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10. How the euro spoilt any other business
IT WOULD BE EASY TO FORM THE IMPRESSION that, at least since late 2009, nothing much has happened in the European Union except for the euro crisis and its economic and financial repercussions. Yet the normal business of the European institutions in such areas as competition policy, policing the single market, agriculture, transport, social and employment regulation, and trade has perforce continued.
The budget has continued to be spent and, especially in the negotiations for 2014–20, quarrelled over. The European Council has also, from time to time, been summoned to discuss matters other than the economy and the euro, even if it has quickly reverted to these more momentous issues. There has been less EU legislation than before, in part because governments have long made clear that they wanted less. Even so, overall it is undeniable that the euro crisis has spilt damagingly into many other areas of EU activity.
One example is climate change, an issue where the Europeans have for a long time prided themselves on being in the lead globally. The EU was a pioneer not just in signing the Kyoto protocol on carbon-dioxide emissions but also in setting up the world’s first emissions-trading scheme (ETS).
In 2008 it adopted a “20–20–20” strategy: setting 2020 as a target date by which all EU members undertook to cut greenhouse-gas emissions by 20%, to raise the share of renewable in energy consumption by 20% and to improve energy efficiency by 20%. Yet partly thanks to its economic woes, the EU’s influence at the 2009 Copenhagen environment summit, and again at the 2013 Warsaw environment summit, was minimal. The ETS has largely been a failure, as too many permits were issued and too many industries exempted. Carbon prices under the scheme have dropped too low to make much difference.
Popular enthusiasm for curbing climate change has faded, even though, thanks to its recession, the EU as a whole will just about hit the 20–20–20 target. In part the feeling has grown that there is little point in pursuing this without further action by the United States and China. But loss of interest in climate change also reflects Europeans’ preoccupation with the euro crisis and rising joblessness, creating a strong desire not to harm competitiveness with too many “green” taxes. As it is, European industries pay four times as much for gas and twice as much for electricity as their American rivals, which are benefiting from cheap shale gas. In its January 2014 proposals for new climate-change targets, the Commission suggested only that all EU members should aim to cut greenhouse-gas emissions by 40% by 2040; it dropped national targets for renewables, proposing only that the EU as a whole should push its share up to 27% on the same timescale.1
Energy policy more broadly has also suffered from neglect, in part because of the euro crisis. I 2009, shortly before it broke, the EU adopted a “third energy package” that envisaged a much tougher approach to liberalising gas and electricity markets, including separating production, transmission and supply (a process known as unbundling). Various regulations and directives to implement this package have since been adopted. And the Commission has also initiated competition proceedings against Gazprom, Russia’s energy giant. The Russians have been lobbying hard for changes to the third energy package. But partly because Europe’s economic woes raised new concerns about high energy costs, progress towards implementing unbundling has been slow or non-existent.
A similar story could be told in many other areas of EU business, ranging from transport to agricultural to industrial policy. Partly because the 28 commissioners all want to have something to do, there is no shortage of papers and draft proposals for legislation on the table. But the enthusiasm with which they are pursued and the attention paid to them by national governments, and especially by leaders in the European Council, has of necessity been limited by the need to focus on their more pressing concerns for the euro. In many cases this has mattered only a little. Indeed, less regulation in unnecessary places is now widely seen as a desirable and not a bad outcome. But in a few areas the lack of attention from the top has been positively damaging.
A prime example is efforts to strengthen and complete the single market. After the 2005 fiasco over the “Bolkestein” directive to open up services markets, named after the Dutch commissioner then in charge, which was demonised as a Frankenstein directive in the French referendum campaign on the EU constitution and linked to a supposed influx of Polish plumbers, the eventual text was much watered down, leaving a single market in services largely incomplete.2 The digital economy is also not properly covered by single-market rules: price-comparison websites remain fiercely national, as do most consumer-protection laws, taxes, electronic-waste rules and postal systems. The result is that e-commerce, which has mushroomed in the United States and in several individual European countries, is notably undeveloped across European borders.
Yet over the past few years most talk of extending the single market, often promoted by liberal countries like the UK and Sweden, has been drowned out by fears associated with recession and rising unemployment. The fate of Mario Monti’s 2010 report, A New Strategy for the Single Market, is particularly instructive.3 The report was commissioned by José Manuel Barroso, the European Commission president, long before Monti became Italian prime minister, when he was thought of as just another former commissioner. In the report, Monti proposed further work to complete the single market in energy, digital and services, and also suggested ways to bolster the green economy and to improve free movement of people and capital (including some elements of tax harmonisation).
By a cruel irony, however, the report was published on the same day as the Greek bail-out was agreed. The European Council had earlier in the same year proposed a new EU 2020 strategy to follow from the earlier Lisbon strategy, which was meant to create the world’s “most competitive and dynamic knowledge-based economy” by 2010. But, just as the Lisbon strategy had never really been implemented, partly because neither France nor Germany seemed to believe in it, so the EU 2020 strategy seems to have been quietly abandoned. The European Council duly endorsed the Monti report, but little more was done to pursue it. Monti himself has gone further: he has warned that because of the euro crisis, repatriation of bank lending, different interest rates round Europe and rising protectionist pressures, there is a real risk that the single market could go through a period of “rollback and even disintegration”.4
The price of inaction
One could run through almost any area of EU business in the past five years and reach similar conclusions. Normal activity has continued and there have even been some noteworthy policy successes, for example in reforming the common fisheries policy to end the practice of discarding catches. But time and again work has stalled as commissioners, officials and national ministers have been sidetracked into efforts to resolve the euro crisis. The single market remains incomplete, partly because the attention of the commissioner concerned, Michel Barnier, has been focused mainly on bank and financial regulation. Although almost all governments have called for less as well as better regulation, the Commission’s sausage machine has continued to churn out unwanted rules. Trade policy has been active, with several free-trade deals negotiated or in the pipeline. But the involvement of EU leaders has been noticeable mainly by its absence.
The decision in 2013 to launch talks towards a Transatlantic Trade and Investment Partnership (TTIP) was driven in large part by the Europeans, who were mainly concerned not to lose out from Barack Obama’s new focus on Asia. But the worry is that concerns about Europe’s economies, high unemployment and the future of the single currency may well continue to divert political and media attention away from the important details in the TTIP. All trade talks run into trouble, with special interests sheltering such things as agriculture, audio-visual services, rules on public procurement, and food and veterinary standards. Already there are signs of emerging doubts about the TTIP’s chances on the European side. On the American side, the US Congress has not even given Obama the trade promotion authority that he needs to pass a deal. The World Trade Organization’s Doha round largely fell apart, with what was eventually enacted being more of a mouse than an elephant – though that was mainly because of objections from emerging countries like India, not because of the Europeans. There is every chance that the same could happen with the TTIP.
That would be a double missed opportunity, for as well as boosting economic growth; the TTIP could be the last chance that Europe and the United States will get to set standards and rules for world trade before a newly powerful China exerts its influence. And yet, even before the talks began, the French managed to block any discussion of their notorious cultural exception, under which protection of audio-visual products such as films is allowed despite free-trade rules. Transatlantic differences over telecoms, internet and bank regulation, and over the rules governing airlines and shipping, remain wide. Phytosanitary rules on the use of hormones in meat or for genetically modified crops are also potential stumbling blocks. With the euro continuing to divert everybody’s attention, European elections and the choice of a new Commission approaching, and Obama still denied fast-track authority by Congress, the chances of a successful outcome to the TTIP talks do not look all that high.
A last area where the EU has managed less than it might have done over the past five years is justice and home affairs (JHA). Under the Lisbon treaty, most activity in JHA has moved from being done inter-governmentally and by unanimity to being carried out by the community method, and thus subject to qualified-majority voting and co-decision with the European Parliament. Viviane Reding, the justice commissioner, has produced a number of proposals, such as a revised European arrest warrant, a European public prosecutor’s office, new extradition arrangements, and common immigration and asylum rules. Yet few of these have made much progress, not only because the UK, Denmark and Ireland have opt-outs (and the UK is opting out en bloc from all JHA rules in 2014), but also because of the general distraction of the euro crisis.5
The other reason JHA has proved disappointing is that immigration has suddenly become such a toxic issue in many countries. The rise of populist parties has been driven in many cases by increasing voter hostility to immigration, even within the EU. The belief that migrants from central and Eastern Europe are taking jobs or claiming generous welfare benefits has become widespread. The British, Dutch and Germans are all talking of introducing new rules to stop “benefit tourism”. Opinion pollsters have found that by far the biggest reason British voters give for backing the UK Independence Party is not its anti-EU policy but its anti-immigration one.
Some political leaders, including the UK’s David Cameron, have questioned the principle of free movement of labour within the EU, on the grounds that when it was enshrined nobody expected the club to include such relatively low-income countries as Romania and Bulgaria. Cameron has suggested that any future enlargement to take in new countries might have to be accompanied by permanent controls on free movement of people – an irony given that the UK has traditionally been the strongest supporter of EU expansion to admit new members. The Swiss vote in February 2014 to put quotas on immigration even from within the EU was not just a breach of Switzerland’s various agreements with the EU that could threaten the country’s access to the single market; it was also a harbinger of similar thinking within the EU itself.
A Commission of neglect
The euro crisis has, in short, managed to distract attention from much of the rest of the agenda of the Commission, national governments and the European Parliament since 2009. Economic difficulties have inevitably sapped the European Union of much of its broader influence in the world. And because Europe’s political leaders have spent so much time trying to repair the defects in their single currency, they have devoted much less attention to considering the future shape and direction of the EU. As the immediate worry that the euro might collapse dissipates and with the prospect of a new Commission and new European Parliament just ahead, Brussels is left with a European project that is itself in some danger of falling apart due to political neglect.
