Can Europe Make It?

Hollowing out the core: the divergent paths of the eurozone’s leading economies

What, then, of the idea of ‘core Europe’? Despite solemn invocations of common interests and joint challenges, cohesion, leadership and the political will to compromise are sorely lacking amongst member state governments.

Nicole Scicluna
19 September 2014

Europe’s leaders continue to talk about the need for greater unity, whilst their actions promote divergence. Despite widespread agreement on the causes of the EU’s structural weaknesses, national governments show no clear commitment to the cooperation, compromise and genuine economic and political transformation necessary to implement long-term solutions. The acute phase of the euro crisis may have passed (for the time being at least), but the centrifugal pressures it created have not eased. That much is clear from a glance at the contrasting fortunes and preferences of the eurozone’s three largest economies.

Recently, Wolfgang Schäuble, the German finance minister, and Karl Lamers, the former foreign policy spokesman of the Christian Democratic Union (Christlich Demokratische Union, CDU), reprised their argument of twenty years ago calling for the creation of ‘cores of co-operation within the EU’ that would enable willing member states to ‘forge ahead’ towards political union. A noble aim, perhaps, but is it sincere? Schäuble’s political actions speak louder than his words. His proposed 2015 budget – the first in 45 years that does not envisage taking on any new sovereign debt – is currently under debate in the German parliament. While it symbolises the government’s strong commitment to fiscal rigor, Schäuble’s budget also flies in the face of calls from a range of political and economic figures, including ECB president Mario Draghi, for those countries that have room to move within the deficit limits to increase spending in order to stimulate growth – a policy shift craved by some of Germany’s European partners, above all France and Italy.

Though there has been internal criticism, on the whole Schäuble’s stance seems to be playing well at home. In regional elections in Saxony on 31 August, and Brandenburg and Thuringia on 14 September, the CDU performed strongly, slightly improving its vote share in the latter two contests and dropping only 0.8% to retain first place in the former. Nevertheless, the biggest success story of all three elections was arguably the conservative-right Alternative for Germany (Alternative für Deutschland, AfD). Contesting the ballots for the first time, AfD picked up 9.7% of the vote in Saxony, 12.2% in Brandenburg and 10.6% in Thuringia. This consolidates the party’s success at the European polls in May, when it won seven seats, the first time it has entered parliament at any level.

AfD is a relatively new party (it was only founded in 2013) and many of its policy positions are still in flux. However, criticism of the German government’s handling of the euro crisis – on the grounds that it is sucking German taxpayers into the vortex of an expensive and unconstitutional ‘transfer union’ – is its bread and butter. AfD now constitutes a genuine electoral threat to the CDU and the other mainstream parties, increasing the pressure on Merkel to alter her party’s strategy from one of ignoring the upstart challenger to, perhaps, partial co-option. This, in turn, may constrain the policy options available to the government should the crisis flare again.

Meanwhile, in France, Germany’s erstwhile partner, the economic situation remains fragile. Finance minister Michel Sapin recently announced that the country will not meet the 3% deficit target mandated by the Fiscal Compact until 2017, a full two years after the deadline previously negotiated with the European Commission (which itself was already a two year extension from the original 2013 deadline). Instead, the country’s projected budget deficit for next year is 4.3% of GDP, only a slight decrease from 4.4% this year. Ironically, Sapin’s admission came on the same day that France’s nominee to the European Commission, former finance minister Pierre Moscovici, was given the high-profile economic and monetary affairs portfolio in Jean-Claude Juncker’s incoming administration.

In fact, the unveiling of Juncker’s team, itself, provided an occasion to reflect on the lack of commonality of purpose that continues to divide the Union. As usual, the allocation of portfolios was preceded by a host of diplomatic and not-so-diplomatic attempts by national leaders to secure plum jobs for their own representatives, and followed by media commentaries on the ‘winners’ and ‘losers’. Indeed, the whole process flies in the face of the textbook wisdom taught to students of European integration that Commissioners represent European interests, and not those of their government or nation state.

Amongst all that jostling for position, Italian Prime Minister Matteo Renzi’s strong lobbying for the foreign affairs post (currently held by Catherine Ashton) was noteworthy. Though ultimately successful in securing the job for Italian foreign minister, Federica Mogherini, Renzi had to overcome the objections of several of his European partners, particularly the governments of Poland and the Baltic states, which were concerned about Mogherini’s inexperience and perceived softness on Russia. His brash approach ruffled a few feathers along the way and may have cost the Italian government political capital that could have been better spent on more substantive objectives, such as adjusting the EU’s fiscal and economic priorities.

And on that front, the Prime Minister could certainly use a break. Renzi had been riding high following the success of his centre-left Democratic Party (Partito Democratico, PD) in the European polls in May; a vital legitimacy-boost for his government given that he took office in February without elections. But the honeymoon was short lived. Italy has slipped back into recession and Renzi now has the unenviable task of finding approximately 20 billion euro in spending cuts in order to meet the Fiscal Compact’s 3% budget deficit target without raising taxes. The Italian economy is expected to contract by 0.4% this year and grow by only 0.1% next year, making it more difficult to keep debt and deficit ratios down, particularly in the absence of a significant easing of monetary policy by the ECB, something that Germany still opposes. Italy’s will to toe the line may also wane – as in France, there are political forces that are openly critical of the austerity ‘diktat’, primarily Beppe Grillo’s Five Star Movement (Movimento 5 Stelle, M5S) and the far-right Northern League (Lega Nord). Renzi’s ‘spending review’ also faces resistance from the Italian regions and the left wing of his own party.

What, then, of the idea of ‘core Europe’? Despite solemn invocations of common interests and joint challenges, cohesion, leadership and the political will to compromise are sorely lacking amongst member state governments.

The EU, as it actually exists, defies any clear-cut dichotomy between ‘core’ and ‘periphery’. Its constituent states may be categorised and catalogued in any number of ways – as euro ins, future ins or permanent outs, creditors or debtors, austerity ‘hawks’ or advocates of a more lenient macroeconomic policy, supranationalists or intergovernmentalists. In other words, not much has changed since Deirdre Curtin wrote of a Europe of ‘bits and pieces’ more than twenty years ago. This fact is best acknowledged, lest talk of ‘core Europe’ be used as rhetorical cover for the imposition of a set of values and principles that do not reflect the best interests, much less free choice, of the majority of Europeans

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