Archive for Thursday, September 29, 2011

Can European Union survive current crisis?

September 29, 2011


— Until recently, the idea that the 27-nation European Union might disintegrate would have been unthinkable, for uniting a continent ripped apart by two World Wars was considered a rousing diplomatic success.

But the EU’s two most cherished achievements — a common currency and the free movement of people across borders — are under threat. And the possibility that the decades-long experiment that is the EU might not survive in its present form has now entered mainstream debate.

The Polish finance minister, Jacek Rostowski, has raised the prospect that the EU might split apart. German Chancellor Angela Merkel said if its common currency, the euro, failed, so too would Europe itself. And experts say the euro’s stability is by no means assured: George Osborne, the British chancellor, has said that only a few weeks remain to save it.

On Wednesday, Jose Manuel Barroso, the president of the European Commission, the EU’s executive arm, described the state of the union in unusually stark terms. The EU, he said, was facing the biggest challenge since its creation.

“We’re in a crucial moment in history,” he said. “If we do not move forward with more unification, we will suffer more fragmentation.”

None of these officials is predicting the EU’s demise. But it is a measure of the gravity of situation that they are discussing the possibility at all.

Since the 1950s, the strengthening of European integration had seem slow and fitful, but also inexorable. In 1951, six countries formed the European Coal and Steel Community. In 1957, they established the European Economic Community.

In 1985, the Schengen Agreement was signed with the aim of abolishing checks at the borders between member countries. In 2002, the switch from national currencies to the euro went off without a hitch — and 17 nations now share the common currency.

Over time, the EU has grown from six countries to 27, and currently it is home to more than 500 million people.

The challenge now is how to manage a currency that covers 17 countries, and a borderless travel area of 25 — including some nations outside the EU — without strong central governance. As the EU is currently run, decisions must be approved unanimously, meaning a single country can block action.

That’s why Finland can throw a wrench into the Greek bailout negotiations and why the Netherlands has been able to block Serbian entrance into the group.

Without clearer rules, the EU will have to dramatically scale back its ambitions, says Karel Lannoo, the head of the Brussels-based Center for European Policy Studies.

“It needs to be much more consistent in the way it works as a federal structure,” he said Wednesday, citing the U.S. model where the hierarchy between states and the federal government is well-defined.

As it is, he said, some EU countries simply do not accept rules they do not like.

That same point was made by Barroso in his state of the union speech Wednesday to the European Parliament in Strasbourg, France, when he pleaded for stronger central governance and decried “the constraint of unanimity.”

“The pace of our joint endeavor cannot be dictated by the slowest,” he said.

These constraints have meant that European officials have consistently reacted more slowly and less decisively to the euro crisis than financial markets would have liked, exacerbating the situation and throwing the future of the euro in doubt. And when countries did not follow EU rules on budget deficits, contributing to the euro debt crisis, no federal structure sanctioned them.

Lannoo, the policy analyst, said he was “rather pessimistic” about the survival of the euro. But he does not agree that the collapse of the euro would mean the collapse of the European Union. It could continue, he says, maybe with fewer members as a free trade zone with common rules but no common currency.

Paul de Grauwe, an economics professor and EU expert at the Catholic University of Leuven in Belgium, says the EU faces a stark choice.

“One road is more integration to save the project, to save the Schengen zone and the monetary union,” de Grauwe said. “But there is a lot of opposition. It’s also possible that we take the other road, no further integration, and then we risk the collapse of these two experiments.”


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