Conference: Europe’s Common Future

November 7, 2012
Torsten Arndt

During the three years of Europe’s crisis many supposedly rock-solid certainties about the European Union have been shaken up. Today, even dedicated Europeans do have to admit that, in its present shape, the EU may be one of the casualties of the crisis. At the conference Europe’s Common Future, organised by the Heinrich Böll Foundation on 25-26 September 2012, such concerns about a possibly disastrous failure of the Eurozone were palpable. A large majority of speakers was convinced that Greece, the country hit hardest by the crisis, has to be kept within the Eurozone at all cost. However, in order to achieve this, the necessary reforms will have to be supported by large sections of society, otherwise the result may be, as one member of the audience put it, “a European house built by Goldman Sachs.” Most participants agreed that such policies would only be able to succeed, if austerity measures in Greece and other of the crisis countries go hand in hand with compensatory social policies and the stipulation of growth.

A number of speakers sharply criticised Germany’s current crisis policies as too nationalistic, and some of the conference’s foreign participants argued that Europe’s economic powerhouse will have to show greater leadership, including backing for a common European debt and commitment to future financial transfers, as those present the “minimum of solidarity” (José Ignacio Torreblanca) within the EU. Almost everybody agreed that German leadership and solidarity would have to be used in such a way as to increase Europe’s financial and economic leeway. However, the animated debates led by the international podium gave a glimpse of why it will be difficult to achieve a European political consensus regarding a further transfer of political responsibilities.

The EU on the verge of an abyss?

None of the speakers denied that the euro crisis is serious, yet it was John Kornblum, former US ambassador to Germany and today a senior consultant with the law firm Noerr LLP, who drew the most radical conclusions, stating that, while the European project had been a successful response to the 20th century’s great catastrophes, its consensus-based model had outlived its period of usefulness and, today, is unable to adapt to the challenges of globalisation and the new nature of international crises. The consequence, thus Kornblum, is that already today the EU is hardly, if ever, perceived as a potential actor or strategic partner. He argued that, in order to change this, the EU should focus on its partnership with the US and promote the creation of a transatlantic free-trade zone.

Kornblum’s provocative thesis was contradicted by Rebecca Harms, one of the parliamentary party group leaders of the Greens/EFA in the European Parliament. Although Harms agreed with Kornblum that the EU was “imperfect,” she pointed to the fact that despite its consensus politics the Union had achieved some “splendid” successes on the international political stage. Blame for failures, for example concerning climate talks or the regulation of financial markets, had to be put, more often than not, at the doorstep of “backward-looking” US policies. In addition, Harms found it worrying that mistrust, as voiced by Kornblum, exists within the EU as well and is observable, for example, in the rise of right-wing populist parties. For her, the euro crisis is part of a larger crisis of the European idea – and the only way to tackle it is by boosting Europe’s self-confidence.

Other speakers shared this comprehensive view of Europe’s dilemma. Karine Berger (Parti Socialiste), a member of the French National Assembly, made it very clear that the monetary crisis presents not just a threat to the euro but to integration as a whole, and she expressed her belief that the EU would not be able to survive the collapse of the Eurozone. José Ignacio Torreblanca from the European Council on Foreign Relations, Madrid, agreed and stressed that the euro has become an indispensable part of European identity.

Others disagreed with the view that the fate of the euro and the EU are inextricably linked. Jarek Kucharcyzk, President of the Warsaw-based Institute of Public Affairs, pointed out that talk about a possible collapse of the Union could easily become a self-fulfilling prophecy. Kucharcyzk added that, from a Polish perspective, the collapse of the common currency would certainly be a disaster, nevertheless Europe’s success were based on other components too, such as the common market for goods, services, and labour, the structural funds, and Europe’s enlargement and neighbourhood policies. In Poland there is an awareness that saving the euro may lead to a permanent division within the Union and obstruct the accession of additional countries. Institutional reform with the aim of ending the crisis should thus only be undertaken with the participation of all 27 member states.

What future for the euro?

It was not only US-expert John Kornblum who doubted that the Eurozone would be able to survive in its present shape. British economist Roger Bootle of the consultancy Capital Economics, London, whose study concerning an exit from the euro recently won the Wolfson Economics Prize, denied that the southern countries within the Eurozone would ever be able to make up for their substantial lag in competitiveness. He argued that current policies of deflation were politically unsustainable and hampered economic growth. The measures of the European Central Bank (ECB), thus Bootle, while being effective, did nothing to address the underlying economic and political problems. Theoretically, the Eurozone may be upheld, yet only at the prize of a far-reaching political and fiscal union. As such a union would lead to a substantial loss of national sovereignty and come at a high cost for the economies of the North there is little chance of making such an option politically viable. Consequently, Bootle’s forecast was that the southern states hit hardest by the crisis will soon exit the Eurozone, and that the ensuing devaluation of their national currencies would promptly increase the competitiveness of their economies.

