Forecast 2017: The Future of the European Union

23 May, 2017    ·   5287

Ambassador (Retd) KP Fabian assesses the EU's trajectory in the recent years and identifies the challenges the country will have to overcome in 2017 and beyond

The European Union (EU) has just completed 60 years of phenomenal growth from six member states (the European Coal and Steel Community in 1950) to 28, or 27 when and if Britain exits. The single market has stood the test of time by and large and EU has clearly stated ambitions for a common defence and foreign policy.

Obviously, it is appropriate now, to borrow a phrase from Shakespeare, to ‘look into the seeds of time and say which grain will grow and which will not’. Such looking into the future is a hazardous exercise, and is to be undertaken with humility and caution. Let us look at a time frame of five to seven years.

Indubitably, the EU is the most successful integration project in history. The African Union is way behind and the South Asian Association for Regional Cooperation is a crippled child. At the same time, the EU is facing a number of problems and its continued success in the direction of further integration or even retaining the present level of integration cannot be taken for granted for a number of obvious reasons.

The first point to note is that despite its name, the EU is comprised of only 28 member states whereas the Council of Europe founded in 1949 has 47 members. Turkey is unlikely to be in the EU in the foreseeable future and there is no move afoot to include Russia. In other words, the EU is a work in progress and there is no vision as of now of a full-fledged union of the whole of Europe.

Limited Union: Some Questions
First, what will happen to Greece that joined EU in 1985? The Greek financial crisis began in 2009. The EU did nothing for a while, till a default appeared imminent, harming banks in the EU. That prompted the EU to come up with a rescue package of Euro 110 billion in 2010. The EU, led by Germany, treated Greece as a despicable sinner who should remain in sack cloth and ashes accepting painful punishment with appropriate repentance. It never occurred to the EU that Greek people were suffering more and more and that while austerity might balance the books, the economy will shrink. Now, the Greek economy is smaller by 27 per cent compared to what it was in 2008 - indeed a sad commentary on EU.

Will the Germany-led EU admit that its prescriptions were wrong and dangerous, and treat Greece with respect and abandon the ruinous policy of austerity? In 2015, France and Germany publicly humiliated Greece by asking it to leave EU. This shows the absence of ‘de facto solidarity’ that Robert Schuman, one of the founding fathers of EU, advocated in his speech on 9 May, 1950, considered as the EU’s date of birth. At present, there is no reason to believe that the EU leadership is capable of deep introspection and admitting its past errors. If so, the Greek crisis will get worse before it gets better. We might see Greece walking out of the EU unless the austerity policy is reversed.

It was the introduction of the single currency following the 1992 Maastricht treaty that led to the Greek debt crisis of 2009. As India’s then ambassador in Rome, this author remembers the representative of Germany’s Bundesbank telling him that including Italy and Greece in the Euro was a big mistake. If Greece was not in the Euro zone, it could have devalued its currency, increased exports, and got over the debt crisis over time.

This brings us to the central question: Where is the EU going?

Where is the EU Headed?
Will there be an EU at ‘two speeds’, ‘many speeds’ or of ‘variable geometry’? The idea of an EU at ‘variable speeds’ goes back at least to 1975 when former Prime Minister of Belgium Leo Tindemans proposed a ‘two-speed’ Europe. In 1994, French Prime Minister Édouard Balladur envisioned three concentric circles: an inner core of the single currency, a middle tier of those in EU but not the single currency, and an outer circle of non-members with close links to EU.

In fact, there is already a multi-speed EU. Only 19 of the 27 are in the single currency; only 26 are in the banking union; only 21 in Schengen; and only 21 in NATO. Nevertheless, some leaders have argued for ‘more Europe’ true to the formula of the ‘ever closer union’ in the 1957 Rome Treaty and the debate about the future direction is going on vigorously.

