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Europe Facing Three Threats to Its Future

There are sometimes articles one would rather not write as a staunch pro-European. Yet the future of the European Union seems seriously compromised by internal and external threats. And, as the left-wing Italian interwar leader Antonio Gramsci used to say, we need to combine ‘pessimism of the intelligence’ with ‘optimism of the will’: only a precise understanding of the difficulties which lie ahead can enable us to overcome them. 

On the face of it, events of recent months seem to have strengthened the EU and opened up a promising future. Challenged by the pandemic, after initial bungling—understandable given the absence of precedent for over a century—the reaction of the European institutions was quite adequate (within Europe, at least). Although the EU has no competence in health, the joint purchase of vaccines, put together in record time, enabled coverage to be realised in just a few months, allowing a return to normal social and economic life.

In July 2020, the EU also broke a critical taboo, by creating a mutual debt for the first time, to the substantial amount of €750 billion, to cushion the economic and social consequences of the pandemic while speeding up the green and digital transitions. This initiative, unthinkable just a few months earlier, was in the end almost unanimously welcomed.

Similarly, faced with the invasion of Ukraine, the EU was able in less than a year to rid itself of almost all the Russian gas, oil and coal on which its economy was so heavily dependent. And it did so without suffering the energy-supply disruption that could legitimately have been feared at the start of the conflict. The EU was also able to mount a vigorous response in terms of sanctions and support for Ukraine, despite the powerful brake imposed by the unanimity rule on foreign policy.

Here too, the EU has broken taboos by providing substantial military assistance to a country at war and massively training Ukrainian soldiers. For the first time, it has even set up a mechanism for the joint purchase of ammunition to help Ukraine, while replenishing European stocks. In short, contrary to the expectations of the Russian president, Vladimir Putin, far from being divided and paralysed the EU has stood firm.  

It is always said that it is in crises that European integration make progress. The last few years have confirmed this adage. In a world that has become more uncertain and clearly more hostile, Europhobia has receded and ‘leaving Europe’ no longer appeals to many. Even the leader of the French Rassemblement NationalMarine Le Pen, and the Italian far-right prime minister, Giorgia Meloni, have abandoned this idea—while in Britain ‘Brexit’ is now widely recognised as a disaster.

So why worry about the future of European integration? Because many clouds are gathering, from three sources at once: the internal political dynamics of the union, the geopolitical level and finally the economic situation. And it seems unlikely that Europe will be able to cope effectively with this combination.

A worrying internal dynamic

First of all, we are witnessing a general right-wing shift in European opinion. Social democracy is in retreat everywhere and the greens are not able to substitute. This trend is coupled with an equally worrying phenomenon: the dykes have broken between the traditional right and the far right, and the traditional right now prefers generally to govern with the far right rather than with the centre left when faced with a choice.

The far right is in power or associated with it in Sweden, Finland, Latvia, Poland, Hungary, Slovakia and Italy. The Freiheitliche Partei Österreichs dominates the Austrian political landscape and the Alternative für Deutschland has become Germany’s second largest party in the polls. Meanwhile in France, the policies pursued by the president, Emmanuel Macron, and the left’s inability to offer a credible alternative are strengthening the RN every day. 

This wave of right-wing extremism is largely the result of the damage done to European societies by four decades of deregulation accompanying globalisation and European policies essentially guided by a naive cult of competition and unregulated trade. It will however do nothing to correct the damage done by neoliberalism.

On the contrary, it is retarding the essential progress of European integration in terms of social rights, ecological transition, common budgets and taxes. It is aggravating Europe’s relations with the ‘global south’ through xenophobic policies. And it could yet see European aid to Ukraine limited, if not blocked.

Faced with this situation, Germany and France are the two main countries whose governments remain, in theory, committed to advancing European integration. But in Germany the coalition is extremely fragile and in freefall in the polls. What is more, it is locked in by the presence of the small, liberal Freie Demokraten party, which is now also close to the far right and very hostile to any progress on European solidarity, social issues or the environment. As for the German right, Angela Merkel’s heirs have been defeated within her Christian Democratic Union in favour of ultraliberals who do not want to hear about European solidarity either.

In France, Macron no longer has a majority in the Assemblée nationale and is at the mercy of the Republicans, who have also become very close to the far right. They are now even advocating that France no longer respect the EU treaties. And, beyond his grand speeches, Macron has hardly been able to make any progress on concrete European issues because of his inability to build coalitions. In practice, his government has tended on the contrary to slow down or block a number of European projects to satisfy industrial or agricultural lobbies.  

