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Turn­ing cri­sis in­to op­por­tu­ni­ty

In an article published in the Frankfurter Allgemeine Zeitung on 20 March 2017 finance minister Wolfgang Schäuble honors the 60th anniversary of the signing of the Treaties of Rome. While he sees the European unification process in crisis, he still considers the European Union as the best safeguard for facing the challenges of the 21st century.

Portrait of Dr. Wolfgang Schäuble
Source:  picture alliance / dpa
  • Date 20 March 2017

The project of building a united Europe is in crisis. But it is still probably the best idea that we Europeans had in the 20th century. And European unity is certainly the best safeguard for facing the challenges of the 21st century. We now have the opportunity and the duty to equip the European Union for the future.

By Wolfgang Schäuble, Federal Minister of Finance

“Determined to lay the foundations of an ever closer union among the peoples of Europe”, representatives from Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands decided in Rome on 25 March 1957 to establish a European Economic Community. Today, this principle of “ever closer union” is in conspicuous crisis. It doesn’t work anymore. For many, it no longer makes sense. Thus the upcoming 60th anniversary of the signing of the Treaties of Rome is less than ever an occasion for celebration, much less self-congratulation. Rather, the anniversary should serve instead as an admonition to take smart, sober-minded steps to preserve the European idea and to protect European integration.

The current state of the European Union – and the state of efforts to build a united Europe – is paradoxical. On the one hand, the EU faces growing demands and expectations due to challenges and changes at the global level – not least since Donald Trump took office as president of the United States. On the other hand, doubts about the EU’s ability to solve problems are increasing as well. Euroscepticism is on the rise in pretty much every EU member state. For many onlookers, the British vote to leave the EU was more an omen of further disintegration to come, not just a lamentable singular event.

On the one hand, it is largely undisputed that the process of European integration over a period of nearly 70 years not only ushered in a historically unprecedented era of peace and stability in Europe –even withstanding the Cold War and overcoming the division of Europe – but also fostered economic prosperity across broad swaths of the continent. Taken together, these political and economic achievements enhanced the EU’s attractiveness, and more and more countries wanted to join. On the other hand, as the density of rules and regulations increased, decision-making structures grew more complex and, at least seemingly, inefficient. The intense effort that went into drafting a European constitution, and which ultimately led to the adoption of the Lisbon Treaty, tended to exacerbate this trend. For many people, a federal state of Europe, which long appeared to be the objective of the integration process, now seems to be a distant dream, and for more and more people, even a nightmare.

Member states are not demonstrating an increasing willingness to place their trust in majority decisions made at EU level. The same is true when it comes to accepting European institutions – the Parliament and Commission – as their own, democratically legitimate representatives. This has always been the case, albeit to different extents, in all of the member states. That is why European integration has always progressed step by step, in areas where concrete steps were feasible and achievable.

The differences in living conditions and traditions in Europe – along with differences in decision-making processes and the application of law – are great. Furthermore, we are living in an increasingly complex world, with increasingly complex national and international regulations.

In spite of these problems, it is still correct to say that European integration is still probably the best idea that we Europeans had in the 20th century, and it is certainly the best safeguard for facing the challenges of the 21st century. That’s because globalisation isn’t just a buzzword. Rather, it expresses the fact that worldwide linkages and interdependencies are growing. Individual nation-states on their own do not have enough regulatory and legislative power to limit climate change or to ensure security and stability in the face of weapons of mass destruction and asymmetric warfare. Likewise, national-level standards are insufficient for regulating the internet or global financial markets. These things require more cooperation and coordination at the global – or at least the multinational – level. The European Union is the world’s most advanced model for this type of international coordination, despite its indisputably cumbersome and complicated procedures.

Today’s world is also confronted with an ever-accelerating pace of change – mainly due to interactions between the processes of globalisation and digitalisation – often within the context of ageing societies. These surges of modernisation and change, which are barely comprehensible to many people, are unleashing defensive reactions around the world. People have a growing need for the familiar, for a stronger grounding in their regional or national identities. Scepticism towards openness and change is rising.

Still, European integration has always made substantial progress during or after periods of major crisis. This too is nothing unusual. Anyone who wants to achieve political, economic or social change runs up against forces of resistance and rigidity. These forces are best overcome when the pressure to solve a problem intensifies or when the awareness of a problem grows.