On 1 March, 2017, the President of the EU Commission, Jean Claude Juncker, presented five options before the EU Parliament without indicating his own preference: 
Continuing with current policies 
Focusing on the single market and removing barriers to trade
Allowing EU countries to integrate at different levels so that those wanting to progress in a certain area could do so without waiting for others
Selecting a limited number of areas for further integration but doing less in other policy fields
Integrating more across most policy areas

No mention was made of the need to bridge the gap between the 33,000-strong bureaucracy in Brussels and the citizens of EU much discussed in the continent where EU’s approval rating is around 35 per cent.

Traditionally, Franco-German cooperation has been the engine of the EU train. When French President Emmanuel Macron and German Chancellor Angela Merkel met on 15 May, 2017, they pledged to draw a “a common road map" for reform insisting that neither saw treaty change as “taboo.” At his inaugural, Macron said he wanted a joint budget, parliament, and finance minister for the EU.  Alarm bells rang in Germany whose Finance Minister Wolfgang Schauble characterised Macron’s ideas as “not realistic.” 

It is unknown whether the proposed ‘common road map’ will work out. While the Franco-German motor will retain its importance, it might not be able to pull the rest of EU in the desired direction. The motor will have even less pulling power in the future.

As a multi-speed EU already exists, we may expect it to continue. Treaty changes are not impossible, but those fraught with risks as a referendum can boomerang. To recall, former British Prime Minister David Cameron got hoisted on his petard with his referendum on Brexit. Earlier, French and Dutch voters rejected the 2005 constitutional treaty.

It is unknown whether UK will finally leave and if it does on what terms. There is much acrimony between London and Brussels and both speak at times deviating from the language generally associated with good diplomacy. What is remarkable is the solidarity of the 27 who have come out with a clear set of guidelines unlike London. Obviously, Britain and EU will lose; and the former much more than the latter. There is an odd possibility that Brexit might be reversed in case British Prime Minister Theresa May, adopting a Machiavellian strategy, negotiates a harsh treaty hurting UK and then puts it through a referendum that a better informed public rejects.

Meanwhile, prospects are not bright for the EU’s ambitions for developing a common foreign and defence policy. For starters, NATO plays the central role in defence and it will continue to be dominated by the US, which spends on defence much more than the EU member states. 

An EU foreign policy logically implies the replacement of Britain and France as permanent members of the UN Security Council by a single EU representative. London and Paris will not agree to deprive themselves of what they have. The EU will continue to play a role in peacekeeping operations and it should do more on conflict prevention. It is not generally known that the EU’s Bernadine Leon almost succeeded in preventing the massacre of over 800 Egyptians in Cairo in August 2013.

The deal Chancellor Merkel entered into with Turkey's President Recep Tayyip Erdoğan will run into more problems unless Turkey is paid more. In any case, the issue of refugees will further expose the divisions within EU in the future. Schengen is in shambles.

EU-India Relations
With regard to EU-India relations, the greatest alliance of democracies and the largest democracy should have done more together. The EU’s investment in India is only 0.7 per cent of its global investment, to be contrasted with the 2.2 per cent for Singapore.  If UK leaves, the percentage will reduce drastically. The value of trade has dropped from Euro 80.3 billion in 2011 to Euro 77 billion in 2016. A free trade area agreement under negotiation for over 10 years remains to be finalised.

One of the impediments is that the EU has asked India to undertake commitments beyond World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This is unfair. The big pharma in the EU wants an ‘evergreen’ clause that permits indefinite extension of patent based on cosmetic changes. It is doubtful whether the EU’s approach will change anytime soon.

Looking Ahead
In conclusion, the EU, the most successful integration project in history, needs to introspect and identify its future direction taking into account its low approval rating among the public. If Britain exits, the EU led by Germany and France might assert itself a little more in foreign policy matters vis-à-vis the US, taking geopolitics towards multipolarity in conjunction with India, Japan, Brazil, and others.

The five to seven year time frame was chosen deliberately. If President Macron, with support from Chancellor Merkel - likely to be elected for a fourth term later this year - fails to deliver in terms of jobs and on security from terrorist attacks, we might see Marine Le Pen at the Elysee Palace five years later, and EU will face a perilous future. The EU enjoys immense goodwill internationally, and one does hope that it will show the necessary resilience and sagacious leadership to overcome the challenges facing it.