Friday

18th Aug 2017

Opinion

The never-ending crisis of European leadership

  • Belgium's Michel, France's Hollande, EU diplomacy chief Mogherini and Germany's Merkel. Europe’s leaders have failed to implement effective strategies. (Photo: Consillium)

Here we go again. Just when we might have thought global financial markets were starting to simmer down, investors are now worried that policymakers may stoke the fire yet again.

The European Central Bank (ECB) met on Thursday (10 March) and, as many market watchers expected, it announced more interest rate cuts and additional asset purchases.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • Refugee crisis has showed limits of collective European leadership (Photo: europarl.europa.eu)

While Europe has carried out a number of impressive reforms since the outbreak of the 2010 euro crisis, much more needs to be done.

Europe’s leaders have failed to implement an effective strategy to deal with economic challenges like the Great Recession, or to prepare a pan-European plan for addressing socio-political issues like the migration wave from war-torn countries in the Middle East and Africa.

The resulting rise of populist, often extremist, political parties and movements is seriously threatening Europe’s western liberal democratic order as protests, violence and disenchantment all grow.

This outcome is particularly striking considering that between 1945 and 1990 Western Europe was catching up with the US in economic performance, and that its drive to create a democratic European Union was relatively successful.

Lost momentum

In the late 1980s and early 1990s global discussion focused on when and in what areas Europe would overtake America.

The fall of the Berlin Wall and gradual integration of Central-Eastern Europe into the EU was seen as strengthening the region and creating a path to further European integration and advancement.

So what went wrong?

Europe lost economic momentum in the 1990s by lagging in business applications of new, internet-based technologies and slowing down in market integration.

Relatively rigid regulation, less venture capital and the lack of an entrepreneurial culture were among the factors that slowed the emergence of an internet economy.

Together with slow integration of the financial markets and limited dynamics in many labour markets, this contributed to a slow rate of innovation and growth.

Once European companies finally started exploiting the internet, the stock market crash of 2001 bankrupted many of its nascent businesses.

The same carnage occurred in the US, but a number of businesses had already become sustainable ventures and the economy had reaped considerable gains.

Politically, Europe registered its first important setbacks when Dutch and French voters rejected the EU constitution in 2005. Still, European leaders charged ahead, leaving the masses behind.

The EU ideal was taken for granted rather than explained and marketed to the public. The introduction of the euro without banking and fiscal union further undermined the long-term viability of the European project. 

The first real stress test came in 2008 as the financial crisis spilled over into Europe and contributed to the 2010 eurozone crisis.

Disintegration

A turnaround came in the summer of 2012 with the establishment of a banking union and the promise to do “whatever it takes” by Mario Draghi, the ECB president. But the validity of that promise is now being questioned.

While the US readily undertook painful, fundamental reforms to clean up its banks and stimulate its economy, Europe’s leaders were unable to agree on a common set of similarly strong measures - and Europe has been “muddling through” in decline, stagnation or slow growth ever since.

The very fact that Greece, representing less than 2 percent of Europe’s GDP, has preoccupied all of Europe and threatened to derail the entire euro project is symptomatic of Europe’s inability to act decisively and find solutions.

The problem is clearly a lack of effective European leadership. Europe’s workers are as good as their Asian and American counterparts. Europe’s design and many areas of manufacturing are second to none.

What is striking is how much less Europe generates with these resources than does the US.

So how can Europe escape its long-term crisis?

At one extreme there is the nationalist option favoured by many populist parties and movements.

Europe would again disintegrate into individual states, each relatively unimportant. This carries the danger that the EU’s disintegration would include the breakup of the common labour and product market. If this happened, living standards would fall precipitously.

Confronting extremist

Rather than disintegrating, Europe should create an even stronger union and - as one of the world’s two largest economic blocks - use its economic might and acumen to become a true leader on the world scene.

Ideally Europe would move speedily toward supplementing its monetary union with a full-fledged economic, fiscal and political union, but this is politically infeasible in the short run.