Some have suggested that a good place to start improving things might be with the Commission itself. In the UK and many northern countries, the notion that the Commission should be doing less but also doing it better is widely shared: even Barroso has expressed a similar wish. The Dutch and Germans have been especially vociferous in demanding less red tape and bureaucracy, and more attention to the principle of subsidiarity, which provides that action, should be taken at European level only if it is more efficacious than acting at national level. But even across southern Europe, the feeling that sometimes the Commission and the European Parliament are too intrusive has spread.
One reason the Commission has traditionally found it hard to respond to calls for it to do less is that there are too many commissioners. There is a widespread consensus that 28 is too big a number for the college. Not surprisingly, each commissioner wants to make his or her mark with legislation. Worse, partly because the Commission does not act like a government, there is no real system for coordinating and prioritising its actions. Instead, the Commission operates in a silo-like way, with individual directorates operating largely without much reference to each other or to the president. The proposal in the constitutional treaty and then the Lisbon treaty that there should be fewer commissioners than one per country was quietly shelved as a gesture to secure Irish approval of the treaty the second time round. At least some governments would like to find a way to revive its spirit, perhaps by creating senior and junior commissioners.
9. Democracy and its discontents
THE NOTION THAT THERE IS A DEMOCRATIC DEFIGT in Europe is almost as old as the European project itself. Until 1979, when the first elections to the European Parliament were held, none of the European institutions were directly elected, and the gap between ordinary citizens and decisions taken in Brussels was seen to be a yawning one. National governments, which are elected, are of course represented in the Council of Ministers, the senior legislative body. But most have tended to keep quiet about their bargaining and few are held to account for actions in Brussels by their own national parliaments. Moreover, the spread of qualified-majority voting has meant that individual governments can now be forced to accept policies that they have themselves opposed.1
Over time, various suggestions have been made for filling this democratic deficit. Increasing the powers of the European Parliament is one that has been pursued through almost every treaty. Greater transparency in both the Commission and the Council has long been another favourite. Greater democratic input into the Council of Ministers through national parliaments has often been urged. So sometimes has the idea of some body that more directly involves national legislatures. And there is increasing recourse to referendums to approve new treaties: no fewer than ten were promised for the abortive constitutional treaty, compared with just one for the Single European Act of 1987.
None of these has proved satisfactory as a remedy for the deficit. The European Parliament has continued to disappoint even its most ardent supporters. Transparency has been improved, but few ordinary citizens understand even the basics of how the EU works; indeed, most have no idea what the difference is between the Commission and the Council of Ministers. Most national parliaments remain bad at holding ministers to account for decisions made in Council meetings, and attempts to get them to work together have largely failed. As for referendums, almost as many have been lost as won, so most governments feel decidedly nervous about holding any more.
It is true that public scepticism about institutions has been as strong (or sometimes even stronger) at national as at European level. In many countries, the loss of faith in the European Parliament, for instance, is matched by a similar or even greater loss of belief in the efficacy of the national parliament. Moreover, in many countries duties that once devolved on directly elected governments – monetary policy, exchange-rate policy or competition policy, say – have been handed to unelected bodies on the basis that they will be done better. Yet there is still a bigger cause for concern when something similar happens at European level. Even when citizens are fed up with their own government or parliament, they do not question their legitimacy or their continuing existence. But when it happens at European level, which seems more foreign, many query both.
Following the national model, some commentators have accordingly suggested as an alternative that the European Union should rest on a different idea altogether: that of output rather than input legitimacy. On this basis, there is no real need to get hung up about democratic accountability as such.
Rather, the European project can be expected to gain and retain public support – and thus end up acquiring greater legitimacy – simply by delivering good results. If voters can see that, thanks to the EU, their economies are more successful than they would be without it, they will be content. In this context it helps when there are concrete results from EU actions to point to: lower airfares or mobile phone roaming charges, say.
Yet three related developments have largely kyboshed even this notion. The most obvious is that, far from being seen to deliver consistently good results, the European Union and especially the euro are now seen by large numbers of voters to be delivering mostly bad ones. Across much of the continent, Europe (and especially the single currency) is today associated with austerity, spending cuts, tax increases, rising joblessness and chronically slow growth. Debtor countries have seen a particularly sharp fall in enthusiasm for the European project as a result. But even in creditor countries, which have suffered less economically, Europe and the euro have lost their appeal, because they are now associated with bail-outs and transfers rather than with rising prosperity.
This new mood music has become especially discordant for Europhiles. Their messages that the EU would boost growth through its single market, that the euro would improve competitiveness by promoting reform and that both groups would protect European citizens from the pressure of globalisation and the fallout from the world financial crisis have fallen flat. Instead, Eurosceptics everywhere feel vindicated: their view that there is too much regulation by a remote EU bureaucracy and their warnings about the insanity of adopting a single currency without the right institutions, without moves towards political union and without enough democratic control seem to have been borne out by events.
The second consequential development has been a sharp fall in the popularity of the European project, right across Europe. Polls taken in 2013 by Euro barometer, the German Marshall Fund and the Pew Global Attitudes survey have all come up with similar findings.2 Especially in the south, but also in the north, approval of the EU has declined fast in recent years. The number of people who consider their country’s membership to be a good thing has also fallen. The decline has been most precipitate in Mediterranean countries like Spain and Greece. But it is also remarkable in France, where the latest Pew survey found an even smaller proportion of the population approving of the EU than in the traditionally Eurosceptic UK.
This sharp dip in the EU’s popularity in opinion surveys is reflected in the rise of populist parties that are anti-euro and anti-EU. Some of these parties are from the far right, some from the far left.
Often they are anti-free trade and anti-globalisation. In many cases they are strongly against immigration, which is increasingly associated with the EU because of its eastward expansion to take in not just the central European countries but also Bulgaria and Romania, for which free movement of labour arrived only in January 2014 (the British and some other governments are trying to curtail benefit entitlements for some specified groups of immigrants). Anti-Islam feelings also play a role. But their new-found strength owes most to the populists’ ability to channel growing anti-EU sentiment.
Thus Greece has seen the rise not just of Golden Dawn, an explicitly extreme-right party, but also of Syriza, an anti-austerity left-wing party that is running ahead of the ruling New Democracy party in opinion polls. Spain and Portugal have, so far, escaped the rise of populist parties of the right, but the more extreme United Left party is doing well in Spain and support for the two mainstream centre right and centre-left parties has collapsed. Italy has seen the spectacular rise of Beppe Grillo’s Five Star movement, which took almost 25% of the vote in the election of February 2013, forcing the centre-left and centre-right parties into an uneasy coalition. In France, Marine Le Pen’s National Front is running close to 20% in the opinion polls.
The rise of populists and extremists is not confined to troubled euro-zone countries alone. In Finland, the True Finns (now the Finns Party) under Timo Soini, which came out of nowhere in 2011, largely to protest against the euro, are scoring 20% or more in most opinion polls. In the Netherlands, Geert Wilders’ Party of Freedom is also riding high. Wilders has formed an alliance with Le Pen for the European elections, campaigning on an anti-EU, anti-euro platform. The UK Independence Party has refused to join this alliance, but it too has been scoring highly in the polls. Across central and eastern Europe a swathe of extremist and populist parties, from Jobbik in Hungary to the League of Catholic Families in Poland, are similarly doing well.
Almost the only country not to have seen a sharp upsurge in a populist, anti-euro or anti-EU party is Germany. It is also one of the few countries where the number of people with a favourable opinion of the EU has not fallen sharply in recent years. Residual German war guilt plays a part in holding down extremist parties. Yet it is, on the face of it, surprising that anti-EU or anti-euro sentiment has not made itself felt, as the German public has shown itself deeply hostile to the whole notion of bailouts and transfers to Mediterranean countries. Moreover, a new party, Alternative for Germany, has been established and, although it narrowly failed to get into the Bundestag in the September 2013 election, its poll ratings have since been rising. The real reason Germany looks different from other countries may be that it has suffered little during the euro crisis. Besides, German voters have come to trust Merkel not to let them down.
The search for legitimacy
The third and perhaps most difficult challenge is a direct result of the euro crisis itself. As discussed earlier, a large part of the policy response has been to move towards deeper political integration in the euro zone. The fiscal compact, the European semester, the two-pack, the six-pack and the rest add up to far more intrusive monitoring of national governments’ fiscal and economic policies. The Commission now has the responsibility to vet and, if need be, propose changes to national governments’ budgets even before their parliaments have seen them. Coming on top of the loss of monetary and exchange-rate policy due to the introduction of the euro, the result is a significant transfer of power from national to European level.
It should not be a surprise that one consequence is a crisis of democratic accountability. As a senior German finance ministry official put it to Ulrike Guérot and Thomas Klau of the European Council on Foreign Relations in 2012, “the weakness of the system is not about spending and how to promote growth, but about legitimacy”.3 Some of those who pushed for a single currency at and before Maastricht always thought it would take closer political union for it to work satisfactorily – indeed, a few pressed for EMU precisely because they thought it would force the creation of a United States of Europe. But most voters and most governments were not persuaded. Now a form of political union is indeed being brought in, not, however, as a positive result of careful national debate and as a consequence of economic success, but rather as a negative outcome to ward off economic failure. That surely will make it even harder to persuade voters to support the entire notion of political union.