Anyone who is familiar with how things work in Brussels knows that changes to the Lisbon Treaty – that is, European primary law – are unrealistic in the near term. It may be that the crisis in Europe will have to worsen in order to do what needs to be done. This causes a problem for those of us who make policy on the basis of democratic – and therefore temporary – mandates. To accomplish the things we consider necessary, it can actually be constructive when problems escalate, but our mandate demands that we mitigate today’s problems.

It follows that, for the time being, European policy can be made only on the basis of the European primary law that is currently in effect and, as long as the member states are “masters of the Treaties”, only on the basis of national constitutional and legal provisions. At the same time, however, those who make European policy must think about the further development of European institutions. Today, the EU’s ability to take effective action must be improved in areas where even people with eurosceptic views see that problems cannot be solved solely through measures taken at the national level. If EU-level action is not possible under European primary law due to legal and practical restrictions, then we need to start out by taking pragmatic steps forward on the basis of intergovernmental agreements, instruments of enhanced cooperation, or other flexible constellations that go by an array of names such as “variable geometry”, “multi-speed Europe”, “core Europe”, or “coalitions of the willing”.

For example, at least 17 member states have expressed their willingness to set up a European Public Prosecutor’s Office (EPPO) on the basis of enhanced cooperation. The EPPO’s task would be to prosecute crimes that have an adverse impact on the EU’s financial interests. As long as every agreement of this kind remains open for others to join, enhanced cooperation does not contradict the principle of European integration or solidarity. Every successful endeavour will enhance the attractiveness of the European project, even in the eyes of today’s doubters. Thus a smart approach would lean towards a mixture of elements from the various scenarios that Jean-Claude Juncker recently put forward in his white paper on the future of Europe.

The EU must become more mature: we must solve our problems more effectively, define our interests more clearly, and then stand up for them in unison: in foreign and security policy, in economic and monetary policy, and, not least, in migration policy. In all of these areas, Europe can achieve more together than each member state acting on its own.

There are numerous signs that the current refugee situation is just a harbinger of things to come. We may well be at the beginning of a time when things that happen elsewhere in the world have a stronger and more tangible impact on our lives in Europe – and this includes migration.

If we want to do without internal border controls – and this is indispensable for European unity – then we need to set up a uniform regime for our external borders. We need uniform European asylum procedures and common standards that make it clear who qualifies for asylum in Europe and who does not. It must be Europe – not gangs of traffickers – that decides who enters our countries. Within the framework of a revised Dublin system, we have to distribute refugees in Europe in a way that is fair and politically accepted. The heads of state and government have agreed to accomplish this by mid-2017.

To advance towards the improved protection of Europe’s external borders, initial decisions have been taken on the formation of a European border protection force. The member states recently adopted decisions to tighten external border controls and to introduce the automated inspection of passenger data. In addition to the EU’s refugee agreement with Turkey, we need to conclude similar readmission agreements with Egypt and the countries of northern Africa. The European Commission is working on this. A number of migration partnerships – with Mali, for example – have been set up that have already helped to reduce the number of refugees in Europe. These partnerships aim to expedite the return of refugees whose applications for asylum have been denied. At their most recent summit in Malta, the European Council agreed to step up cooperation with the unity government in Libya, which is the main country of departure for refugees, as well as with stabler northern African countries such as Morocco and Tunisia.

We have to work harder to help stabilise our neighbourhood. We are on a learning curve here, but this is also something that Europe can do better when it takes action together. As long as living conditions fail to improve in the refugees’ home regions, people will continue to flee war, violence, hunger and poverty – they will continue to head for Europe.

It is plain to see that we need European solutions in the area of security policy. Regardless of how strong the United States’ commitment to Europe remains in the future, Europe must do more for its own security. If Europe’s great success – namely, bringing down the Iron Curtain and ending the division of Europe mapped out in Yalta – is to remain safe from peril, then belonging to Europe must go hand-in-hand with a sense of security.

Europe must also do more within the transatlantic partnership. This can be accomplished gradually by starting out with enhanced cooperation to build a European army. This is something the Lisbon Treaty expressly provides for. Surveys show that a project like this would also enjoy the support of the general public.

