REINVENTING EUROPE MISTAKE BY MISTAKE – BRUSSELS AND THE FINANCIAL CRISIS

On 15 September 2008 the venerable Wall Street bank, Lehman Brothers, collapsed and its remains fell into the hands of Barclays and Nomura. Those who hoped at the time that the collapse would stop the wave of crises could not have been more wrong. Its impact on the US economy was serious, and truly dramatic on some EU member states. The initial crisis, labelled “Made in America” by Europeans, triggered an indigenous crisis in Europe that was merely waiting for its time to emerge. Today we are familiar about the financial, economic and (consequent) political problems of Ireland, Island, Spain, Portugal, Italy, Belgium, and most of all Greece. We have now been watching the never-ending soap opera called “Save the Euro” for several years. I can’t say for sure if the European currency has been saved, but the episode with the happy ending hasn’t yet been shown or perhaps even written yet.

The crisis came to Europe at the precise moment when – after long deliberations, a series of negotiating breakdowns and exhausting battles (sometimes over important matters, such as the rules of decision-making, but at other times it appeared over mere dots and commas) – the Treaty of Lisbon was finally adopted and signed in December 2007. The financial crisis (already tangible while the EU Summit in Lisbon was taking place) struck hard when the ratification procedures were underway. When the Treaty finally came into force in December 2009, it had to be pushed firmly onto recalcitrant member states, most noticeably Ireland.

One might imagine that the compromise on the Treaty, achieved by such strenuous efforts, would establish a sound basis for the peaceful and successful development of the EU. Alas, nothing could be further from the truth. The financial crisis that followed in full spate, and the necessity for quick decisions to save one European state after another from the threat of bankruptcy – these created an atmosphere in which an ongoing series of Merkel–Sarkozy talks to chart new solutions were accepted as almost natural events. The capitals of other EU member states did not set their faces against the domination of the Big Two; they humbly accepted it. The hard-fought rules of decision-making in the Union gave way to “reality”. The European Commission found it hard at times to keep up with the ideas that emerged from the Franco-German talks. Weakened by the crisis, the countries of Southern Europe waited patiently to be given the conditions for their receipt of aid, while healthy but small states like Finland looked more and more anxiously at  obligations  incurred  on  their  behalf.  States  which  remained  for  various reasons outside the eurozone felt endangered by the strengthening of an already established Franco-German directorate.

One potential consequence of these responses to the crisis is the future disintegration of the EU. This sounds alarmist. It is in fact realistic.

In the meantime we have had to accept some surprising paradoxes. For instance, many of those in Poland who had been reluctant to accept the Lisbon compromises that limited the sovereignty of member states, now try to protect the country against the deluge of EU acts by citing the Treaty provisions and defending both its spirit and letter. And with good reason. What we are witnessing is a set of coordinated decisions that effectively establish a new EU hierarchy. The new pecking order for all the birds in the European aviary is emerging as follows: Berlin, Paris, Eurozone One (the rich), Eurozone Two (those in crisis), London, the Scandinavians outside the eurozone, and at the very far end the newcomers from Central Europe.

The working tools for exercising power in this new hierarchy go by several names: six-pack, two-pack, Fiscal Compact, budget control, the subsequent stages of Banking Union etc. Budgets and taxes shall in future be harmonised from the centre. As early as the summer of 2011 we were semi-officially told that EU leaders are thinking about the creation of a “European economic government”. With one small step after another the EU is trundling in this direction, but, of course, these steps are no more than necessary provisions to defend us all from the crisis.

Recently we have meekly agreed to the establishment of a mechanism for controlling bank failures. There is some uncertainty about this. “Somebody” will have to pay for it – who else but the Germans? – and they do not seem to be very willing to do so. But exercising power and control, think the others, must cost you something.