It does not help that in parts of Europe democracy is going through something of a crisis at home. There are many manifestations of this. One was the fact that both Greece and Italy had technocratic prime ministers thrust on them during the euro crisis. Greeks have long been fed up with their political leaders. In Italy, voters have become increasingly disillusioned with their entire political class, often known as La Casta and widely reviled for its excessive cost and many privileges. Yet neither country was happy to have unelected leaders appointed in place of elected ones. It was this, perhaps more than a lost love for Europe that led so many Greeks to vote for fringe parties in May 2012 and so many Italians to back Grillo’s Five Star movement in February 2013. In Eastern Europe, Bulgarians have spent most of the past two years protesting in the streets against their government.
Romanians seem equally fed up with a long-running feud between their president and their prime minister. Hungary deserves a special mention here, as it has run into much condemnation in Brussels. Viktor Orban’s centre-right Fidesz party won a smashing electoral victory in 2010 after the outgoing Socialist government became discredited. But Orban proceeded to rewrite the constitution in ways that cemented Fidesz’s dominance over Hungary’s institutions and its intimidating control of the country’s media. Although the EU has managed to get the government to rewrite provisions impinging on central-bank and judicial independence, it has found its leverage over the government worryingly limited. As was discovered as long ago as 2000, when the EU tried to freeze relations with an Austrian government that included the far-right Jörg Haider as a coalition partner, a country that is a full member is much less susceptible to outside pressure than an applicant. Moreover, Orban’s membership of the centre-right European People’s Party transnational group is often said to have restrained his fellow heads of government from being too harsh on him. The result has been to damage the cause of liberal democracy in its broadest sense.4
Now the challenge from the euro crisis threatens to make matters worse. Indeed, in their first encounter with the European semester, several national leaders, even those normally thought of as pro-European, went out of their way to criticise the Commission for its intrusiveness. Spain’s Mariano Rajoy announced in 2012 that it was for his government, not the Commission, to decide the right level of the Spanish budget deficit. In France, Hollande early on declared that, while the Commission was within its rights to demand pension reform, his government should be left to decide what sort of changes to make and how quickly to make them. The Italian government rejected a criticism of its longer-term debt sustainability. And when Belgium, the most pro-European country of all, was rebuked over its budget deficit, one Belgian government minister asked aloud: “Who is Olli Rehn?” (the economic-affairs commissioner).5
Yet it is too simple to see the problem as merely one of excessive Commission interference in matters better left to elected national governments. That was to some extent true when it came to the operation of the stability and growth pact. When Gerhard Schröder and Jacques Chirac came together in 2003 to overturn any suggestion of Commission-imposed sanctions on their two countries for breaching the terms of the pact, they were simply asserting greater legitimacy for elected political leaders. There was little in the way of broader economic fallout. Indeed, that is precisely why their colleagues, with the partial exception of the rule-loving Dutch, made so little fuss about the demise of the pact at the time.6
But the euro crisis has changed this completely, by bringing into the picture nationally sanctioned rescue funds. A bail-out of an excessively indebted country has to be approved by national authorities, including national parliaments, because ultimately it must rest on the credit of sovereigns. As became clear in May 2010, the EU budget is too small for this purpose. For such a fund to attract its AAA rating, it requires guarantees from creditworthy governments. And in national democracies, that needs the backing of national parliaments. This is one reason the issue of democratic accountability in Europe has become so acute. When it is clear that something has to be decided at European level, the EU treaties have a supranational, if not always satisfactory, mechanism of accountability. When decisions are wholly national, similarly, a national system should work. But in the euro crisis decisions are, in effect, hybrid: they are taken at a European level, but the funds being committed are provided nationally. In such cases issues of accountability and democratic control can all too easily fall through the cracks.
Hence the experience of the Finnish parliament (Eduskunta), which has repeatedly demanded specific collateral for loans to Greece and others. And hence also the growing role of the German Bundestag in demanding the right to approve every bail-out individually. The Bundestag’s demand for a say in bail-outs is strongly supported by another crucial German institution, the Bundesverfassungsgericht, or constitutional court, based in Karlsruhe. The constitutional court has played a big role in the euro crisis, chiefly because a number of plaintiffs have repeatedly petitioned it to declare various decisions to be unconstitutional because they infringe the German basic law –ranging from the first Greek bail-out to the establishment of the European Stability Mechanism to the ECB’s programme of outright monetary transactions (OMT) to support sovereign-bond markets. So far the court has not ruled against anything, but it has often hedged its verdicts with language suggesting that there are limits to how far the federal government in Berlin can go. In the case of OMT, it made its disapproval clear but transferred the case to the European Court for a ruling. It has also made clear, including in its ruling on the Lisbon treaty, that it does not see the European Union’s democratic credentials as sufficiently strong.7
Many Euro-enthusiasts are horrified both by the Karlsruhe court and by the Bundestag’s assertion of control over bail-out decisions. They see a creeping renationalisation at work, all of a piece with Merkel’s new-found enthusiasm for inter-governmentalism and the “union method” at the expense of the traditional community method. Germany’s lack of enthusiasm for the EU institutions, notably the Commission but also the European Parliament, which used always to attract strong German support, is to them part of the same pattern. What such enthusiasts tend to favour instead as a way to inject more democratic accountability into EU-related decisions is to give a much greater role to the only directly elected EU institution: the Parliament in Strasbourg. Yet this runs into huge problems of its own.
The Parliament is certainly ready and eager to step forward. It has already played a constructive role in drawing up the necessary legislation for the European semester. It wants to do more in the way of scrutiny of the Commission’s decisions and of any contracts for reform that national governments might accept. Yet the notion that it can help to fill the gap in the euro zone’s democratic accountability and in providing greater legitimacy for the system to ordinary voters is far-fetched and may be highly dangerous, for four reasons.
The first is institutional. The Parliament is quintessentially a body that brings together representatives from all 28 EU countries. It was relatively easy for the Council of Ministers to establish a sub-formation in the Euro group and now the Euro group summit. It is also fairly simple to form a tacit understanding that the economics commissioner as well as the Commission president should, like the presidents of the ECB and of the European Council, come from a euro-zone country. It is much harder to do the same in the Parliament. Indeed, the chair of the economic and monetary affairs committee during most of the euro crisis has been Sharon Bowles, a British Liberal Democrat.
Some have muttered about this, and a few enthusiasts, including the French Eiffel group, have even suggested setting up a separate or “inner” euro-zone parliament. But to most this would excessively institutionalise the already worrying divide between euro ins and euro outs.
A second objection is that the Parliament itself lacks legitimacy. It has been directly elected for the past 44 years, yet the turnout in successive elections has steadily fallen. European elections everywhere are treated as essentially national polls, in which voters typically register protests against their governments or back populist parties. There is no sense among voters of any Europe-wide political parties: few have heard of the main political groups or have any clue about what they actually stand for. The results of European elections are not seen to translate in any way into changes of executive power within the EU; they do not even determine the presidency of the Parliament, since this is divided between the two biggest groups for the term of each legislature. Few people have any idea what the Parliament does or who their MEP is. In short, for most ordinary Europeans the Parliament seems to be part of the problem of remote and largely unaccountable EU institutions, and not part of the solution.
Various remedies have been suggested for these ills. One old favourite is to give the Parliament more powers, which has been done so much that for most purposes it has become a co-equal legislator with the Council of Ministers. The idea is that if the Parliament is seen to be exercising fuller powers in the EU, voters will take it more seriously. And indeed the Parliament, especially through its committees, has become an important and at times extremely valuable part of the legislative process, often improving directives and regulations more effectively than the Council. Many people cite the examples of the REACH chemicals rules and the services directive, which was in part resurrected by the Parliament, as examples.
Yet even Europhiles remain dissatisfied with the Parliament. A believer in democracy might expect the three biggest groups, the centre-right European People’s Party (EPP), the centre-left Progressive Alliance of Socialists and Democrats (S&D) and the centrist Alliance of Liberals and Democrats for Europe (ALDE), to debate from their different political standpoints and vote accordingly, as happens in national parliaments. But far more often the big groups come together to make the Parliament more of a lobby or non-governmental organisation that sets itself up against the Commission and the Council of Ministers, rather than acting like a normal legislature. The Parliament is fond of passing largely meaningless foreign-policy resolutions. Unlike most national parliaments, it always wants both more powers for itself and a bigger budget – something few of its voters would support. The divide between voters and their MEPs was made starkly clear when the Dutch and French overwhelmingly rejected the constitutional treaty, which had been approved by almost all the MEPs from those countries.
Another suggestion has been to give the Parliament a bigger and more explicit role in choosing the Commission, especially its president. The Lisbon treaty provides that the European Council, taking account of the results of the European elections, should nominate a candidate, who is then “elected” by an absolute majority of the Parliament. (The Parliament is also required to approve the entire college of commissioners, but not each individual, this time by simple majority.) Most of the political groups have taken this language as an excuse to put forward their preferred candidate for the Commission presidency before the European elections. The S&D group, for instance, has proposed the current president of the Parliament, Martin Schulz; the ALDE has put forward its leader, Guy Verhofstadt; and the EPP is proposing Jean-Claude Juncker. The idea is that this should make the elections matter more to voters, since they will, in effect, be indirectly choosing the next Commission president.
