This essay is based on the text of a lecture by former German foreign minister Joschka Fischer, given on June 1st, 2010, in his role as 2010 Heinrich Heine visiting professor at the Heinrich-Heine University in Düsseldorf. It is included in Europa wagen, a collection published by the Bertelsmann-Stiftung which also includes contributions from former Dutch prime minister Guy Verhofstadt and former Austrian chancellor Wolfgang Schüssel. The collection is to appear this summer in English under the title The European Way of Life. The Dublin Review of Books would like to thank Joschka Fischer’s office, copyright holders the Bertelsmann-Stiftung, and the Goethe-Institut Irland for assistance in obtaining permission to publish the article. The translation is by Barbara Serfozo. ‑ drb
On the weekend of May 7th-9th, 2010, the European Union ‑ already under considerable duress ‑ faced a pivotal moment in its history. At stake, ostensibly, was the need to address Greece’s imminent insolvency. At stake in reality, however, was the future of the European common currency and, therefore, the project of European unification. In order to stave off Greek insolvency, the eurozone’s heads of state and government (plus Sweden and Poland as non-euro EU states), together with the International Monetary Fund (IMF), had to put together a massive rescue package worth nearly €750 billion.
This decision was precipitated by the prospect of historic failure. Under pressure from the financial markets, Europe’s political leaders had no choice but to dare to leap ahead into the unknown. During that single weekend in May, more steps toward EU integration were taken than the Europeans had accomplished on their own accord over the last twenty years, proving that crisis and opportunity are two sides of the same coin.
Will this leap into the unknown lead to a better future for the EU or will it be a historic failure? We Europeans, sitting in the front row, will soon find out. Either scenario is possible, although the positive outcome is more likely. After all, the costs involved with the euro’s failure, and therefore failed EU integration, are simply too high for all stakeholders.
In Europe, plain reason alone has never been strong enough to liberate the continent from the shackles of nationalism and build up a new political order based on integration. Without the tragedies of the first half of the twentieth century, European unity would never have come this far. Indeed, without the force of circumstance, Europe simply does not advance in any real sense.
During those three days in May, a series of exceptional events unfolded. The wording of the Treaty of Maastricht, with its ban on bailouts, was in practice (though not in principle) declared null and void. Serious doubts about the bailout raised by Germany’s Constitutional Court (diplomatically formulated as “concerns”) were simply pushed aside. Germany’s resistance to a European economic government collapsed. The European Commission allowed itself to take on debt in order to ward off the crisis. The European Central Bank (ECB) began buying up debt from member states at risk.
All these measures deviate considerably from what ‑ until that weekend ‑ had been considered unshakable principles within the Euro Group and what in Germany would normally be described as the downfall of the West! These adopted measures have transformed the currency union into what some refer to as a “union of solidarity” or, depending on your political viewpoint, into a “transfer union”, worth €750 billion.
This profound transformation took place without the full knowledge or involvement ‑ and therefore in spite of the firm opposition of the German federal government and Chancellor Angela Merkel, whose only option was to consent once informed of the plans. According to reports in the media, Chancellor Merkel was unaware of what awaited her in Brussels at that special summit on Greece. French president Nicolas Sarkozy and Italian prime minister Silvio Berlusconi had apparently planned and prepared the decision without consulting Germany, the largest economy in the EU.
Germany is now vilified and no longer trusted by the Mediterranean EU members, even though our country demonstrated considerable solidarity with the region throughout the last decades in the form of net payment transfers into the EU treasury. We are, as never before, isolated within the EU and within the governing council of the ECB, which is also unprecedented. And yet we will shoulder the greater part of the burden of the “rescue package for Greece”. This is new territory; there is no established procedure. For Germany, this state of affairs represents without question an absolute low point in its European policy.
How did it come to this? These developments can be attributed primarily to a failure to grasp the depth and scale of Europe’s crisis. Certainly, Greece repeatedly and systematically violated the basic principles of the euro; those in charge had no qualms about falsifying numbers and statistics. This calls for strong censure and tough actions in order to prevent such events from being repeated. But we cannot punish an entire people as we would an individual. We must instead target the social and economic conditions in which people live in order to create a better future. Given our history, we Germans in particular ought to understand this only too well.
