Merkel, and the end of an ‘ever closer’ EU

Published in Business Spectator (Melbourne), 12 September 2013

Most followers of the euro crisis agree that the German elections, to be held on September 22, will be a watershed moment. Everything that had been put on hold in the crisis will finally be allowed to happen once Angela Merkel has been returned to power.

This is one way of looking at it. It is certainly plausible that all the painful and ultimately inevitable decisions on the future of the eurozone – everything that will cost German taxpayers money — will have to wait until election day.

As I have argued for a long time, it is obvious Europe has been trying to delay any decisive action until after the German elections. With little more than a week to go, it seems that this strategy has worked.

But a question remains. Apart from the economically inevitable, is there anything else that has to wait until election day? In other words, what political developments in Europe can we expect in the coming years?

The answer to this question is less clear. Though the actions of the past years have meant a constant assault on national sovereignty and a transfer of power from the member states to the European Union and its agencies, these shifts were mainly driven by economic necessity. There was no great political enthusiasm across Europe for new institutions like the European Stability Mechanism nor the European Central Bank’s activities, let alone the European Commission’s greater role.

A few weeks ago, Merkel gave an interview to German national radio in which she said: “We discuss if we need even more competencies for Europe. However, we can also consider whether we can give something back.”

It was a typical Merkel statement: vague, but hinting at what she is really thinking. It may well signify a change of direction for the European Union.

From the beginning of European integration, the process of European politics has been a one-way street. Power was gradually shifted towards the European level, never the other way around. An “ever-closer union” was the motto.

Today, the future of European integration looks less certain, not just because of Merkel’s cryptic remarks. The years of crisis have led to a growing disillusionment with the European project. They have also estranged former allies from each other.

Though it would be premature to proclaim a return to the nation state in Europe, it is likely that we will witness a hollowing out of the European Union in coming years. The interests of member states are far too diverse to be reconciled. The only chance European politicians have to save the European Union is to cut back its reach.

Earlier this year, British Prime Minister David Cameron promised a referendum on Britain’s continued membership in a reformed European Union. Cameron said he wanted to remain in Europe but only if the European Union changed – which to him, meant if London could repatriate some powers from Brussels.

Cameron’s problem is that in order to change the European treaties, he needs allies. Britain cannot single-handedly change the rules of the EU game. If it isn’t happy with the current state of affairs but the other members were, the only option for Britain would be to pull out completely.

However, it appears that Britain’s dissatisfaction is at least partly shared on the continent. France’s President François Hollande has repeatedly criticised the European Union and the European Commission for interfering with what he regards as internal affairs.

Now that Merkel has also signalled that she is willing to discuss the balance of power between the national and the European levels of government, the door is opened for a serious debate. In the past, Britain, Germany and France have seldom pulled in the same direction on Europe. Their economic policies were often incompatible; their foreign policy outlooks too diverse.

If these three heavyweights are seriously considered curbing EU powers, it would signify a break from previous policies. And it makes a lot of sense.

Within the European Union, Britain is Germany’s most likely ally in economic questions and vice versa. They both share a similar approach to economic policy that is much more liberal than, say, France’s or Italy’s. Merkel cannot wish Britain to depart from the European Union and leave the Germans alone with the rest.

Britain may have made a lot of noise about its frustrations, but it is not in Britain’s interest to pull out completely and leave burnt bridges behind. Despite being outside the eurozone, London is Europe’s most important financial centre. If Britain left the EU, London’s position would be threatened by other places, most notably Paris and Frankfurt. The fear in the City of London is that once Britain had pulled out, the EU would retaliate with an attack on the British financial services sector.

So Germany has an interest in keeping Britain in Europe, and Britain certainly needs to remain part of the European common market. The best way to achieve this is to change the nature of the European Union in a way that would allow Britain to continue its membership. But this would necessitate a weaker European Union.

Convincing other European countries of the need to curtail the EU’s powers may not be hard. Crisis countries, in particular, resent receiving austerity diktats from Brussels. The EU and its Commission have lost popularity – which is precisely why Hollande is also campaigning against Brussels.

It would be a major change of direction for Germany and France to reverse the decades-long process of integration. For Merkel, it would mean a break with her country’s and her own party’s long-held positions. But it makes good sense for her do so.

It is not just the euro crisis that had been put on hold by the political considerations linked to the German elections, but the whole question of the future of the EU.

Following September 22, the cards will be reshuffled in Europe – irrespective of the outcome of Germany’s election.

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