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Archiv: November 2013

Are we Living in a Post-EU Society?

20. November 2013, von Adriaan Schout, Comments (0)

There seems to be a paradox: whereas the euro crisis has enforced deeper integration, economic and political attention is shifting away from the EU. Europhiles blame the Eurosceptics but EU-watchers should be careful to follow simplistic reasoning.

Dutch Foreign Affairs Minister Frans Timmermans has the reputation to be an EU-believer and was, among others, a convinced member of the Convention that drafted the Constitutional Treaty. When he became minister of foreign (including EU) affairs, the general impression in the Netherlands, and the rest of the EU, was that his appointment was a good sign of the Netherlands becoming pro-EU again. However, now one year in office, Timmermans has shown himself rather critical of the EU. He talked about a ‘Brussels bubble’ that has lost touch with reality, criticised EU salaries and insisted on closer control of the EU Commission by the European Council (i.e. intergovernmentalisation of the Commission). Of course, it is possible to contribute this to pragmatic kowtowing to the political signs of our times or to the more reserved EU attitude of the Dutch liberal Prime Minister Rutte and his coalition government of which Timmermans is a member.

Yet, there is more. Minister Timmermans is also travelling extensively abroad. In fact, he is much more in other parts of the world than in Brussels or in EU Member States. One could could argue that the Dutch international influence via the EU would be more pronounced and, hence, that the use of all his international activism outside the EU is debatable.

In the meantime, across the channel, Cameron has expressed the possibility of an in-out referendum. A part of British industry has been issuing threats of leaving the country, and many in the EU are once again appalled by the Brits who continue to be unsurpassed EU-sceptics. However, rather than condemning – as so often happens – the Brexit discussion ignited by Cameron, we could also try to take the British debate seriously. Similarly, we might need to consider that Timmermans’ external perspective is well-founded. In any case, it has to be admitted that the British are good at thinking outside the box, so maybe there is more substance behind the Brexit debate than simple Euroscepticism.

Studies also show that big as well as small and medium-sized industry in the UK question the relevance of current EU policies and of the importance of the EU. Whereas about half of the UK’s exports go to the EU, the other half is going to other parts of the world and, more importantly, it is there where the growth in export – not just the UK’s ─ is taking place. Discussions about competitiveness are now primarily linked to comparisons with countries such as India, China, Brazil and the USA.

Hence, rather than sticking to European navel-gazing, it seems justified to look at the rest of the world for market opportunities and for new threats. In principle, questioning social policy objectives – maybe precisely because they are more symbolic than real – and other developments in for example the growing tasks of the ECB and in the EU’s economic governance, seems a valid starting point in the current debates on the future of the EU. It is crucial to consider what such trends imply for the EU’s competitiveness. This is important from an economic perspective but one also has to consider that the EU’s international security and influence are intimately related to its economic strength. External benchmarking of the EU’s competitiveness should not suffer from internal euro crisis debates.

The EU may have to come to terms with the fact that we work and live in a post-EU society, which also helps to put the traditional European claims into perspective. There is a keen awareness in the Netherlands that 70% of our trade goes to countries within the EU, especially to countries within 1000 kilometres of our borders. This has actually little to do with the EU. Trade relations with neighbouring countries are bound to be important, irrespective of the European integration project. Although important, extensive trade with countries close by are more or less traditionally given. Trade with other parts of the world is clearly increasing and posing new and painful challenges. To focus trade relations more on the rest of the world seems a natural and necessary development.

We in the EU may have to accept the post-EU society as a reality. Voters, consumers and industry have interests beyond the internal market and internal eurozone worries. This recognition has, in principle, little to do with anti-EU sentiments. It would be a mistake to taboo those who’ cast their nets out further’. On the contrary, accepting this might actually help us to get a better focus on what is important within the EU, e.g. standing together in external relations, and what is potentially dangerous such as, for example, creating a French-type EU. The European Union is important, but there is a lot more in the world that counts.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

US Treasury versus Germany: New Controversies, Old Debates

7. November 2013, von Alexandre Abreu, Comments (0)

You may have heard about the recent report by the US Treasury criticising Germany’s deflationary economic policies and their harmful effect on the global economy. And if so, you have probably also heard about the reaction that ensued on the part of the representatives of the German authorities, who retorted that there’s nothing wrong with Germany’s “growth-friendly economic and fiscal policy”. Indeed, according to the latter, Germany’s policies constitute a model to be copied by all, including in particular by deficit countries like the US.