Outrage over the Greek government’s misconduct is justified. And yet, it is not only in Greece’s ‑ but also Germany’s and Europe’s ‑ interest to help the country with necessarily tough reforms, and to provide it the opportunity to work its way out of the crisis. Those looking to punish are well-advised to look elsewhere ‑ namely at the financial sector ‑ and address the situation there. Few people are aware of the fact that the current crisis is only superficially about saving Greece. In reality, it is much more a matter of “Bank Bailouts, Part II”. Indeed, if Greece had gone bankrupt, we would soon be facing even greater problems. Portugal, Spain and other weak economies in the Euro Group would be at risk of collapsing. Worse yet, panic over government bonds would take hold, only to be followed by the collapse of banks and insurance companies deemed “too big to fail” ‑ first and foremost in Europe, then around the world.
When EU heads of state and government met in Brussels to discuss the Greek crisis, the interbank market, which is crucial for ensuring the liquidity of financial institutes, began freezing up ‑ just as it had in the wake of the Lehman Brothers bankruptcy. Once again, the global finance system teetered on the edge of the abyss, and only the power of all forces combined in the form of a gigantic rescue fund could prevent a second crash.
Rattled by these developments, the German public and political leaders responded with emotional flag-waving, even though the consequences of the Greek crisis were clear from the onset in February 2010. The financial markets had caught the scent of blood, leaving Berlin with one decision: defend the euro ‑ yes or no? Deciding in favour of the euro was right and necessary. There was no alternative for those unwilling to witness the unravelling of all that had been achieved in Europe since the Treaties of Rome were signed in 1957.
However, resolute and coherent action in standing up to the markets should have been taken once this choice was made. Expecting a strong reaction, the financial markets looked to the economic powerhouse in the Euro Group, Germany, to set the tone. But the German government’s waffling did exactly the opposite, which increased considerably the price paid by Europe (and Germany). In the end, the only available option was to bail out Greece.
The debates over the euro and the future of Europe revealed a dramatic leadership deficit in German domestic policy. Blame for this cannot be placed at the door of the federal government alone. Germany thrives on its strength as an exporter, but this strength is deeply intertwined with the EU common market and the euro. A near 70 per cent of our exports remain within the EU and 50 per cent of this figure within the Euro Group. In economic terms, Germany has benefited most from European unification and the euro. Those who argue so vehemently against a “transfer union” should take a close look at the annual net transfers to Germany via German export surpluses, which all too often are then invested in government bonds issued by our EU partners. The EU, even as the EEC, has always been a “transfer union”. France received the common agricultural market for its large-scale rural economy and Germany the common market for its strong industry. Little has changed since then.
The debate in Germany often overlooks another fact. The common currency protects Germany, more so than any other member state, against currency appreciations and depreciations in its critically important export market. This is crucial to the German economy, in particular during a global financial crisis. Without the euro, it is precisely Germany that would have to grapple with depreciations in partner currencies within the EU. This would seriously undermine the recent gains made in re-establishing German competitiveness, which have been achieved through painstaking domestic reforms. However, during a crisis of this magnitude, when the mechanism of currency appreciation and depreciation can no longer be applied in the common European currency, another means of achieving balance must be found. One option entails direct transfers from stronger to weaker economies, which is always difficult to justify in domestic politics. Another option is to introduce a new instrument, such as euro bonds, through which stronger countries effectively share their credit rating with the weaker countries. These two steps were in effect taken with the European rescue fund.
Two other ideas that have shaped the German debate are more an expression of misplaced emotions and political short-sightedness than a product of sensible reflection. The first involves calls to banish eurozone members in breach of the rules. The second involves creating a smaller Euro Group consisting of the economically strong states, which would essentially exclude the EU members along the Mediterranean.
Although this exclusion scenario may seem realistic in the case of smaller states, it is neither politically nor legally an option. According to the Treaty of Lisbon, a state may withdraw from the EU, but it cannot simply exit the Euro Group, let alone be expelled from it. Does anyone in Berlin truly believe that countries the size of Spain or Italy could be kicked out of the Euro Group without the entire EU disintegrating?
Let us take a closer look at the theoretical scenario of a smaller country such as Greece being expelled. The country would face immediate insolvency. In the end, we would still have to bail out our banks or face the imminent threat of another systemic failure. But the political consequences of Greek insolvency would be far worse. As a member of the EU and NATO, Greece is an anchor of security in the Balkans, the Aegean and the eastern Mediterranean ‑ it therefore plays a key role in European security. It also borders that fault line of global politics considered the most dangerous region in the world: the Middle East. The impulse to punish and deliberately destabilise such a country through “expulsion” is ‑ along the lines of Talleyrand ‑ worse than a crime; it would be an act of sheer stupidity! How would Russia or other non-European actors respond to such an absurd act of European self-sabotage? I find the short-sightedness of the German debate shocking in its naivety.
