Sunday, 28 July 2019

Europe in Crisis

Europe is facing an existential threat within its borders; Its very unity is under strain by marginal actors pulling at the seams; putting pressure on its principles, its interests and priorities.  It makes it imperative for Europe to take stock and to reform its strategies and to rethink how its union ought to work.  The crisis and conflicts beyond its borders, while internally harbouring an increasingly fractured identity, are beginning to affect it directly.  The British decision to withdraw from the Union is a further threat to its economic and security potentials.  These are forces that can undermine its strategies within the global sphere.

With limited tools at its disposal, it is not entirely sure whether it is strategically placed or Economically capable of dealing with its problems.  The Lisbon Treaty that frames its constitutional markers is a massive agenda to achieve at this rate since it requires it to optimise its strategic autonomy. This ambition works around an international system of rules and multilateralism. These rules, are now skewed by the current American President who has pulled away from a rule-based International order. His announcement of a radical shake-up of US alliance with Europe further weakens its hopes to nurture such ambitions. Along with other world leaders who follow in his footsteps, further undermines Europe's principles and values.  It is unnerving, therefore, that with reduced confidence in multilateralism, where ideas for reforming and modernising global governance in critical domains, is on the wane, the concept of a ‘rules-based international order’ any longer makes sense. Also, in short to mid-term, to achieve peace and autonomy by building on independent military power as opposed to soft power could be an illusion. 

Moreover, China's ascension to the position of global influence with its Belt and Road Initiative is ushering in a challenge to the western system of values and soon to affect every level of society in Europe. Increased pressure on Europe's Liberal Democratic based infrastructure, mean China, with its overbearing communist and Dictatorial based regime, could dampen Europe's optimism. Besides, there is the United States, attempting to cut down on its NATO contributions obliging Germany et al. to contribute more for their defence. New strategies and alliances are essential and urgent. Clearly, Europe needs friends: a go it alone policies are not only nostalgic as they are anachronistic in concepts. We are now seeing the dwindling power of Europe on the world stage. It is increasingly becoming a theatre rather than an active member. 


There has never been a time since the end of the Second World War a need for Europe to acquire Power- Military and Economic. In the face of American adversities towards its political policies and below bar military contribution towards its share of the NATO budget. Over the years, it has almost lost its partnership status with the United States. In world affairs, it has become freelance, an also-ran military power as seen by recent examples of the Russian annexation of the Crimea.  But, more than anything before it, the inability of standing up to American pressure over Iran has exposed a crisis in Europe’s weakening power. Over the last seventy-odd years Europe has become complacent, and today it finds itself marginalised, alone and placed outside the American orbit and an unreliable ally. Despite its advocacy and rhetoric for a strong Europe, it has not gone beyond Finance and Economics. In 1991 Mark Eyskens, then Belgium's foreign minister summed it up as an economic giant, a political dwarf and a military worm.

Member States’ Spending dedicated to Defence.

It is all very well for Europe to focus on Economics while its individual countries rely for their security on NATO and the protection of the United States. That arrangement lasted until the breakup of the Soviet Empire and the end of the Cold War. But, now seeing America increasingly going isolationist that protection is on the wane. Europe's geopolitical position is increasingly shaky. To its north, Russia is led by belligerent powers under the leadership of Vladimir Putin, and an authoritarian Tayyip Erdogan at its edges. The Middle East a more violent mess than ever. Faced with the inevitable loss of Britain, present policies are proving far from adequate. Europe has become more unstable and insecure, and the union needs to recognise these threats and to meet its challenges, time to proceed with a shared vision towards its security. In the words of Federica Mogherini, High Representative of the Union for Foreign Affairs and Security Policy; “make our partnerships work only if we act together, united. This is exactly the aim of the Global Strategy for European Foreign and Security Policy.”

Contribution to NATO figures in Billions

Unfortunately, the story so far does not bear this out. In short, the U.S. contributed more funds to NATO than Germany, France, Italy, Spain, the United Kingdom and Canada combined. To the point when President Obama called Europeans “free riders” in his interview with the Atlantic.  Europe today is faced with a distant if not hostile Trump administration. Embarking on Strategic independent defence policies need to embody a new status quo- and recognise the new normal. Trump’s “America first” foreign policy is now unavoidable; the new pattern is set to continue with the untethering of the US from Europe. Europe ought to find comfort in whatever crumbs that remain in US liberal democracy can still be a binding force against a rising China, dictatorial Russia and meet threats from a growing populism within its borders.

The Mighty Dollar
At long last in the face of bellicose America, recently, Europe in the shape of France, Germany and the UK in an unlikely unity is showing some resilience.  A show of force it may be, but unfortunately, that’s where it starts and ends.  A strong sovereign Europe it is not; the economic power imbalance has in many recent instances sketched this out by the domination of Dollar effect on world markets.  Even though the EU is one of the world’s largest economies, 22% of world GDP, the world has no confidence in the Euro to recognise it as a reserve currency.  More than anything, the Iran crisis has exposed this weakness. As Tom Tugendhat, U.K. Parliament’s foreign-affairs committee, explains; “U.S. sanctions determine our policy, and unless there is a new global currency and banking system, it will remain so.”

