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By Joergen Oerstroem Moeller
The European Union (EU) is in much better shape than is normally portrayed, with a strong economy and initiatives introducing new common policies or strengthening existing ones. In due course, a stronger EU may emerge, setting a course distinctly different from that of the United States. This analysis discloses how the EU and the United States choose a different approach on almost all major issues. Common and shared values once kept the Atlantic Alliance together, but divergent values will split the alliance. Brexit aggravates this somber outlook, as Britain in many ways acted as an interlocutor that understood both the United States and Continental Europe. The geopolitical consequences will be huge.
Brexit will weaken the EU, but while the loss of Britain’s economy and, even more so, its military capability are tangible, a weaker EU in the medium and long term is by no means certain. If one of the members doesn’t feel comfortable and chooses to leave, the remaining members may increasingly see the rationality of pursuing analogous policies. So far, this is what has happened. Britain has found it impossible to define its future relationship with the EU, which, for its part, has adopted a common and consistent stance, making it clear what can be included in a deal and what cannot. Unless Britain grasps that one cannot decide to leave and then cherry-pick to stay in and out according to one’s own preferences, the outcome will be no EU-Britain agreement. If so, relations will be governed by World Trade Organization (WTO) rules, connoting something close to chaos.
The Eurozone, wherein 19 of the 28 EU members use the euro, displays a strong economy. Growth is between 2.2 and 2.4 percent of GDP, with a small and falling deficit of 1.3 percent of GDP for the public sector, a public debt ratio to GDP of 89.3 percent on a downward trend, and a surplus on the balance of payments around 3 percent of GDP. All the weak countries enrolled in bailout programs (Greece, Spain, Portugal, Ireland, and Cyprus) have exited the programs and display good growth. Another “weak” country, Italy, mentioned as a potential candidate for a bailout program, is likewise back on a growth pattern, with public debt as share of GDP forecast to fall in 2018—the first time in 13 years. After having plummeted to 7.2 percent in 2009, France’s public sector deficit is now below the Maastricht criteria of 3 percent of GDP.
The Eurozone member countries are moving toward a common economic policy, the absence of which was one of the reasons they were caught in the slipstream of the global financial crisis. All are gradually adopting an economic policy based on the principle of “cutting your coat according to the cloth.” They do not do so, as is sometimes postulated, under pressure from Germany, but because experience shows that a common economic policy goes hand in hand with economic growth and social stability. The weak member states reformed and restructured their economies to achieve competitiveness instead of defending a distorted economy by resorting to depreciations and borrowing. It hurts in the short run, but pays off handsomely in the longer run.
The Eurozone economic policy is the exact opposite of what the Trump administration prescribes for the United States.
There is still work to be done in the Eurozone. One of the main reforms is a banking union, introducing supervision and a common regulatory framework to enhance the banking system’s ability in all member states to withstand future crises.
After much hesitation and debate, 23 of the EU’s member states decided in November 2017 to give the green light for enhanced military cooperation. In a first phase, the aim is to launch common arms programs (e.g., tanks or drones), form units ready to intervene in cases of a crisis, and increase defense budgets. It is open for debate what this means for military capability, but what matters is the signal that the Europeans now take the first step toward some kind of common European defense. Russia’s saber-rattling at the three Baltic members states of the EU—and, even more, the uncertainty of U.S. commitments to NATO sowed by President Trump—have prompted the Europeans into action. British non-participation significantly reduces the effectiveness of this political signal but does not neutralize it. More depends on the commitment of core EU members such as France and Germany.
Military capability is important, but to gain influence, soft power may be more effective. The EU gradually emerges as possibly the most active and successful body applying this power vector. The EU has participated in more than 30 peacekeeping operations under the flag of EU, NATO, and the UN, and it has deployed more than 40,000 troops. The neighborhood program aimed at helping countries east and south of the EU includes 16 countries offered financial assistance and trade concessions, provided they implement political and administrative reforms, including human rights. Most African, Caribbean, and Pacific countries have concluded economic partnership agreements. Trade agreements have been launched with countries in Latin America. The EU has entered into strategic partnerships with Brazil, Canada, China, India, Japan, Mexico, Russia, South Africa, South Korea, and the United States.
The EU’s role in negotiations about global warming is second to none, especially with the United States withdrawing from agreements. As the biggest trading partner in the world, the EU has become indispensable for keeping the WTO going as a forum for global trade negotiations and guardian of the existing rules.