Germany is not only the main economic beneficiary of the EU, it is also in political terms by far the main beneficiary of European unification. Without the process of European unification and Germany’s integration into NATO, it is unlikely that our neighbours would have ever agreed to German reunification. Lasting peace on our continent is built upon this integration. When making these points, I often run up against those who claim that German unification is an established, somewhat tired fact and that hackneyed arguments about peace are no longer compelling or relevant. If this is true, what is the purpose of Europe?
The answer to that question is simple: A reunified Germany, located at the heart of the continent, would fare far worse than it does now if it were to find itself ‑ with its difficult past and considerable size ‑ forced to act within the context of an unravelling EU that remained formally intact but internally split into fractious blocs. An EU resembling little more than a trade zone the likes of the European Free Trade Association (EFTA) is vastly less preferable to the current situation or a strong and integrated union in the future.
The difference between a strong and a weak Europe is of profound strategic and historical significance for our country and all our neighbours. We must make a strong and integrated Europe our top priority.
The question of European peace is by no means irrelevant. A weak Europe will undermine itself if it proves incapable of smoothing out its internal disagreements. The risks of the future will no longer involve armies and war but collapsing states at Europe’s periphery or even its core. When we speak of European security and freedom, we refer primarily to the power of European peoples and states to overcome internal conflicts through closer relations and shared institutions instead of wielding these conflicts as weapons against each other or falling prey to chaos. Whoever believes we can maintain the status quo without taking further steps toward integration is mistaken.
All Europeans and their states are obliged to take responsible action here. But it is the six largest EU member states that are called upon in particular because the ripple effect of their course of policy is greater than that of smaller states. Great Britain and Italy, albeit for different reasons, have unfortunately opted for the sidelines of Europe. Spain is tackling a serious economic and modernisation crisis. Poland still needs time before it can play a serious role in European leadership, though it will undoubtedly in the future contribute to Europe’s welfare. Currently, much continues to depend on Germany and France. Will these two core nations of the EU remain steadfast in their commitment to the EU, prepared to pay the political and economic price for their joint European leadership? There is far more at stake here than an economy or “our money” (as important as these things are). The EU is facing the most severe crisis of survival since its inception.
There is a positive side to this invasion of the financial market’s wolves into the illusory serene world of Europe’s sheepfold. It has delivered us Europeans an enormous reality check. Our common currency is being tested to determine whether it is just that. In other words, is there enough weight and will behind the euro to guarantee it politically and economically? The harsh reality, namely that there is no long-term guarantee of Europe’s status quo and certainly not in a global crisis, presents us Europeans with a straightforward, simple choice. Do we move forwards or backwards, toward further integration or incipient disintegration? This historic choice is intertwined with the fate of the euro and the eurozone.
A decisive step in the right direction was taken on May 9th, 2010. The European rescue package not only turned the Maastricht currency union into a “transfer union” or a “union of solidarity” but marked the first step taken toward establishing a European economic government, should these decisions be implemented effectively. A “transfer” or “solidarity” union and the common currency based upon it can only function if the budgetary, fiscal, financial, economic and social policies of the eurozone countries are subject to far greater coordination in the future.
A union of solidarity will never work if some people retire at sixty-seven and others at fifty-five or sixty; if some duly pay their taxes and others do not; if some increase their competitiveness while others do not; if some save while others amass increasing debt. Recent events will either lead to a profound encroachment on member state sovereignty, or the actions taken will not work. In the latter case, the euro as a common currency will also cease to function. We face an either-or situation; there is no alternative!
Ten years ago, in my speech on Europe delivered at the Humboldt University in Berlin, I pointed to the following consequence of introducing the euro without sufficient political integration: “In Maastricht, one of the three essential sovereign rights of the modern nation-state ‑ currency, internal security and external security ‑ was, for the first time, transferred to the sole responsibility of a European institution. The introduction of the euro was not only the crowning point of economic integration, it was also a profoundly political act, because a currency is not just another economic factor but also symbolises the power of the sovereign who guarantees it. A tension has emerged between the communitarisation of economy and currency on the one hand, and the lack of political and democratic structures on the other, a tension which might lead to crises within the EU if we do not take productive steps to make good the shortfall in political integration and democracy, thus completing the process of integration.” The Euro Group now stands before this very step.
The current European crisis is only superficially a financial crisis; at its core, it is a political crisis triggered by the political weakness of the EU and the Euro Group. The consequences of the global financial crisis are being felt well beyond Europe. Indeed, it is affecting all nations. The economic and financial differences between the individual states of the United States are at least as great as those within the European Union. Why, then, has the dollar area avoided the eurozone’s current problems with political stability? Because the US currency area is overseen and underwritten by a single sovereign government, treasury and parliament.