Yet this solution to the democratic deficit is unlikely to help. Most ordinary people remain profoundly ignorant both of the political groups that are proposing candidates and of the candidates themselves: it is hard to see British Labour voters, say, turning out in large numbers because they are enthused about the prospect of Schulz as the Commission president. Worse, by making the Commission more beholden to the Parliament than it already is, the plan would upset the EU’s institutional structure. Unlike the Parliament, the Council of Ministers cannot sack the Commission; if the Parliament has the decisive voice in the Commission presidency, this would aggravate the imbalance, making it all the more likely that the Commission and Parliament would come together to act against national governments. And worst of all, the plan would sharply reduce the field of candidates to become president of the Commission: no incumbent government leader would be ready to step down to campaign as part of the European elections.8
Besides the European Parliament’s own failings as an institution that can fill the EU’s and the euro zone’s democratic deficits, there is a third reason to doubt that it will be the answer. This is that an increasing number of populists and extremists are now represented in the Parliament. On one level, this could be seen as positive: at least this strand of opinion, often hostile to both the EU and the euro, will be fully represented in the European institutions. But the presence of such a destructive group of oddballs, loonies and closet racists is hardly likely to enhance the reputation of the Parliament or make it easier for it to play a role in holding the EU’s policymakers to account.
And there is yet another, fourth reason, why the Parliament will never be the answer to legitimacy and democracy in the euro zone. This is that decisions over euro-zone bail-outs, the rescue of European banks or fiscal transfers to troubled countries will always involve national taxpayers’ money. The Bundestag’s insistence on approving such measures is not mainly a symptom of a sudden Euroscepticism in Germany. It is something far simpler: the notion that, where national taxpayers’ money (or credit) is being used, there must be some national control over what it is being used for – and also some national accountability. There is no way in which a European-level body could supply either of these, least of all one whose raison d’être is always to increase its powers and to spend more.
Back to national democracy
This points to another answer to Europe’s democratic deficit: greater national involvement. The spread of national referendums on European issues is part of this: besides the two habitual practitioners, Denmark and Ireland, several other countries now put substantial new EU treaties or decisions such as whether to join the euro to popular vote. France and Austria have, at various times, suggested that a decision to admit Turkey to the EU would have to be approved similarly (France put the issue of UK membership to a referendum in 1972, securing a large “yes” majority). Under its European Union Act, the UK is required to put any treaty involving a significant transfer of power to Brussels to a referendum. And David Cameron has promised that, if he is re-elected as prime minister in 2015, he will ask the British people to decide whether to remain in a reformed EU.
Referendums are, however, always chancy affairs. So it is really national parliaments that are best placed to improve democratic input and accountability in the EU and the euro zone. Their role in the EU machinery has been increased by successive treaties. Since the Lisbon treaty, national parliaments have been given specific powers to police “subsidiarity”, the provision that decisions should be taken at the lowest possible level. Under a yellow/orange-card procedure, national parliaments acting together can ask for Commission proposals for legislation to be withdrawn. The treaty also recognizes COSAC, a co-coordinating body of European committees from national parliaments, most of which maintain offices in the European Parliament building in Brussels. There is increasing interest in the more effective forms of national scrutiny of European legislation, with the most popular models being Denmark and Finland, where parliamentary committees hold the government to account for decisions it takes in the Council of Ministers.
The euro crisis has put renewed emphasis on the role of national parliaments. The Bundestag, the Eduskunta, the Dutch Tweede Kammer and others have asserted a direct interest in approving any decisions that rely on their taxpayers’ credit or money. And the new powers of the Commission to scrutinise draft national budgets, to issue recommendations to countries with excessive budget deficits or with large current-account deficits (or surpluses) are inevitably impinging on national parliamentary authority over public spending and taxation. For this reason it has become desirable, indeed essential, that the Commission should engage with national parliaments. So far, its response to the yellow-card procedure has been disappointing: only one proposal has been withdrawn, and the Commission disgracefully ignored a complaint from 18 different parliamentary chambers about the legal basis for a European public prosecutor. But as the system beds down, the Commission should end up doing more at the behest of national parliaments, and it must be expected that the commissioner for economic and monetary affairs and his or her officials will have to appear before them more often.
Yet even this might not be enough to lend greater democratic legitimacy to a far more intrusive system of economic control. That is why several analysts and commentators have at various times suggested much greater moves towards fuller political union, with an elected Commission that includes a finance minister, or at least an elected president of the Commission and, as a necessary adjunct, a substantial euro-zone budget. No doubt if the European project were to take a leap into full political union, some kind of federal election would become necessary. But at least for the foreseeable future, neither European voters, nor national governments, nor Europe’s political leaders seem remotely ready for any such steps.9
8. In, out, shake it all about
UNTIL EUROPEAN ECONOMIC AND MONETARY UNION (EMU) came along with the Maastricht treaty, the general assumption was that all members of the European club would participate in all its formations and policies. Naturally there were exceptions: Ireland was neutral, so when it joined in 1973 it became the only member not in NATO; and the UK and Ireland stayed out of attempts to set up passport-free travel through the Schengen treaty. Some inner clubs such as the Benelux trio also existed. But Maastricht marked the first occasion when some EU countries, in this case first the UK and later Denmark, specifically opted out of a treaty obligation to join a major European project, the single currency. Also in Maastricht, the UK opted out of the so-called social chapter of social and employment legislation. Moreover, the treaty clearly envisaged that not all European Union members would qualify for EMU. Thus was born a new concept for the European project: that most were in but some would stay out of certain projects.
The newcomers to the European club in 1973, followed by Greece in 1981 and, to a lesser extent, Spain and Portugal in 1986, had long been an irritant to the more fervent Europhiles from the original six, especially those who believed that they were committed to a path that would lead to a federal United States of Europe. By joining the then EEC, all countries accepted the goal set out in the preamble to the Treaty of Rome, of an “ever closer union”. But, except for Ireland and, later, Spain and Portugal, all of them were more or less unenthusiastic about this objective. The UK especially came to be seen, notably during the years of Margaret Thatcher, as a backslider in Europe and an increasingly Eurosceptic country. That became even more obvious during the painfully protracted process of ratification of the Maastricht treaty by the British Parliament in the years of the John Major government between 1992 and 1994.
This perception, combined with the simple fact of the European Union then comprising 12 rather than six members (soon to become 15, after the accession of Austria, Finland and Sweden in 1995), led some to ponder the merits of a Europe that would move at different speeds or even towards different destinations. The idea that a small group of countries might go faster than others had been floated as far back as the 1970s by Leo Tindemans, then Belgian prime minister, but without finding favour.1 In 1994 two leading German Christian Democrats, Wolfgang Schäuble (who became the German finance minister in 2009) and Karl Lamers, published a paper in which they revived the notion by suggesting that, rather than always being forced to go at the pace of the slowest, a “hard core” of countries might move ahead with deeper integration, letting the back markers catch up later (or perhaps not at all).2
The concept was taken a stage further in the 1997 Amsterdam treaty. Denmark, Ireland and the UK insisted on the right to opt out of future justice and home affairs laws if they wanted to. And a new treaty provision was approved that specifically provided for the possibility of “enhanced cooperation”, meaning that a subset of EU members could go ahead with steps towards greater integration without having to wait for all to agree. By this time the notion had acquired many different labels. Besides hard cores and enhanced co-operation, these included variable geometry, avant-garde, pioneer groups, flexibility, concentric circles, multi-speed, two-speed, multi-tier, two-tier. The exact label used often depended on its user’s views: integrationists tended to prefer language that implied different classes or speeds of EU membership, whereas the British (and Danes) generally preferred wording that simply connoted variations in the terms of a country’s membership.
For most areas of EU policy, having some countries in but others out can be seen as a detail, perhaps a slight annoyance, but not otherwise a huge issue. There are few real concerns in Europe over the UK and Ireland insisting, as islands that lack compulsory identity cards, that they want to stay out of the Schengen passport-free zone, which anyway includes such non-EU countries as Norway and Switzerland. Similarly, nobody worries much that Denmark does not participate in most EU military or defense-related activities. The Amsterdam provisions for enhanced co-operation themselves have been used only twice, for a measure on divorce and for the EU patent (which Italy and Spain refused to join on linguistic grounds), without upsetting the entire system.
EMU is, however, more serious, mainly because it so strongly affects other European policies. Of course it was always going to be a club within a club, since the Maastricht criteria were designed from the start to restrict membership of the single currency to those that qualified. Greece failed in 1998, for example, though as the Commission said in its opinion on the matter it arguably still failed most of the criteria when it joined in 2001. But some countries that could have signed up for stage three of EMU (adopting the single currency) deliberately chose not to. The UK and Denmark had treaty opt outs.
Although Tony Blair seemed for a time hopeful of joining after he became prime minister in 1997, his Chancellor of the Exchequer, Gordon Brown, was against. The “five tests” that Brown devised for membership (on business cycles, flexibility, investment, financial services and growth) may have been more sensible than the Maastricht criteria, but they also proved impossible to pass.
Denmark put the matter to a referendum in September 2000, which returned a negative majority. Sweden, which was legally obliged to join by the terms of its accession treaty, chose also to put the issue to its people, who voted no in September 2003. Thus the euro began life with three “voluntary” non-members from the EU.
All countries that accede to the European Union are now legally required by their accession treaties also to join the euro (something that would apply, incidentally, to an independent Scotland). But they have to take the step only when they are ready and when they meet the Maastricht criteria. In practice, this has meant that no country can be forced into the euro if it chooses not to adopt it.
