File picture: German Chancellor Angela Merkel and French President Emmanuel Macron. Image Credit: Reuters

The European Union has a history of muddling through crises at the eleventh hour, preferring a fudged compromise to anything that might definitively drive a wedge between its members. With not one but two deadlocked negotiations facing cliff-edge scenarios, that’s likely what the bloc’s sparring partners are counting on. They might have to think again.

UK Prime Minister Boris Johnson is holding out for Brexit concessions from the EU to help him sell a trade deal to his supporters at home. Meanwhile, Hungary’s Viktor Orban and Poland’s Mateusz Morawiecki are refusing to approve a 1.8 trillion-euro ($2 trillion) Covid-19 recovery package unless a condition that recipients have to respect the rule of law is weakened or scrapped. That proviso had been agreed in principle in a softer form earlier this year, yielding what many hailed as a “Hamiltonian” moment for the bloc.

Both deals need resolution before the end of the year, and there’s added pressure with the pandemic still raging in Europe. Yet any wishy-washy concessions carry risks for France’s Emmanuel Macron and Germany’s Angela Merkel, who are looking to secure their legacy as architects of a stronger, more integrated EU after the Brits’ departure. While it’s a cliché to say that the bloc’s survival is at stake, there are clearly existential consequences to compromising too much.

The EU’s challenge is how best to tie respect for its values to its transactional business relationships. Doing so would move the bloc — a single market with 450 million consumers — beyond a purely trade-based hub to one that can borrow, tax and spend ambitiously (one day) on big projects from climate change to defence. The U.K.’s departure creates a competitor on its doorstep, as Merkel put it, one that wants maximum market access with minimal regulatory constraints. To the east, a slide by member states toward corruption, cronyism and politicised judiciaries is a threat to investor confidence and the core founding tenets of the EU.

The Brexit Endgame

Where Brexit is concerned, Johnson shouldn’t assume running down the clock will work in his favour. While a no-deal outcome would be bad, expedient sacrifices made to avoid it could store up trouble for the 27-member bloc. Backing down from demands for a “level playing field” on trade, from state aid to environmental and social protections, while still offering privileged market access could embolden other trade partners or current EU members (perhaps even Hungary or Poland) to demand similar treatment.

As for the holdouts in the EU’s budget spat, they’re at a disadvantage. Their veto threats look more like theatre than principle. Hungary and Poland aren’t backed by their “Visegrad” partners Slovakia and the Czech Republic, and Orban’s support for Donald Trump puts him at odds with a future President Joe Biden. That gives other EU members leeway to simply push ahead with rule-of-law conditionality regardless, chipping away at the logic of the holdouts’ stance.

The risk is that a deal fails to change things long-term. The bloc’s past attempts to hold Orban to account over abuses, such as his efforts to force out hundreds of judges, haven’t worked out.

Signing fair terms of trade with the UK and unlocking Covid-19 stimulus would clearly help the EU achieve its global ambitions as a standard-setter that exports rules and a power bloc that can be strategically autonomous. Doing so would help it keep up with the US and China while silencing the objections of populists at home who don’t want to lose more powers to Brussels.

But closer integration will require more than Merkel’s famed negotiation skills. The bloc needs to upgrade its “convergence machine,” code for closing economic gaps between members. This matters especially for Eastern Europe, where China and Russia are making inroads. Macron wants stronger political institutions such as the European Parliament to fill the bloc’s democratic deficit too.

Without all that, further EU disintegration can’t be ruled out. Macron and Merkel’s legacy isn’t safe yet.

Lionel Laurent is a columnist covering the European Union. Bloomberg