Every currency combines aspects of economic functionality and political sovereignty, as it is ultimately political power that guarantees any exchange medium’s value. This applies to the euro as well. But the question of which sovereign power in fact provides this guarantee has never been answered satisfactorily. The Euro Group, the Ecofin Council (the council of finance ministers), the ECB, the governments of the member states ‑ all these institutions and their complex network of relationships ultimately remain half-measures, insufficient as a guarantee of the common currency. The current crisis has pitilessly exposed this fact.
The crisis has revealed no lack of functionality in the European currency itself (which in fact performed excellently throughout the global financial crisis), but rather the inadequacy of its political foundations and framework. Contractually fixed rules and a European Central Bank alone are not sufficient to guarantee the stability of a common currency in a storm. This requires a common government ‑ a common currency demands a common economic government!
Germans have imagined that the Euro Group could content itself with tougher regulations, more stringent oversight and stiffer penalties for rule infringements ‑ essentially a quasi-IMF mechanism internal to the eurozone ‑ rather than creating a true economic government. But this is as illusory as the French idea that a common economic government could be established without leading to further political integration. It is not possible to push economic governance so far in the direction of integration on the European level while holding to the idea of the nation-state’s sovereignty on the level of political unification. Such a division of labour cannot work.
A common economic government for the Euro Group is thus indispensable in today’s global economic environment. The locus of economic and political power is shifting dramatically away from the West (including, perhaps even particularly, from Europe) in favour of the rising powers. Moreover, the echoes of the financial crisis will probably continue to resonate for some time. These factors make the recurrence of such crises a distinct risk.
The legal changes needed in the EU-27 in order to establish this economic government, or the necessary adjustments to the Treaty on European Union, appear unlikely in the light of the disastrous experiences with the EU Constitutional Treaty and the near-disaster of the Lisbon Treaty. Within the EU-27, there are enough Eurosceptics to make amending the treaty, which necessarily requires unanimity in the Council and ratification in the EU member states (including the possibility of popular referendums and supreme court review), a difficult prospect. Nevertheless, impasse is not inevitable. Both inside and outside of the existing treaties, there remain tools enough with which to construct an economic government ‑ if the Euro Group can find the political will to do so, and particularly if consensus between Germany and France can be achieved.
In the most recent crisis, the Euro Group proved that it is capable of action, even if only after great pain and institutional contortion. In fact, it has thus established itself as a vanguard of the EU: with the introduction of the euro, the participating states pooled elements of their core sovereignty, establishing a much deeper relationship to one another than is true of the other EU member states. Had the Euro Group understood its role as EU vanguard much earlier, and acted accordingly, we would be in a better position today. But here again Germany’s recalcitrance inexplicably blocked every step in this direction.
Under the spirit of the Treaty on European Union, no one who wishes to participate should be excluded ‑ this vanguard ought always to act as an inclusive, not an exclusive group. Thus, non-members Sweden and Poland were involved in the Euro Group’s financial rescue plan, while others such as the United Kingdom have maintained their distance.
The “vanguard-rearguard model” is even provided for within the scope of the Treaty of Lisbon, which specifies “enhanced cooperation” (Article 20) in the civilian realm, and “permanent structured cooperation” (Article 46) in the course of military operations. In addition, members of the Euro Group can also turn to interstate treaties and agreements between governments such as the Schengen agreement, which allowed border checks at the internal borders between agreement partners to be discontinued outside the context of the European treaties. In the meantime, the Schengen agreement has long since been made part of the Treaty on European Union.
Thus, if the European Union cannot act as a unified entity, the Euro Group as its vanguard can and must do so in its stead ‑ initially within the scope of the Treaty on European Union. If this does not work, or results in delays, then this must be done outside the Treaty, yet always within the spirit and in the interests of the Union. However, this would be only an interim solution: the goal must be subsequent integration into the Treaty on European Union. This is because any economic government system implemented by the Euro Group will sooner rather than later overstep the boundaries of intergovernmental cooperation and have clear institutional consequences for the Lisbon Treaty. Two other issues need to be considered:
1) In the current crisis of the euro it has been apparent that next to the insufficiency of the existing political framework, and of safeguards for the euro, it was the cultural differences in the monetary and finance policies of Germany and France, the prime guarantors of the euro, which contributed most decisively to the weakening of the common currency. Given the events of recent months, one can almost speak of a “clash of civilisations”. Indeed, just as the Greek crisis reached a point requiring a maximum of mutual understanding and resolve from Germany and France, these differences broke out in full, contributing significantly to the worsening of the crisis. Blame for this can be rightly apportioned, as in the case of an old married couple, to both sides.
