How the ‘Future of the Euro Area’ Debate has Turned into a ‘Future of the EU’ Debate

by Daniela Schwarzer

Since 2010, the EU has undergone two closely intertwined developments: firstly, the day-to-day management of the sovereign debt crisis with many steps taken ‘overnight’ as a matter of urgency and, secondly, governance reforms which have already changed the functioning of the EMU.

This latter debate has developed considerably during these last three years. In 2010, it started out with a narrow focus on the euro area, driven by the question what would need to be done in order to prevent a comparable crisis in the future.

In 2011, the reform of the euro area became more and more intertwined with crisis management for two reasons. First, crisis management itself changed the euro area to such a degree that some member states claimed more governance reforms in exchange. For instance, with the decision to expand the EFSF, to give it more instruments and to create the permanent European Stability Mechanisms (ESM) the concern of the ‘lenders’ grew that more control over national fiscal and economic policies should counterbalance their readiness to take on larger guarantees and risks for the crisis-stricken member states. Second, the debt and banking crises turned into a fully-fledged crisis of trust. In order to regain trust in the financial markets (at least among long-term oriented investors), the euro area member states have to rework the governance framework upon which the single currency is based.

In 2012, the governance debate developed further in two interesting dimensions. Firstly, the European Union is faced with the question how to cope with its undeniably already strengthened core, the euro area. The pre-in countries such as Poland, Latvia or the Czech Republic of course have a strong interest to be associated as closely as possible to the process of deepening the euro area, and to decision-making once the new structures are in place, even before they enter. They fear a decoupling from a harder core and correctly consider rising entry costs. The opt-out countries and particularly the UK may eventually be driven further away from the EU. A fine line will have to be walked to proceed with the necessary deepening of the euro area without shying away other EU members. Secondly, the future of EMU debate has turned into a ‘future of European democracy’ debate. With the crisis of legitimacy in member states and on the EU level, the decision-making system as such is coming under scrutiny. Proposals range from strengthening the European Parliament to directly electing a European President, from turning the European Commission into a true government to introducing elements of direct democracy. EU Commission President Manuel Barroso advocated a Federation of Nation States . German political leaders have claimed a move towards a political union. The working group on the ‘Future of Europe’ initiated by the German Foreign Minister in its report also lays out steps towards a deeper integrated EU. Meanwhile, the ‘four Presidents’ in the EU/euro area (van Rompuy, Barroso, Draghi, Juncker – yet not EP’s Schulz) are working on their report on deepening the EMU and EU to be submitted to the European Council in December 2012.

The report by the eleven foreign ministers will surely not be a game changer in the future of Europe debate. Yet it is one additional manifestation of a perceived need to get seriously engaged in this process. It gives rise to two interesting observations. The first one concerns the composition of the group: there are nine EMU members plus Poland and Denmark – hence a pre-in and an opt-out country. This way of structuring the debate is promising, if the overall objective is not to divide the EU, while allowing for the euro area to deepen. While it has possibly come at the price of a lower common denominator, hence less decided policy proposals, it is certainly an important signal to associate non-EMU members.

The second observation concerns the scope of issues: Westerwelle and colleagues draw the spectrum of debated issues even larger than is usually done in the ‘future of the euro area debate’ commonly does. While a large part of the final report deals with aspects related to the deepening of the EMU, they also suggest a joint border control, majority voting in CFSP, some of them support the creation of the European army etc.

It has to be observed closely whether this broad approach actually helps or hinders the pressing task to deepen the euro area. It may be helpful if it allows policy makers to better argue their case for deepening the EU it they can add aspects related to Europe’s role in the world and the protection of European interests in a changing global environment. It may be unhelpful if voters feel overwhelmed by sudden European ambition, the urgency and sense of which they do not fully share as policy makers have neglected their leadership task of confronting constituencies with European and global realities. In this case, it may be better to refocus discussions on what has to be done in order to solve the most pressing problems, namely those of the euro area.

Dr.  Daniela Schwarzer is Senior Associate at the Research Division European Integration at the German Institute for International and Security Affairs, Stiftung Wissenschaft und Politik (SWP) in Berlin. From September 2012 till August 2013 she is Fritz Thyssen Fellow at the Weatherhead Centre of the University of Harvard.