My own contribution to this debate will consist of inviting the reader to travel back in time to the United Nations Monetary and Financial Conference which took place in Bretton Woods, New Hampshire, in July 1944. It was a watershed event, which lay the foundations of the global monetary and financial system for decades to come, including through the creation of such structures as the General Agreement on Tariffs and Trade, the International Bank for Reconstruction and Development (which would become the first of the World Bank Group institutions) and the International Monetary Fund. In addition to seeing the birth of what would become known as the ‘Bretton Woods institutions’, the Conference also became legendary in the field of economic history due to the debates between the British delegation, led by John Maynard Keynes, and the American delegation, led by Harry Dexter White. Both men would go down in history: Keynes as an intellectual giant and the ‘father of modern macroeconomics’, White for his ultimately victorious role at the Bretton Woods Conference, but in a strange twist a fate a few years later also due to having been exposed as a Soviet agent in the context of McCarthyism.

In any case, the crux of the disagreement between the British and American delegations concerned which mechanism should be put in place to govern the international financial system and, in particular, to deal with international imbalances. White’s proposal was the one which was ultimately adopted: a fixed-exchange-rate currency regime and the creation of the IMF, tasked with providing emergency financial assistance to countries faced with balance-of-payments crises, under the proviso that these countries adopt contractionary policies aimed at curbing their imbalances. By contrast, Keynes advocated the creation of an international clearing union and international unit of account (the “bancor”), and he wanted the burden of adjustment to be shared by deficit and surplus countries alike: deficit countries would be required to curb demand, but surplus countries would be required to use their surpluses to increase their demand for other countries’ exports. This was built on the acknowledgement that a country’s surplus is, by necessity, another country’s deficit – and on the idea that addressing international imbalances through forcing contractionary policies on one of the sides of the imbalance alone has an overall depressive effect on the global economy. By virtue of political economy (the strength of the creditors’ interests) rather than sensibility, the American proposal won – and that is why throughout the last few decades we have seen IMF delegations imposing austerity, privatisation and deregulation in crisis-ridden developing countries, instead of seeing them confiscate a share of China’s or Germany’s trade surpluses and injecting them back into global demand as Keynes would have had it.

So you see, this most recent of controversies has its roots in a debate that stretches well into the past. It’s not hard to see who’s on the side of reason here: Germany’s policies are not an example to be copied by all because, by definition, not every country in the world can be a surplus country; and its current account surpluses are not “a sign of the competitiveness of the German economy and global demand for quality products from Germany”, as the German authorities have sought to suggest, because, for any level of exports, Germany could have a balanced current account as long as it did not also have an excess of output over spending. The criticism by the US Treasury is therefore entirely to the point. However, it also comes tragically and ironically late: late by about 10 years if we consider the origins of Germany’s ‘wage restraint’ policies; late by about 70 years if we consider what the American delegation stood for at Bretton Woods, and what that meant for the functioning of the global economy in the decades that followed.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Taking a Close Look at the Grand Coalition Talks: not so Grand on Europe?

5. November 2013, von Almut Möller, Comments (0)

Berlin is heading towards a grand coalition between Chancellor Merkel’s CDU, her Bavarian sister party, the CSU, and the Social Democrats (SPD). After an election campaign in which European issues were strangely absent, surely the delegations that sat down a month after the elections had to get their teeth into Europe.