A first step could be to talk about European armaments cooperation. The European Commission has announced a pilot project for European defence research, which is set to start this year. The Commission has also called for the creation of a joint European Defence Fund. This also points in the right direction. But their idea that defence spending could be left out of computations of government debt, or could in the future be financed through EU-level borrowing, is a reversion to the old habits that are increasingly harmful to Europe. For this reason, the German government has stated its opposition to this part of the proposal.

The money for joint defence spending must come from national budgets, but we will be able to spend it more efficiently at the European level if we are willing to build truly European defence capabilities. More standardised weapon systems, together with joint procurement processes, would have major synergy effects. Member states’ contributions to the joint fund could be based on their economic capacity.

If we do move forward in the area of European security and defence policy, however, we will have to talk about national arms export policies. Legislative frameworks will have to be brought into alignment. Not everything can go Germany’s way here. But maybe we will learn that the policies of other countries are not so bad either. Furthermore, we will need to have joint forces with their own command structures. As a first step in this direction, EU foreign and defence ministers agreed in early March to set up a Military Planning and Conduct Capability that will take over the direction of training missions.

Smooth cooperation between France and Germany will be a key factor in forging ahead with these projects. One of the most important aspects of these measures is that they would once again add to a sense of European identity and awareness: we as Europe must develop a clear understanding of the causes that would lead us to deploy a European army, and who would make the decision to deploy European forces.

The same is true when it comes to internal security: we must take steps to provide greater protection against terrorist attacks and to improve cooperation between police forces and intelligence services in Europe. But the attacks in Paris, Brussels and Berlin showed us that we also need to take a close look at the deficits in our national security architecture and improve communication and cooperation between security forces inside our own countries as well.

In the flux of globalisation, it is essential for European economies to remain competitive, and this is another thing that can succeed only when Europe acts together. Otherwise we will no longer be taken seriously and will have less and less influence on how the global economy takes shape. European competitiveness is embattled simply due to divergent expectations around the world about the services that social welfare systems are expected to provide, and even more so due to global demographic and population trends.

It is also plain to see that building a digital union in Europe – including, for example, a European cloud – has the potential to deliver tremendous benefits. The European Commission has already stated its intention to establish a Digital Single Market. It is now time to put words into action. Europe’s global role could be to act as a type of communications centre – a hub for communications in the areas of logistics, traditional infrastructure, and digital infrastructure.

This is one more reason why boosting investment is crucial for ensuring that Europe remains fit for the future. The creation of the European Fund for Strategic Investments, initiated by Commission President Juncker, is a step in the right direction. But the fund still needs tweaking – in particular, the conditions for actually making investments need to be improved.

Dealing with the disruptive developments wrought by digitalisation processes also requires a proper regulatory framework in order to ensure sustainability. In both policy-making and the economy, freedom must be placed within a legal framework in order to ensure that it does not destroy itself – and this certainly remains true in the setting of today’s digitalised world. Based on its experience in these areas, Europe has much to offer, and this can reinforce our relevance in the globalised world.

Innovation and mobility are closely intertwined. For this reason, mobility within Europe must make swift progress in both the job market and the training market. As a step towards building a common European job market, why don’t we establish a European training network to combat youth unemployment, which is still far too high in parts of Europe? When we look at demographic trends, we can see quite clearly that Europe must make every effort to educate, train and motivate younger generations in all areas of the economy – we can’t afford not to. We urgently need a European mobility campaign to promote training and to fight youth unemployment.

Another key factor backing up Europe’s global role is its common currency. The euro is a central component of the global currency system. And in fact, the currency area comprises a kind of “core Europe” that we must do our utmost to defend. If even the currency area – the most deeply integrated part of Europe – is unable to function smoothly, then we will also find it difficult to defend pan-European structures.

There is one mistake we must not make right now. Europe is not lacking in solidarity. There is a great willingness – certainly among Germans too – to exercise solidarity. But we must make sure that the money we pay is also used to solve Europe’s problems. There is an international consensus – both in Europe and around the world – that all economies need to undertake structural reforms to enhance their productivity and, in many cases, their competitiveness. There is no lack of debt in the world, and no lack of central bank liquidity. However, there is a lack of productivity and competitiveness in many countries due to the failure to implement reforms. Every year, as part of its coordination of economic policy, the EU identifies the main economic challenges facing each individual member state. We could provide financial support today to governments that tackle the necessary reforms if we deployed the EU budget’s structural funds for this purpose.