What should be feasible is to complete the banking union, eliminate the resurgent link between banks and their governments, restructure debts of severely over-indebted countries, coordinate fiscal policies, and move aggressively to complete necessary structural reforms aimed at integration and liberalisation of European markets.

Europe needs to confront extremist populism with a clear-cut solution leading to economic growth and improved living standards.

The populists stress nationalist self-interest, but Europeans can benefit much more from a functioning union than from fragmentation and likely protectionism of individual states. 

Jan Svejnar is professor of global political economy studies at Columbia University’s School of International and Public Affairs in New York

Deflation fears trigger ECB's 'bazooka'

In a new attempt to revive the economy, the European Central Bank has decided to cut rates further in the negative and to step up its bond buying programme.

EU at breaking point over migration crisis

EU divisions over the migrant crisis reached a new low on Thursday, with Greece saying that it won’t become “Europe’s Lebanon” and accusing Austria of “19th century attitudes.”

Slovakia vote shocks Europe and its own society

With a weakened PM, a fragmented parliament and an extreme-right party winning seats for the first time, Slovakia is heading for uncertain times ahead of its EU presidency in July.

The EU in Limbo

The EU fails to fulfil the role of a nation state or of a supercharged international organisation. The time has come to consider how "less Europe" could save the EU.

EU needs lasting solution to refugee crisis

If we continue with the failed approach of the last two years then this could become a systemic crisis that threatens the EU itself, writes Gianni Pittella.

Column / Brexit Briefing

The return of the chlorinated chicken

Britain has only just started on the path towards a post-Brexit trade deal with the US, but you can already see the same all-too-familiar disagreements.

Stop blaming Trump for Poland’s democratic crisis

If you were to judge events purely on the US media's headlines, you would be forgiven for wondering if the Polish government had anything to do with its recent controversial judicial reforms.

News in Brief

  1. Macedonia sacks top prosecutor over wiretap scandal
  2. ECB concerned stronger euro could derail economic recovery
  3. Mixed Irish reactions to post-Brexit border proposal
  4. European Union returns to 2 percent growth
  5. Russian power most feared in Europe
  6. Ireland continues to refuse €13 billion in back taxes from Apple
  7. UK unemployment lowest since 1975
  8. Europe facing 'explosive cocktail' in its backyard, report warns

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  2. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  3. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  4. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  5. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  6. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  7. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  8. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  9. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  10. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  11. ACCAAnnounces Belt & Road Research at Shanghai Conference
  12. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides

Latest News

  1. UK’s childhood obesity strategy, a blueprint for EU countries?
  2. Death toll rising from Barcelona attack
  3. Austrian soldiers to stop migrants from Italy
  4. Chinese road to riches or road to ruin?
  5. UK seeks 'unprecedented' Irish border deal
  6. Merkel: No EU sanctions on migrant quota rebels
  7. UK keen to keep old EU customs deal
  8. Italy backs Libya as NGOs chased out of Mediterranean

Stakeholders' Highlights

  1. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  2. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey
  3. Martens CentreWeeding Out Fake News: An Approach to Social Media Regulation
  4. European Jewish CongressEJC Concerned by Normalisation of Antisemitic Tropes in Hungary
  5. Counter BalanceOut for Summer Ep. 1: How the EIB Sweeps a Development Fiasco Under the Rug
  6. CESICESI to Participate in Sectoral Social Dialogue Committee on Postal Services
  7. ILGA-EuropeMalta Keeps on Rocking: Marriage Equality on Its Way
  8. European Friends of ArmeniaEuFoA Director and MEPs Comment on the Recent Conflict Escalation in Nagorno-Karabakh
  9. EU2017EEEstonian Presidency Kicks off Youth Programme With Coding Summer School
  10. EPSUEP Support for Corporate Tax Transparency Principle Unlikely to Pass Reality Check
  11. Counter BalanceEuropean Parliament Improves the External Investment Plan but Significant Challenges Ahead
  12. Nordic Council of MinistersCloser Energy Co-Operation Keeps Nordic Region on Top in Green Energy