As was to be expected, Bootle’s sobering analysis met with considerable opposition. Ester Faia, Professor for Monetary and Financial Policy at Frankfurt University, pointed to the considerable technical difficulties of an exit from the euro and that Bootle substantially underestimates the financial and economic costs such a step would entail, which, according to Faia, would hit Germany harder than most other EU countries. For Michaele Schreyer, Vice President of the European Movement Germany and a former European Commissioner, Bootle’s vision presented a spectre, and she agreed with Faia that a Greece euro exit would have disastrous consequences. To her, Bootle’s criteria for competitiveness derive from a “mechanistic understanding of the economy” while European financial policies such as a banking union as well as comprehensive structural reforms in the countries most affected by the crisis may easily produce renewed growth and convergence within the Eurozone. For this to happen, politics has to demonstrate to the markets its strong will to save the euro – a point supported by many other speakers.

Austerity must go hand-in-hand with social justice

Regarding current austerity measures some participants pointed out that the European debt crisis was a direct consequence of the international financial and banking crisis that had first peaked in 2008 with the collapse of Lehman Brothers. Spanish activist Aitor Tinoco i Girona, a member of the movement Democracia Real Ya, pointed out that the enormous prize to be paid for this global financial collapse had been systematically apportioned to national budgets within the Eurozone and the countries on the southern periphery. The structural reform presently pursued by the European Commission, the ECB, and the International Monetary Fund (IMF) – the EU Troika – are further pushing this process by exporting the German “low wage model” to Spain and other crisis countries. According to Tinoco i Girona, such shock therapy will result in mass precarisation.

Ulrike Herrmann, economics correspondent of Berlin’s die tageszeitung and chair of the session, asked whether it is justified to focus solely on cutting budget deficits in order to end the crisis, as this meant that sacrifices in the form of higher taxation and lower salaries had to be made by large parts of the general public while those directly responsible had a much lighter burden to bear. Herrmann added that, so far, in Greece, Spain, and Portugal austerity measures had only deepened the recession – a fact making it questionable whether such policies (also supported by the German Greens) are apt to bring Europe out of the crisis.

This Keynesian perspective on European austerity policies was shared neither by the economists nor by the politicians on the panel. The Green Party MP Viola von Cramon defended the aim to reduce debt in the crisis countries, although she agreed with most other speakers that austerity measures are presently too one-sided, and that cuts will have to go along with measures able to stimulate sustainable growth. The considerable social consequences of the present policies, something she called “the squeezing dry of the working population,” is a factor warranting much greater attention.

Michaele Schreyer also defended European austerity measures, adding that all member states will have to reduce their budget deficits, and that in Germany, too, “lush public spending programmes” were out of the question. She stressed that, on the other hand, governments had to increase their income, for example by levying higher taxes on the wealthy and by introducing a financial transaction tax, a measure supported by the German Green Party. According to Schreyer, the social consequences of structural reforms can be cushioned by, among other things, the stringent implementation of the European Commission’s “Europe 2020” strategy for growth.

No more “fake” growth

In opposition to the analysis presented by Roger Bootle, most speakers were convinced that it is actually possible to revive the economies of Greece, Spain, and other crisis countries without having them quit the Eurozone. Radek Špicar, Director of the Aspen Institute Prague, argued against financing growth through debt, as this were unsustainable. As Europe is characterised by a high level of economic interdependence, as witnessed by the rapid, Europe-wide spread of the Greek crisis, this problem, according to Špicar, affects all of Europe, as for many years numerous countries had been raising their standard of living, extending their social services and, in the process, had lost their competitive edge on the international stage. He argued that structural reform will have to be guided by the paradigm of “small government” and by efforts to make walled-of, stagnant labour markets more flexible – otherwise it would be impossible to reduce unemployment and attract investment. Špicar concluded by stressing that, in the future, Europe had to be willing to make greater sacrifices in order to be able to compete with countries such as the USA and China. For this to succeed, austerity measures would have to be tailored to the specific circumstances in each country. He reminded the audience of the post-Communist transformation in the Czech Republic, whose economic hardships were only tolerated by the population because there was a positive vision of the future – something sorely lacking in Greece today.

