Nearly a decade has passed since the eruption of the 2008 financial crisis. The world economy may now be on a firmer recovery path – according to the OECD, it is expected to grow by 4% this year and 4.1% in 2019 – but the deep malaise that resulted from the crisis is far from overcome. In Europe, where this anxiety became existential, doing away with it may require a bold (re)balancing act.
The challenges confronting Europe are many. Some of which it may not be the only one to face; but the nature of the institutional organisation of the Old Continent – a multilateral arrangement based on shared sovereignty – makes them particularly difficult to surmount.
Among them, three need our most immediate attention as they have been the source of recurring economic instability and political acrimony, either within or between EU countries: the governance of the Eurozone, adjustment to the consequences of (trade) globalization, and the balance between multilateralism and nationalism.
First, the current Eurozone framework, even after years of – quite frankly minimalist – reforms, is still conducive to the perpetuation of structural internal imbalances and lacks the appropriate adjustment mechanisms, such as proposed by Portuguese president Antonio Costa or French president Emmanuel Macron. To be sure, the existence of these imbalances – some of which pre-date the introduction of the single currency – is due to structural differences (in, e.g., wages, price level) among Eurozone economies which ought to be addressed to achieve greater convergence; but it is simply unacceptable that the institutional design of a tool that ought to bring enhanced prosperity to all people of Europe continues to exacerbate these imbalances and create disproportionate benefits for some while unduly burdening others.
Next, external imbalances also place great constraints on Europe’s capacity to act. Since the end of WWII, it has relied extensively – and perhaps excessively – on the transatlantic (commercial) relationship, leaving it dangerously exposed to the whims and diverging economic or political interests of the US. While there is no denying that Western Europe could not have thrived and reached such living standards as it enjoys today without post-WWII US support, it does not constitute a justification for a situation of permanent dependence.
By relying too much on the protective umbrella of its transatlantic partner, Europe is risking its own future and jeopardising its ability to stand on its own feet. It is relatively clear that whenever the US happened to act in Europe’s interest it was mostly serving its own, which happened to be in alignment. But there are several cases where the US acted in ways that proved detrimental to Europe’s interests and where it was left unarmed. The end of the Bretton Woods system is no minor case in point.
The problem with leaving these issues unresolved is that they are a constant source of frustration and acrimony between EU member states. Every attempt at fixing them drains tremendous resources and political capital away from more productive projects and positive narratives, weakening support for Europe and, ultimately, its ability to take decisive action both domestically and internationally.
Second, Europe needs to revise its intellectual approach to free trade. Free trade between nations is, ultimately, mutually beneficial. But is not without social and political implications, which cannot be discounted when running free trade arrangements through the lens of social cost-benefit analysis. In theory, if actual and efficient redistribution were in place, there could be little intellectual objection to free(r) trade. Unfortunately, the economic crisis has made clear that existing domestic and international institutional arrangements were maladjusted to such consequences.
Making a credible case for renewed multilateral engagement will require to fix the flaws of the current trading system and, in particular, provide adequate protection to the (temporary) losers of freer trade. While this will certainly require some smart institutional and social engineering, it is not impossible. And in cases where flawed redistribution mechanisms make compensation of the losers impossible or highly uncertain, one should also be able to hit the pause button. This will help Europe continue to uphold the multilateral system and prompt a change in the narrative that currently equates multilateralism and economic liberalism with unabated, unregulated, and detrimental, free trade.
Europe would be particularly vulnerable to a collapse of the international trading system. Economically, first, since its sustained wealth relies on the integration of the markets of European countries. The potential (logistical) disruptions that could arise following a no-deal Brexit have raised alarm bells among firms that operate cross-border supply chains, prompting them to highlight the negative impacts (plants shutdown, job losses) that it would have on their activities in the UK. Should this materialise, it would give a (bitter) taste of what the disintegration of the European Single Market would hold for European citizens.
Secondly, a collapse of international trade would also have dire political consequences. Since the institutions that have held European nations together are multilateral in essence and that multilateralism is so intrinsically linked to free trade, any flaw in the international trading system will inevitably undermine the multilateral approach, questioning the entire institutional organisation of the European continent.
Should Europe fail to properly uphold the principles of the Westphalian system of International Relations and multilateral institutions, it would amount to issuing its own death warrant. No doubt populists and other critics of its current institutional organisation would cheer at this idea, arguing that the nation-state is the better substitute. The truth is, however, that no European nation can afford to pay the price of unilateralism.
Third, Europe will need to strike a better balance between its multilateral approach and the (legitimate) aspirations of strong nation states. Multilateralism and nationalism are often presented as being on a collision course but it need not be the case. Multilateralism does not imply the dilution – or worse, abandon – of national identities and values, as it is often reported. It does imply, however, that on issues where cooperation has clear benefits, sovereignty be shared. The possibility of a coexistence between multilateral institutions and national prerogatives needs to be more clearly stated and demonstrated.
This means confronting the critics of multilateralism directly. As was recently pointed out, one cannot simply wish away populists and other extremists. And although engagement with extremes is in itself risky, we will hardly win over their ideas by simply denying their existence. Moreover, there are several areas where liberals stand a good chance to expose the fallacy of their argument, starting with global, multi-stakeholders, issues. Indeed, the populists’ intellectual framework is especially flawed when it comes to such issues. Lacking the intellectual ability to produce a credible answer, they deny their existence in the first place. For example, does it really come as a surprise that a high(er) concentration of climate change deniers, or at least sceptics, are to be found in right-wing populist cenacles?
The last decade has been particularly tough on Europe, opening wounds that it has struggled to heal. It urgently needs to solve and move beyond some of the issues that have clouded its sky. Only then will it (re)open the path to shared prosperity and dissipate its citizens’ malaise.