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The EU's 'Make or Break Moment'

Interviewee: Charles A. Kupchan, Whitney Shepardson Senior Fellow
Interviewer: Bernard Gwertzman, Consulting Editor, CFR.org
October 25, 2011

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The current economic crisis in Europe is bringing about a "make or break moment" for the twenty-seven members of the EU, says Charles A. Kupchan, CFR's top Europe expert. Even though the EU has been strengthening its institutions over the years, one of the original missteps currently confounding Europe, "was introducing a single currency without making the necessary changes to the governance structure of the EU." He says that while the crisis is economic, it also has "deeper political roots" that could spell the end of the EU. Kupchan says that "in the European street, politics has become more national and support for the European Union has hit a low." He predicts the EU will survive and might "emerge stronger [if it] puts in place the more capable institutions that it should have originally embraced when it started circulating the euro nine years ago." On NATO, he says, the alliance largely performed well in the effort to overthrow Libyan leader Muammar al-Qaddafi, but the intervention did expose weaknesses in the alliance.

How is the current economic crisis in Europe affecting the efforts at strengthening European unity?

I think that the European Union is at a make or break moment and that the current crisis--which on the surface is economic in nature--has much deeper political roots. There is a debate going on about the competencies and power of the European Union as opposed to the sovereignty of its member states. The euro currency was introduced in 2002 [and] the Lisbon treaty was implemented in 2009, [which] created a new presidential post, a foreign policy czar, [and] a new diplomatic core called the External Action Service. Now there is a debate about new kinds of oversight on the euro that would be a convergence on fiscal policy and taxation. But while these institutions have been getting more capable and more supranational, in the European street, politics has become more national and support for the European Union has hit a low. This mismatch between the European Union and European politics is at the heart of the current crisis. It remains to be seen whether the institutions are going to be brought down by the politics, which could spell the end of the EU as a political union, or whether the political elite will breathe new light into Europe's institutions by bringing the politics back up to the European level.

Did the Europeans make a mistake in enlarging the EU to twenty-seven nations, of which only seventeen use the euro?

There were several missteps. The biggest misstep, and it's what is befuddling Europe right now, was introducing a single currency without making the necessary changes to the governance structure of the EU. Member states agreed to go ahead with a single currency, despite the fact that there was insufficient political will to create the necessary bodies and changes to law that would give the euro the appropriate oversight by political bodies. In other words, more convergence and harmonization of economic policy, fiscal policy, and monetary policy sticking to clear criteria, such as the Maastricht Criteria (PDF), which [determines whether countries are ready to adopt] the euro.

What happened is that European leaders realized there wasn't the political will to create these institutions and [they] therefore had to choose between delaying or introducing the euro and praying for the best. They chose the latter course, but prayers have not worked. And as a consequence, within the eurozone, particularly in the north, they have been doing quite well; and in the south they have fallen behind. Those asymmetries within the eurozone have contributed to the current crisis.

The biggest misstep, and it's what is befuddling Europe right now, was introducing a single currency without making the necessary changes to the governance structure of the EU.

You are also right to point to the scope and speed of enlargement as also having contributed to the crisis because you now have an EU of twenty-seven [countries]. The difficulties in reaching consensus are considerable. So for example, in dealing with the current bailout, not only do you need to reach agreement among the seventeen eurozone members, but then you need to go back to each member and have parliamentary ratification. This means the eurozone is moving along sluggishly at the same time that capital markets and speculators are moving much more quickly.

You were talking about the stronger northern states, which clearly includes France and Germany. But discuss the differences right now between the leadership of the two states

You have some disagreements about the specifics, [which] include how big should the bailout fund be, can the bailout fund and the European Central Bank essentially act as a lending institution, and how deep should the losses be that are exposed to Greek debt. So there are a whole bunch of disagreements that have to do with day-to-day negotiations and trying to forge a consensus between Paris and Berlin.