Moreover, the process was always going to take some time for the mainly central and eastern European countries that joined the EU in 2004 and 2007. Slovenia was the first new entrant to join the euro, in 2007. It has since been followed by Cyprus and Malta (2008), Slovakia (2009), Estonia (2011) and Latvia (2014). This means that 18 of the European Union’s 28 member countries are also members of the euro, while ten remain, at least for now, outside the single currency.3
When in trumps out
This division into ins and outs is, of course, somewhat blurred and fluid. Because it shadows the euro and the ECB so closely, Denmark already functions as if it is in, though it would need another referendum before it could actually join – and that seems unlikely for now. But most of the “outs” are, in effect, “pre-ins”. Lithuania will clearly follow the other two Baltic republics into the euro as soon as it can, probably in 2015. Poland will take quite a lot longer, but its intention to join at some point is clear. Bulgaria, Romania and Croatia may well need a long period before they are deemed ready to take on the euro’s obligations. Of the recent entrants, only the Czech Republic and perhaps Hungary seem to be unsure in principle whether to join the euro, putting them closer to the same camp as Sweden and the UK.
Why does any of this matter? There are three broad answers. The first is that, as the euro crisis has pushed its members towards deeper integration, so it has inexorably started to make membership of the single currency more important than any other aspect of the European Union. As noted in previous chapters, in the four years to 2014 the task of saving the euro has been overwhelmingly the main European business for Germany’s Angela Merkel, as for other euro-zone leaders. Similarly, the pressure on bailed-out countries to comply with creditors’ demands for fiscal retrenchment and structural reforms has overwhelmed any other EU actions and policies. Although the two are in practice often conflated, to citizens of Greece or Portugal it is the euro and not the EU that is seen to have made their lives a misery. Yet it is the EU, not the single currency, against which they tend to fulminate most loudly (opinion polls in most countries continue to find majorities for staying in the euro).
Second, institutional and other changes adopted by and for the euro can have a direct impact on the structure of the wider club, sometimes to the latter’s disadvantage. The emergence of the Eurogroup, which was fiercely resisted by most of the outs, especially the UK, has clearly reduced the significance of EcoFin meetings of finance ministers, just as the outs predicted. Now euro summits threaten to do the same to European Councils, one reason why Donald Tusk, the Polish prime minister, greeted their establishment with bitter words, addressed to Merkel, “Are we getting in your way? You are humiliating us.” Other institutional changes over recent years, including the setting-up of the euro, zone’s various bail-out funds, the fiscal compact treaty and the banking union, under which bank supervision for euro-zone countries is moving to the ECB, will not apply to several countries not in the euro. Future ideas could go even further: a euro-zone budget or insurance fund, or a separate euro zone Commission and Parliament, would clearly downgrade the role and significance of their wider EU equivalents.
Third, and related to this, the euro and the policies adopted for it can affect policies that touch on all EU countries, including outs. The most obvious risk is that decisions taken by the euro zone on issues like taxation could spill into or even damage the wider single market. Under the provisions of the Lisbon treaty, from 2015 onwards the 18 euro-zone countries will constitute a “qualified majority” in themselves. This means that if they were to form a caucus before meetings of the full 28-member Council of Ministers, they could, in effect, take a decision that would then willy-nilly be imposed on the rest. In recognition of this, the UK insisted that in the European Banking Authority, which is based in London, decisions should be taken by a “double majority” system that protects the position of outs by requiring measures to have majority support of both groups – though as more outs join the euro, this system will lose much of its potency and it will stop working altogether when fewer than four countries are out.
A couple of considerations make these three points more worrying for the future. The first is that there is a subtle ideological difference between the 18 ins and the ten outs. The first group has a slightly more protectionist, anti-free market bent, largely because it counts the Mediterranean countries and France among its most important members. By contrast, the outs include almost all of the EU’s most liberal free traders, including the UK, Denmark and Sweden from older members and Poland and the Czech Republic from newer ones. Merkel for one is fully aware of this, which is why she has always remained keen to preserve single-market policy decisions for the full 28, not the narrower 18, a group in which she has fewer natural allies.4 The second consideration is that the divide between ins and outs is likely to persist for some time, and conceivably forever. When any of the outs have raised concerns about being disadvantaged by their status, one easy response has always been to point to a simple solution to their worries: they should join the euro. And indeed, as already noted, many of the outs are pre-ins that are planning to do just that. But the euro crisis has made several countries extremely nervous about plunging in too soon. It has also led the ins to be more careful about whom they admit – many now believe that it was a mistake to let in Greece, for example. Some of the outs, including Sweden and Denmark, must also win referendums before they can join. Above all, there is one out, indeed the biggest of them all that is highly unlikely to join the euro for the foreseeable future, if ever: the UK.
Those pesky Brits
It may seem odd for a book looking mainly at the causes and consequences of the euro crisis to devote much space to a country that has no intention of adopting it. But the ills of the single currency and how they are resolved could have a profound effect on the UK debate about whether to stay in the club. And that debate in turn will affect the euro zone, for it is hard to see either it or the wider EU going ahead unaffected if a huffy UK were to pick up its toys and walk out, which has become a distinct possibility.
The UK has always been the most awkward member of the European club. This goes back at least as far as Churchill’s 1946 Zurich speech, when he called for a more politically integrated Europe but made clear that the UK would not be part of it, as well as to the detachment of the British representative at the 1956 Messina conference. It was only in 1961 that the British government decided it should get more involved, but by then France was led by de Gaulle, who implacably (if, perhaps, understandably, on the grounds that the UK had interests that were more Atlanticist than continental) twice vetoed British entry – to the chagrin of the other five members.
Even after Edward Heath triumphantly took the UK into the EEC in 1973, its reputation as a reluctant member endured. His Labour opponent, Harold Wilson, had opposed the entry terms and, when he won election in 1974, set about what he called a “renegotiation”, largely as a political gesture meant to appease his party’s fiercest anti-marketers (a tale that may sound familiar to observers of the British Conservative Party 40 years on). He knew that he could not push the idea too far, however, so he stopped short of calling for further treaty changes and settled for mostly cosmetic measures that were enough to secure an overwhelming yes vote for continuing membership in a referendum held in June 1975.
This by no means ended British grumpiness, however. After it lost the 1979 election, the Labour Party moved into a strong anti-European position. Under the leadership of Michael Foot from 1980, it campaigned for (and lost) the 1983 election on a manifesto promising immediate withdrawal from the EEC. But Europeans did not find the nominally pro-European Tory government elected in 1979 an easy partner, either. Margaret Thatcher began her time as prime minister by demanding her money back from the European budget and ended it 11 years later by crying “no, no, no” to suggestions that the European project might evolve towards a closer federal union, with the Commission acting as a government, the Parliament as a lower chamber and the Council of Ministers as an upper house – an incident that contributed directly to the rebellion within the party which led to her removal from office.
So it has been with the UK and the single currency, almost from its beginnings, and to an extent so it is today. From the original opt-out at Maastricht, which John Major, Thatcher’s successor, secured, until the establishment of the euro in 1999, the British government and public have remained deeply dubious about both the wisdom of setting it up and its prospects of survival. Indeed, in 1994 Major himself expressed his scepticism about the chances of the single currency ever coming into being: writing in The Economist, he talked of those who continued to recite the mantra of full EMU as having “all the quaintness of a rain dance and about the same potency”.5 When the euro duly arrived five years later, many Britons were surprised – and they were even more astonished when it survived its first ten years.
Against this background, it was to be expected that most British observers, and even many British politicians, reacted differently from the rest of Europe to the eruption of the euro crisis in 2009. With a strong feeling of “I told you so”, many appeared at first to welcome the single currency’s travails and to forecast its early demise. Since the UK had long warned against the folly of the euro, it chose –unlike, say, Poland and Sweden – to distance itself from most rescue packages for individual countries (save that for Ireland, with which the UK has obvious strong links) as well as to stand aside from any institutional or treaty-based response. That the euro crisis coincided with the arrival of a new Tory-Liberal coalition led by David Cameron in May 2010 made the British position even tougher, for since the mid-1990s the Conservatives have taken over from Labour as the mainstream party that most loves to hate Europe.
Indeed, Cameron has been under pressure from his Eurosceptic backbenchers to do something on Europe ever since he became prime minister. As a candidate for the party leadership in 2005, he had promised to pull out of the European People’s Party, the main transnational centre-right political group, and did so in 2009, annoying Merkel in particular, as well as weakening both his and his country’s influence in the EU. He also promised to put the new Lisbon treaty to a referendum, but later abandoned that pledge because the treaty had been ratified by the time he took office. Instead he passed the European Union Act, which requires that any further EU treaty that transfers significant powers to Brussels must be approved by a national referendum.
The Cameron government also took a different attitude from its Labour predecessor towards efforts to resolve the euro crisis. Although it stuck firmly to the principle that it was, essentially, none of the UK’s business and thus not for the UK to join in helping to solve, it quickly grasped that a meltdown of the euro would be highly damaging to the British as well as to the European economies.
So from quite an early stage Cameron and his chancellor of the exchequer, George Osborne, urged the euro zone to take whatever steps were necessary to resolve the crisis, including pushing for deeper political and fiscal integration from which the UK would stand aside. This was a big change from traditional British policy, which had always been to remain as closely involved as possible in all EU and euro-zone actions, often in the hope of slowing them down as much as possible.
This was still, however, not enough for Cameron’s Eurosceptic backbenchers. Frightened also by the growing appeal of Nigel Farage’s UK Independence Party (UKIP), which stood explicitly for withdrawal from the European Union, they still craved some kind of confrontation. They were granted their wish in December 2011 when the European Council wished to adopt the fiscal compact, a treaty cementing new rules on fiscal policy and also requiring national governments to insert “debt brakes” limiting budget deficits into their constitutions. Cameron came to Brussels threatening to veto this treaty unless he was given assurances protecting the City of London from possible future changes in financial regulations. Yet when he tabled his suggestions, the other governments ignored his request and simply adopted the fiscal compact as an inter-governmental treaty outside the normal EU framework. Nor did Cameron win much support in his refusal to sign up: ultimately 25 countries ratified the fiscal compact, including eight non-euro members, leaving only the UK and the Czech Republic as non-signatories (although the Czechs now plan to sign too).