Against this backdrop, it is hard to see from which political forces and countries a drive towards more European integration could emerge, to  correct the many dysfunctions inherited from the neoliberal period initiated by the Single European Act of 1986 establishing the single market. And meanwhile, with the war against Ukraine, the question of further enlargement of the EU to include Moldova and Ukraine, as well as most of the countries of the western Balkans, is now a matter of urgency. The geopolitical situation makes it indeed imperative to integrate these countries into the union as quickly as possible.

Yet, with 27 members, the current European institutions are already largely dysfunctional; with more than 30, their operation would almost certainly be paralysed. This raises the question of modifying the treaties. Even assuming this process could be set in motion—with the obvious threat of national vetoes being exercised against further extensions of majority voting—it is difficult to imagine, in Europe’s current internal context, how it could lead to substantial progress in terms of solidarity, ecology and democracy.

A deteriorating geopolitical context

The war against Ukraine has greatly strengthened the ties between the EU and the United States. In the wake of the Donald Trump presidency, the vigour of the US commitment to Ukraine has come as a heaven-sent surprise to Europeans. Without our allies across the Atlantic, there is little doubt that Putin would already have won the war in Ukraine.

The future is however likely to be less idyllic. First of all, the Ukrainian episode has not altered the strategic vision of the Americans, who, across the political spectrum, regard China as their main adversary. They do not accept that China has also become a great power and wish to challenge its status as such. And internal political competition in the US leads to a permanent escalation in the confrontation with China.

Europe is severely divided on the subject. Its economy, and German industry in particular, is heavily dependent on the Chinese market. With Europe only marginally present in the Pacific, many Europeans consider that the union does not necessarily have the same interests as the US and that China does not constitute a direct threat, even if frictions exist. Many fear being embroiled in a process that could lead to war with China. On the contrary, they hope, albeit naively, that China could help persuade Putin to withdraw from Ukraine.

Others however believe that China’s autocratic regime is a major threat to all democracies and that Europe must not make the same mistakes with China as those made with Russia over the last few decades. From this standpoint, Europe need to get tough and severely limit economic relations with China while recognising that it is too weak, particularly in terms of its security, to do other than follow the US in this area.

This issue is and will undoubtedly remain one of the main bones of contention within the EU for years to come. In the end, it seems likely that the union will lose out on both counts: it will not do enough in the eyes of the Americans, reinforcing the mistrust many of them feel towards Europe, but it will still do too much in the eyes of Beijing, with serious consequences for its economy. 

Furthermore, the rapprochement between the EU and the US is closely linked to Joe Biden’s administration. The mid-term elections showed, if proof were needed, that the country remains divided 50-50. If a Republican administration were to succeed that of Biden, even if the president were not Trump, the massive US support for Ukraine and even its involvement in the North Atlantic Treaty Organization could quickly be called into question.

Europeans are hardly in a position to increase their autonomous defence capabilities overnight. Without US help, the situation on the Ukrainian front could change rapidly and others, such as the Turkish president, Recep Tayyip Erdoğan, could be tempted to take advantage of this European weakness to revive their dreams of empire

Finally, the strategies implemented to accelerate the energy transition in Europe, with the Green Deal and ‘Fit for 55’, and in the US with the Inflation Reduction Act (IRA), diverge radically and lead to a logic of trade confrontation across the Atlantic (see below). On all these fronts, relations between the US and the EU are likely to deteriorate in the months ahead. 

At the same time, the war against Ukraine has highlighted the gulf between the west, and therefore Europe, and the ‘global south’—albeit that term covers very different realities and often divergent interests. Although the Russian aggression is clearly a flagrant violation of the basic principles of the United Nations Charter, in a classically imperialist and colonialist logic, major countries of the south have refused to condemn Russia at the UN. Algeria, South Africa, India, Senegal and of course China preferred to abstain. Above all, very few from the global south have joined in the sanctions decided by the west, to the extent that their effectiveness has been seriously weakened.

The gulf between ‘the west’ and ‘the rest’ seems wide, even if the rest are not purely and simply aligned with Moscow. To the traditional criticisms of the west linked to the colonial period have been added those tied to other unfortunate initiatives in recent decades: the war in Iraq, of course, but also the abandonment of the Syrians. Because of their inability to articulate an effective global policy in the Sahel that goes beyond the security dimension, France and Europe have also suffered a bitter failure there. This has fuelled powerful anti-French and anti-western sentiment throughout the region.

