There is a simple way to determine the viability of an existing institution: Would it be created today, i.e., in circumstances that may be very different from those prevalent when it was established originally? Even on this daunting measure, integrated Europe is here to stay. This applies to both the European Union as a whole (= EU) and those member states comprising the Euro zone (= €urope).
Doubtless, the EU and Europe have been in crisis for years. Several member states have still to recover from the 2008 global economic meltdown. The Euro has weakened towards parity with the US-dollar. A Greek exit of €urope has left the realm of the impossible. Anti-Europe sentiments and nationalist parties are threatening European unity.
But investors and others beware: The EU and €urope are too big to fail. Integrated Europe is a 21st century project underpinned by national interests. EU member states share four core national interests: peace, security, prosperity and national self-assertion.
First, the distinction between peace and security points to one of, if not the greatest achievement in Europe’s history. The EU forms a community of stable peace. By no means a conflict-free idyll, but a union of nation states that trust each other to settle their conflicts without force or even the threat of it. War among EU members has become inconceivable.
Secondly, while intra-European peace would allow EU members to disarm completely, they are still faced with security threats from outside their peace community. The Ukraine conflict shows that such threats can emanate even from inside the European continent. Global terrorism, failing states, as well as unchecked global warming affect Europe in various and inescapable ways. Dealing with such security challenges requires an array of tools of which military means should only be instruments of last resort. Through pooling their resources EU members can deploy a more effective range of diplomatic, economic, financial as well as civilian and military means of crisis management than each of them could on their own.
Thirdly, united Europe promotes prosperity. Here the two main agents are the single market and the common currency. “Big is better” is their common denominator. A big and thus more competitive market increases trade and investment opportunities, improves consumer choices and stimulates innovation. Effects that are further enhanced when a common currency renders cross-border mobility of goods and services, capital and labour even easier. Arguably, these benefits come at a price. When protective barriers vanish, those less competitive suffer. A common currency requires a centralised monetary policy, a regulated financial sector as well as closely coordinated fiscal and economic policies -- all of which constrain national autonomy.
These requirements partly explain Europe’s crisis. For the Euro was initially constructed with too little collective oversight. Meanwhile, mechanisms such as a fiscal and banking union as well as enhanced economic coordination have been put in place. As with all such arrangements, the proof of the pudding is in the eating, i.e., Euro zone members have to demonstrate that they abide by commonly agreed rules. Furthermore, they have to assume their national responsibility for the viability of the common currency by ensuring their national competitiveness. On both accounts, significant progress has been made, but more needs to be done to put the Euro on a firm footing.
Will it be done? Member states have powerful incentives to do it. Surely, they could improve their competitiveness through depreciation of their own currency, an option they do not have in a currency union. But devaluation only offers a stopgap measure because structural problems such as lack of competitiveness ultimately have to be addressed at their source. Just like a company, national economies cannot thrive if they are unable to offer the products and services global customers demand. Consequently, the long-term benefits of a currency union outweigh the short-term advantages of national currencies.
In addition, a currency union offers member states in trouble enhanced solidarity. Solidarity to borrowers comes in return for a commitment to reform at home in order to buttress the common currency. But the reverse is also true: As lenders share this interest, they are more willing to extend solidarity than they would be outside of a currency union. Currently, Germany is the Euro zone’s largest creditor. To us, the currency union is more than a monetary arrangement. Chancellor Merkel has repeatedly stated that “if the Euro fails, Europe fails”. This reflects the political nature of the Euro: peace, security and prosperity are common goods we Europeans either enjoy together or lose together.
Lastly, integrated Europe enhances national self-assertion. On their own, even bigger European states are global middleweights at best. Imagine that the UN Security Council were established today. Only united Europe could claim a permanent seat alongside other global powers. Thus, integrated Europe makes European states more sovereign rather than less because collective sovereignty enables them to exert global influence they no longer have as individual actors.
So the European sum is more than its national parts. Therefore, if it did not exist, integrated Europe would be created even in today’s very different circumstances because it serves the core national interests of European nation states. While this offers no guarantee that it is immune to failure, national interests provide a formidable incentive to keep the European Union and the Euro zone together. Germany will continue to stand unflichingly behind both.
Dr Eckhard Lübkemeier is ambassador of the Federal Republic of Germany to the UAE.