With U.S. foreign policy shifting from keeping the global system operating to putting “America first,” and with Brexit Britain saying “take back control,” the EU is left—perhaps with China—as the protector and guardian of the global steering system around the UN, the International Monetary Fund, the World Bank, and the WTO.
Anchored in the rule of law itself, the EU stands as a bulwark against the breakup of a global system under fire. It is an attempt to transfer national or domestic legal systems to a regional European level in order to control economic transactions that took this jump decades ago.
EU member states do not give up sovereignty. Rather, they pool or transfer sovereignty to exercise it in common with adjacent nation-states pursuing analogous political goals. The goal is to shape international rules in a way that gives each nation-state room to maneuver to adopt national rules without violating international rules.
In a political context, such a rule-based system protects the weak against the strong precisely as domestic laws do. In a European context, countries like Germany and France, historically perceived by their neighbors as throwing their weight around, have accepted and even taken the initiative to turn the European political game into negotiations that pursue compromises and consensus. Most EU decisions require qualified majority voting, and the system eschews domination by the larger and most economically powerful member states. For example, Germany represents 21.1 percent of the EU’s GDP but is allocated 16 percent of votes, so the two largest member states cannot alone block a decision. Member states are incentivized to negotiate on legislative acts because if they don’t, qualified majority voting means they can be outvoted and their legislative goals thwarted. All member states should see themselves as stakeholders.
The EU is often criticized for being bureaucratic, and, true enough, a rule-based approach requires regulatory frameworks for business transaction. The following three cases illustrate what it means in practice and also disclose how the EU and the United States under the Trump administration are moving away from each other in conceptual thinking.
On January 3, 2018, the EU’s new financial regulation—Markets in Financial Instruments Directive—entered into force. It is one of the longest and most complicated legislative acts ever applied, but it may be worth it considering how the absence of rules and regulations allowed financial institutions to engineer a global financial crisis. The directive’s objective is to protect investors and to introduce better transparency over all financial assets, whether equities or cash. Obviously, these ambitions run counter to a smooth, lean, and fast-working financial system, and they may also increase costs for some financial investments; protection and safeguards do not come cheap.
This happens at the same time that the United States is going through a deregulation spree, rolling back perhaps most of the regulatory framework introduced after the global financial crisis. It will be interesting to see markets weigh the U.S. and EU policy approaches against each other—cheaper, faster, and riskier versus more expensive, a bit slower, but less risky.
In 1980, the Organization for Economic Cooperation and Development put forward seven principles for the protection of personal data:
1. Notice—data subjects should be given notice when their data is being collected.
2. Purpose—data should only be used for the purpose stated and not for any other purposes.
3. Consent—data should not be disclosed without the data subject’s consent.
4. Security—collected data should be kept secure from any potential abuses.
5. Disclosure—data subjects should be informed as to who is collecting their data.
6. Access—data subjects should be allowed to access their data and make corrections to any inaccurate data.
7. Accountability—data subjects should have a method available to them to hold data collectors accountable for not following the above principles.
The United States has not followed up to turn these nonbinding principles into law. The EU did so with a directive in 1995. In 2016, a strengthened and updated version was adopted to take effect in 2018. The updated rules apply to processing outside the EU that relates to the offering of goods or services to data subjects (individuals) in the EU or the monitoring of their behavior.
The EU has initiated procedures against Apple and Amazon, accusing them of business practices aimed at avoiding or minimizing taxes paid in Europe. The stakes are high. For Apple, the repayment demanded is 13 billion euro, and for Amazon, 250 million euro. The EU philosophy is that companies generally should pay taxes proportional to where they make profits. The U.S. tax reform signed into law at the end of 2017 is designed to incentivize U.S.-based companies with big overseas operations to bring those profits back home. This is the “America first” approach.
The EU aspires to be the last man standing with regard to protecting human rights. For years, human rights has been a cornerstone in the EU’s relationship with other countries, inscribed in international agreements. The world is not perfect, and not all countries are ready or willing to run a political system that respects human rights as the EU sees fit. There is, however, a simple justification for the insistence on human rights. Who else would do it?
The same or stricter standards on human rights are applied to member states. After winning the Polish elections, the Justice and Law Party introduced measures threatening the independence of the judiciary system in the eyes of the European Commission. The EC initiated a procedure that, unless Poland complies, ultimately can deprive the member state of its right to vote in the ministerial council.
It is useful to recall Article 2 in the Lisbon Treaty, entering into force 2009:
“The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.”
