A bimonthly magazine on international affairs, edited in Germany's capital

The Status Quo Is Not an Option


Berlin and Paris aim to reform the EU at a time when its cohesion is threatened. Seeking compromises and building bridges, Germany should be mindful that stabilizing Europe is in its core interest.

© REUTERS/Axel Schmidt

With Britain’s departure from the EU, a pillar is breaking off. But the structure will remain standing; the decision-making system in Brussels is working. The European economy has taken off again and is currently growing nearly as fast as that of the United States. The fears of 2017—that right-wing populist Marine Le Pen would be elected president of France, for example—have not materialized. Instead, Emmanuel Macron governs in Paris as a pro-European political entrepreneur. The European Commission has presented to the member-states a roadmap that lays out how to deepen and strengthen Europe. In July the European Council is expected to adopt conclusions regarding the reform of the eurozone, at least for the necessary completion of the banking union, and cooperation on migration policy.

Yet under the surface the EU has grown porous. Many no longer view it as a broadly appreciated laboratory for ever-closer cooperation between governments and the integration of societies. Nationalist and euroskeptic voices are growing in some member states; Hungary and Poland are arguing with their European partners about reforms that undermine the rule of law and aim to dismantle democracy. In some places, the bonds of trust between member-states and EU institutions are under serious strain. This all makes new steps toward integration difficult.

The underlying changes behind these developments began well before 2015. But it was the EU’s perceived loss of control during the migration crisis that caused old borders to be drawn anew. The uncertainty and angst that can be felt in many places has made moderate political decision-makers hesitant. Right- and left-wing populists are stronger in many countries; authoritarian ideology is accelerating the crisis of liberalism, of the political and economic principles on which the EU is based. Those who now want to move forward with European integration have to do more than explain why the European Union was first created. Leaders have to explain to citizens what the EU is good for in a new, more convincing fashion, and underpin their words with concrete policies.

The EU faces a paradox: Hardly anyone—with the exception of Macron—dares to propose courageous initiatives for integration. But at the same time the need for a strong, capable Europe is as glaring as never before, for the world around us is changing. The US, Europe’s security guarantor for decades and the guardian of a Western-liberal world order, is raising questions about its role as Europe’s greatest ally. Simultaneously the conflict with Russia has taken on dimensions that no one since the end of the Cold War would have thought possible. China, meanwhile, is working consistently toward the implementation of its plans for supremacy—with political and economic consequences for Europe.

For the first time in the history of European integration the EU is being intentionally undermined from the outside. It is relatively easy for China and Russia to exploit smoldering intra-European conflicts, especially as China is financing necessary infrastructure in weak regions. In this way Beijing is creating dependencies and securing influence over EU decisions.

Meanwhile Russia’s misinformation campaigns, election interference, and support for radical forces is destabilizing democratic systems and adding fuel to the growing conflict between democratic and authoritarian models of society. Even the US president is provoking the European Union with his confrontational stance on trade and support for populist trends. For Germany, the task of leading Europe is therefore becoming more and more complex: In addition to the existing North-South and East-West divides within the Union, the bloc is facing the larger dilemma of how to position itself on the world stage when its partners are no longer standing so firmly by its side.

The Need To Act

These challenges all make the mission of holding Europe together even more complex and urgent. Holding together, though, cannot simply mean persisting with the status quo. In two areas, it is clear that incomplete integration can lead to regression and even to the undermining of the entire European project. First, there is the Schengen Zone. The creation of a shared space without controls is a European achievement with many positive results for Europe’s citizens. However, the removal of internal borders did not go hand in hand with an equivalent strengthening of European-level competences in the field of internal security. The elimination of borders led to a perceived loss of control, especially during the refugee crisis.

The eurozone followed a similar pattern. With the move to shared monetary policy and restricted budgetary policy, the member-states lost tools for governing that have yet to be completely replaced by EU-level instruments. Though crisis management and significant governance reforms have been successfully undertaken in parallel since 2008, when the financial crisis spilled over from the United States, the eurozone is still not sufficiently stable, nor is it able to take full advantage of the current economic growth. Against this backdrop it is not surprising that the EU is a scapegoat for negative developments in a national or global context that have little to do with Europe. The challenge for integration is therefore to produce an ability to act and to provide security, in both the classic and the economic sense of the word.

The Franco-German Engine

The question is who is going to take on the leadership role. Macron has taken a clear position. For months Paris has been waiting for a response to its president’s comprehensive agenda for the EU, just as Germany waited for France in the years before. It is now high time for a joint initiative to take strategically important decisions for Europe’s future. A date is set, at least for the eurozone: Proposals for reform will be presented at the European Council at the end of June.

Macron’s ideas present a challenge to Germany. Berlin worries that a rapid deepening of the currency union could drive a wedge between eurozone states and non-eurozone states. Paris sees the currency union as a “natural core;” some call for even smaller formats of cooperation. France bears a certain skepticism about the EU’s eastern enlargement, and that has shaped its vision for how, and in which constellations, European integration should move ahead. Germany, on the other hand, has significant economic interests in the new eastern member-states: Because of lower labor costs and tax rates, German businesses have successfully relocated large parts of their production and opened up new export markets. So there are economic as well as political reasons for Germany’s desire to include the eastern partners in further steps toward integration. Moreover, Germany fears that if these partners are not included, anti-European and authoritarian tendencies in some countries could grow stronger.
Following her journey to Paris, Merkel’s second trip after being sworn in for her fourth term in office was to see Polish Prime Minister Mateusz Morawiecki. And the coalition agreement contains—right after the section on France—a section on the “special meaning” of the German-Polish partnership, as well as a call for the revival of the Weimar Triangle, a close cooperation between Germany, Poland, and France.

