The European Union Needs More National Flexibility

Possessing neither the cohesion of a nation-state nor the reach of a continental empire, the European Union (EU) faces the current pandemic like a tightrope walker caught midway between cliffs. Buffeted by the crosswinds of the coronavirus, it faces the temptation to move toward the seeming safety of deeper federal union. Today, that temptation appears in the form of so-called “coronabonds,” the latest attempt to mutualize European debt within the eurozone economy.

With Emmanuel Macron ensconced in the Élysée Palace, the policy of European fiscal union enjoys the passionate support of one of Europe’s two biggest powers for the first time. Just last week, Macron argued that the European Union (EU) had “no choice” but to establish a fund that “could issue common debt with a common guarantee.” On Thursday, EU heads of government will deliberate Macron’s proposal at the most consequential EU summit in years.

Though the EU’s desire for safe ground is understandable, agreeing to mutualize debt would only trade the dangers of the tightrope for the sandy foundations of a cliffs-edge Europe. To put Europe, and the transatlantic relationship, on more solid footing, Washington should drop its longstanding support for “an ever-closer union” and adopt a new policy of flexible adaptation.

After the eurozone and immigration crises, the coronavirus pandemic is the third external shock to hit the EU in the span of a decade. It is also the largest challenge yet to the Union by an order of magnitude: While last decade’s financial crisis radiated west from Athens, the European epicenter of today’s crisis is Italy, an economy ten times the size of Greece’s. Moreover, those previous crises battered Europe’s EU-friendly establishment, weakening it in the run-up to the coronavirus outbreak.

The EU is an anachronism of an atypical age. After victory in the Cold War, Europe’s leaders believed liberalism had triumphed over history. But the past still lingered. In Paris, François Mitterrand fretted over the specter of “bad Germans” haunting the continent after reunification. To extinguish the last embers of geopolitics, the European Union was born.

All of the EU’s major treaties, from Maastricht to Lisbon, were signed after the defeat of the Soviet Union but before the financial crisis of the last decade. Europe’s leaders, increasingly certain that liberalism had triumphed over history, constructed a political superstructure to accommodate an age they were sure would follow. So deep was their belief in the convergence of Europe’s nations that they dismissed major warning signs urging them to slow down, such as the French and Dutch referendums that rejected a proposed EU constitution.

Today we know that this liberal dream was a mirage in the distance — the utopian afterglow of victory in the Cold War. That victory did not vanquish the cultural diversity of Europe; just the opposite, it liberated Europe from the oppressive yoke of Communism. To unite it under a different banner, the EU offered a clever arrangement: In return for surrendering national prerogatives to Brussels, the EU would provide benefits to all. This is the dirty secret of European Union: It is more shotgun marriage than genuine love affair. What keeps it united is an ample dowry.

In boom times, this has worked reasonably well. In exchange for the efficiencies of a single market, for example, Europeans have agreed to cede political controls to the boyars of Brussels. But when times are bad, that bargain reveals itself as a gilded cage, notably for Europe’s most unproductive countries. This is especially true within the eurozone, which constitutes the most consequential element of the EU since its founding three decades ago.

The euro is a currency without a country. Instead, it represents 19 nations of varying economic strengths and characters. For northern Europeans, the euro’s widespread adoption is advantageous, because poorer Mediterranean economies weaken the value of the currency, making northern European exports cheaper; for southern Europeans, however, the exact opposite is true, and exports suffer. Worse, because southern Europeans are handcuffed to the euro, they cannot escape economic downturns by devaluing their currencies.

Absent prosperity, Europhiles have leaned on the thin reed of supranational identity to make the case for European Union. But the desiccated logic of transnationalism is proving little match for the affect-laden cohesion of nationalism. Just a quarter of Italians express trust in the European Union today.