But I also think that the disagreements reflect some deeper and more fundamental differences between France and Germany that are now coming to the surface. One is that France has a presidential system with power highly concentrated in the office of the presidency. Germany has much more of a parliamentary system that relies upon consensus and cobbling together agreements across different sectors of German society. And that's one of the reasons that German Chancellor Angela Merkel is moving more cautiously than French President Nicolas Sarkozy. Merkel, for example is quite insistent that banks, the private sector, should shoulder more of the burden than the French want. That's partly because German public opinion, German labor unions, matter more to her than their counterparts do to Sarkozy. He's not sitting there wondering if he will survive in parliament.

[There is also] the tradition of Gaullism in France--a tradition of strong statehood and strong sovereignty. Germany has been more willing to create supranational institutions that sublimate the member state. That tension is playing itself out now with Sarkozy wanting more power for the heads of the member states and the Germans looking more toward institutional fixes.

Sarkozy had some sharp disagreements (IBT) with British Prime Minister David Cameron, which has now become an issue in the British parliament.

[T]his is an extremely dangerous moment for the European project because, to some extent, Europeans are souring on the EU, [which] is tying the hands of the elite, who are desperately trying to find a solution to the crisis.

Cameron has made some disparaging comments about the mess that the eurozone now finds itself in, [which] have elicited some sharp rebukes from Sarkozy. In the meantime, members of Cameron's own Conservative Party, the Tories, have been trying to push for a referendum within the UK on membership in the European Union, which is an extremely divisive issue in the UK. It obviously comes at a very inopportune moment because the EU and the eurozone are stumbling and all of a sudden the nationalists in the UK are talking about withdrawal.

It's unlikely that they will succeed, but even though Cameron has been quite forward-leaning on the EU for a Conservative prime minister, he does not have the support of his party on that front. What we are seeing now is a revolt of sorts among the Tory bench that is much more hostile to the EU.

But he of course has an alliance with the Liberal Democrats.

Yes, and that's one of the things that has pulled him toward the center. The Liberal Democrats are generally quite pro-EU within the context of British politics.

Could this crisis break the EU? Could we go back to national currencies or is that too far down the line?

I think the EU is likely to weather this crisis. I would cautiously bet that the EU at the end of the day will emerge stronger, [if it] puts in place the more capable institutions that it should have originally embraced when it started circulating the euro nine years ago. But I also think that that outcome is by no means certain. I don't think it will break up, but it's conceivable that some of the weaker eurozone members might leave. It's hard for me to imagine that the Germans and the French would allow the euro to die. At the same time, I do think this is an extremely dangerous moment for the European project because, to some extent, Europeans are souring on the EU, [which] is tying the hands of the elite, who are desperately trying to find a solution to the crisis.

Let me jump to NATO, which aided the collapse of the Qaddafi regime. But this effort was really just three nations: France, Britain, and the United States. Does that show the weakness of NATO?

You can look back at the Libya operation and argue both sides of the equation. That is to say that the glass is half empty--that this exposed weaknesses of NATO, and you can say the glass is half full--that this is a feather in NATO's cap. I lean in the direction of a feather in the cap. Finally, Europeans took the initiative. In general, we've been living with an Atlantic alliance where the United States has had to provide both the political leadership and the military hardware. In this case, it was the British and the French who led the charge for intervention, with some help from the Arab League and the Gulf Cooperation Council. Washington was not in the driver's seat. Second, the majority of the missions were flown by Europeans, not by Americans, even though American assets, particularly intelligence, reconnaissance, and refueling were vital to the mission. The third reason is that [the mission was] generally successful, and to have introduced air power and succeeded in toppling the Qaddafi regime by any measure is a success.

The reason I think one's optimism should be tempered is that the conflict exposed deep fissures within the alliance. Less than a third of the members had skin in the game, and the rest sat it out. Germany wouldn't even vote for the mission in the Security Council. And there was still heavy reliance on [U.S.] help. Had this operation been further away, not so close to French and Italian soil, it would have been much harder for Europe to shoulder as much of the operation as they did. So in some ways, one could see this as a one-time affair, and not as a template for NATO moving forward.

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