The EU's Current Predicament and Challenges

The underlying economic problems of unemployment and unequal distribution of wealth, exacerbated by the flood of migrants in 2015, have created a toxic mix that threatens to fragment the 27 EU nations.  It also threatens to undo much of the common economic and political work achieved since the 6 original members formed the Iron & Steel Community after World War II. The discussion moderated by James Black, specialist in German capital markets and corporate compliance advisory work at Morrison & Foerster, and panelists Federiga Bindi, Professor of Political Science at the University of Rome Tor Vergata, Ambassador Corrado Pirzio-Biroli, former head of the EU Delegations to the UN, OSCE, Austria and Charge d’affaires in the US, and Professor Michelle Egan, the Jean Monnet Chair at the School of International Service, American University was vigorous.

The underlying challenges are numerous and have been described as existential. This panel focused on four problems:  economic & financial, trade, defense and institutional weakness. 

Economy & finance: The institutional design of the Euro has been widely criticized. The reason is that creation of this single currency in 1992 lacked the ability to achieve a fiscal and banking union. Consequently, the EU lacks the financial and fiscal tools to manage a European wide economy and financial system. The disparity between Germany which accounts for 90 percent of the European current account, and the financial problems in Greece, Spain, Italy and Portugal have led to a lopsided EU. The current situation has shifted from positive growth and low inflation to rising debt, permanent austerity and high unemployment in the periphery that has placed considerable stress on social safety nets.

Trade: Commerce among the 28 members has had a very positive effect on all EU members, but trade adjustment assistance is left to the nation states, many of which have not assisted their citizens adequately.  While the European Commission and other EU institutions favored open trade, the consequence of increased competition plus German insistence on austerity has upset the balance of social protections within Europe.  Populism on the right and left has grown with 46 percent of Austrians supporting the right wing populist party in the December 4 presidential  elections and 28 percent of French citizens supporting the conservative, nationalist party to make it the largest single political force in France.  

Defense: The probable withdrawal of the British from the EU and the prospects of President-elect Trump provide an opportunity for the Europeans to co-ordinate their defense and build a credible European Defense Community which could address threats not addressed by NATO, such as Mali.  Bindi was particularly supportive of an European army, noting the two prior occasions when the EU had tried, but failed to create its own defense force.  Today, with doubts as to the continuing role of the U.S. in NATO and the aggressive actions of Russia, it is time for Europe to occupy the zone in-between.  Bindi also considered that the EU had to cooperate closer with Russia due to its geographic proximity and trading ties; a statement that provoked much controversy from the audience.

Democratic traditions & Institutional Weaknesses:  Overly ambitious European goals and EU expansion to nations lacking democratic traditions have led to serious problems. The EU has over-reached and therefore suffered declines in the rule of law and democracy in Hungary and Poland, as well as ongoing fragile institutions in the Balkans.  Egan expressed concern about the effectiveness of governing institutions and the inability of the EU to address democratic backsliding in the functioning of the European Court of Justice and the European Central Bank.  Furthermore, the rise of extreme parties on the right and left has resulted in weakened centrist parties and diminished citizen turn out on election days.

The way forward:  In the face of the increasing nationalist and protective tendencies,  European government are now considering three tiers of membership.  The inner tier would enjoy the benefits of a single currency and integrated economies with continued movement of people.  A second tier would not belong to the Euro single currency, but would otherwise comply with the four pillars established in 1992.[1]  A third, or outer tier would hold Associate status, giving them access to a custom’s union, but not access to EU financial services.  The problem is that division into three tiers puts the European Union at risk of collapse. 

Negotiations for a Trans Atlantic Trade and Investment Treaty (TTIP) offer the prospect of developing technical standards and lowering regulatory barriers that should facilitate trade in goods and services. The next U.S. administration may put a hold on these negotiations, but the Europeans should continue to draft their common negotiating positions while awaiting the day when Washington recognizes the mutual benefits of these new rules as well as the prospects for 740,000 new jobs.  The very task of ongoing European dialogue on these themes provides a basis for collaboration; a light glue to keep the Union together.

Diana Villiers Negroponte                                                           

[1] The Maastricht Treaty confirmed freedom of commerce, finance, and migration.

Introduction

Diana Villiers Negroponte
Public Policy Scholar, Wilson Center

Speakers

Federiga Bindi
Jean Monet Chair in European Political Integration, University of Rome Tore Vergata and Professor, Johns Hopkins University

Michelle Egan
Professor and Jean Monet Chair Ad Personam, School of International Service, American University and former Wilson Center Fellow

Ambassador Corrado Pirzio-Biroli
Former Head of the EU Delegation to the UN, OSCE, Austria and Chargé D'Affaires to the U.S.; Chief of Staff to the EU Commissioner for Agriculture, Rural Development and Fisheries

Moderator

James J. Black
Corporate Attorney, Morrison and Foerster, LLP