The Crisis in the Eurozone: Transatlantic Perspectives

The extraordinary crisis in the eurozone poses an unprecedented challenge to the integrity of the European Union (EU). The International Institutions and Global Governance (IIGG) program asked experts on both sides of the Atlantic to assess its immediate and long-term implications for the continent's political and economic future. We were particularly interested in its likely impact on the future of the "European project," on the shape of the European economy, on the attractiveness of the EU model of European integration, and on the EU's future as a global player.

  • The Future of the "European project." Historically, crises have often provided a catalyst for continental integration. Perceived European decline in the 1980s, for instance, ultimately spurred the Single European Act and the creation of the EU itself. Could similar dynamics unfold today? How would the crisis affect the EU's internal political evolution and, by extension, future institutional development?
  • The European economy: The crisis revealed problems with the EU's fiscal and monetary policy—problems too fundamental to be solved simply with a bailout. Would the Maastricht criteria for European economies continue to be sufficient and, if not, does the political will exist to reform the eurozone in necessary ways—such as a move toward a common fiscal policy? Absent such reforms, can the euro survive?
  • Europe as a model for regional integration: Prior to the euro crisis, many international observers viewed the EU as the gold standard for regional integration. Has this view changed since the crisis and what lessons have other regional groupings gleaned from the EU's recent turmoil?
  • Europe's future as a global actor. Finally, how would the crisis affect the EU's global role, including the willingness of EU member states to devote diplomatic attention and material resources to promote international stability? Would the crisis lead Europeans to turn further inward?

Emerging Themes

As the authors explored these questions, several fascinating themes emerged.

  • The EU suffers from a leadership void: There is general consensus that the EU requires visionary leaders to move past the eurozone crisis as well as broader systemic problems that have built up over the past two decades. However, none of the major European leaders have stepped up to the plate; instead, they are focused on appeasing domestic constituencies.
  • National interests are diverging from EU interests: Since the end of World War II, European nations have moved toward greater integration based on the belief that national interests are best served by alignment with the European community. The euro crisis caused many to rethink this equation. Increasingly, European publics (especially in the larger and more powerful member states) view the EU as more detrimental than beneficial to their national interests.
  • Insufficiency of political and economic institutions: Even as the European appetite for integration diminishes, the best solution to the present crisis may indeed be greater integration. Monetary union developed without the requisite support from political and economic institutions, depriving the EU of mechanisms to enact much-needed policy and reforms. Now that the eurozone is in crisis, strengthening EU coordination and institutional capacity appears to be the best solution.
  • Germany's support for integration can no longer be taken for granted: Germany provides a perfect example of these interrelated problems. Whereas Germany has long been the engine of European integration, its leadership is currently lacking. The eurozone crisis has contributed to German disillusionment with the EU; popular attitudes and the priorities of German politicians have shifted from their formerly pro-EU stance. Further, the present rift in Franco-German relations makes effective response to the eurozone crisis particularly difficult.

The Future of the EU

  • If not bleak, the future of the EU is uncertain. Most of our authors believe that there is a future for the EU, and that the eurozone will persevere. What is less clear is what form the future EU and eurozone will take. Most authors agree that the Maastricht foundation on which the eurozone is currently built is insufficient, and that serious fiscal and monetary policy reforms will be necessary. They also concur that political integration must deepen to catch up with the current level of economic integration. Finally, many argue that survival of the eurozone is crucial for the sustained viability of the EU.
  • The continent is entering a period in which politics is being renationalized, and distrust for integrationist schemes is growing. Growing national divergences in economic models and performance increase the prospects for a multispeed Europe, in which ad hoc subgroupings of EU member states pursue cooperative arrangements when convenient. The momentum toward more and more consolidation of sovereignty in Brussels is greatly diminished.
  • By exposing the EU's fault lines, the eurozone crisis presents an opportunity for progress—though it is unclear who, if anyone, will seize it. If the EU is to regain strength and vitality, there is a desperate need for policy innovation. While there has been some progress toward new financial regulations, the necessary overhaul of EU economic governance has stalled. And, as several authors suggest, stronger European fiscal policy integration is necessary to kick-start economic growth. Without creative policy solutions backed by political will, the European economy may languish—with substantial effects on Europe's ability to develop politically, engage as a unified geopolitical actor, and contribute to the North Atlantic Treaty Organization (NATO).
  • Even if the needed reforms do not occur, it is difficult to envision EU member states backsliding into significant internal economic and political (much less strategic) competition. Absent a renewed sense of purpose, clearly defined goals, and a greater commitment from national leaders and publics, the European project is more likely to stall than come apart.
  • The EU remains the best-developed model of regional integration and will continue to serve as an example for other regional groupings. To the extent that other regions ever attempt political and monetary union, the EU will provide valuable lessons on what to do and what not to do.

Why the EU matters to the United States

  • Strength in numbers: The EU is a stronger and more capable partner for the United States than European nations individually. The collective force of EU soft power on important global governance issues—from climate change to foreign aid to non-proliferation—is substantial. The United States benefits from an EU that speaks with a unified voice, and that is capable of following through on its commitments.
  • Burden sharing: Given overlap between EU nations and NATO allies, the EU shares U.S. priorities on many security and defense issues. From Afghanistan to the Indian Ocean, European military and diplomatic resources provide an important complement to U.S. efforts. Unfortunately, inward-looking and cash-strapped European nations are less likely to meet their burden-sharing obligations, undermining transatlantic relations as well as U.S./NATO strategy in critical regions.
  • Economic stability: With interlinked, globalized financial markets, the United States benefits from macroeconomic stability in the EU. Dissolution of the eurozone would unsettle global markets and pose a great risk to American companies with exposure to euro exchange rate fluctuations and eurozone debt.
  • Peaceful Europe: The United States' postwar support for European integration became one of the greatest diplomatic success stories of the past sixty years. The United States is heavily invested in maintaining peace on the continent, as well as a firm basis for cooperation within NATO.

Implications for Regionalism around the Globe

  • Despite the euro crisis, the EU remains the world's most advanced regional integration project. Even if the EU's experiment with a common currency proves to be a failure—which is unlikely—the union's experience suggests that even regions with a long history of war can successfully unify and pool sovereignty within common institutions. Modern European history shows that regionalism can yield a substantial peace dividend. For many other regions, solely the promise of stability may prove a sufficient impetus for embarking down the road of integration.
  • Of course, beyond Europe, regionalism may take a substantially different form. Currently, regional organizations like the Association of Southeast Asian Nations, the Organization of American States, and the Africa Union serve as fora for cooperation and communication, rather than decision-making bodies whose policies supersede those of member states. While these regional arrangements will probably build greater capacity over the next decade, their work will remain focused on promoting economic development, trade, and peace and security—not political and monetary union.