What next for the EU?

The EU is experiencing perhaps its most fraught period since being created in 1957. How does the situation look in a historical context and what are the implications for the EU’s future?

How bad is the situation now?

The difficulty lies not so much in the scale of any one of the current crises, but in the fact they have arrived on EU leaders’ plates simultaneously.

Taken individually, the issues of possible Greek exit from the eurozone (Grexit), conflict with Russia in Ukraine and uncontrolled migration from Africa and the Middle East would be formidable but manageable. The EU dealt with the first Greek crisis in 2012, at a time when the country’s economic collapse could have destabilized the whole eurozone, unlike today. Nicolas Sarkozy and other EU leaders managed to negotiate a ceasefire after the Russian invasion of Georgia in 2008.

Today, leaders are having to deal with the EU’s crises all at the same time, while being aware that none of these issues is likely to be resolved any time soon.

What does the way the Greek crisis has unfolded tell us about relations between Germany and France and about the state of the wider EU project?

Debate within the EU over how to manage the Greek crisis reflects a deeper trend. Following the stresses of the financial and sovereign debt crises, eurozone monetary union is now evolving into political union. While the former could disguise fundamental differences in national political approach, the latter cannot.

The French perspective is that eurozone countries should come together into a politically driven economic and monetary union that would be guided by the principle of solidarity, with the richer helping the poorer and final decisions taken by political consensus. The German vision is a political, economic and monetary union based upon the principle of shared responsibility, with all countries legally bound to avoid budget deficits. If they do run excessive deficits, then they would be obliged to undertake structural reforms and spending cuts in order to receive central financial support, as in the Greek case.

Overall, a majority of eurozone governments, from Slovakia and Finland to Spain and Portugal, appears to side with Germany. Many have absorbed painful reforms and put euros into financial support packages that their voters expect to see returned. But Italy is habitually sceptical of German economic leadership and is bolstering French President Francois Hollande’s stance. German leaders do not want a rupture with France.

Why are voters so disenchanted with political leaders across the continent? And how does this affect British Prime Minister David Cameron’s EU negotiations?

Voters are not uniformly disenchanted with their leaders, but it is a growing trend. Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble are very popular in Germany, as are, to a lesser extent, Matteo Renzi in Italy and Enda Kenny in Ireland. These are leaders in both the euro creditor and debtor camps. In contrast, Hollande and Mariano Rajoy’s Partido Popular in Spain, for example, have seen severe falls in support and the rise of credible populist competitors – the Front National and Podemos, respectively.

There is no clear pattern here from an economic perspective. Instead, it appears that the quality of individual political leadership offers a critical premium when the public is increasingly mobilised as well as sceptical of their leaders in light of the economic stresses brought about by the financial crisis.

This provides a mixed picture for Cameron in his pre-referendum negotiations. He and Chancellor George Osborne need strong EU counterparts who will be willing to face down attempts by domestic political rivals to paint any concessions to the UK as worsening their own country’s interests. While he appears to have such partners in Merkel and Renzi, he may not in Hollande or Rajoy.

There have been fundamental shifts in the political landscape in the UK and elsewhere. What does this realignment mean for the future of the EU?

There will be further integration within the eurozone, but the EU is unlikely to coalesce into a hard core of countries at its centre and non-eurozone countries on the margins. Differences among eurozone members (big and small, creditor and debtor, competitive globally and domestically insecure) will mean that political fissures will persist.

Cameron’s fear is that the eurozone begins to act as a united bloc against the UK but this is unlikely to materialize in any systematic way. There will be space for a more flexible EU, where alliances can be built around particular issues, such as energy, trade or the single market. This will be to the UK’s benefit if the British people decide to remain within the EU.

What prospect is there for progress on trade, climate change and immigration policy when co-operation is so fraught?

Making progress on big policy issues is always difficult in an EU of 28 states with their own interests and concerns. The loss of intra-EU trust caused by the euro crisis and the amount of leaders’ time it continues to absorb will make common positions on these issues all the more difficult.

How damaged is the EU in the eyes of other big players on the world stage, and what consequences may flow from that?

A recent Chatham House report argued that Europe must think much more strategically about Russia, maintain its deterrence and expand its efforts to support Ukraine. But a divided Europe gives succour to Russia’s leadership, which believes it can wait for European unity over sanctions to crack and its desire to support Ukraine financially to wane.

Europe’s divisions are also frustrating for the US, which hopes for continued unity in confronting Russia and a swift resolution to the Greek saga avoiding Grexit, which could destabilise the Balkans. The euro crisis has also highlighted differences between the economic approach of Germany based on fiscal contraction and structural reform, and the Keynesian policies of the Obama administration.

The Chinese, for their part, are as happy to work with a divided EU as with a more unified one. They are focusing on the huge potential opportunities of their ‘One Belt One Road’ vision, which will connect the Eurasian landmass via major new transport infrastructure – to the exclusion of the US. They can also benefit from intra-European competition, as seen in the UK’s rush to be the first EU member to join the Asian Infrastructure Investment Bank and Germany’s undercutting of the European Commission’s efforts in 2013 to combat Chinese subsidies for its solar panel industry.

This article is published in collaboration with Chatham House. Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Robin Niblett became the director of Chatham House in January 2007.

Image: A huge euro logo is pictured next to the headquarters of the European Central Bank (ECB) before the bank’s monthly news conference in Frankfurt August 7, 2014. REUTERS/Ralph Orlowski.