healthier, happier and richer

European integration after the Euro crisis

“A monetary union requires a very high degree of political and economic integration. Without it, a shared currency will do more harm than good.”

“Unfortunately, current efforts to reform the eurozone are set to fall dramatically short of what is required to secure the future of the single currency. Eurozone governance will comprise little more than a beefed-up system for ensuring budgetary discipline. Trade imbalances within the currency union are to be treated as a matter for the deficit countries alone; surplus countries will not be obliged to strengthen domestic demand. And there will be no push to accelerate market integration or move to fiscal union.”

“Unless there is a rethink, the eurozone risks permanent crisis”.

How to save the Euro, Simon Tilford, September 2010 (see http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2011/essay_euro_tilford_14sept10-196.pdf)

This analysis was published by Simon Tilford of the Centre for European Reform almost five years ago. It was not the first time Simon had warned about the need for Euro reform: in 2006 he wrote that “the basis for a sustainable currency union is not in place. Unless the members rapidly boost their reform efforts, and unless economic growth across the eurozone accelerates, EMU faces a bleak future.” (see

http://www.cer.org.uk/publications/archive/report/2006/will-eurozone-crack)

After 2006, economic growth across the Eurozone did not accelerate. Instead, we had the global economic crisis. On Sunday, the Greeks may vote to reject more austerity and leave the Eurozone. Other Eurozone governments are confident that they have built ‘firewalls’ to stop Grexit creating problems for other countries. But they have been confident – wrongly – about many things in the past. Grexit could well be followed by serious financial instability in Italy, Spain, Portugal and even France. Simon’s warning of permanent crisis looks sadly prescient.

Why has this happened? Partly because the German government has failed to heed Simon’s advice and go for growth rather than austerity. But partly also because of history. European Economic and Monetary Union was a political project, not an economic one: Jacques Delors and others hoped that it would lead  to greater political union. It has not, so is doing more harm than good to the concept of European integration. The Euro crisis is not going to be solved any time soon, and will only ever be solved with greater political integration – which will not happen without greater public support. So EU leaders must take action on other issues to reinvigorate the ‘European project’.

The single market is the EU’s greatest achievement, and can be deepened in services, the digital economy and energy. But, as Delors rightly said, it is hard to fall in love with a single market. Governments must continue work on the single market, but political leaders should also outline a vision of what European integration can add in a globalised world. In doing so, they should talk more about the goals that started European integration in the 1950s, peace and energy.

There have been no wars between member-states since the Treaty of Rome. Opponents of the EU argue that this is because of NATO. NATO has certainly played its part, but the EU has also contributed. NATO has the hard power – air forces, tanks and guns – but the EU has very considerable soft power. The fact that both the UK and the Republic of Ireland are EU members helped the governments to secure the Good Friday Agreement in 1998. European integration is based on the concept of co-operation rather than conflict. Co-operation is easier between growing economies. The EU Budget can be used to increase economic development (though much of it is currently wasted – see http://www.cer.org.uk/publications/archive/policy-brief/2012/european-union-budget-2014-20-more-boldness-needed).

The EU should use its soft power to help end the current war in Europe, in Ukraine. And it should use more of its money to promote economic development in North Africa (see http://www.cer.org.uk/publications/archive/policy-brief/2013/priorities-eu-development-aid). This could reduce (though certainly not end) the flow of migrants across the Mediterranean, so should be a foreign policy, humanitarian and economic development priority.

There is currently much talk in the Brussels bubble about an Energy Union. Commission president Juncker has put a vice-president, the Slovak Maros Sefcovic, in charge of this. Sefcovic was an effective commissioner for inter-institutional relationships in the last Commission. Like peace, energy co-operation takes European integration back to its roots: the European Coal and Steel Community, which was created before the Treaty of Rome, and Euratom, which was created by that treaty.

Why should EU leaders address energy issues when they have so much else to deal with? For at least four reasons:

• The EU has said that it will reduce its dependence on Russian gas – and should also reduce its use of Russian coal and oil.
• The EU regards itself as a leader in action to control climate change. Europe’s current energy system is incompatible with climate protection.
• Air pollution from current energy use is killing many thousands of Europeans every year, and greenhouse gas emissions are killing many thousands of people across the globe (see http://climateanswers.info/2015/06/2015-lancet-commission-report-on-health-and-climate-change/).
• Air quality and a stable climate cannot be delivered by a national government acting alone. Many ‘Eurosceptics’ accept that the EU has a role to play on energy and climate change (see http://www.cer.org.uk/publications/archive/policy-brief/2014/green-benefits-britains-eu-membership).

In December there is a UN Climate Summit in Paris. This will probably not reach the international legally-binding agreement that climate campaigners are demanding (and even if it did, the targets would not be enforceable). But the conference does at least put climate change on the media agenda, so increasing the chance that politicians will act. German chancellor Angela Merkel is under some pressure on climate issues: Germany’s emissions are not falling significantly because she decided to phase out nuclear before coal. David Cameron has a broadly sensible approach to climate and energy policy. So this is an issue on which the UK and Germany could and should work together. Reforming Europe’s policies and performance is more important than changing its treaties.