policy paper European Politics and the Euro Crisis: Ten Failures Kirsty Hughes Associate Fellow of Friends of Europe and Senior Associate Fellow, Centre for International Studies, University of Oxford, UK Introduction The euro crisis is deepening and accelerating of the Merkel-led containment strategy. But it is week by week. It is a political and economic not working, and the crisis is clearly now a crisis not only of the eurozone but of the political and social crisis not just an economic European Union as a whole and with potentially one – and one that affects the entire EU, and far-reaching consequences. There is intense beyond. debate over the different likely outcomes to the crisis: whether the eurozone will survive intact This note outlines ten main failures of with 17 members (although very likely with leadership in managing the eurozone crisis: many member states mired in recession), or three political and leadership failures, four whether the eurozone may split or collapse democratic failures, and three economic entirely. All of these scenarios have major failures. These are all, inevitably, intertwined implications for the European Union as a whole and each implies fairly directly a more positive – politically as well as economically. If the and desirable alternative route.Whether the eurozone collapses this could threaten the euro can be saved remains to be seen but if the future of the EU altogether. If the zone splits or EU and its member states are to come through is mired in low growth, there will also be this deep crisis in the least damaging way, the substantial economic and political impacts – EU's (and not just the eurozone's) leaders must across European and internationally. Yet the rapidly confront their political, democratic and focus of most of the discussion, and action, is on economic failings in the handling of the crisis the fire-fighting to hold the eurozone together and start to tackle it in a strategic and rather than on the wider political and comprehensive way. democratic failures that have emerged starkly across the EU as a whole. Above all, there is a need for a clear, positive political strategy and vision for the EU, to show Efforts to contain and manage the Greek debt that the EU is more than just a single currency, crisis over the last 18 months have failed, with that it has a current and future political, social attention shifting to Italy, on to Spain, and with and economic purpose and dynamic. The EU's bond market pressures rising in November in so- leaders should be acting now both to change called core euro countries including France and how they tackle the eurozone crisis and to limit the Netherlands, and with even Germany the deep damage it is also doing to the EU's struggling to sell its bonds towards the end of political role, dynamics and influence at home the month. Yet the mantra of the German-led and internationally. strategy to solve the crisis is 'no change', budgetary discipline remaining the core element policypaper A. Political and Leadership Failures that increases the democratic deficit and political crisis through strengthening the centralised Political, leadership and democratic aspects of the imposition of the existing technocratic, highly crisis are closely interlinked. But while some of the deflationary and failing solutions to the euro crisis. failures identified below suggest weaknesses in, or even contempt for, the role of democracy, others are Exactly a decade back, at the Laeken summit in failures of leadership and strategy not of democracy December 2001, the EU's then leaders set out a per se. So this first section concentrates on the main vision of a more effective, and a more democratic strategic political and leadership challenges, while Europe with a bigger, clearer role in the world3. the next section identifies the key democratic Today's European leaders seem to have no such failures. vision or strategy. In the midst of crisis, Europe's leaders, backed by their finance ministers, are solely Failure No. 1: Lack of European political on the defensive. And the foreign ministers of the 27 vision and strategy member states are notable by their absence. The Lisbon innovations meant to give clearer strategic Over the last 18 months or more, the sequence of leadership to the EU through the permanent summits, emergency meetings of the Merkel- European Council President – Herman van Rompuy – Sarkozy duo, and more recently of the Frankfurt and a stronger foreign policy high representative/ Group, and general fire-fighting in the face of commissioner – Cathy Ashton – have for now failed, volatile and panicked markets have dominated the with Rompuy and Ashton competing for invisibility, headlines. Throughout this whole period, there has albeit with Commission presidentJose Manuel been no serioushigh-level political leadership in the Barroso much more visible, if often on a parallel EU setting out a positive overarching vision or track to France and Germany, and at least trying still strategy of what today's EU is and where it is going. to ensure decisions encompass the EU 17 or 27 not The talk has been only of austerity, of discipline, and just the directoire. of free market routes to growth. Failure No. 2: Mishandling political In the midst of crisis, fire-fighting may come first, relations between member states – direc- but, given its depth and breadth, putting the crisis in context and showing that the EU is a major political, toire of two, inner core of 17, or EU of 27? social and economic organisation with a clear role at home, in its region and in the world is vital to The EU is not always a happy consensus-driven limiting the political and geopolitical damage the political family – summit rows explode, policy crisis is doing. Showing both in Europe and globally, differences run deep. But a balance has usually been that the EU still has a clear, strategic, positive maintained over time: the big countries know or political role and purpose should have been,and knew they couldn't just run the show and ignore must become, a priority. smaller member states, and long run differences of view between north, south and eastern members on Germany's Chancellor Angela Merkel has talked of free trade, or regional funds, or relations with the US, saving the euro as central to the future of the were all factored in. European Union but the treaty changes she envisages are more integration to enforce budgetary As an example, back in 2001, when Tony Blair hosted discipline through a tougher role of the European a dinner in Downing Street – with the then French Commission and of the European Court of Justice. and German leaders Jacques Chirac and Gerhard She calls both of these 'political' solutions and refers Schroeder, Romano Prodi (as head of the Commission to 'fiscal union',although hers is a partial fiscal union but also from a large member state Italy) and Javier of budgetary discipline but without fiscal transfers1. Solana as the EU's foreign policy supremo (but from She does not talk of the positive domestic, Spain, another larger country) – the Dutch prime democratic, social, political, regional or geopolitical minister Wim Kok memorably flew in uninvited, in role of the EU – her vision is crisis management, time for dessert, seeing it as vital that the 'big5' did little else. And the leaked draft German proposals2 not think they could have such meetings and ignore for treaty change in 2012 suggest that issues of the fundamental political need to have coalitions and political integration and possible debates around groupings that included smaller as well as bigger questions of democracy and legitimacy are for a member states. later date, 'in the longer term', with nothing to say about these central and urgent questions now. So Germany above all, amongst the bigs, used to the route to treaty change in 2012 risks being one understand this dynamic, and would often make w ww.friendsofeurope.org November2011|2 » policypaper common cause with smaller countries, not least the Barroso, it has barely happened. Benelux trio. But in the euro crisis, Germany has become the dominant player, even within the This neglect of political dynamics across both the 17 Merkel-Sarkozydirectoire of joint press conferences and the 27 has weakened European political and emergency bilateral meetings. To the extent that solidarity amongst the EU's leaders, and seriously this has broadened recently, with meetings since aggravated the alienation provoked by the sight of October 2011 of the so-called Frankfurt Group, it is a Merkel and Sarkozy apparently giving out diktats to group of officials, not member states (including a the rest of Europe, in particular but not only to non-EU institution, the IMF): Merkel, Sarkozy, Greece and Italy. This puzzling and unnecessary Barroso, Van Rompuy, Olli Rehn (as European neglect of all the known and best lessons of economic and finance Commissioner, Mario Draghi European political dynamics is a failure of leadership (head of the ECB), Jean-Claude Juncker (as chair of and adds to the sense of weakening democratic the euro group of finance ministers) and Christine legitimacy of the management of the euro crisis. Lagarde (head of the IMF)4. Unusually too, some German commentators and politicians have been Failure No. 3:Geopolitical failure – publicly frank about Germany's growing dominance – neglecting the EU's role in its region and a senior member of Merkel's CDU party, Volker globally Kauder's, statement in November that "suddenly Europe is speaking German" has already become The EU's leaders have failed to maintain any serious infamous. political space on the agenda for other political issues, not least foreign policy ones.