Three Paths To European Disintegration

For once, Marine Le Pen, the leader of France’s far-right National Front, may be correct. She has called the United Kingdom’s vote to leave the European Union the biggest political event in Europe since the fall of the Berlin Wall. That may turn out to be true: Brexit has destabilized the UK and could end up destroying the EU.

Old-fashioned federalists say the answer to Brexit should be further EU integration. But that response is both far-fetched and dangerous. Germany and France are often at odds, and both have weak leaders facing re-election next year who could scarcely muster support for an “ever-closer union.” And anti-EU sentiment is too widespread and too deep to hand more power to unelected EU officials and impose additional constraints on national decision-making without poisoning the pot further.

True, the immediate post-Brexit turmoil appears to have boosted support for mainstream politicians and the EU; but this is unlikely to last. The Brexit fallout is likely to sap eurozone economic performance and further polarize European politics as voters become more insecure. German dominance of the EU will increase, and so, too, will the anti-German backlash in many countries. With a weak and divided EU unable to resolve Europe’s many crises, and with nationalism resurgent, we can expect further disintegration in different forms.

The most extreme form would be further exits by member states. Leaving the EU once seemed outlandish: no country had ever done it, and only extremists even proposed it. Brexit now makes leaving seem feasible and, to some, reasonable. Already, Geert Wilders, whose far-right Freedom Party is leading in the polls ahead of the Netherlands’ general election next March, is demanding a referendum on EU membership. So, too, is the Danish People’s Party, which is the biggest party in the Danish parliament, but remains out of government.

In France, where opposition to the EU is even greater than in the UK, Le Pen is campaigning on the promise of a “Frexit” plebiscite. She currently leads in polls for the first round of the presidential election next April. And while those polls suggest she would be defeated in the second-round runoff by a more moderate conservative challenger, center-left voters who are fed up with austerity, the political establishment, and German dominance may yet rally behind her. Moreover, the growing sense of insecurity after the Nice attack on July 14 – the third major terrorist massacre in France in 18 months – plays into Le Pen’s hands.

Disintegration could also take a less extreme but more insidious form if governments choose to ignore EU rules with impunity. In Italy, Prime Minister Matteo Renzi sought to take advantage of post-Brexit instability to use public funds to recapitalize Italy’s zombie banks, without imposing losses on their creditors, thereby bypassing the EU’s new “bail-in” rules for banks. In France, Prime Minister Manuel Valls threatened to ignore the EU’s posted-workers directive unless it was modified to prevent employers from hiring workers from other EU countries on worse terms than locals.

Germany claims that France is also bending the eurozone’s fiscal rules, with no objection from the European Commission. And while the Commission threatened Spain and Portugal with fines for their borrowing overruns, it ultimately pulled back. It has also rubber-stamped many governments’ unilateral imposition of border controls in the supposedly border-free Schengen Area.

Worse, the Commission has turned a blind eye to Hungary’s illiberal prime minister, Viktor Orbán, despite his government’s repeated flouting of EU requirements concerning the rule of law and democratic norms. The governments of Hungary and other countries also refuse to comply with the EU’s program to relocate refugees across the Union, which in any case has scarcely been implemented; Orbán is holding a referendum in October to bolster his position.

A third threat to EU integration is the further capture of governments by nationalist anti-establishment parties. As the European Council on Foreign Relations has pointed out, insurgent parties already play a direct role in the governance of eight of the EU’s 28 countries.

In Austria, the far-right candidate Norbert Hofer leads polls in a re-run of the country’s presidential election, set for October. The same month, Italy will hold a constitutional referendum to reform the Senate, and Renzi has vowed to resign if it doesn’t pass. This would open the door for the anti-establishment Five Star Movement, which recently won local elections in Rome and Turin, and has called for a referendum on Italy’s eurozone (but not EU) membership.

Even when populist parties don’t win, establishment politicians still make concessions to their supporters. For example, Alain Juppé, the presidential frontrunner for the Republicans in France, muses about limiting labor mobility in the EU, as does his main rival, former President Nicolas Sarkozy.

To counter these forces of disintegration, the EU must do less and do it better. Economically, plans for new institutions can wait; the eurozone should focus instead on policies to raise living standards for all. These should include looser fiscal constraints; more investment; an end to beggar-thy-neighbor wage cuts; and lower taxes on labor.

Europe’s leaders also need to restore trust. For starters, they should use the EU’s new bail-in rules to clean up banks’ balance sheets, imposing losses on creditors and compensating any small investors who were sold a false bill of goods.

Politically, the EU should emphasize effective cooperation in combating terrorism. And, rather than trying to force recalcitrant governments to accept unwanted refugees, EU authorities should pursue an orderly and safe resettlement program with willing governments. This is particularly important in view of the uncertain fate of the EU’s deal with Turkey to curb refugee inflows, which is looking increasingly precarious in the wake of last month’s failed coup.

The EU’s leaders need to wake up. With disintegration looming, they urgently need to demonstrate to anxious Europeans that the benefits of the EU outweigh its costs.

Copyright: Project Syndicate 2016 Three Paths To European Disintegration