17 Jul 2018 20:51 IST

Europe is on the brink

Fundamental structural problems are coming to haunt member-states of this sprawling continent

Much has been written about Europe’s woes, but no single crisis in recent times has threatened the very existence of the continent. Today, unless major changes take place in the union’s liberal experiment, the 28 member-nations of the EU are dangerously close to the precipice.

It is too simplistic to blame these problems on Donald Trump or the Brexit vote. There are fundamental structural problems with the continent that are finally coming to haunt member-states of this sprawling land mass.

The main problem is the way the union is set up. Each nation has its own form of government, its own lower and upper houses of parliament, its own chief executive, capital, flag, language and fiscal policy of taxing and expenditure.

More importantly, each country has its own proud history dating back 2,000 years. European nations — which includes the UK until June 2019 — once ruled the world through their colonial pursuits. European history is rife with wars between member-states that are currently friendly; the source of the conflict was almost invariably the same: differences in language, culture, and religion, apart from raw, unbridled ambition to conquer land.

The lame experiment which we now call the EU took in the erstwhile colonial powers (the British, the Dutch, French, Spanish, Portuguese, Germans and the Italians), merged them with historically neutral states — such as Austria and Liechtenstein — and forged unity with the former Soviet bloc states such as Poland, Hungary and Estonia. How in the world could such a union work?

The EU offered member states a set of carrots and a big stick.

Carrot and stick

The main carrot was that all the nations would have a single common currency — the Euro — backed by a single central bank — which, by extension, meant the wealth of rich countries such as Germany and France. A common fiscal policy meant that interest rates for all member nations would be decided in Brussels as would be other central bank responsibilities, such as the money supply.

The second carrot was lifting barriers to trade among member states — such as the retirement of customs duties, excise and other taxes — and the complete elimination of borders. A Spanish citizen living off the Strait of Gibraltar in the Mediterranean could drive visa-free to Tallinn in Estonia, on the Baltic sea, find work there, and call it home.

These carrots were powerful magnets to invite disparate members of the union to join and stay together. Which country wouldn’t want instantaneous access to markets, capital, and labour across 27 other nations?

The stick was that the union had to be governed centrally from Brussels, not so much by an election of an EU leader held in each nation — like the US-styled presidential election — but by a set of unbending rules developed over six decades; and perfected to an art-form by millions of bureaucrats over the years. These officials are faceless and were never elected by the peoples of the member states. But they had enormous powers to make sovereign member nations comply through communiques and diktats.

There’s only so much a stick like this can do. National leaders are answerable to locals who go to the voting booth, not an unknown set of officials in Brussels.

The Greece problem

Take Greece, for instance.

All member states of the EU, including Greece, promised to keep their fiscal deficits to no more than 3 per cent of their GDPs each year. In fact, for the first eight years of the EU experiment, Greece was great at responsibly managing its budget deficits. But by 2007, it had become used to cheap money around the world. Government spending increased steadily (pensions, salaries), corruption allowed rich Greeks to escape the net of taxation and, as the global economy began to shrink, Greece’s deficits rose as a percentage of a falling GDP. From 2007 to 2012, Greece’s annual budget deficit grew at a whopping 12 per cent a year — four times the EU-approved average.

Greece’s Prime Minister Alexis Tsipras brilliantly exploited the crisis as a matter of pride and sovereignty. He argued that distant members in Brussels and Berlin were deciding the fates of people in Barbati and rode this message to victory. Strong-arming EU leaders — including a threat to leave the union — Tsipras and his predecessors were able to negotiate €260 billion in bailout money. Yet, Greece's economy grew only 1.4 per cent in 2017; and more loan payments are due. CNBC says that Greece will need around €12 billion in the year 2052 to service its debt, assuming there are no new bailouts or new debt.

Enter, migrants

And there’s immigration which is tearing the very structure of the union apart. Voters in Austria, Poland, Hungary and Italy are fed up with economic and refugee migrants coming up from North Africa and have elected nationalist governments with deeply polarising leaders. In Germany, Angela Merkel — who has been weakened in power — had to strike a deal with political rivals of the southern Bavarian states to limit immigration and come up with rules to handle arriving immigrants.

The most important rule here is that if a migrant has already sought asylum in a different country — say, Italy, because that is how they arrived into Europe by boat from Libya — they are forbidden to seek asylum in a wealthier country like Germany. But Europe has open borders so that a migrant admitted to Italy can easily board a bus to Berlin. How will Germany even know unless the bus is stopped at the German border and everyone’s travel documents are inspected? Such an inspection runs completely afoul of the very founding principle of the EU. Or will officials resort to random checks using racial and language profiling? This is anathema in Europe after what happened in World War II.

There’s another issue here as well. If richer countries don’t accept secondary migrants who arrive into ports along the Mediterranean coast, is it fair that Spain, Italy and Greece should absorb all future refugees? What is the burden — indeed, an obligation — of the remaining 25 member states?

There are no easy answers to these questions. Europe’s ultra-liberal arguments for open borders also opened up its borders to the outside world. Migrants jumped in on the opportunity in 2015, causing such a backlash that the very experiment is now at risk.

Changing geopolitics

And to top it all, Britain — a pillar of democratic stability — is exiting the EU. Russia is flexing its muscle at the eastern end of Europe again — by annexing Crimea, selling energy to Europe as world prices rise and consolidating power in Syria. The political days of charismatic leaders such as Merkel and May seem numbered. Nationalists and self-serving politicians are on the rise.

Each of these events has had the effect of pushing Europe closer to the brink. There’s no force to pull it back, other than forces of hope. It would have been hard to imagine that all of this would happen when the Euro was launched just two decades ago.