The construction of the currency union holds the potential to create false incentives. On the one hand, countries have fewer options to adjust to difficulties, because they cannot devalue their currency. On the other hand, there are more ways for them to pass off their problems onto others. Before the European Monetary Union was created, many economists expressed scepticism as to whether a currency union could work in the absence of common fiscal and economic policies. But this wasn’t politically feasible at the time. Instead, euro area leaders agreed to rules for national-level policies while simultaneously stipulating that no country could be made liable for the debts of others – what is known as the “no bail-out clause”. This is different from Germany’s constitution, which provides for joint liability between the federation and the Länder. Because the euro area is a currency union without being a fiscal union, we have to work with rules that we jointly adopt and that must then be complied with.

If this is done – if countries follow the rules and carry out reforms – success will come. Countries such as Ireland, Spain and Portugal, which benefited from assistance programmes in recent years and which complied with the agreed rules, have been top performers lately. Thus the problem isn’t with the rules, it’s with their insufficient implementation. The stability of the currency union will not increase unless these rules are enforced with the same level of rigour as competition law.

Another step we could take would be to build the European Stability Mechanism into something like a European Monetary Fund, with the power to identify specific member state risks, which it could then monitor and – if necessary – manage in consultation with the affected member state. If, in the future, a country were to request an ESM assistance programme, the ESM could take over the European Commission’s role in working out the conditions for financial support. The approval of an ESM programme could also go hand-in-hand with clear and predictable rules for bailing in creditors as part of the debt restructuring process. A transparent and predictable mechanism for restructuring public debt would also help to reinforce market discipline. Together with the rules of the Stability and Growth Pact, this would bolster the credibility of the no bail-out principle. We cannot allow the evasion of responsibility: the agreed bail-in pecking order must be carried out before the ESM can be tapped.

As far as the currency union and European migration policy are concerned, the criticism is often expressed that, for some time now, the predominant pattern in the EU is to break the rules. This is something that we hear not just from lawyers, but also from economists and journalists who bemoan the frequent violation of currency union rules. These criticisms are not completely fair. Our German perspective on issues and the need to uphold rules is certainly something that we try to assert in the EU – and not completely without success, I might add. But that is just the German perspective. There are many other perspectives in Europe that exert influence too – that’s simply how it is in the EU – and this includes perspectives that prioritise more flexible action by democratically elected governments. In the words of Timothy Garton Ash, Europe is a “multifaceted, multicoloured patchwork that is unique in the world”, and this has consequences for decisions and decision-making processes.

Garton Ash’s fellow historian Jacques Le Goff once stated that Europe is a “long game of patience” – but worth the while, he added. Despite all of the problems that Europe is experiencing in connection with the processes of globalisation and digitalisation, and with the increasingly rapid social changes of our time, we still have every reason to trust our well-proven abilities to find good answers to difficult questions in the end. Our open societies, our institutions, our rule of law, our separation of powers and representative democracy, our prosperity and social cohesion, our environmental sustainability – all of these qualities remain attractive around the world. This also has to do with the moderation and balance that we have had to learn from our painful history and that the globalised world urgently needs in order to ward off the risk of self-destruction.

By historical standards, we have succeeded in building and preserving a realm of peace, freedom and prosperity over an unusually high number of decades. We have gathered a lot of experience in the practice of organising transnational coexistence. It is essential for us to keep demonstrating the superiority of our Western model. But we will succeed in doing this only if our economies are competitive and our institutions function well. There is no other way for Europe to remain relevant and influential at the global level. Our model has been somewhat battered by the crises of recent years, and we need to show that it works. This will provide the best argument against sceptics in Europe and against other forces in the world that oppose our model, and the best argument for those who wish to emulate our way of life. Making policy means having confidence. Wherever there is a risk, there is also a way out and a way up. Our crises are in fact pretty big. But that means our opportunities are great as well.

Following the quote cited at the outset of this article, the 1957 Treaty establishing the European Economic Community continues with the words, “Resolved to ensure the economic and social progress of their countries by common action”: In the coming months, it is this resolve that will count, more than any of the inspired speeches we will hear this Saturday to mark the 60th anniversary of the Treaties of Rome.

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