The feeling is of course fuelled by Russian propaganda but it would be a mistake to underestimate its depth. Added to it is the reproach of double standards, rekindled in particular by the passivity of the west in the face of the increasingly serious abuses by the extreme right-wing government in Israel.

These criticisms have also been heightened over the last few years by the feeling that the west abandoned the global south to the pandemic, only looking after its own nationals—particularly in the management of vaccines on a global scale. Added to this are the recurring difficulties encountered in the climate negotiations in getting the west to agree to put money on the table to help the countries of the global south adapt to climate change and accelerate their own energy transition, despite the obvious historical responsibility of western countries for their plight.

Insofar as its domination is a thing of the past and it no longer plays the role often perceived as imperial on the part of the US, Europe could in theory hope to escape this opprobrium more easily than our American allies and rebuild links with the global south. But in the internal political context referred to above, the EU is clearly not ready to do what is necessary to achieve this: it is more than ever fixated on a ‘Fortress Europe’ attitude to people movement, ready only to make a few exceptions to take doctors and information-technology specialists from the global south but unwilling to increase its budget and therefore the effort it devotes to helping developing countries, particularly on climate and energy issues.

The Global Gateway, which is supposed to be the EU’s response to China’s Belt and Road Initiative, has become an object of derision in the southern countries because it is an empty shell in terms of funding. For all its talk of multilateralism, Europe is not really in a position to play a leading role in the necessary restructuring of the UN system to give the countries of the south a bigger role. This would mean losing positions by replacing its member states or handing over the presidency of the International Monetary Fund to countries from the global south. On this the member states, and France in particular, are deadlocked.

In short, between American unilateralism, its internal divisions and increasingly difficult relations with a global south more inclined to turn to Russia and China, it is hard to see how Europe could truly become the ‘third pole’ between China and the US for which Macron has called.

A difficult economic outlook

The worrying internal dynamic and the deteriorating international context are reinforced by a difficult economic outlook closely linked to both. It is hard to see how the EU’s main economy, Germany, could not but be severely and enduringly affected by the growing tensions between the US and China and by the rise of electric vehicles, in which it lags both American and Chinese manufacturers.

The car Industry provides the backbone of Germany’s industrial and export power, including the upstream sectors of machinery, mechanics, chemicals and steel. So German industry has again entered long-term, severe turbulence. In the past, it has bounced back from adversity with remarkable resilience—thanks in particular to the participative corporate governance imposed by co-determination—but this time the threat seems particularly serious.

The foreseeable weakening of Europe’s industrial heartland combines with considerable cumulative backwardness in all high-technology areas: the platform economy, artificial intelligence, semi-conductors, green technologies, biotechnology and so on. This is due to the absence of a European industrial policy.

The EU has been able to maintain some influence, thanks to the ‘Brussels effect’—its ability to define standards that are binding on industry because of the size of the domestic market. But this effect is steadily diminishing as emerging markets expand and, in the long term, it is impossible to remain a standard-setter without mastering the technologies concerned. After four decades of policies guided essentially by competition and ‘free trade’, Europe is well on the way to technological subjugation.

Awareness of Europe’s weaknesses and their (potentially serious) consequences has grown considerably in recent years, due in particular to the pandemic. The response however remains far from commensurate, since implied are major transfers of sovereignty—European bodies should decide to support a particular industry—and the pooling of significant resources. For the time being, the internal political dynamic referred to above blocks this completely.

Some measures have been announced, but in reality the resources associated remain insignificant: no additional budget has been mobilised, with reliance instead only on unspent money from NextGenerationEU. It was not politically possible to renew this joint-debt issue to deal with the war against Ukraine and its consequences, despite the considerable challenge this represented.

Negotiations for the next multiannual financial framework, post-2027, will likely start on the same basis as usual: how could the EU budget be reduced? As for the debate on the union’s own resources, it has not progressed one iota since the subject was dismissed in 2020 when NextGenerationEU was adopted.

The only significant change feasible in the short term seems a liberalisation of the framework, until now very strict, for state aid to companies by member states. But this ‘solution’ is likely to be worse than the problem: in this context, the fiscal inequalities between member states will exacerbate the gaps between them and aggravate the internal tensions. In any case, this national effort will be ineffective overall, because of its dispersal and the lack of sufficient co-ordination at European level.

