European View

It is often maintained that the euro debt crisis showed that the Economic and Monetary Union (EMU) was not sustainable without more fiscal integration. However, important causes of the crisis were extraordinary and are highly unlikely to occur again. While the legacy problems of the crisis have been grave, they can be deemed temporary. Therefore, these problems should be combated pragmatically, but with temporary instruments only. A systematic analysis shows that the root causes have been tackled with a wide variety of reforms, both to the EMU itself and by way of structural reforms of the member states. In particular, evidence is presented that the adjustment capacities of the EMU countries are better than commonly recognised. Additional reforms are suggested, especially in the financial sector. With these reforms in place, future crises would have less serious effects. A reformed EMU should be able to withstand such crises without further fiscal integration.

The need for a fiscal union in the EU is an issue which has been debated many times and about which much has been written. However, the economic and financial crisis we have experienced in recent years has cast doubt on whether we have taken this debate in the right direction. Sometimes we tend to focus the debate on marginal issues and unrealistic proposals. Rather than helping us to move forward, this paralyses the EU and distances us from feasible targets. This article aims to give a general overview of the debate on a fiscal union to find out where we are in the process of fiscal integration and what we can really expect from it.

The architecture of the original euro was flawed, and so was the commitment of the EU member states to abide by fiscal orthodoxy. However, both did convey sound monetary principles, these being (1) to preserve the purchasing power of the euro and (2) to isolate it as much as possible from political pressures. As evidenced in the euro crisis, both EU member states and European institutions have committed to maintaining the euro via further integration and the growing centralisation of monetary and fiscal powers in EU institutions. The European Banking Union is one example of this commitment. This article argues that these changes have paved the way for the creation of another modern-state currency: a currency that belongs to a supranational state and that is ultimately linked to an ever-growing supranational treasury that works hand in hand with the central bank. This article offers a more market-friendly monetary alternative to such an arrangement.

Events in recent years have put the European economic integration project and the euro under pressure. The main cause of the euro crisis is loss of competitiveness, particularly on the periphery of the Economic and Monetary Union. To reverse this, Union members must promote structural reforms that increase long-term employment, productivity and external competitiveness. The successful implementation of reforms, however, requires sufficient public support, which in turn presupposes measures that support demand during the implementation of reforms. To that end, important steps include taking an expenditure-based approach to fiscal adjustment and the introduction of the European Deposit Insurance Scheme. And for Greece in particular, the set of necessary steps includes taking ownership of reforms, the downward revision of fiscal targets, and medium- and long-term measures of debt relief conditional upon meeting fiscal/reform targets. Finally, the stability of the euro hinges on the moderation of all fiscal and external imbalances across all member states, regardless of whether these imbalances are apparent or not.

For the first time the EU has reached not just a stopping point, but a possible turning point. The Brexit decision has only made this more evident. Using the current crisis for a ‘great leap forward’ towards ever closer ‘political union’ hardly seems realistic, even in the absence of the notorious British opposition. Even the member states that are most ardently calling for a ‘political union’ do not agree on what that should actually mean. Using the examples of France and Germany and their seemingly identical calls for a ‘fiscal union’ of the eurozone, this article shows that the two countries have contrasting interpretations of what such a union should do, and how. Both the French ideal of a voluntarist ‘economic government’ of the eurozone and the German model of a rules-based ‘economic constitution’ would require substantial changes to the EU treaties, for which there is no real hope of democratic consent. The legitimacy challenge has thus become both more urgent and more difficult to overcome.

At present the biggest threat to the monetary union is posed by the anti-European political parties. These parties call for their countries to leave the union. They are thriving especially in countries with slower economic growth and high unemployment rates. The best remedy against them is to increase economic growth and thus reduce the unemployment rate in their home countries. The measures taken to achieve this need to be systematic, rather than merely temporary patches. In peripheral and semi-peripheral economies, undercapitalised banks and the lower competitiveness of domestic producers are slowing down growth. The correct measures to address these problems include banning dividend payouts by undercapitalised banks and creating minimum standards for competitiveness.