Berlin has closely involved Warsaw in discussions for European reform, a clear signal that the country takes its role as a bridge builder seriously. Together with Hungary, Poland embodies the current political challenges of the East-West divide. To understand this tension solely as a conflict of values would overlook several other aspects. It remains questionable whether Poland will be a reliable partner with regard to proposed European reforms. But from a German perspective, it continues to hold a key position in the EU’s East. Despite the recent reelection of Viktor Orbán, Hungary is not strong enough on its own to promote the centrifugal renationalization movement and undermine European values.

Macron has developed a few ideas for how to complete the monetary union. Many of them are in line with the proposals from the European Commission: A budget for the eurozone, a corresponding finance minister, and a eurozone parliament should be added to existing structures. Most of these proposals have met with skepticism in Berlin. They entail a stronger mutualization of risk, an idea that does not garner much support in Germany. But since the beginning of the currency union, no French president has set such a leading example with reforms in his own country, nor been so aligned with German views on the importance of responsibility among member-states.
Readiness to Compromise

Berlin, too, will have to show a readiness to compromise—which does not mean giving up its principles. For example, instead of a stand-alone eurozone budget, the EU could create a line for the eurozone in the Multiannual Financial Framework (EU budget). A euro finance minister would then (at best) only be useful from a German perspective if monitoring national budgets was also part of this job. Spending more on investment would almost certainly find support in both countries—and incentives for the structural reforms that Germany advocates could be attached to that investment. There could, however, be disagreement over which member states benefit from an investment fund: Just eurozone countries, as Paris envisions—or all of the EU-27, as Germany could advocate.

French proposals for automatic economic stabilization mechanisms (such as an European unemployment insurance) that help to offset counter-cyclical divergences in the eurozone do not spark much enthusiasm in Berlin either: From a German perspective, the causes of economic divergence within the eurozone are primarily structural. An intensive dialogue between Paris, the new government in Berlin, and other eurozone countries is needed, because there continue to be different understandings of what happened in the course of the euro crisis and which approaches are suitable to ensure to more convergence and growth.

Questions of legitimacy have always arisen in Germany when other eurozone members have not stuck to the jointly agreed fiscal criteria. Others question the legitimacy of the common currency in the reverse scenario—namely, when a strong set of European rules prevents a country from taking an individual approach to national economic recovery. So a consensus could emerge that the rules, as they are written in the Stability and Growth Pact or the European Fiscal Compact, must be simplified and more consistently applied. Yet precisely because enforcement will always remain a political issue, Berlin will almost certainly advocate for stronger market discipline, for example by insisting that the transformation of the European Stability Mechanism into a European monetary fund is paired with the creation of a legal framework and procedure for sovereign defaults.

A Franco-German compromise will have to make possible a better interaction of market discipline, balancing of risks, and risk reduction. This is clearly shown by the case of a European deposit insurance system, a necessary step toward completing the banking union. From a German point of view such a system is only acceptable if banks’ balance sheets are cleaned up and national banks are better supervised.

A Broad European Agenda

While the new German government has yet to answer Macron’s proposals, its readiness to take integration forward is already apparent. The coalition agreement states that the common foreign, security, and defense policies must be strengthened. The establishment of Permanent Structured Cooperation (PESCO) in December 2017 is a significant step in this direction. France supports close foreign policy cooperation but it values institutionalization and new frameworks less than quick voting and the ability to act, if necessary outside of the EU framework

The extent to which Germany can enhance the EU’s international role depends on whether the coalition government can improve Germany’s defense capabilities. In the German domestic debate, it needs to emphasize that the country’s EU and NATO partners clearly desire greater German engagement in security and defense policy. It remains to be seen whether France, with its rather traditional understanding of defense, is ready to meet Germany halfway and further develop the EU as a civil power, and whether Germany will evolve in terms of its strategic thinking and its actual readiness to launch operations. Together, both countries should prepare the upcoming Council conclusions and build bridges to member states that look skeptically at Germany and France. The continent needs European solutions for better border security, a common asylum policy, and the redistribution of refugees, but also for the long-term approach to migration. On this issue Berlin has to take on a more robust mediating role. The potential for conflict is great, as the situation in Italy shows.

Berlin and Paris, then, face the comprehensive challenge of bringing the EU forward, and at the same time bridging the gaps between North and South, East and West. This balancing act requires diplomatic skill and a readiness to compromise, as well as considerable political energy and a readiness to lead. A letter from “the Hanseatic League,” a group of eight eurozone and non-eurozone countries led by the Netherlands, spoke out against eurozone reform at the beginning of March, a preview of challenges to come. In order to move away from confrontation and toward constructive dialogue, it will be necessary to involve all partners early on in the process and reach a fundamental understanding on problems and shared interests.

Germany has to keep in mind throughout that it is in its own best interest to support the stability of the European Union and the eurozone. This justifies higher investments in the EU—both political and financial. It is now about making the success story of the last 60 years future-proof.