Even that was not the end of Cameron’s European adventures. He took the hardest possible line on negotiations over the 2014–20 EU budget that went by the unlovely name of the “multiannual financial framework”. Rather than reopening the question of what the EU budget was for and whether it could be spent more efficaciously, a goal that might have been easier to achieve had he been willing to give up some of the UK rebate, he set himself the public goal of simply cutting the budget in real terms. With support from Merkel, he eventually got his way, but at the price not just of preserving farm spending broadly intact but also annoying both the European Parliament and potential central
European allies like Poland.
The budget wrangle did little to improve the mood of Eurosceptics in the Tory party. They still wanted some commitment to renegotiate the UK’s membership and promise voters an in/out referendum. Cameron fended off the pressure for as long as he could, but eventually he felt that he had to set out his plans. In his so-called Bloomberg speech in January 2013 (given in London after repeated failed efforts to find a suitable continental location), he called for substantial reforms to the EU, including less regulation, a completion of the single market, a more growth-enhancing agenda and a streamlined bureaucracy. He rejected the idea that the UK might adopt the Norwegian or Swiss options of being outside the EU but subject to most of its rules. He suggested a bigger role for national parliaments and some (unspecified) passing of powers back from European to national level. Although he carefully avoided specific British demands, he announced the establishment of a new audit of EU competences to see whether and where policy areas had stretched too much (thus far it has found remarkably few cases). And he added that at the next election his party would campaign for these reforms to be made by 2017 and, on the basis of a reformed EU, put the issue of the UK’s continuing membership to a referendum.6
Back to ins and outs
This is where the UK’s argument over its future impinges both on the future of the euro and on the relationship between ins and outs. Cameron may not win enough votes in 2015 to form a single-party government, so his threat to hold a referendum in 2017 may become moot. Both the other main party leaders are refusing to offer a referendum unless there is a substantial new treaty transferring powers to Brussels, but pressure on them is likely to grow. Either way, questions about the UK’s continuing membership are likely to persist. Yet the attention of most other European leaders will continue to be focused more on fixing the euro crisis than on what sort of concessions to keep the UK in the EU might be acceptable.
Most EU leaders, especially Merkel, would like to keep the UK in. Moreover, several countries, including the Netherlands, Sweden and Denmark as well as Germany, are sympathetic to much of Cameron’s agenda. There is a general desire to cut back excessive EU regulation and to rein in the European Commission and European Parliament. Yet there is a limit to the changes other countries might be willing to make to keep the UK in, and certainly no desire to give it special opt-outs or other arrangements that might benefit one country at the apparent expense of others. And there is a concern that, whatever is offered to the UK, its voters might choose to leave the EU anyway, an eventuality that somewhat weakens British bargaining power in negotiating a new deal.
What might clinch that outcome is any growth in feeling that the euro-zone ins are determined to go ahead with integrationist measures, including possibly further changes applying to them alone, that ignore the wishes or interests of non-euro countries. By not joining the euro, the British government has shown itself to be content to be in the outer circle of a Europe of concentric circles. But that does not inevitably have to mean being left on the fringes of all policy- and decision-making. In his first big speech on Europe in January 2014, Osborne expressed his own concerns about the outs being discriminated against, adding that without reform, the UK might face the choice between joining the euro, which it would never do, and leaving the EU. Perhaps ironically, given this worry, he also suggested that in some cases actions to deepen the single market could be taken by using enhanced cooperation. 7
If the outs are to feel protected, however, policies in areas as diverse as the single market, the environment, taxation, trade and transport should largely continue to be made at 28, as more obviously should foreign and security policy. If Merkel and her allies accept the idea of making policy in any of these areas at 18, the risk of the UK’s exit from the broader EU can only increase, as Osborne argued. The broader worries of the outs would increase as well. The French “Eiffel” group has proposed strengthening euro-zone institutions, making this problem potentially even worse. All this suggests that an important part of the agenda for euro-zone countries in the next few years should be a better arrangement of relations between ins and outs.
The fear of outs that in future policies may be made by ins without their having much or even any say echoes a broader fear of voters: that increasingly the European Union and the euro zone are deciding matters without sufficient democratic control. As the euro zone integrates further and more intrusively, it is running into a huge potential row about the legitimacy and democratic accountability of its actions. Indeed, it is this, rather than the financial markets, that could pose one of the biggest risks to the EU’s future.
7. The changing balance of power
AS WELL AS CONSTITUTING THE MOST SERIOUS CHALLENGE to the European project since its inception, the euro crisis has had a huge impact on its political and economic balance, at every level. Among countries, it has hugely increased the influence of some, notably Germany, and decreased that of others, notably France. It has fostered a growing north–south divide in the European Union, which has to an extent replaced the previous east–west one. It has sharpened the division between those countries that are in the euro and those that are not. Among the EU institutions, it has strengthened the role of the European Council at the expense of the European Commission and the European Parliament. And although it has led to deeper integration of sorts, especially in fiscal policy, it has also reduced the political weight of the central EU bodies and increased that of national governments. Many if not all of these shifts in power will endure. Most will profoundly affect the workings of the wider EU as well as the euro zone.
Start with the institutions. Throughout the history of the European project, the balance of power among them and between them and national governments has altered, sometimes for structural reasons, sometimes as a reflection of individual personalities. In its early years the Commission was especially important: many new rules and directives were needed, there was no directly elected parliament and European leaders did not yet meet in the European Council. Yet the French president, Charles de Gaulle, who mistrusted the Commission and much preferred inter-governmentalism, was hugely important. It was de Gaulle who in 1965 precipitated the “empty chair” crisis when France refused to accept a treaty-prescribed move towards majority voting in the Council of Ministers. After a long French boycott of EU meetings, the eventual outcome was the 1966 Luxembourg compromise which, at least according to the French interpretation (now shared by the British), preserves the national veto if a country invokes its “vital national interests” even in legislation meant to be decided by the system of qualified-majority voting enshrined in the Rome treaty and later strengthened in the Single European Act.
The influence and power of later Commissions have fluctuated, but the institution reached its apogee under the presidency of Jacques Delors after 1984. He was a driving force behind both the single market and the single currency; indeed, in the late 1980s he turned into a hate-figure for British anti-Europeans (and for Margaret Thatcher) after he addressed the Trades Union Congress in 1988. He was hugely important for the adoption of EMU. Yet his influence in Brussels had diminished long before he stepped down from the job, somewhat disillusioned, in 1994.1 And neither of his first two successors as Commission president, Jacques Santer and Romano Prodi, was able to re-establish the institution’s previous pre-eminence.
When the Portuguese Prime Minister, José Manuel Barroso, took over as Commission president in 2004, he allied himself firmly with liberalising countries such as the UK, the Netherlands and, to a lesser extent, Germany (while not neglecting the interests of his own country). Under him the Commission has continued to play a crucial role in providing analysis, implementing the rules and drawing up legislative compromises, as well as protecting the interests of smaller countries and of a wider Europe. But it has proved hard to restore the Commission’s political clout at a time of rising scepticism in public views of the European Union. Many national governments have come to see the Commission as too keen on petty regulation and too ready to appease the European Parliament, moving away from its supposedly neutral position between Parliament and Council – a perception that is likely to grow now that, under the Lisbon treaty, the Parliament has been given the explicit role of “electing” the Commission president after he or she has been nominated by heads of government.2
As the Commission’s political influence has waned, the Parliament’s has waxed. Besides its new role in the choice of a new president, the co-decision procedure for almost all legislation under the Lisbon treaty has given it extra powers. In its work on the new excessive-deficits procedure during the euro crisis, the Parliament played a positive role, especially over the new six- and two-pack legislation, which its economic and monetary affairs committee under a British MEP, Sharon Bowles, helped to shape. Yet national governments and EU leaders, even those traditionally keen to give the Parliament more powers, are nowadays increasingly disillusioned with it. This was especially obvious during repeated rows over the EU budget and the multi-annual financial framework during 2013: the Parliament’s instinctive push for even more EU spending than the Commission had asked for won it few friends among net contributor countries. The growing presence of populist and extremist parties in the Parliament, while making it more representative, will not improve its image with national governments.3
The biggest winner from the euro crisis among the EU institutions has been the European Council of heads of state and government, because it brings together the 28 national leaders. That is partly because Herman Van Rompuy, the little-known, haiku-writing Belgian prime minister who was picked to be the European Council’s first permanent president (and was promptly accused by Nigel Farage, leader of the UK Independence Party, of having “all the charisma of a damp rag and the appearance of a low-grade bank clerk”), has in fact proved an adept choice. As an economist from a euro-zone country, he was good at diagnosing the euro’s ills; he has often pointed to the madness of not watching more carefully the rise in current-account deficits. From his background in Belgian politics he has also learnt the art of political compromise. His ability to speak English, French and German, shared also with Jean-Claude Juncker, who chaired the Eurogroup, has been useful. The jobs of European Council and Eurogroup summit president (which he added) have become more significant partly because of how he has done them. And, for the most part, he has forged a good working relationship with Barroso, with the Commission continuing to provide much of the technical and legal support for the work of the European Council.