Andreas Krautscheid, member of the Senior Management Board at Germany’s banking association, Bankenverband, also argued that it would be wrong to only make cuts, instead governments will have to tread a fine line between austerity measures and stimuli for growth. For him the paramount task of politics was to convince the markets of the euro’s future existence, as, without such confidence, there would be no investment in the countries most affected by the crisis.

Some speakers opposed such a one-sided focus on private investment, among them Kerstin Andreae, deputy chair of the Green Party group in the Bundestag. She argued that Europe will have to take a leading role on the path towards sustainable green growth, for example by promoting greater energy efficiency and investment in the green energy sector – something proposed by the Greens as part of their proposal for a Green New Deal. As she pointed out, at present, Greece had to spend considerable amounts on oil imports, a fact showing that autonomous forms of energy production do not only go along with environmental but also with financial rewards.

Greece will have to do its “homework”

Greece is still perceived as the central focus of the euro crisis. Following on from Radek Špicar, Anna Visvizi of the American College of Greece in Athens pointed out that it is above all the public sector with its overly generous benefit payments that is responsible for the country’s problems. She held that, on the other hand and by European standards, Greece’s private sector was very productive, yet its efforts were frequently thwarted by excessive bureaucracy – with the result that the country was unable to attract sufficient investment. This, according to Viszivi, can only be mended once the Greek government has done its homework.

George Pagoulatos, Professor for European Politics and Economy at the University of Economics and Business in Athens, confirmed that in large parts the country itself was to blame for the scope of the crisis. However, current austerity measures to balance the state budget had already had some positive impacts, and today, in many European rankings regarding reform, Greece held a top position. Pagoulatos added that many structural reforms have been very controversial within Greece and that the economic slump they had caused could, lacking European support, easily result in a vicious cycle of debt and deflation, something, if left to its own devices, the country will be unable to avoid.

Viola von Cramon agreed with Pagoulatos that further European assistance is needed, however, she added that her personal experience in Thessaloniki had made it clear to her that Visvizi’s claim that many structural reforms existed on paper only was correct. She insisted that further European investment aid should only be granted, if its effective use were ensured. In this context, von Cramon reminded participants of earlier lessons learned regarding the misappropriation of resources from EU structural funds. In addition, the EU would have to make sure that the funds allotted were being used to promote sustainable growth, something thus far largely overlooked by the EU task force – as proven by the fact the much of the funds were still being used for traditional large-scale construction projects, for example motorways.

Germany will have to bear greater responsibility

In Germany, Greece’s problems are frequently invoked as proof that the southern member states are irresponsible and living beyond their means. Accordingly, at present, a majority of Germans does not support an assumption of costs by Germany in order to save the crisis countries. George Pagoulatos claimed that while Germany could not be accused of a lack of solidarity, its real shortcoming was a lack of leadership, adding the historic example of other federations showed that Germany will have to exert a “benign hegemony,” otherwise the Union would likely collapse.

Gesine Schwan, President of the Humboldt-Viadrina School of Governance, Berlin, also criticised Germany’s stance during the crisis, giving as an example that Germany in its policy towards China acted above all in its own and not in the European interest. For her, leadership has to be more than self-interest, that is, more than acting in ways that only aim to “save one’s own skin.” Instead, when it comes to analysing and solving problems, Germany will have to project a European perspective, nationally as well as internationally, something that is even more imperative as, in the current political debate, the actual financial cost is being blown out of proportion. She noted that, thus far, the funds granted to the countries most affected by the crisis had mostly come in the form of financial guarantees with very little actual payment taking place – stressing that actual costs would accrue, if Greece were to be pushed out of the euro. According to Schwan, at present, Germany is actually profiting from the crisis as German public borrowing benefits from negative interest rates. The burden is currently born not by the Germans but by those in Greece and Spain affected by unemployment and cuts to their salaries and pensions, an aspect stressed not only by many other speakers but also by many in the audience.

The German debate over the euro, thus Schwan, was characterised by a lack of empathy and respect for other Europeans, yet Germany would have to abandon the moral high ground. According to Schwan, the German Greens were also to blame for this warped German perception of the euro crisis, as the parliamentary opposition had supported the nationalistic character of the debate – and that for purely tactical reasons. Ulrike Herrmann concurred, adding that her impression regarding the euro crisis was that of a broad coalition ranging from the Greens to the Christian Social Union of Bavaria (CSU) and that all parties were pushing a political agenda to which, they claim, there is no alternative.

As many Green politicians were present such a point of view did not go unchallenged. Michaele Schreyer defended the Green Party’s support for the German line with the argument that, during “tough negotiations” they had forced the government to compromise on many points. Viola von Cramon added that her support for a European solution to the crisis had led many within her own constituency to view her as a “European nutcase.” Franziska Brantner, a member of the Green parliamentary group in the European Parliament, reminded the audience how central a role the German Constitutional Court was playing regarding European policy, and that it still tended to interpret fundamental democratic norms in mostly national terms. She added that, if all member states had similar courts, European politics would become completely obstructed.

