Europe’s crisis is deepening, and threatening to undo 50 years of European harmony and progress. For those living through the worst of the austerity in the programme countries, it is terrifying. But at the same time, it is also deeply interesting and highly revealing about the whole European project. There is much to be learned from the times we are living through.
The first and most obvious learning point is that Monetary Union is significantly and qualitatively different from its predecessors such as the Snake or the ERM. There really does seem to be a step change from “shadowing Germany’s currency” to “sharing Germany’s currency”. In retrospect this is now obvious, but I am not sure it was sufficiently appreciated by the designers of EMU – or by those from the peripheral states who rushed to join.
The second thought I would offer is that we have all learnt that the E in EMU matters. It is I think deeply revealing that many people – certainly in my own country, the UK, but I believe more widely in the rest of the EU too – think that the E stands for European, as in “European Monetary Union”. As I am sure I do not need to remind this audience, this is not in fact correct, as the full name of EMU is of course “Economic and Monetary Union”. It is the failure to build a true economic union alongside the monetary union we have had for the last dozen years or so that is causing the latter such problems.
One important illustration of this is that although we have a true Eurozone-wide payments system, the banking system is not yet unified across the euro area. The banking systems of Europe – the plural is intentional – are linked but not yet unified; they have not yet fully escaped from their national roots and constraints. The EU’s passporting system may allow authorised EU banks to operate anywhere in the Union, and the new European supervisory agencies ensure that they are regulated on a Union-wide basis, but in a crisis, the support and underpinning for the banking system remains a national one. And this is a serious weakness, as creditors of Irish banks have found.
I think the logical conclusion is that we must eventually create a system of financial support and underpinning for Europe’s banking system at the Union level – a sort of European FDIC – but I do not underestimate the difficulty of the task, especially as long as only some states in the Union use the euro.
What about the wider lessons of the crisis? We are learning to appreciate the challenge of running Europe without a better dialogue between the political leadership and the electorate. The lack of this dialogue, the so-called Democratic Deficit, is of course well known and constitutionalists have commented at length on it ever since the EU’s foundation. As long as the general situation of the Union was satisfactory, however, and as long as all was going well, it did not seem to worry the general public very much. But in our present crisis it has been shown to be a significant weakness.
This is because one of the greatest strengths of a democracy is the power of the people to authorise their leadership to take difficult decisions. In a democracy facing a crisis, the leader can turn to the people and ask for their authority to act. And the people can grant it if they wish, and if they do, the leader can then act on behalf of the people. A democracy under stress can achieve more than any other form of government, because the people join with their leaders in pursuing the solution.
This is hardly a new thought, but it is deeply important. But in the case of the EU, we have a problem. “Who speaks for Europe?”, Kissinger is said to have asked, though in this context the more valid question is “Who speaks to Europe?” And there is still no answer to this question 40 years after Kissinger posed it. More significantly, in my view much more significantly, who would such a leader speak to? Who are the electorate who would reply and give the leadership the authority to act that they need?
There is no such electorate. We are not one people, and there is no European Demos. And in their absence Europe’s leadership cannot obtain the authority they need, and their actions therefore lack the legitimacy that only a democracy can bestow.
Just to illustrate the danger that this leads us to, consider the solution that has been proposed to the sovereign indebtedness of the periphery. This solution consists, in essence, of austerity in the weaker states, transfers from the stronger states and higher taxation for all. But this has been imposed on the people of Europe without discussion, without explanation and without consent. This is Taxation without Representation, which has been the fuse for civilian revolt throughout the ages. Europe is treading on very dangerous ground.
It was Massimo d’Azeglio, prime minister of Sardinia in the 1850s, who commented soon after the unification of Italy that “We have made Italy. Now we must make Italians”. Well, we have made Europe. But we have not yet made Europeans. Can we? Indeed, do we want to?
And this leads on to my final learning point, which is that it is slowly dawning on people what the true nature of the European project is. At heart, the question is whether Europe can succeed in its ambition to create something that is above and greater than the nation state but at the same time not a federal state.
We need to realise the scale of this undertaking. For we are in effect challenging the concept of nation states and state sovereignty set up at the Peace of Westphalia in 1648. This concept – the concept of territoriality, the right of a state to determine the rule of law within its geographical boundaries, and the doctrine of non‑interference from outside in a state’s internal affairs – has proved immensely strong and durable; it has survived for over 350 years virtually unchanged, and it has seen off other possible ways of running the globe such as empires, colonies, protectorates and so on. And today, apart from Antarctica and Greenland the landmass of the globe that is not part of a sovereign state is negligible, and the proportion of the world’s population that does not live in a nation state is probably under 1%.
As I say, the system of Westphalian nation states has survived for over 350 years. But today it faces two severe challenges. The first is the humanitarian instinct to right wrongs, wherever they occur. Should the West intervene in Syria? Were we right to in Libya? This is a deep question, but it is perhaps not one for this essay. More relevantly , there is the challenge of globalisation. There are many multi-national corporations which are bigger, richer and stronger than the medium-sized EU states, and in particular a global financial system which is able, when it goes wrong, to undermine even the strongest of them.
Faced with this, that Europe needs something larger than our current nation states is not seriously in doubt. As Angela Merkel has observed recently, even Germany – which for us in Europe is “the big country” – is only just over 1% of the world’s population, and there are some very big states outside our continent that we have to compete with. And for our smaller nation states, the situation were they to be on their own would be more difficult still.
But that Europe is not yet ready to become a federal state – a United States of Europe – is also not in doubt. There is no political enthusiasm for a federal state and certainly no general desire for it among the electorate. Hence the search for something between the two.
It is the nature of this search that the crisis has illuminated for me. The question in front of Europe is whether we can construct a union which is more than our nation states and less than a federal state. The scale of this question is slowly becoming clearer; the future of our children relies on the answer.