The de facto global currency

The EU has maintained a measured response following the US withdrawal from Iran Nuclear deal; Joint Comprehensive Plan of Action, and the imposition of sanctions. In a bid to keep an agreement negotiated between the U.S., U.K., France, China, Russia, and Germany alive Europe are faced with tremendous obstacles because it lacks the tools to respond to American hegemony.  The EU appeals to the US not to impose further sanctions and to return to the negotiation table have largely been ignored.
Undoubtedly, the Euro needs to be revamped and radically reformed to stand up to American pressure.  More urgent now than ever before, with Britain’s imminent exit by 31 October 2019.   To develop an alternative, however, is no easy task. But, to stand up to the Dollar domination, the EU needs to have a federal monetary policy.  Merkel has given the cold shoulders to Macron’s effort towards that end. Giving in to the 'Yellow Jersey’s' recent demonstration pushes France beyond the accepted threshold deficit of 3% maximum: an EU rule to ensure against the buildup of imbalances caused by fiscal deficits. This has put paid to any further discussions.  To the French, it was an attempt to tame the economic might of Germany, and the power of the Bundesbank but it backfired. Charles Grant, a preeminent expert on Europe and the Franco-German relationship, explains Europe’s inability to exert itself in the Iranian crisis gets to the heart of Europe’s own crisis of direction. “The problem is France wants Europe to be a power; Germany does not,” he says. “If you want to be a serious power, you need a serious global currency. France wants that; Germany does not.”

Germany’s stand on such firm grounds is for two main reasons.  Briefly; Angela Merkel, the German Chancellor, is concerned, to create a true rival to the Dollar would increase Euro’s value. That would hurt Germany’s export drive and eventually see the dwindling of its huge export surpluses.  Secondly, it would mean taking on the responsibility for the EU debts of the nineteen member states which uses the currency, peculiarly still operating independently.  Lina Khatib, head of the Middle East and North Africa program at the London based international-affairs think tank, Chatham House, says: “The U.S. has shown they have leverage over Europe as well as Iran.” Hence the development of the special purpose vehicle (SPV), to maintain non-dollar trade with Iran has mostly been ignored by Washington.  The joint efforts taken by France, Germany and the United Kingdom without breaking the US sanctions have proved ineffective.

Remodelling the Euro

The realisation of such weakness could be the wakeup call needed to reform the Euro currency.  The tectonic shift in continent’s power imbalance and Europe’s diminishing global power in challenging powerful US global leadership is also impacting internal divisions encouraging extremism and fuelling the far right.  Nathalie Tocci, a special adviser to the EU’s foreign minister, Federica Mogherini, says:  “This Iran story is far greater than Iran, […]It really epitomises a structural turning point in the transatlantic relationship.” 

Ever since the Marshall Plan, kick-started the European economy after World War II, European nations began exploring the idea of a single currency. On the premise that “Nations with a common currency never went to war against each other,” said Helmut Kohl, Germany’s chancellor at the time. Quixotic thinking maybe, but peace has lasted and so does the Euro after nineteen years. The Euro is a survivor: backed by the size of the EU economy as my figures point out above, run in Trillions of Euros.  Nevertheless, the Euro, desperately needs remodelling, A need for closer economic integration between individual Nations' banks. Starting by crossing borders in their lending habits, as well as redefining their relations with their sovereigns.   

The yawning gap in the transatlantic relations between the US and Europe, however, though still at its early stages, is profoundly worrying and just having a common currency between European member states clearly not enough. A long, drawn-out explanation of this subject will go well beyond my remit for this essay.  Suffice it to say, a more significant economic and financial integration is needed. A restructuring and shoehorning their national economies to fit one another and to stabilise debt crisis across borders.  But to briefly touch on the subject, as the divisions stand, foreign debt in one country could not be rolled over, but the burden of adjustment falls on a member state.  Greece, Ireland, Portugal, Spain and Cyprus, for instance, had to deal with their fiscal problems when they were already stricken.  They were forced to either monetising their debt or bailed out, but either way conditional on strict austerity measures placed on their individual governments.  Had Italy gone ahead with its intended welfare reform, would have meant the collapse of the value of its bonds. Italy's economy is far too big for the EU to bail out, a situation Brussels could not accept. Any attempt at a bailout would have meant the total collapse of the Euro. The banks of these countries saw the values of governments bonds they held were collapsing, but their government could not borrow to help them out.  For those interested in a more detailed look at this subject go here, or here.

In my opinion, Europe security should not be solely concentrated on building a strong economy but distributed across to defence.  As we have seen the United States use of sanctions and the abruptness of casting its European alliances aside has shown more than ever before the vulnerability of the so-called European Union. The effective weaponisation of US economic power has brought home the realisation of the fragile nature of the transatlantic alliance and the economic imbalances.  The ad hoc responses to the Union’s financial crisis undermines any trust of international investors and its long term future.  For Europe to establish a reserve currency, Germany and France need to unite and address the Euro’s competitive edge and to secure its place in the global market as a reserve currency and safe haven.  Quite likely, such unity could also bring together those nationalists and integrationists, Macron of France for example, to build a Europe as truly united in every sense. A good place to start is with a cultural unity. To provide a European Nationality status rather than Citizen of the European Union. To continually speak of German, French or say Italian nationality is the de facto separation of the European people. Until such disparities of nationalities are addressed economic, political and strategic autonomy remains in the distant future.

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