On the other hand, many speakers shared concerns that financial responsibilities imposed onto Germany may turn into a “bottomless pit.” Despite all demands for solidarity, financial contributors such as Germany were justified to expect that recipients such as Greece demonstrate their willingness to rein in spending, undertake structural reform, and support sustainable investment.

EU reform – the “grand plan” will have to wait

In his introductory remarks, Ralf Fücks, President of the Heinrich Böll Foundation, pointed out that the euro crisis had already – although in an unplanned manner – “revolutionised” the EU’s institutional set-up, as shown by the fact that the ECB, in its monetary policy, had abandoned the supposedly indomitable “German Bundesbank model” and begun to introduce some mechanisms for mutual debt liability. Fücks added that, however, at the same time, national stereotypes that had long been thought of as vanquished had re-emerged and that political conflicts between member states had taken centre stage.

Hardly any participant envisioned a “grand plan” such as the creation of a federal European state. Publicist Jacqueline Hénard from the European Council on Foreign Relations’ Paris office warned that there often is too optimistic a view – something she called “institutional poetry” – especially within the German debates on Europe. The French public, while latently aware of the fact that some reform is necessary, still views the European crisis from a predominantly national perspective. Thus, according to Hénard, the concept of a “postnational” Europe will not be able to convince the French – and, as an example, she pointed to the fact that the French Green Party was opposed to the European Fiscal Compact. Franco-German declarations on Europe will thus have to be viewed with a grain of salt, as the common terminology used is frequently subject to very divergent interpretations within the national context. Hénard’s point was reinforced on the first day of the conference when Ralf Fücks and French MP Karine Berger disagreed about the content and meaning of the European Fiscal Compact.

José Ignacio Torreblanca warned against an overly hasty reform of the EU, stressing that with some certainty disgruntled citizens would use the referenda needed to pass such measures as a protest vote against their governments. As there is an obvious lack of trust between member states the paramount project will have to be to reduce the lack of democracy existing on the European as well as on the national level. The voters needed veritable alternatives – political visions that would be enacted following elections. The EU would have to prove itself by making a common effort for overcoming the crisis, thus reinvigorating the idea of a common European society. This, according to Torreblanca, will only be possible if there is true European solidarity, including a shared liability for European debts.

Banking Union and European Fiscal Compact – keeping Europe able to act

The general scepticism towards grand solutions for a reform of the EU Treaties was shared by experienced politicians and experts such as Gesine Schwan and Michaele Schreyer. However, they were convinced that within the existing structures greater participation of the European Parliament and Commission could result in considerable changes. Over the past few weeks the news indicated that, at least regarding the question of greater banking regulation, a new European consensus is about to emerge. In future, thus the plan, it will no longer be possible to save irresponsible finical institutions at all cost using taxpayers’ money – just because they are thought to be too big to fail.

Other differences apart, most participants of the conference subscribed to such an approach. London-based economist Roger Bootle expressed his understanding for those who criticise the large banks, although he also pointed out that speculation on the financial markets and excessive management salaries were not the causes of the euro crisis. Andreas Krautscheid, representing the banking sector, agreed that it would be wrong to penalise large banks, thus putting the blame for the crisis at their doorstep. According to Krautscheid it is especially smaller banks that need state support while, on the other hand, the major banking institutions will remain necessary in order to finance large-scale investments. Despite these reservations, Krautscheid admitted that the problem of institutions considered too big to fail required, without doubt, a solution.

Even regarding the touchy subject of European intervention in national budgets possible compromises seemed to be in the offing. Franziska Brantner pointed out that the European Fiscal Compact may be implemented using the instrument of so-called “Closer Co-operation,” that is parliaments willing to co-operate may grant the European Parliament the right to veto national budgets according to a strict set of rules. Conflicts regarding European objectives could be dealt with in advance by making the European Parliament part of the budgetary drafting process. Referring to Dani Rodrik’s globalisation paradox”, Brantner argued that, without the imposition of such limits on national sovereignty, Europe would be unable to reconcile democracy with globalisation.

Translated into English by Bernd Hermann


Europe’s common future. Ways out of the crisis

The EU not only finds itself in a debt crisis, it is also faces both a crisis of confidence and of democracy. Now is the time for a broadly based public debate on alternative proposals for the future of Europe. We would like to contribute to the debate with this dossier.