moreover, it would be helpful to be able to show that even sacred cows can be slaughtered in the EU. The idea that all actions like Schengen are irreversible in the march towards the cherished goal of “ever closer union,” regardless of circumstance, contributes to disillusionment and resentment of the European Union.
Do something ambitious and clearly beneficial with public investment
A crucial reason why Europeans have become so grumpy about immigration is the persistence of high unemployment in many countries. Economic policies, especially among the 19 members of the eurozone, feel to many people more like punishment regimes than pathways to a better future. Thanks to the sovereign debt crisis, “Europe” has become synonymous with fiscal austerity, with cuts in public spending and in wages. Proposals for something more creative and constructive, such as the public investment program put forward by the president of the European Commission, Jean-Claude Juncker, look timid. Juncker’s plan relies chiefly on raising private funding for public infrastructure projects, rather than on public spending itself.
Seven years since the global financial crisis began, and five years since eurozone public debt first manifested itself as a threat, it is time to start to associate the European brand with something more hopeful than just austerity. Public borrowing costs are at record lows. Many countries, especially the southern European debtor countries such as Spain and Portugal, along with Ireland, have introduced liberalizing reforms, and the re-elected Greek government is committed to doing so. Relaxing fiscal austerity in a formal way would no doubt be a step too far, especially for Germany. But a joint, well-defined and targeted program of public infrastructure investment all over Europe would offer a way to relax austerity in a perhaps stealthy, but certainly controllable way.
The best single target for such public investment would be a European supergrid for electricity distribution throughout the continent, and a more complete set of gas pipeline connections than exists at present. Right now, European countries’ electricity grids are mostly separate, with the ability to share power capacity and trade electricity across borders surprisingly limited. Building a supergrid is a multi-hundred-billion euro project, which would take a decade or more, and which would bring benefits in terms of cheaper energy and freer competition to everybody except the incumbent national energy monopolies. An added bonus would be that it would help reduce the EU’s dependence on Russian gas supplies. At last, Europe would be seen to be building something useful.
Give the single market a new life and new future
No statement of Europe’s purpose is complete without a promise to extend the single, unified system of market regulations from goods to all services and to the digital economy. However, action to make it a reality is a great deal scarcer. For Germans and other northern Europeans who might be worried about a big public investment program, however, a revived single-market program ought to be reassuring, for it is a way to force liberalization on to sclerotic, over-regulated countries such as France. The main trouble with this notion is that Germany has over the past 15 years been one of the main obstacles to spreading the single market to services, as its powerful professional organizations have objected. Yet given that Germany now so regularly demands “structural reforms”, by which is meant liberalization, from other countries, it can surely now be expected and urged to face down its domestic services cartels.
Without a plausible further program for the single market, British withdrawal from the EU at the referendum it has pledged to hold by the end of 2017 will become more likely. And if Britain does vote to leave, public confidence in the EU in other European countries will take a huge blow.
Start serious talks on debt relief
The Eurozone sovereign debt crisis has been a long and painful struggle between those–led by Germany–who want the single currency area to be one governed by clear rules of behavior and those who would prefer it to involve more collective responsibility for public debt and economic performance. Public support for the euro in member countries has remained surprisingly high, as was shown by Greece’s decision to accept onerous terms from its creditors rather than risk exit and potential national bankruptcy. But even as the eurozone has stumbled successfully from bail-out to bail-out, and avoided catastrophe, one shadow has continued to hang over it. This is the sense that the current levels of public debt are still unsustainable.
Greece’s public debt, expressed as a comparison to its annual economic output, has continued to rise, however many bail-outs and reform packages it passes through. To reduce those debt levels substantially would require implausibly fast economic growth, sustained over many years, a prospect made even less likely by the country’s need under its bail-out agreements to run budget surpluses. The European public is not stupid. It knows that the end of the story has not yet been reached, and will not have been reached until something is done to relieve Greece, and perhaps other major debtors, of some of their debt burden.
This is the view now being pressed by the International Monetary Fund. It has pulled back from the financial rescue package for Greece until debt relief has been discussed seriously and in some manner secured. If European governments are to restore confidence in their own policies, and in the future of the euro, they surely need to follow the IMF’s lead. I would propose that debt relief be made the subject of a grand international consultation process, and that other future reforms of the euro be also placed on the table, such as mutual underwriting of some forms of government debt, a full banking union with collective insurance of bank deposits, and the deepening of common fiscal controls (known as “fiscal union”) that many economists consider essential for the proper functioning of the monetary union. This set of further reforms need not be made to appear imminent, lest the German public get scared that they are going to be asked to open their checkbooks. But unless debt relief and then fuller reforms are shown to be being contemplated seriously, the euro itself will not regain public confidence.
Make Europe synonymous with opportunity
My briefing would end with an observation about the sort of message that has been sent by EU policies in recent years. As well as often looking like the Keystone Kops, the other damaging characteristic of European policies is that they have typically looked so negative. The EU, sometimes in the form of Germany, has become the place that says “No,” that imposes punishments and obstructs you, rather than a place and a system that says “Yes.”
In choosing your main collective policies, I would say, you need to prioritize those actions and initiatives that can credibly make Europe look like the source of opportunity and hope that it was always intended to be. Opportunities come from electricity grids, they come from broader single markets, they come from the chance to live and work abroad or in collaboration with other Europeans, they come from (for example) the chance for students to spend part of their education in another EU country. Europe has its Erasmus program to help students and faculty spend time abroad, but its reach in terms of numbers of students affected is too small really to have an impact on the general public. Farmers, thanks to the costly Common Agricultural Policy, get a far better deal from Europe than students do.
Opportunity. It is the basic European characteristic that is proving so attractive to migrants from North Africa and the Middle East. Wouldn’t it be good to convince existing Europeans that the EU is a land of opportunity for them, too? Until the European Union and its governments succeed in doing so, they will continue to lurch from crisis to crisis.