Category Archives: Monthly Mind

Every month on the 15th day we post an article, giving this category the name “Monthly Mind”.
We try to capture the latest global trends on the international level and look beyond the surface.
Our aim is to make highly political or scientific topics more easily accessable to people interested in them.

Diving into the European debt crisis – From economic collapse to greater cooperation

By Stefania-Felicia Pavel, Secretary of the Munich European Forum

A crisis that crossed the Ocean

In the recent history of the European project, few have been the upheavals of such magnitude as the sovereign debt crisis. Due to the highly interconnected global economy, the 2008 banking crisis in the United States [1] had a ripple effect that crossed the Atlantic Ocean and sent waves of shock through Europe. Nonetheless, the political echelons, economic sector and academia were all taken aback by the resilience of the Euro Area. Not only that it grew in membership − with Latvia adhering in 2014 [2], followed by Lithuania [3] − but it also witnessed deeper integration. Despite doomed predictions of the Euro being an “impossible dream” [4], the peculiar Economic and Monetary Union (EMU) withstood vicissitudes and rendered a relatively fertile environment for greater cooperation to take roots.

A sea change in troubled waters

Initially, upon the onset of the sovereign debt crisis, the European Union opted for a divisive approach. Withering fiscal contraction was imposed in Germany, Italy, Spain, Ireland, Portugal and Greece via austerity measures, in a last-ditch effort to re-adjust excessive deficit budgets. However, the German Ordoliberalism of a supply-side growth strategy based on wage restraint, productivity and competitiveness [5] clashed with the demand-led growth strategy based on fiscal expansion and wage inflation from the Southern rim of the Eurozone [6]. In addition, the conflictual economic zeitgeist was also deepened by the panic-driven markets and the desperate bids to restore confidence in governmental bonds [7]. Nonetheless, the high negative interdependence within the Euro Area, the unfathomable prospect of a country exit [8] and the massive sunk costs were compelling enough for the member states to steer in the same direction. Even though creditors were at the helm, whilst the insolvent countries rowed begrudgingly to prevent their economies from sinking in the apparently bottomless pit of sovereign debt, it was a common effort to keep the Eurozone afloat.

Afterwards, following the sluggish economic growth caused by the indiscriminate austerity, the European Union made an about-face and embraced a cohesive approach. Since the crisis unearthed the systemic shortcomings of the European economic governance model, “it became clear that the EMU lack of a unitary fiscal policy was a grave mistake” [9] that had to be addressed urgently. Consequently, new mechanisms of macroeconomic governance emerged. Firstly, there were the means of intergovernmental crisis management. Represented by the European Financial Stability Facility [10], which later matured into the European Stability Mechanism [11], both acted as much-needed bailout funds. Secondly, to hedge the Euro Area against future financial chaos, the supranational mechanisms for crisis prevention came into effect. In these respects, the Six-Pack, respectively the Two-Pack acted as legislative levers to harmonise the budgets. In brief, the incomplete European economic architecture called for either sudden total disintegration or gradual total integration, and these mechanisms prevented the Eurozone from imploding.

Sailing towards…a fiscal union?

After all, not only did the Brussels-based leadership and sovereigns’ statesmanship managed to fare well through the protracted negotiations, but they jointly created means that built wholly on the decades-old institutional record of the European project. Ranging from bailout resorts, an emergent banking union and going to a reinforced surveillance of deficits’ fluctuations, the budgets of the Euro Area countries ‒ but also of most member states of the European Union ‒ are now under a more critical eye, but simultaneously on more caring hands. Indeed, all the major changes brokered in the aftermath of the crisis might have led to countries merging their policies even more, but a fiscal union – formalized and institutionalized at a pan-European level – still seems far-fetched for the time being, if not even politically quixotic. Time will tell how the European Union will navigate these yet uncharted waters of fiscal unity.

 

Please note that the views expressed are those of the author and do not necessarily represent or reflect the views of Munich European Forum e.V.

 

References

[1] Havemann, Joel. “The Financial Crisis of 2008.” Encyclopædia Britannica. Published in February 2009. https://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264.

[2] European Commission. “Latvia and the Euro.” Ec.europa.eu. Published in 2014.  https://ec.europa.eu/info/business-economy-euro/euro-area/euro/eu-countries-and-euro/latvia-and-euro_en.

[3] European Central Bank. “Lithuania joins the Euro Area.” Ecb.europa.eu. Published in 2015. https://www.ecb.europa.eu/press/pr/date/2015/html/pr150101.en.html.

[4] Krugman, Paul. “Europe’s Impossible Dream.” The New York Times. Published on July 20, 2015. https://www.nytimes.com/2015/07/20/opinion/paul-krugman-europes-impossible-dream.html?partner=rss&emc=rss&_r=0.

[5] The Economist. “Of Rules and Order.” Published on May 9, 2015. www.economist.com/europe/2015/05/09/of-rules-and-order.

[6] Hall A. Peter. “The Economics and Politics of the Euro Crisis.” German Politics 21, no. 4 (2012): 358‒359. DOI:10.1080/09644008.2012.739614.

[7] De Grauwe, Paul, and Yuemei Ji. “From Panic-Driven Austerity to Symmetric Macroeconomic Policies in the Eurozone.” Journal of Common Market Studies, Annual Review 51 (2013): 31‒41. DOI: 10.1111/jcms.12042.

