Transcript Slide 1

Future of the European Union
Joe Jupille
Colorado European Union Center of Excellence
(CEUCE)
December 7, 2012
• Future of the European Union
•
• The difficulties presented by the Eurozone crisis
have led some to question the European Union
(EU)’s long term viability. Yet the lessons of six
decades of European integration, and its
endurance through countless existential crises,
strongly suggest otherwise. Professor Jupille will
discuss the current crisis in this historical
context, and will project forward to a deeper EU,
comprising some thirty members, by the turn of
the next decade.
Outline
1.
2.
3.
4.
5.
Starting Points
Eurozone Crisis
Responses to the Eurozone Crisis
Looking Ahead
Conclusions
1. Starting Points, 1
• The European Union (EU) was created by its 27
member states because it helps them address their
most difficult economic challenges.
• Over time, it has developed by the “Monnet Method”,
named for Founding Father Jean Monnet
– slow and deliberate incrementalism, reliance on misdirection
and stealth in pushing integration forward.
– Institutionalization: “Nothing is possible without men;
nothing is lasting without institutions” (Monnet).
• The EU has a teleology: “ever closer union among
the peoples of Europe”.
– No end-goal is specified. There is no finalité institutionelle,
e.g., a United States of Europe.
– But it is always moving in the same direction (more Europe).
There have been many pauses and missed deadlines, but
there has never been a major step backward.
Starting Points, 2
•
In sum,
1. The EU tackles very tough issues.
2. It does so in ways that must be cumbersome,
complex, and hence frustrating.
3. Institutions are central. They formalize and give
expression to tough problems and convoluted
solutions.
4. The EU never falls back – it only moves forward.
•
And furthermore,
5. Markets and journalists misunderstand and
underestimate these features, which is why they
are so frequently pronouncing the EU dead.
6. The Eurozone Crisis reflects all of this.
2. Eurozone Crisis, 1:
The Sky is Falling!
Economist,
Time, August
March
22, 2011
26, 1982
The EU is dead! Long live the EU!
2. Eurozone Crisis, 2
• The sky is not falling.
• Three problems converged to produce the
Eurozone crisis. Two of them were “baked
into the cake” of EMU. They were
recognized at the time, but it was hoped
that they wouldn’t cause too many
problems. They have.
1.The EU is not an Optimum Currency Area
(OCA). OCA requires economic convergence
(i.e., harmonized business cycles) and/or
other means of adjustment, such as fiscal
transfers and labor mobility.
– EU has none of these.
2. Eurozone Crisis, 3
2. The EU’s Economic and Monetary Union
(EMU) has more “M” than “E”, where the
latter includes, among other things, common
fiscal policy rules.
•
•
•
Fiscal discipline went out the window in 20032004, when both France and Germany violated
the Stability and Growth Pact (SGP)’s spending
limits
For political reasons, they were not punished for
this transgression.
Once they showed they weren’t going to follow
the rules, Greeks, Portuguese et al. decided they
didn’t need to, either.
2. Eurozone Crisis, 4
3. A third, exogenous problem is that markets
mis-priced the credit riskiness of Eurozone
members.
“Greece and
Portugal are just
as creditworthy as
Germany, right?”
Chart: http://blog.rivast.com/wp-content/uploads/Eurozone-spread-history.jpg
2. Eurozone Crisis, 5
• Divergent macroeconomic circumstances,
weak disciplinary mechanisms, and cheap
credit proved a toxic brew.
• To varying degrees, peripheral countries
(public and private sectors) went on a
consumption and borrowing binge. When
the bubble burst, the eurozone crisis
erupted.
2. Eurozone Crisis, fin
• Not only did EU law not provide for
bailouts of member states in trouble, it
expressly forbade such help (articles 123125, Consolidated Treaty on the
Functioning of the EU [CFTEU]).
• In short, the EU had no tools to deal with
the crisis. So, what did it do? In good
European tradition, it improvised – but it
did so institutionally. And, of course, in
the direction of ever closer union.
3. Institutional Responses to the
Crisis, 1
1. 2010 (in connection with Greek bailout):
European Financial Stability Facility
(EFSF)
– Created outside the EU legal framework by
the 27 member states, intended to be
limited/temporary.
– Allows “EU” to bail out member states
(borrow, lend money, guarantee loans)
•
Funded Greek, Irish, and Portuguese bailouts
– Now mostly replaced (see #3 below, ESM)
3. Institutional Responses, 2
2. 2012: Treaty on Stability, Coordination
and Governance in the Economic and
Monetary Union (TSCG), a.k.a. Fiscal
Compact
– Also outside the EU legal framework (signed
by 25 of 27)
– Strengthens provisions relative to the old
Stability and Growth Pact (SGP) and article
126 of the CTFEU.
– Supposed to enforce fiscal discipline, e.g.,
deficits at 3% GDP and debt at 60% GDP.
3. Institutional Responses, 3
3. 2012: European Stability Mechanism
(ESM)
– Also a separate international organization
(not technically part of EU), though involved
amendment of the basic EU treaties (article
136)
– ESM inherits the functions of the EFSF. In
short, it will provide bailouts and other help
(e.g., loan guarantees) to Eurozone
countries in trouble.
3. Institutional Responses, 4
• In sum, the EU’s institutional responses to
the Eurozone crisis mean that it has the
tools (though it may need more money) to
address short-term problems in its
member states and to enforce the kinds of
policies that will prevent future problems in
the long-run.
• Of course, this is not the end of the story
in terms of the future of the EU …
4. Eurozone and Beyond, 1
… Re: the Eurozone, we see the following:
1. Discussions on Banking Union, with centralized
banking oversight by the European Central Bank
(ECB), are moving quickly and could well culminate in
new measures in 2013.
2. Further out, there are serious talks about Eurozone
Fiscal Union.
• NB this is why the American EMU works as well as it does.
•
Both of these reflect further moves toward ever closer
union, and start getting to the heart and soul of “the
King’s powers” and national sovereignty.
4. EZ and Beyond, 2
• The Eurozone could still see a lot of turbulence,
e.g., a “Grexit”.
• But part of what makes the EU a one-way
ratchet is its fetish for institutions, which theory
and evidence tell us tend to “stick”.
• If they can get these EZ institutions “right”, that
will provide some relief in the medium-term.
• Finally, markets and journalists underestimate
not only the benefits of EU and the euro for
Germany, but the very European constitution
of contemporary Germany itself.
4. EZ and Beyond, 3
• Beyond the Eurozone, the EU faces other significant
challenges.
• Centripetal tendencies in the EU itself.
– Will the UK exit?
– Continued expansion to new members: Croatia (entering 2013);
Iceland, Macedonia, Montenegro, Serbia and Turkey (candidate
countries); Albania (applied 2009); Bosnia and Herzegovina
(eventually); others.
– Multispeed Europe, Europe à la Carte, Variable Geometry
Europe
• The democratic deficit.
• Ageing societies, multiculturalism and the welfare state
in the era of globalization.
5. Conclusions
1. The Eurozone crisis has revealed several disequilibria.
The EU addresses these by moving forward, rather than
moving backward. This is one of the few constants in EU
history: the EU is a one-way ratchet.
2. New institutions and prospective fiscal union would move
the EU in the direction of the US as an economic union,
and eliminate key problems (e.g., macroeconomic
divergence) that were ignored in the original construction
of the Euro.
3. Those anticipating breakup underestimate the power of
Ever Closer Union and institution-building to maintain
and propel the EU forward.
4. Rumors of the EU’s death are greatly exaggerated.