Thursday, 10 November 2011

The future of the EU: Two-speed Europe, or two Europes?

Charlemagne's Notebook in today's Economist newspaper explores the rumours of a united - yet divided - Europe:
Nicolas Sarkozy is causing a big stir after calling on November 8th for a two-speed Europe: a “federal” core of the 17 members of the euro zone, with a looser “confederal” outer band of the ten non-euro members. He made the comments during a debate with students at the University of Strasbourg. The key passage is below (video here, starting near the 63-minute mark):
You cannot make a single currency without economic convergence and economic integration. It's impossible. But on the contrary, one cannot plead for federalism and at the same time for the enlargement of Europe. It's impossible. There's a contradiction. We are 27. We will obviously have to open up to the Balkans. We will be 32, 33 or 34. I imagine that nobody thinks that federalismtotal integrationis possible at 33, 34, 35 countries.
So what one we do? To begin with, frankly, the single currency is a wonderful idea, but it was strange to create it without asking oneself the question of its governance, and without asking oneself about economic convergence. Honestly, it's nice to have a vision, but there are details that are missing: we made a currency, but we kept fiscal systems and economic systems that not only were not converging, but were diverging. And not only did we make a single currency without convergence, but we tried to undo the rules of the pact. It cannot work.
There will not be a single currency without greater economic integration and convergence. That is certain. And that is where we are going. Must one have the same rules for the 27? No. Absolutely not [...] In the end, clearly, there will be two European gears: one gear towards more integration in the euro zone and a gear that is more confederal in the European Union.
At first blush this is statement of the blindingly obvious. The euro zone must integrate to save itself; even the British say so. And among the ten non-euro states of the EU there are countries such as Britain and Denmark that have no intention of joining the single currency.
The European Union is, in a sense, made up not of two but of multiple speeds. Think only of the 25 members of the Schengen passport-free travel zone (excluding Britain but including some non-EU members), or of the 25 states seeking to create a common patent (including Britain, but excluding Italy and Spain).
But Mr Sarkozys comments are more worrying because, one suspects, he wants to create an exclusivist, protectionist euro zone that seeks to detach itself from the rest of the European Union. Elsewhere in the debate in Strasbourg, for instance, Mr Sarkozy seems to suggest that Europes troublesdebt and high unemploymentare all the fault of social, environmental and monetary “dumping” by developing countries that pursue “aggressive” trade policies.
For another insight into Mr Sarkozys thinking about Europe, one should listen to an interview he gave a few days earlier, at the end of the marathon-summitry in Brussels at the end of October (video here, starting at about 54:30):
I don't think there is enough economic integration in the euro zone, the 17, and too much integration in the European Union at 27.
In other words, France, or Mr Sarkozy at any rate, does not appear to have got over its resentment of the EUenlargement. At 27 nations-strong, the European Union is too big for France to lord it over the rest and is too liberal in economic terms for Frances protectionist leanings. Hence Mr Sarkozys yearning for a smaller, cosier, “federalist” euro zone.
This chimes with the idea of a Kerneuropa ("core Europe") promoted in 1994 by Karl Lamers and Wolfgang Schäuble, who happens to be Germany's current finance minister. Intriguingly, it is the first time that Mr Sarkozy, once something of a sceptic of European integration, has spoken publicly about “federalism”, although he had made a similar comment in private to European leaders in March (see my column). It echoes the views of Mr Sarkozy's Socialist predecessor, François Mitterrand.
Such ideas appeared to have been killed off by the large eastward enlargement of the EU in 2004, and by the French voters rejection of the EU's new constitution in 2005. But the euro zone’s debt crisis is reviving these old dreams.
But what sort of federalism? Mr Sarkozy probably wants to create a euro zone in Frances image, with power (and much discretion) concentrated in the hands of leaders, where the “Merkozy” duo (Angela Merkel and Nicolas Sarkozy) will dominate. Germany will no doubt want a replica of its own federal system, with strong rules and powerful independent institutions to constrain politicians. Le Monde carries a series of articles (in French) on what a two-speed Europe may mean.
If the euro zone survives the crisisand the meltdown of Italys bonds in the markets suggests that is becoming ever more difficultit will plainly require deep reform of the EUs treaties. Done properly, by keeping the euro open to countries that want to join (like Poland) and deepening the single market for those that do not (like Britain), the creation of a more flexible EU of variable geometry could ease many of the existing tensions. Further enlargement need no longer be so neuralgic; further integration need no longer be imposed on those who do not want it.
But done wrongly, as one fears Mr Sarkozy would have it, this will be a recipe for breaking up Europe. Not two-speed Europe but two separate Europes.
The first steps toward integration, the idea of holding regular summits of leaders of the 17 euro-zone countries, has already caused early friction with Britain (see my earlier post here). This week there were further cracks when, during a meeting of the euro zones finance ministers in Brussels, their colleagues from the ten non-euro states held their own separate dinner in a hotel nearby.
All this is alarming the European Commission, the EUs civil service and the guardian of its treaties. Speaking in Berlin on November 9th, its president, José Manuel Barroso, delivered what amounted to a direct rebuke to Mr Sarkozy.
The Commission welcomes, and urgesin fact we have been asking for a long timea deeper integration of policies and governance within the euro area. Such integration and convergence is the only way to enhance discipline and stability and to secure the future sustainability of the euro. In other words, we have to finish the unfinished business of Maastrichtto complete the monetary union with a truly economic union.
But stability and discipline must also go together with growth. And the single market is our greatest asset to foster growth.
Let me be cleara split union will not work. This is true for a union with different parts engaged in contradictory objectives; a union with an integrated core but a disengaged periphery; a union dominated by an unhealthy balance of power or indeed any kind of directorium. All these are unsustainable and will not work in the long term because they will put in question a fundamental, I would say a sacred, principlethe principle of justice, the principle of the respect of equality, the principle of the respect of the rule of law. And we are a union based on the respect of the rule of law and not on any power or forces.
It would be absurd if the very core of our projectand economic and monetary union as embodied in the euro area is the core of our projectso I say it would be absurd if this core were treated as a kind of "opt out" from the European Union as a whole.
Mr Sarkozys words seem to have caught the attention of Joschka Fischer, elder statesman of Germany's Green party and a former foreign minister, who said that the EU at 27 had become too unwieldy. “Let’s just forget about the EU with 27 membersunfortunately,” he told Die Zeit, a German weekly newspaper. “I just don’t see how these 27 states will ever come up with any meaningful reforms.” Indeed, some think the euro zone itself might be smaller than the 17 members (Greece may soon default and leave the euro).
The speech that everybody is waiting for now is Mrs Merkels. The chancellor wants to change the treaties, and on November 9th she called for “a breakthrough to a new Europe”. But what sort of Europe that should be was left mostly unsaid.

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