The main reason the European Council is where the action now happens is that the euro crisis has increased the clout of national governments. This is largely because only national governments can command the resources needed to bail out excessively indebted countries or banks. It is also because, to raise the necessary money, most governments have needed to secure the consent of their national parliaments. In effect, the euro crisis has laid bare a tendency that could be detected long before 2009.
This is that national governments and their leaders (with an increasingly large role played by finance ministers at the expense of foreign ministers, formerly the main actors in Brussels) have become the driving force of the euro zone and, by extension, of the EU as a whole.
Broad political power is thus shifting from the supranational European institutions and towards national governments thanks to the euro crisis. Yet at the same time many more intrusive powers are being vested at the EU level, because the euro zone has been forced to move in the direction of greater political as well as economic integration. The ECB is taking on the supervision of most euro-zone banks, for example, and it will also gain the power to require them to increase their capital or, in some cases, to shut them down. As part of the European semester, the Commission is getting extensive new monitoring powers, including the possibility of sanctions, over national budgets. The Parliament is arrogating to itself the job of scrutinising contracts for reform that are being debated and could yet be drawn up between national governments and Brussels. What explains the paradoxical combination of greater intrusive powers within the euro zone and the declining influence of the EU institutions?
The answer is to be found in the shifting balance of power among EU countries, which is perhaps where the greatest impact of the euro crisis can be seen. The underlying fiction of the European project from the beginning was that member countries were broadly equal. Most institutions worked on the basis of one representative per country, although until the Nice treaty big countries were entitled to two commissioners. Admittedly, qualified-majority voting in the Council gave more weight to big than to small countries, but the system was still biased towards the small – and the most important decisions were almost always taken unanimously. Seats in the Parliament do reflect population size, but even there small countries have tended to be overrepresented (Malta has proportionately five times as many MEPs as Germany).
Yet despite all this, the notion of equality within the EU remains largely false. In practice, two countries have always acted as the principal engine in the European motor: France and Germany. Italy, the other big country in the original six, has never been able to match the clout of these two, partly because for many years its political system led to frequent elections and innumerable changes of prime minister, and partly because, after a long period of catch-up growth that lasted into the 1980s, its economic performance has been so dismal. Although the Netherlands has occasionally dissented, and has also in recent years turned noticeably more sceptical towards the European institutions, the Benelux trio have generally been willing to go along with Franco-German leadership. It has been hard for any newcomers, including largish countries such as the UK, Spain and Poland, to break in.
In the early years of the European project, especially after the Elysée treaty of 1963 that cemented links between the two countries, it was France that saw itself as in the lead politically, leaving the then West Germany to pay most of the bills. Indeed, this was one reason the French were reluctant to let the UK join in the early 1960s: in the words of the French foreign minister at the time, they did not want another cock on the dunghill. The EU institutions, including commissioners and their cabinets, were largely designed on French lines. The Commission’s first secretary-general was French. The common agricultural policy, the common fisheries policy, the customs union and the budget were all drawn up in many ways to the benefit of the French at the expense of the Germans (and, sotto voce, of the British when they were eventually let into the club in 1973).
By then the relationship across the Rhine had become more one of equals, as (West) German economic power asserted itself. The response of successive French presidents and German chancellors was to forge still closer bilateral links, even though they often came from opposing political families: Valéry Giscard d’Estaing with Helmut Schmidt, François Mitterrand with Helmut Kohl, Jacques Chirac with Gerhard Schröder. It became understood that, if France and Germany could agree on something, so (most of the time) could the rest. Even when the personal relationship was scratchy, the institutional bond between the two countries was close. The UK’s attempts to insert itself into a possible trilateral relationship usually failed: the prime minister who came closest to pulling this off was Tony Blair, but his European credentials were tarnished when the UK declined to join the euro, and even more so when he later backed George Bush’s war in Iraq, vehemently opposed by both the French and German leaders.
By this time, however, the Franco-German relationship was becoming more obviously lopsided. The turning point came with German unification in 1990, which made Germany significantly bigger than France both in population and in economic weight. That was indeed one reason Mitterrand pushed so hard for a single European currency: he hoped that it would give France more say in economic and monetary policy, which was increasingly being dictated for all EU members by the German Bundesbank. But as the years went by, it became ever more obvious that the Franco-German relationship had become a mechanism that was deployed to disguise German strength and French weakness.
There was a brief respite at the start of the euro when the German economy looked particularly weak, partly because Germany had joined the euro at a relatively high parity. The Economist, echoing Hans-Werner Sinn, a German economist, called Germany the sick man of Europe as recently as 2003.4
But German industry responded to the challenge by determinedly cutting costs and holding down wages, while the Schröder government’s Agenda 2010 reforms of the labour market and welfare system increased the German economy’s flexibility. Rising demand from China for German-made machine tools and other products also boosted German exports. The result was that, by the time the euro crisis broke out openly in 2009–10, the gap in economic and financial strength between the two leading countries in the euro had become gapingly wide.
This presented a big new challenge to the next incarnation of the dual leadership, after May 2007: Nicolas Sarkozy as French president and Angela Merkel as German chancellor. True to form and despite both coming from the centre-right, their relationship got off to a rocky start, not least because they were polar opposites in style. Sarkozy is a nervy, hyperactive showman. Merkel was a cautious, somewhat dour scientist. The two were known to find each other unbearable even though they had to work together – in English, no less, because neither spoke the other’s language. They quickly clashed after Sarkozy became president when he floated plans for a new “Mediterranean Union” that appeared to be meant to exclude Germany. But it was the global financial crisis that really tested them. At first France seemed to fare better during the crunch than Germany (and indeed the UK), with a much smaller loss of GDP in 2008–09.5 Along with the British prime minister, Gordon Brown, Sarkozy played a big role in meetings of the G8 and G20 that tried to co-ordinate an international fiscal boost to stop the crisis turning an inevitable recession into a deep 1930s-style depression. At one point, he even cheekily announced to the press that France was acting while Germany was merely thinking about it. But when the euro crisis erupted in 2010 the structural weakness and relatively greater indebtedness of France compared with Germany soon became a huge problem. Like so many of his predecessors, Sarkozy’s response was to try to get closer to Merkel. He played up France’s AAA rating as a key asset underpinning the successive rescue funds that had to be devised for Greece, Ireland, Portugal and later Spain and Cyprus. He and Merkel joined forces to suggest policy changes such as, at Deauville in October 2010, the involuntary involvement of the private sector in future debt restructurings. He pushed German-inspired fiscal austerity and did not press hard for an immediate agreement to the issuance of Eurobonds. The markets began to talk of “Merkozy” as the key tandem seeking to steer the euro zone out of its debt and growth crises. And the two leaders played a crucial role in 2011 in engineering the departures of Silvio Berlusconi in Italy and George Papandreou in Greece and their replacement by technocrat-led governments.
Yet as the crisis dragged on, the pretence that France counted as much as Germany wore thin. Increasingly, it was the chancellery, the Bundestag and the German constitutional court in Karlsruhe, as well as public opinion in Germany, that were doing the most to determine the shape and speed of the euro zone’s various rescue packages. As other countries, especially but not only those that had been bailed out, cut public spending, reduced budget deficits and pushed through structural reforms, an unchanged and unchanging France seemed to be turning into part of the problem rather than part of the solution. To Sarkozy’s embarrassment, France lost its first AAA rating in early 2011. And then, in May 2012, he lost the presidential election to the Socialist candidate, François Hollande.
Hollande was a stronger pro-European than Sarkozy, as well as being easier to deal with on a personal level. Although he came from the opposite political camp to Merkel, he was on the right of his Socialist Party. Yet as the man who led the party when it split over the referendum on the EU’s constitutional treaty in 2005, he was wary of any new treaty changes that the Germans might seek. Moreover, before his election he spoke out strongly against Merkel’s austerity policies and in favour of more growth; he wanted to see some form of debt mutualisation, which was anathema to Merkel; and during the campaign he said next to nothing about the need for structural reforms or public spending cuts at home, instead proposing tax increases, including a new 75% top rate of income tax.6
After he came to power, far from seeking to reinvigorate the Franco-German axis, he tried to make common cause with the Italian and Spanish leaders in urging more growth-oriented policies in place of excessive austerity.
The response from Germany was frigid in the extreme. After two years of crisis-fighting, the last thing Merkel wanted was to see a weakened France deserting the “northern” camp of creditor countries like Germany, Austria, the Netherlands and Finland and joining instead the “southern” camp of debtors, whose instinctive answer to any problem was to borrow and spend more. France, it was noted darkly in Germany, had not balanced its budget since 1974. One reason the Germans decided during 2012 that it would be too dangerous to let any country, even Greece, leave the euro was because they feared that it might lead to the currency eventually unraveling all the way up to the Rhine.
In short, France had now become, in German eyes, part of the problem and not of the solution. At a budget summit in February 2013 Hollande was so distant from the German position that he even failed to show up for a bilateral meeting with Merkel, something unheard of before. As one observer of EU summits noted, everybody always stopped to listen to Merkel; nobody paid any attention when Hollande took the floor, instead fiddling with their Blackberries and iPhones. The marginalisation of France is also denting public opinion in that country, which is increasingly turning against both the euro and the EU. The French industry minister, Arnaud Montebourg, has taken to attacking the EU for its “free-market fundamentalism”. Another striking example even among the pro-European elite was a 2013 book by François Heisbourg, from the Foundation for Strategic Research, in which he argued that the euro should be scrapped in order to preserve the European Union.7
In effect, Europe once again has what historians have called a German problem (with plenty of reason to hope that the solution will be more peaceful than in the past). The revival of a German problem is not at all comfortable for Merkel. Following the departure of Jean-Claude Juncker as prime minister of Luxembourg in late 2013 and of Estonia’s Anders Ansip in 2014, she is the longest-serving national leader in the EU. With France so weak and Hollande so ineffectual, she is also the unchallenged head of the northern creditor camp in Europe. And with German unemployment and youth unemployment both at 20-year lows, GDP back above pre-crisis levels, a budget close to balance and a continuing huge current-account surplus, her country is the uncontested economic hegemon of Europe. France and Italy are, at best, bystanders; at worst, largely irrelevant.
