Monday

27th Mar 2023

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.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • 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

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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.

Biden's 'democracy summit' poses questions for EU identity

From the perspective of international relations, the EU is a rare bird indeed. Theoretically speaking it cannot even exist. The charter of the United Nations, which underlies the current system of global governance, distinguishes between states and organisations of states.

EU's new critical raw materials act could be a recipe for conflict

Solar panels, wind-turbines, electric vehicle batteries and other green technologies require minerals including aluminium, cobalt and lithium — which are mined in some of the most conflict-riven nations on earth, such as the Democratic Republic of Congo, Guinea, and Kazakhstan.

Editorial

Okay, alright, AI might be useful after all

Large Language Models could give the powers trained data-journalists wield, to regular boring journalists like me — who don't know how to use Python. And that makes me tremendously excited, to be honest.

How much can we trust Russian opinion polls on the war?

The lack of Russian opposition to the Russo-Ukrainian War is puzzling. The war is going nowhere, Russian casualties are staggering, the economy is in trouble, and living standards are declining, and yet polls indicate that most Russians support the war.

Latest News

  1. Biden's 'democracy summit' poses questions for EU identity
  2. Finnish elections and Hungary's Nato vote in focus This WEEK
  3. EU's new critical raw materials act could be a recipe for conflict
  4. Okay, alright, AI might be useful after all
  5. Von der Leyen pledges to help return Ukrainian children
  6. EU leaders agree 1m artillery shells for Ukraine
  7. Polish abortion rights activist vows to appeal case
  8. How German business interests have shaped EU climate agenda

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  2. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  3. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  4. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality
  5. Promote UkraineInvitation to the National Demonstration in solidarity with Ukraine on 25.02.2023
  6. Azerbaijan Embassy9th Southern Gas Corridor Advisory Council Ministerial Meeting and 1st Green Energy Advisory Council Ministerial Meeting

Join EUobserver

Support quality EU news

Join us