2) Germany closely follows the classic line of the former and present-day Bundesbank, which is predicated on the absolute primacy of monetary stability and central bank independence. France, however, relies more heavily on debt financing and political intervention. These differences, though deeply rooted in the two countries’ financial and economic cultures, were never fully discussed. Lacking this, no compromise could be seriously sought or attempted. These differences give rise to an additional weak point in the euro’s composition, as the true internal opposition is not between Germany and Greece, but rather between Germany and France.
France would never allow the expulsion of a Mediterranean country from the euro, whether for political and historical reasons or on economic grounds. That this idea could be discussed in Germany without consideration of French interests and commitments shows the level of estrangement between the two partners, a problem that has been building for some time. Equally absurd was the French idea that the Germans should be less efficient and productive in order to rectify the trade imbalances in the eurozone.
In the absence of true compromise between German and French economic cultures, an economic government will not work. By the same token, if no resilient balance between the German and French can be found, the euro will ultimately lack a stable political foundation. If it is to work, such a compromise would draw less from the Bundesbank’s vision than we Germans might hope, and more than the French might fear. However, it is critical that both sides ultimately seek this compromise in a serious manner. Short-term ambitions and personal animosities must not be allowed to stand in the way ‑ the stakes are too high.
On the one hand, the achievement of a strong and integrated Europe is of seminal importance for our future; on the other, this vision of Europe, despite its great successes in the past and present, is among most European peoples more unpopular than ever. What prompts this opposition?
If these populations ‑ even those in the Eurosceptical northern European nations ‑ were to be asked directly whether they wanted to leave the EU, the prospect would hardly be likely to draw majority support. Nor, however, would a further expansion of the EU. This puts Europe in limbo between national sovereignty and integration. It seems impossible to go forward or backward. Yet the current financial crisis demonstrates that this impasse holds its own set of perils.
From the beginning, the EU (formerly the EEC, then the EC) was not a project of the European people but rather a project of Europe’s elites ‑ and at that time only those of Western Europe. After the catastrophe of World War II, and with an eye to the division into East and West, this group sought step by step to inaugurate unification from above. This “elite-driven EU” has had immense historical successes, but with each new step in European integration, it has undermined democratic legitimacy. European elections and a directly elected European Parliament could not stop this process of declining legitimacy, and indeed made it only more evident.
With the failure of the European Constitutional Treaty in referenda in both France and the Netherlands, this elite-driven project of European integration from above drew finally to its historical end point. This is shown too by the Lisbon Treaty’s odd lack of public resonance and its technocratic hollowness, even though it contains 90 per cent of the Constitutional Treaty.
If the European project is to progress, it can do so only through the fray of democratic debate and by means of the struggle for democratic majorities in the member states. However, this will require a clear vision of the Europe of the future. This will not be found in the convolutions of pragmatic or technocratic regulations and institutional changes, as important as these will ultimately be in the implementation of that vision. Those who want a united Europe must leave half-measures and false pragmatic compromises behind ‑ and in this regard, I must criticise myself above all. We must learn again to express what this project has always been about for us: a United States of Europe! No more and no less.
The current crisis has shown us that half-measures and false compromises do not last when exposed to harsh reality, and that in fact European visionaries were the true realists. The only alternative path on the way to the United States of Europe is that of failure. The Union will not remain stable forever. That is what today’s reality has taught us. However, we should harbour no illusions in this respect: this vision of the United States of Europe is unlikely to command majority support in most EU member states today, even in Germany. And without majorities, this step cannot be taken.
Thus, only one thing remains for us as European integrationists: We must roll up our sleeves and plunge into the fight for democratic majorities. This fight will be long and exhausting, but should it ultimately succeed in winning democratic majorities in the countries of Europe for a United States of Europe it will simultaneously be the birth of a true European democracy. To fight for this goal is a worthy task, especially since the alternative is only too clear to us.
Joschka Fischer was foreign minister and vice-chancellor of the Federal Republic of Germany from 1998 to 2005. His involvement in politics began with the German student movement. Since 1982 he has been a member of the Green Party. From 2006 until 2007, he was a visiting professor at the Woodrow Wilson School of Public and International Affairs at Princeton. He is a member of the boards of the International Crisis Group and the European Council on Foreign Relations.