To make matters worse, Europe’s energy-transition policy, the Green Deal and its adjustment with the ‘fit for 55’ legislative package, barely finalised, already seem doomed by the US IRA. To speed up the decarbonisation of Europe’s economies, public policies can use a number of levers. First come standards—imposing stricter conditions on the marketing of new vehicles, the construction or renovation of housing and so on. This does not directly involve public finances but such standards have a major economic impact by increasing the cost of the products to which they apply.

Governments can then discourage the use of fossil fuels by increasing their cost through carbon pricing. Alternatively, they can encourage low-carbon alternatives by subsidising them. These two options are equivalent in economic terms but politically they are not at all equivalent: it is of course easier to ‘sell’ subsidies to voters than additional taxes, even if it is then necessary to avoid a subsequent slide in public finances.

Energy-transition policies are always based on a mix of these options, but within the mix the balance differs. From the outset, Europe has focused on standards and the price of carbon. Standards are the core business of the EU. And the price of carbon is the focus of the emissions-trading system introduced in 2009, to which the main industrial emitters are subject.

This system has just been considerably strengthened with the ‘fit for 55’ package, which extends these allowances to entities that sell fossil fuels to households for heating and transport while gradually abolishing the free allowances previously allocated to businesses and reducing the number of allowances more rapidly. These reforms have already quadrupled the price of a tonne of carbon dioxide, from €20 in 2020 to €80 today.

As for subsidies, they have always been virtually non-existent at European level and reserved for the national, with the EU endeavouring to limit their use as much as possible. This trend was reinforced by the eurozone crisis between 2008 and 2015, which put the public finances of many countries, particularly in southern Europe, under extreme pressure. The result was a lasting halt to the energy transition, contributing to the loss of Europe’s global leadership in this field and the disappearance of many European players, particularly in the solar sector.

This policy, centred above all on strict standards and a high carbon price, poses major cost-competitiveness problems for European industry. It could however be justified if the EU would only be in the vanguard of a movement other countries would necessarily follow by introducing a carbon price that would converge with that of Europe. Europe would simply be ahead of the global movement, which would ultimately give it a competitive advantage.

Unfortunately, this is not at all what is happening. Carbon pricing is still very little used worldwide. And with the IRA the US, the world’s second largest emitter of greenhouse gases, is imposing the opposite approach—subsidising the development and introduction of green technologies.

It is doing so on such a massive scale, accompanied by strict protectionist measures on the manufacture of the products concerned, that the threat to European industry is immediate, with announcements of transfers of production and investments multiplying. The ‘fit for 55’ package does provide some response to environmental dumping by external actors who do not utilise a carbon price, with the Carbon Border Adjustment Mechanism (CBAM). Its actual implementation, scheduled for 2025, is however likely to generate strong opposition from Europe’s main trading partners and will probably ultimately affect only a small fraction of its trade.  

Unfortunately, the EU has no alternatives. It managed to agree on carbon pricing precisely because this did not involve any additional public spending at European level—on the contrary, it offered the prospect of some additional revenue. For the time being, the EU has no political means of entering into a race with the US to subsidise the green economy.

Added to this are the difficulties encountered in reforming the Stability and Growth Pact. The pact, which everyone now recognises to be unworkable, has been suspended but in theory should be reinstated next year.

The reform proposal presented by the European Commission offers member states only very limited additional room for manoeuvre. In particular, it does not take into account the need to remove from deficit calculations public investment in the ecological transition. There is likely very little scope for improving this proposal, however, particularly given the rigid attitude of the ordoliberal German finance minister, Christian Lindner, on what is a matter of identity for his Freie Demokraten party.

Furthermore, in the context of the war against Ukraine, European governments are being forced to increase their military spending significantly. Within a budgetary framework that remains rigid, and with intra-European fiscal dumping as prevalent as ever, there is a strong risk of increased pressure to reduce spending on social welfare, public services and the environment. As for the European Central Bank, as long as inflation remains at current levels, it is difficult to anticipate it adopting a more accommodating monetary policy.

Under such conditions, it is hard to see how the EU could undertake the considerable investment effort needed to catch up technologically and industrially and accelerate its ecological transition. And while the effects of Europe’s foreseeable economic difficulties on the union are uncertain, they are likely only to exacerbate internal tensions.

If this diagnosis is correct, we shall need a strong dose of ‘optimism of the will’ to succeed in moving European integration in a more ecological, solidarity-based and democratic direction over the coming years. But then Europe and Europeans have already shown that, in the face of adversity, they are capable of leaps forward which seemed impossible at the outset.

Source : Socialeurope

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