REFORMATTING THE EUROPEAN INTEGRATION PROCESS: OPPORTUNITIES AND RISKS FOR THE UKRAINE-EU ASSOCIATION КYIV-2019 Reformatting the European Integration Process: Opportunities and Risks for the Ukraine-EU Association / V. Sidenko (project manager) et al. – Kyiv: Zapovit Publishing House, 2019. – 228p. Layout and design – Oleksandr Shaptala, Tetiana Ovsianyk This publication was prepared on the basis of the Razumkov Centre’s research project on “Reformatting the European Integration Process: Opportunities and Risks for the Ukraine-EU Association”, implemented in 2018 under the leadership of the Centre’s Senior Researcher on Economic Issues, Corresponding Member of the National Academy of Sciences of Ukraine, Doctor of Economics Volodymyr Sidenko. This publication presents an analytical report that summarises the main directions of policies to reformat the European integration process and introduce changes into the mechanisms of the European Union. It carries out a coherent analysis of key determinants underlying the crisis in European integration that led to the current changes in its functioning, as well as identifies baseline potential scenarios of further EU development. Special attention is paid to the issues of completion of the EU’s Economic and Monetary Union, which are singled out in a separate, most voluminous section of the report. The final section of the report analyses potential influence of the European integration reformatting on Ukraine and the Ukraine-EU Association. The report is supplemented with materials that analyse the institutional development of the EU and its policies in the security sector. The publication also contains three extensive articles, which present an analysis of EU problems in the security and defence sector, migrant crisis issues and European migration policy, as well as the UK’s exit from the EU and the potential impact of this event on the EU in the future. A comprehensive analysis of the issues of European integration reformatting has allowed to formulate a number of practical recommendations regarding the policy of Ukraine’s European integration, which aim to create a multi-level system to manage this process in Ukraine. An outline of expert opinions expressed during the expert discussion held on 15 November 2018 completes this publication. Opinions expressed in this publication do not necessarily reflect the views or receive approval of the donor. Published with support of the Friedrich Naumann Foundation for Freedom (Ukraine and Belarus Office). All photo materials used in this publication come from open sources. © Razumkov Centre, 2019 ISBN 978-966-2050-15-8 © Zapovit Publishing House, 2019 C O N T E N T Foreword ...................................................................... 4 List of abbreviations .............................................................. 5 Economic and non-economic aspects of reformatting European integration: options and possible outcomes (Analytical report by Volodymyr Sidenko & Kateryna Markevych) .......................... 6 Section 1. Crisis processes in the EU: origins, socio-economic and political characteristics, possible outcomes ................................ 10 1.1. Main factors of crisis phenomena in the development of the European integration process. 10 1.2. Key dimensions of crisis processes in the EU . .20 1.3. Potential outcomes of crisis developments in the EU: reforms or decline? . 31 Section 2. Scenarios of further development of the EU. 39 2.1. Official declarations and scenarios of the EU governing bodies . .39 2.2. European integration and EU prospects as seen by integration leaders – France and Germany . .50 2.3. Informal assessments of the prospects of European integration and the EU. .60 Section 3. Key aspects of reforming Euro area mechanisms ............................... 66 3.1. Main directions for completion of the Economic and Monetary Union . 66 3.2. Formation of the Banking Union . .74 3.3. Creation of the Capital Markets Union . 80 3.4. Creation of the Fiscal Union. 85 3.5. Introduction of community mechanisms for macroeconomic policy harmonisation (the Economic Union) . .96 Section 4. Reformatting the European integration process: prospects of the Ukraine-EU Association ......................................103 4.1. Reformatting of the EU and Ukrainian reforms: possible institutional conflict. 103 4.2. Potential fragmentation of the EU’s integration process: risks for Ukraine . 110 4.3. Possible ways of Ukraine’s adaptation to the new formats of European integration development . 116 Conclusions and proposals ........................................................122 APPENDICES ...................................................................127 Appendix 1. The main dilemmas of reforming the institutional framework of the EU . .127 Appendix 2. Ukraine-EU cooperation in the security sector . 