[8] Schimmelfennig, Frank. “Liberal Intergovernmentalism and the Euro Area Crisis.” Journal of European Public Policy 22, no. 2 (2015): 177‒195. DOI:10.1080/13501763.2014.994020.

[9] Simon, Poirier. “Explaining the institutional outcomes of the European financial and sovereign debt crisis. The case of Germany.” Paper presented at the ECPR General Conference Université de Montréal, Montréal, Canada, August 2015: 1.

[10] Verdun, Amy. “A historical institutionalist explanation of the EU’s responses to the euro area financial crisis.” Journal of European Public Policy 22, no. 2 (2015): 225. DOI: 10.1080/13501763.2014.994023.

[11] Council of the European Union. “European Council 16-17 December 2010 Conclusions,” published in January 2010, https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf.

Macron’s influence on the European Union

By Antonina Gain, Council of the European Union Participant 2018

In the French presidential campaign of 2017, Macron’s candidacy came across as a real surprise. Formerly part of Hollande’s government, but otherwise largely unknown by the greater public, his arguments and growing popularity led him to a face-off with the second National Front candidate to ever grace the second round: Marine le Pen. The two politicians had little to nothing in common. Their policies and proposed reforms were indeed on opposites sides of the political spectrum. On the 7th of May, 2017, Macron had successfully allied other parties to his cause and became the new President of the Republic.

Throughout his campaign, Macron had always claimed the European Union was a veil of protection for the French that was not to be forgotten or brushed away. His respect for the long-established European institution is also alive with the hope to change it for the better: he has a number of reforms in the core of the EU on his mind. Being one of the only candidates to consistently defend the idea of a unified Europe, he -though not directly- led his opponents to vehemently put the idea of “Frexit” forward. Following this turn of events, some of the French that voted for Macron that did not particularly care for the EU found themselves in a position of somewhat defending it.

The arrival of a new, surprisingly young French president, and most importantly head of a party that takes great pride in offering a new way as opposed to traditional parties, will undoubtedly change the face of the European Union. Indeed, it is the first time such a person finds themself in the position of head of the French State. His role, mainly because of his political belonging, may change from what previous French presidents could have expected. France, along with Germany, has for a long time, been a leader in Europe. The two countries are even called a “couple”. With the re-election of Angela Merkel in March 2018, Macron can rely on a certain amount of support from his neighbouring governments. Indeed, upon her re-election as Chancellor, Merkel made her first diplomatic visit to France, as per usual. The two heads of state have discussed the most pressing matters (migration, eurozone, Syria, and Russia) and have agreed to bring forward a common line of work for the european elections of June 2018.

In a speech at the Sorbonne University in September 2017, Macron has presented himself as not only wanting to support the EU, but also willing to make substantial changes to its core. Some of these changes cause divergences between the French and German leaders. For instance, Macron is very attached to the idea of creating a designated intereor european budget, a stronger parliament and the post of a Minister of the Eurozone. However, Germany is not quite ready to follow. Indeed, being led by a relatively weak and ancient coalition, and animated by a spirit of “not wanting to pay for others”, Germany expresses restraint in these negotiations.

However, contestations are not confined to the couple. They actually flow over it : heads of states of Europe are more and more skeptical towards the power the couple can wield. Mark Rutte, Prime Minister of the Netherlands, has warned Macron and Merkel that his state would by no means blindly follow eurozone reforms simply because they are conducted by the two. On the other side of the Channel, the British also warn of the possible futures led by France and Germany. The partisans of Brexit advise the countries of Europe to be wary of the “machine” that is the couple.

Aware but not afraid of this competition, Macron steadily paves his way into the European Parliament.

For now, his aim is to make the most out of the newly found weaknesses in the EPP (European People’s Party). The mere mention of these weaknesses would have been impossible even 6 months ago, as it is the biggest coalition in Europe. However, its leaders are slowly moving from a social-democrat point of view, to a downright far-right party. Some groups in it are prone to detach from such ideologies and are as such perfect political allies for the european elections to come.

Macron has addressed most of his speeches at the meetings of EU officials to those that are part of this group : he has warned them about the rise of a form of “european civil war”.

Macron has started his European campaign in April 2018, in preparation for June. His party, for now, seems to be unable to have any kind of popularity on the European level, as its aspirations are mostly French. However, La République en Marche (LREM, Macron’s party) has support from center-right and green parties in Europe.

As we see, Macron is on his way to becoming a true European leader. “France is back”, as he says, alluding to the end of a Europe that is unsure of itself, being replaced by one that is led by strong states. But is France back, championed by Macron, in a way that the EU is ready to accept ? Is the role of France in the Franco-German couple this relevant, when Macron bombed Syria in coordination with May’s Britain and Trump’s America (when Trump himself warns EU leaders that it is high time they stopped relying on American aid) ? And, most importantly, what are the possibilities of the success of his policies in a region where populism is ever growing ?

What will become of this crucial point in European history is yet to be seen. For the sake of the EU and that of Macron’s ideology, we can only hope that the EU will emerge from these new challenges  stronger and more capable of coping with the world it is at the heart of.

 

Please note that the views expressed are those of the author and do not necessarily represent or reflect the views of Munich European Forum e.V.