Worse, Rome has eyed other suitors. Instead of undertaking necessary reforms, Italy became the first G-7 country last year to drink from the poisoned chalice of China’s Belt and Road Initiative. That it did so despite the moral example of Greece’s economic meltdown last decade is proof that the EU is a co-dependent relationship with uncontrolled addictions. Coronabonds would serialize the reward (and mutual debts) of a Union where anyone can place their social politics on the tab of more fiscally alert states. This is a sucker’s economic version of the Tragedy of the Commons: It is in no one’s interest to hold back, but to grab for all you can get now.

Undeterred, European federalists, led by Macron, see the coronavirus as an opportunity to advance their project. In times of crisis, policymakers oftentimes go big — much bigger, in fact, than would be imaginable in normal times. As southern economies have suffered, Macron has aggressively pushed their pleas in order to protect the last remaining moderates of southern Europe against a populist wave. Opponents of this step counter that coronabonds would sow the seeds of populism’s resurgence in northern Europe. Thus, Brussels faces a catch-22: Without coronabonds, populism may overwhelm the south; with coronabonds, populism may rise in the north.

This is the conundrum of the European Union, or of an incomplete government that lacks a united citizenry. As we enter an era of economic difficulty across the West and intensified geopolitical competition around the world, the fissures of European Union are likely to grow even more pronounced. And the temptation of partnering with China, rather than undertaking painful reforms, will be great.

It is beyond dispute that America has an enormous stake in the future of Europe. Its principal mission should be to act as a balancer among the continent’s states and rally coalitions to areas of transatlantic cooperation, including against China. It should not support the imposition of a European federal structure, however. Working against the natural contours of European society cannot succeed over the long run. Macron and his allies are crafting a “No Exit” scenario in which no one can get out while Europe’s nations stew in mutual loathing. This is a recipe for disaster.

At the same time, it would be reckless for Washington to abandon the EU altogether. America’s closest allies are as heavily invested in the EU’s success as its enemies are in its implosion. At a time of intensifying Sino-American rivalry and Russian revisionism, the last thing the U.S. needs is a major clash with its friends in Europe. Xi and Putin are America’s opponents, not Macron or Merkel.

Therefore, the U.S. should support the right of each EU member nation to chart its own destiny within the EU, rather than endorse a rigid conception of membership that locks each state into “an ever-closer union.” American dealings with the European Union should advocate a policy of flexibility.

European leaders have already pledged hundreds of billions of euros in pandemic relief to the hardest-struck countries — and they have done so without mutualizing European debt. More will follow if necessary. This admirable attempt at solidarity should receive the support of the United States. But the eurozone doesn’t need coronabonds, or a similar substitute. It needs to climb down from its high-wire act and reestablish the inherent logic of its past successful customs union, without the political baggage.

With American encouragement, Europeans should look for guidance to the EU’s predecessor organization, the European Community (EC). For decades, the EC followed the logic of economic integration without entangling itself in political affairs. At the insistence of France, however, the unification of Germany put an end to the customs bloc and replaced it with a political union.

No one fears a revanchist Germany anymore, however; instead, the EU now serves liberal designs. There is no economic principle, for example, that requires the free movement of people for the smooth functioning of a single market. Time and again, the EU uses both carrot and stick to persuade and compel states to harmonize their policies with the preferences of Brussels. At the very least, the U.S. should withhold its support for initiatives, such as coronabonds, that push in this direction.

It is easy to imagine the response of European federalists to these warnings: “Of course you don’t like the idea. It further unifies Europe and strengthens the euro, which is inimical to the United States and the dominance of the dollar. Together with British Brexiteers, Les Anglo-Saxons are making common cause, again, against a united Europe.”

Nonetheless, given American sacrifices for Europe’s security, it is a jejune accusation. It is inevitable that coronabonds, or a similar scheme, would end in tears for Europe, at which point the continent will expect their offshore-balancer angel from the West to rescue them from the quicksand. But the Biden administration may not have the resources to do this as it pays for a new Democratic agenda; almost certainly a reelected Donald Trump will not fill the void. Of course, Europe could always maneuver into the arms of China, like Italy.

Death by quicksand or indentured to China: Neither is a pleasant future to contemplate for our closest and oldest allies. Better to urge them to climb down to reality.

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