By putting Europe on the agenda of the coalition talks at an early stage of the negotiations, the delegations wanted to send out two messages: firstly, Europe matters and, secondly, Conservatives and Social Democrats are optimistic about shaping a joint agenda, so no need for the rest of Europe to worry about Berlin not getting its act together. Clearly, healing the eurozone is of vital interest for this country and one of the priorities laid out by Chancellor Merkel for the future government. However, what leaked out on the confidential discussions last week was not quite matching these ambitions.

To start with, it is, arguably, rather strange to see European affairs merely been dealt with in a subgroup (“banking regulation, Europe, Euro”) which is part of a larger working group on Finances and the Federal Budget headed by Finance Minister Wolfgang Schäuble and Olaf Scholz, First Mayor of the Free and Hanseatic City of Hamburg. A subgroup? Hardly a sign that Europe is prioritised despite the presence of prominent figures such as Martin Schulz and Markus Söder, the Finance Minister of Bavaria. One cannot resist the comparison with the Convention on the Future of Europe convened in 2002, which did not have a working group on “EU institutions” because the issues on the table were so controversial that they had to be dealt with across different working groups. On major issues such as pending decisions on banking union, the SPD’s debt redemption fund, or referendums on EU affairs put forward by the CSU, there was clear and open controversy. Are these really merely tactical moves by the SPD to keep an independent profile from the CDU, especially in the run-up to the European Parliament elections (with Martin Schulz to be nominated as the PES’s candidate for the presidency of the European Commission later this week)?

Not surprisingly, a working document of the discussions that was leaked by the Young European Federalists (JEF) provoked an outcry of Germany’s young pro-Europeans. Apart from a general commitment to the EU this short draft consists of an odd mix of buzzwords for CDU/CSU and SPD: the principle of subsidiarity, a strong role of member states in public services, an EU budget prioritising growth, employment and innovation and the already agreed financial transaction tax. It is unclear what stage of the negotiations it reflected when it was leaked, but the paper ridiculed what are meant to be serious discussions.

Public debate in Germany is currently all about the alleged tapping of Angela Merkel’s phone by US intelligence. At the same time, perhaps to the surprise of those looking at Germany from the outside, the public continues to be largely immune to the most recent wave of criticism from the US Treasury challenging Germany’s external trade surplus and the risk that arguably the German model poses to the healing of the eurozone. I am not suggesting that one has to agree with such allegations, and certainly any German government should respond to such criticism with good arguments.

What is worrying me, however, is that most Germans are still not aware that there is also an intra-European challenge regarding the ‘German model’, which for me is much more important than the Washington angle. At a crucial point for the future of the eurozone, Germans remain rather clueless about what is at stake. How long will it take for political leaders in Germany to prepare the public for the hard choices and for the sacrifices that Germany and other eurozone countries will have to make, to build the future for a prosperous and cohesive economic and monetary union? The German President Joachim Gauck was right to address this state of mind which almost resembles sleepwalking in his speech on German unification day in October:

“Our country is not an island. We should not cherish the illusion that we will be spared from political and economic, environmental and military conflicts if we do not contribute to solving them.”

The president lacks political clout, yet he is an accepted normative lighthouse across the country. But he remains a rather lonesome voice on this issue so far – and I doubt whether Germans listening to his speech actually understood the point that the president tried to make. The German public cannot be blamed for this wide-spread ignorance (or innocence?). Where are the politicians today who have the courage and wisdom to unchain the Europe debate?

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Blog Authors

Adriaan SchoutAdriaan Schout

Dr Adriaan Schout is Deputy Director Research/Europe at Clingendael, Netherlands Institute of International relations. (read more...)

Alexandre AbreuAlexandre Abreu

Dr Alexandre Abreu is a 33-year-old Portuguese economist with a PhD from the University of London. Currently he is a lecturer in Development Economics at the Institute of Economics and Business Administration, Technical University of Lisbon, and a Researcher at the Centre for African and Development Studies of the same University.

Almut MöllerAlmut Möller

Almut Möller is a political analyst in European integration and European foreign policy. She is currently the head of the Alfred von Oppenheim Centre for European Policy Studies at the German Council on Foreign Relations (DGAP) in Berlin. (read more...)

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