This article argues that maintaining the status quo is not an option for the euro area. The euro has functional and existential weaknesses that force us to take drastic action if we want to become resilient enough to withstand the next banking crisis. The article argues that the existential weaknesses of the euro stem from the D/Y ratio (debt-to-GDP). Euro-area members have only limited scope for using traditional mechanisms to deal with D/Y problems. What makes this especially worrying for the overall stability of the euro area is the ownership of the debt issued by the euro-area member states. It is absolutely vital to separate banks and sovereigns and to slash debt-to-GDP levels. The question is whether the political decision-making processes in the member states can deliver these structural changes.

This article argues that the traditional European narrative based on the rhetoric of progress, openness, ‘an ever closer union’ and the ever greater sharing of sovereignty has lost traction with a significant percentage of the European electorate, who are gripped by frustration, insecurity and disarray. It sketches the broad lines of a new Europeanism, arguably one that would be better equipped to deal with populism and identity politics. It makes the case for a ‘leaner Europe’, less bureaucratic and intrusive, but also more openly political and culturally grounded.

The Libyan conflict is the result of a complex and controversial series of developments, where local political events have been strongly influenced and driven by exogenous factors. A dual set of conflicting interests can be found in both the Euro-Mediterranean and inter-Arab dimensions, with Italy and Turkey struggling against France and Great Britain on one side, and Qatar being opposed by the United Arab Emirates and Saudi Arabia on the other. Muammar Qaddafi's regime, which was certainly not an example of good governance and respect for human rights, was quickly swept away by a conflict primarily fought by non-Libyan actors, which eventually caused the collapse of the central institutions in Libya and the creation of dozens of local militias. The failure of both local and exogenous ambitions has caused a crisis in which additional factors have been able to influence the Libyan civil war, making the situation very opaque and extremely difficult to solve.

The rising terrorist threats in the region have compelled Morocco to enhance the protection of its vast territory, long borders, 34 million citizens and over 10 million visitors per year. Morocco's comprehensive security strategy combines a wide range of policies which link the improvement of the socio-economic situation to the capacity to anticipate the risk of terrorism and the operational aspects of the strategy. Security governance and the modernisation of the security forces, religious reform and the promotion of moderate Islam, the involvement of civil society, and close international cooperation, including religious diplomacy, are all key to preventing terrorism and countering extremism. Reforms to improve human security and to lift vulnerable groups out of poverty and exclusion have contributed to enhancing sustainable security. An example for many, Morocco still has a few big challenges ahead, especially to provide quality education, both to ‘immunise’ the minds of the youth against extremism and to create jobs so that hope can be restored to an overwhelmingly young population.

The EU is facing an unprecedented challenge on its southern borders in terms of instability in the region and increased migration flows. In its search for a solution that will meet with the approval of all member states, there is a new momentum for strengthening cooperation with neighbouring countries. The EU is increasingly turning to third countries to manage migration flows and reduce the number of irregular migrants arriving in Europe. Nevertheless, there are serious constraints on its ambition. The EU has failed to offer its cooperation partners real incentives, while member states have been reluctant to coordinate their initiatives and become involved, thus undermining EU action beyond its borders. The result is slow progress and uncertain partnerships. It is time to address these limitations and make the EU a reliable and coherent regional actor, able to speak with one voice when addressing third countries on migration. This calls for stronger foreign policy on migration at the EU level, the deployment of a wide range of tools and incentives, and more committed member-state support for EU action.

Many European countries are currently facing serious challenges related to weak public finances and political populism. This article suggests that the ageing phenomenon has been a major contributory factor to both of these problems. The European welfare states were created in a period of favourable demography, and it has now become politically much more difficult to keep them fiscally sustainable because of the ageing population and the associated deterioration of the dependency ratio. The rational policy response to ageing is to increase the labour supply by trimming unemployment benefits, increasing retirement ages and encouraging employment-based immigration. It is precisely such policies, however, that have eroded the support for traditional political parties and created a fertile ground for nativist populism. Thus, the European welfare arrangements may turn out to be politically unsustainable, even if it were theoretically possible to ‘rescue’ them with stringent and fiscally conservative economic management.

President Trump's foreign policy remains paradoxical and as yet highly uncertain. European leaders face the challenge of communicating both their interests and values in ways that the new president will welcome. Thus far, practical discussion combined with a personal connection seems the likeliest path to success. Ultimately, the EU has the opportunity not only to partner with the US but to lead the way forward based on the EU's own fundamental commitments and values. Three important areas this could affect are security and defence, climate change policy and global trade.