These are not empty words, as the Polish case proves.
The European Union is a work in progress. The preamble of the Treaty of Rome (1958) speaks of “an ever closer union among the peoples of Europe.” Skeptical or anti-EU Europeans often omit “among the peoples of Europe,” pretending it to be among the nations or governments of Europe, but that is a misrepresentation. It may or may not lead to a kind of United States of Europe, but as it looks now, a much looser configuration (similar to the Holy Roman Empire or the Hapsburg Empire) seems more likely—albeit in a 21st-century edition with a limited number of policy areas at the supranational level and the large majority on a national, regional, or local level.
The attitude of the old, traditional regions of Europe points in that direction: Scotland’s vote on independence in 2014, the perennial restlessness in Spain’s Catalonia, referenda in two Italian regions (Veneto and Lombardy) about further devolution, Corsica in France. It looks as though Europe is falling apart, but in fact Europe is going back to basics, reinstating regions and peoples who, until a couple of hundred years ago, formed the political infrastructure for the peoples of Europe.
The refugee and migrant crisis over recent years constitutes, in the eyes of many Europeans, a growing threat to European identity and a risk that will drain welfare budgets. Politicians have not managed to convey that a certain degree of openness is in conformity with European values going back at least to Erasmus of Rotterdam (1466–1536), focusing on humanistic values. Openness might also be necessary to avoid a demographic crisis, as fertility is falling. But this comes at a cost. Integration of millions of people with other cultural backgrounds takes decades, yet Europeans had been led to expect refugees would settle in a couple of years. An existential crisis for Europe looms ahead, the outcome of which will determine what Europe stands for beyond the wording in a treaty. As of now, the influx has been reduced, creating breathing space, but unless politicians use that window of opportunity, things may go wrong, nourishing populism, nationalism, and indeed racism.
The peoples of Europe have lost contact with the EU political system. On paper, it is impeccable. It is accused of being a bureaucracy, yet not a single decision can be taken without democratic control, similar to decision making at the national level. The Council, composed of ministers from each member state’s government, holds ultimate decision-making power. Most legislative acts, and almost all with direct consequences for citizens, need approval of the directly elected 751 members of the European Parliament. The snag is that the majority of European citizens do not see the EU political system as their own in the same way that they feel attached to their national system. Power distance has grown too large.
The immediate task for Europe’s politicians is to bridge that gap. Unless they can do so and reinstate confidence in European institutions, it will not prove possible to equip these institutions with powers to tackle current problems—of which that of refugees and migrants is the most acute. Europeans will then blame the EU even if its failure is the result of being denied the instruments to deliver solutions.
The model crafted for six countries in 1958 is cracking under the weight of 28 countries—soon to be 27 when Britain leaves. Where to go from here—stay with the current model or find an alternative?
To maintain the current model means, in principle, everybody takes part in all common policies or joins eventually. No derogations or special provisions, such as staying outside the single currency. It looks fine, but some member states do not wish to go all the way. Persisting can produce a backlash against EU and put spanners in the work of the European integration.
To bite the bullet and go for an alternative model might involve creating categories of membership, however unpalatable that may look for die-hard followers of the original approach. If Britain’s experience proves to be costly—not only economically but also politically—member states hitherto sharing skepticism toward deeper integration may have second thoughts. The prospect that marginalization means less power to pursue their interests due to an uncertain status vis-à-vis core policies (the single currency, defense, and refugees/migrants) may stimulate interest in joining the core. Paradoxically, Brexit may in this way turn out to be a catalyst for stronger and deeper integration as a safe haven in a more unpredictable and more dangerous world.
Geopolitically, the combination of Brexit and a stronger integration among the remaining 27 member states will likely weaken the Atlantic Alliance. Britain may hang on, more or less, as an ally of the United States, while the Continental Europeans would start to look more toward China and perhaps Russia. Paradoxically, again, Brexit would then turn out to be a catalyst for a stronger isolation of the United States and a hollowing out of the common values that had been the only reason for the Atlantic Alliance.
About the Author
Joergen Oerstroem Moeller is a former State-Secretary of the Royal Danish Foreign Ministry. He is a visiting senior fellow at ISEAS–Yusof Ishak Institute in Singapore and adjunct professor at Singapore Management University and Copenhagen Business School. He is the author of The Veil of Circumstance: Technology, Values, Dehumanization and the Future of Economics and Politics (ISEAS–Yusof Ishak Institute, 2016). Contact him at joergen@oerstroemmoeller.com.