Let us explore that last issue a little further. Most banks operating in Poland are subsidiaries of financial institutions from Germany, Italy and other members of the eurozone. This autumn the Polish Parliament was sent a proposal for the regulation /COM (2013) 520/ which more or less excludes Poland from having any say in the bankruptcy of banks with subsidiaries in our country. These subsidiaries are doing exceptionally well since the Polish financial system turned out to be more crisis-resistant than others elsewhere. In particular the system of bank supervision in Poland works more efficiently than in the fifteen original EU states. But the threat of a UniCredit failure in Italy for example might cause a catastrophe for its healthy Polish subsidiary. That is how Polish financial institutions are slowly and indirectly deprived of their right to make sovereign decisions. As a result the Polish state is gradually losing its sovereignty on different fields – and Polish voters their democratic ability to influence the conditions of their collective life. It must be obvious to everybody that the new mechanisms of controlling and decision-making, even if officially they are directed to the eurozone member states only, will sooner or later have to be accepted by all member states. The only alternative will be a formal division of the EU which – for the time being at least – nobody wants.

I write “for the time being”. Yet the political changes which make the EU a different institution from that which Poland joined in 2004 by a national referendum are happening before our eyes. On one hand Germany and France consolidate their political domination; on the other, the practical tools of their dominance also accelerate the construction of federal Europe. The changes should not be too surprising for anybody who bothered to read the Commission Implementing Regulation No EU (2012) 777 carefully, or who glanced at the documents published by Commission President Jose Manuel Barroso, or who at least took seriously the dispatches emanating from the meetings of the German Chancellor and the French President.

Of course, it is by trial and error that this political revolution is changing Europe. Sometimes things do not work out as intended, as for example when the UK and the Czech Republic decided to stay out of the Fiscal Compact. Sometimes plans need to be implemented in stages such as the Banking Union. But the general tendency is absolutely clear. More and more real power for the big and rich, less and less national sovereignty for the small and poor. Among the consequences of the 2008–2013 financial crisis, these internal EU developments are surely among the most important.

Thus the Central European countries are threatened with permanent economic and political confinement. Our status of peripheral countries – a post-colonial region in one sense – will be hard to change if we do not consciously head towards developing a common regional strategy that reflects our own interests within the EU rather than those of France and Germany. We should not tamely accept the new European pecking order in a centralised federal EU as an inevitable consequence of the crisis. Central Europe needs to take more responsibility for its own economic destiny.

That this is possible is currently demonstrated in Budapest which is for that reason a capital in the centre of European attention. Viktor Orbán’s government put forward boldly its own “unorthodox” measures for overcoming the economic crisis. As even the European Commission accepts, they are succeeding. This Hungarian success will inspire those Europeans who have not given up their hopes for preserving the economic, political and above all democratic sovereignty of their own countries. Many supporters of European political federalism, further centralisation of economic decision-making, and the imposition of ready-made solutions by the strong on the weak will be correspondingly disappointed.

To be sure, Hungary’s economic difficulties have different sources from the crisis that has been haunting the eurozone for the last five years. Yet the EU tries to get Ireland to raise taxes while Viktor Orbán lowers them. However appealing, that is not the main advantage of the Hungarian way which goes directly to the question of democracy. Whatever the rights and wrongs of particular policies, the continuing economic crisis in the EU is being used as a pretext for removing the responsibility for major political decisions from the governments of member states. How Orbán and his government handled the crisis involved their taking full responsibility for their decisions. That way is much closer to my heart – and surely good for the health of democracy.

Sooner or later the financial and economic crisis will be cured one way or another. But will the European Union recover? The crisis is proving to be a kind of deadly kiss for the European project. Its first effect was to act as a catalyst to deeper and faster integration; but the second effect is to stimulate resistance to a centralisation that is neither democratic nor successful. If Europe were a nation, the EU’s solution to the crisis would be apposite and sensible. But there is no European nation and there will not be one in a foreseeable future. In the meantime, therefore, we should restore political responsibility to our governments and democratic accountability to our countries.

Adapted from the talk given at the Danube Institute Financial Crisis Conference, 14-15 November 2013, Budapest

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