133 ARTICLES .....................................................................139 EU security and defence reform Viacheslav HOLUB . .139 EU migration and asylum policy reform Viacheslav HOLUB . .150 Brexit: a whim or necessity? Kateryna MARKEVYCH. 176 Expert discussion opinions ........................................................210 FOREWORD Ten years have elapsed since the European Union entered a new period in its evolution – one of the most complex in the history of European integration. This period started with the 2008-2009 global economic and financial crisis, which caused the Euro area crisis and the Greek debt crisis, and later spread to other, non-economic areas. Eurosceptical political forces inside Europe are becoming increasingly more active and influential, which is a proof of the comprehensive nature of the crisis within the EU and the inevitability of its major reformatting. All this contributed to the emergence of a new analytical direction – theory of disintegration, which is a clear testament to the fundamental nature of the current European integration problems. This gives rise to the following questions: What is the future of the European Union? How will the integration association change in the future? What will be its impact on the development of the global economy and what place will it take in the global competitive environment? Answers to these questions are especially important for Ukraine, given that since 2014 its strategic course of fundamental socio-economic and political transformations has been very closely connected with the European integration idea, and the Association Agreement with the EU has become a key mechanism that determines the pace and directions of Ukrainian reforms. Disappointingly, the necessary deep analysis of these issues is progressing rather inactively and indistinctly in Ukraine. Formalistic and often meaningless pro-European rhetoric has not merely become a fashion trend, but also has produced ideologically motivated taboos regarding any serious criticism of what is happening in the EU. This is dangerous, because it prevents us from seeing problems and obstacles on the country's development path, and hence, from taking the necessary political measures in a timely manner. Razumkov Centre, which has always taken a politically and ideologically unbiased approach in researching key issues of socio-economic and political development, deems it necessary to study the complex and ambiguous processes taking place inside the European Union. In doing so, we should not underestimate some of the factors that complicate these processes, while avoiding catastrophic predictions and scenarios exploited by certain political groups. It is necessary to conduct a balanced and highly constructive analysis, researching new ways and instruments that can help ensure effective policy in the conditions when European integration undergoes reformatting. A. Rachok, Director General V. Sidenko, Senior Researcher on Economic Issues, Project Manager n 4 n LIST OF ABBREVIATIONS CFSP Common Foreign and Security Policy of the EU CMU Capital Markets Union of the EU CSDP Common Security and Defence Policy EC European Commission ECB European Central Bank EUCO European Council (heads of state or government of the EU member states) EDIS European Deposit Insurance Scheme EEC European Economic Community EFTA European Free Trade Association EMF European Monetary Fund EMU Economic and Monetary Union EP European Parliament ESM European Stability Mechanism EU European Union FDI Foreign direct investment GAMM Global Approach to Migration and Mobility GDP Gross domestic product IMF International Monetary Fund MFF Multiannual Financial Framework OECD Organisation for Economic Co-operation and Development PPP Purchasing power parity RES Renewable energy sources SME Small and medium-sized enterprises SRF Single Resolution Fund SRM Single Resolution Mechanism SSM Single Supervisory Mechanism n 5 n ANALYTICAL REPORT ECONOMIC AND NON-ECONOMIC ASPECTS OF REFORMATTING EUROPEAN INTEGRATION: OPTIONS AND POSSIBLE OUTCOMES The powerful wave of European integration, which originated in the mid-1980s with the adoption of the Single European Act, was furthered by a combination of the rapidly progressing globalisation processes and geopolitical changes associated with the collapse of communist ideology and practices in Eastern Europe. It reached its peak in 2004-2007 with the unprecedented EU enlargement from 15 to 27 members. Ambitious commitment to form the Economic and Monetary Union (EMU), which started to come to life as a result of the Maastricht and Amsterdam Treaties, has led to the introduction of a single European