Yet Germany remains a reluctant hegemon, not least for historical reasons. Its foreign and defence policies are inward-looking, commercially driven and instinctively pacifist, unlike the UK’s and France’s. Merkel may enjoy wielding power in Europe, and being seen by the rest of the world as the continent’s most important leader, but neither she nor her country is entirely happy being treated too openly as such. Post-war German chancellors have traditionally seen more Europe as the answer to the German problem. But to critics of Merkel, especially during the euro crisis, her call for more Europe has often seemed like a call for a more German Europe, an effort to transform all euro-zone countries into mini-Germanys. The sensitivity this arouses was well demonstrated in November 2011 when a public claim by Volker Kauder, chairman of the Bundestag’s foreign affairs committee, that “suddenly, Europe is speaking German” was swiftly disowned by most of his colleagues.8
Germany, in short, remains highly attuned to outside criticism. It also has many blind spots economically. This not only embraces the crude caricatures of Merkel with a moustache and talk of a new Third Reich that are seen and heard in Greece and elsewhere. It also includes more serious complaints from the likes of the IMF and the US Treasury that Germany relies too much on exports and too little on domestic consumption for growth; and that, by running such a large current-account surplus, determinedly holding down wages and failing to generate sufficient internal demand, the Germans contributed to the problems of the euro zone in the first place.
Such claims are vigorously rejected in Germany. Ever since the Greek crisis erupted in late 2009, the Germans have seen two roots of the problem: fiscal profligacy and a loss of competitiveness. On this diagnosis, the cure for the first is public-spending cuts and tax rises; for the second, it is structural reforms to labour and product markets to reduce unit labour costs and restore competitiveness.
Germany has long kept its public finances under better control than others and it also pushed through the Agenda 2010 reforms in 2003. Other euro-zone countries simply have to copy this example. The notion that Germany might need to do more, for instance increasing wages or public spending, or boosting domestic investment, is often greeted with disbelief. German business, it is said in reply, must compete on a global stage; trying to rebalance within Europe by making it less competitive externally would be disastrous for the entire continent. That the coalition agreement in Germany may have this effect, by introducing a high minimum wage and lowering the retirement age for certain workers, reflects politics rather than policy choices.
As Merkel has come increasingly to be the main or even only voice that counts in the euro crisis, she has also become more dubious about the value of the EU institutions. Admittedly, she has quietly sided with the ECB against criticisms from the Bundesbank, even when two of her most loyal lieutenants, Axel Weber and Jürgen Stark, resigned in protest. But she has dragged her feet on banking union, and her response to calls from the Commission or from other European countries for debt mutualisation has been cold. For her, keeping in line with public opinion at home and satisfying both the Bundestag and the constitutional court in Karlsruhe matter far more than any dreamy euro federalist vision. She has at times been criticised by such predecessors as Helmut Kohl and Helmut Schmidt for this. The current coalition agreement suggests a number of changes to the Commission, including reducing its propensity to regulate.
It must be conceded that, at least for Merkel, this approach to Europe has worked wonders. For all the brickbats hurled at her, especially from abroad, for being too slow to move, too eager to impose austerity on the Mediterranean, too unwilling to boost demand at home and too leery of explaining to Germans how much they would lose if the euro were to break up, she has retained enormous popularity at home. Almost all other euro-zone countries have seen their leaders pushed out by voters as a result of the euro crisis. Merkel, however, took an impressive 42% of the vote in the federal election in September 2013, and she has since gone on to form a grand coalition with the Social Democrats that clearly leaves her and her finance minister, Wolfgang Schäuble, in charge of German policy on the euro. German voters, it seems, instinctively trust her both to do the right thing and to protect their interests.
Mediterranean angst, northern bravado
Worries about French weakness and about being lonely at the top have prompted the Germans to look around for other potential partners in the European Union. The UK is out, as it is seen as too semidetached from the project. The Mediterranean countries are also broadly no good. Most of them have received help from European bail-out funds and are still struggling to comply with their reform programmes and sort out their banks. Spain is likely to be the first to come good but still faces severe economic and political difficulties. Only Ireland has become the German poster-child for how a bailed-out country can change itself.
Italy is the perpetual underperformer in the EU: a big economy, second only to Germany in manufacturing, but seemingly incapable of reforming itself to regain lost competitiveness. Alone among euro-zone countries its income per head is lower now than when the euro began in 1999.
During his brief technocratic administration in 2011–12, Mario Monti promised to be a firm ally of Merkel’s, and he tried, with only partial success, to push through structural reforms, including to pensions. But at EU meetings he tended to side with those criticising Germany for not doing enough to boost domestic demand and the ECB for failing to act to lower interest rates in the periphery. Italy has raditionally favoured ever-closer union in Europe, on the basis that many Italians prefer rule from Brussels to rule from Rome, but such an approach is now out of favour in Germany.
Monti was forced to call an election in February 2013 in which he did badly. After complex bargaining, Enrico Letta, the young deputy leader of Italy’s centre-left Democratic Party, succeeded in putting together a broad coalition together with Berlusconi’s People of Freedom (PdL) party and a scattering of centrists – the same broad coalition that had backed Monti. The country came out of its excessive deficit procedure in June, giving Letta a political boost, but Italy’s politics remained as dysfunctional as ever. Letta found it no easier to enact reforms than did Monti. He survived an attempt by Berlusconi to bring down the government in October, just before the old rogue lost his parliamentary immunity following conviction on charges of fraud. Berlusconi’s move backfired; instead of bringing down the government, his own PdL party split, with a faction of moderates sticking with Letta. But Letta then faced a deadlier challenge from his own side. The turbo-charged former mayor of Florence, Matteo Renzi, took over the leadership of the Democratic Party in December, and then pushed Letta out of power in February 2014.
Like Monti, Letta had been popular with Merkel partly because he was not Berlusconi and partly because he understood the case for structural reforms at home. But Merkel was never confident of seeing much in the way of radical reform from his baggy left-right coalition. It remains to be seen what she will make of Renzi. This young and energetic new leader is now widely seen both inside and outside Italy as the last great hope of his country’s reformers. But his coalition is not much stronger than Letta’s, and he is vulnerable to the charge of being yet another unelected leader imposed on Italian voters.
That leaves the northern group in the euro zone, most of which are natural allies of Germany. Austria, Finland and Luxembourg are the only other AAA-rated countries that help to sustain the rating of euro-zone rescue funds. But all are small. The Dutch and Finns usually support German calls for austerity. Yet the Netherlands was downgraded in 2013 as the Dutch economy struggled to overcome the after-effects of a housing bust. The eastern newcomers to the euro, Slovakia, Slovenia, Estonia and (from January 2014) Latvia, are small countries as well, and Slovenia has hovered on the brink of needing a bail-out for its indebted banks. However, these two groups give powerful support to the broad German narrative, which is that the cure for the euro crisis is to be found in fiscal austerity and structural reform at home. The Baltic countries, especially Latvia, went through almost as wrenching an adjustment in the early 2000s as Greece, and without provoking riots. They are among the strongest advocates that other heavily indebted countries should follow suit. Latvia’s is now the fastest-growing economy in the EU.
What the euro crisis has clearly done is to break what used to be the EU’s east–west division. Most of the countries that joined in 2004, and even more so Bulgaria and Romania, which joined in 2007, remain significantly poorer than the others, but they are catching up as they benefit from EU structural funds. The new economic and political division in Europe is increasingly a north–south one. This is potentially troubling for the entire project. For its first 50 years until 2007, it always functioned on the basis that it was bringing about convergence between member countries. Since the euro crisis hit, the pattern has been more one of divergence. And that could easily stir up still more popular resentment of the EU in the south.
Germany is also looking to some non-euro countries as potential new partners, especially Poland and, to a lesser extent, Sweden. Indeed, were Poland to join the single currency, it is not too fanciful to see it vying with France and the UK as Germany’s main allies (French suspicion of eastern enlargement was often attributable to its worry about losing influence within the club to Germany). Bilateral German–Polish relations are warmer than they have been in 500 years. Merkel respects Donald Tusk, the Polish prime minister, so much that she briefly toyed with putting him forward for the Commission presidency. Radek Sikorski, the foreign minister, has been widely touted as a candidate for one of the top EU jobs, at least since his notable November 2011 speech in Berlin when he announced that he was “probably the first Polish foreign minister in history to say this, but here it is: I fear German power less than I am beginning to fear German inactivity”.9
The increasing influence of Poland does, however, throw the spotlight on the remaining big division in the EU, besides an economic north-south one. This is between the 18 euro-zone ins and the ten outs. As the euro zone pursues deeper political integration, including of fiscal policy and banking regulation, and even toys with setting up its own separate institutions, it is becoming increasingly clear that the single currency is the most important subgroup in the broader European club. That raises huge dangers for the maintenance of the wider single market at 28, and especially for the position of the most recalcitrant country of all: the UK.