Europe Limps on in the Year Ahead

The last meeting of the European Council in December 2013 was absent of much concern for economics. Instead the Council, a body made up of heads of EU states, who come together twice a year to discuss big picture policy issues, decided to focus on security and foreign policy instead. It was a sign that the region was no longer in an acute economic crisis and that other issues like the protests in Ukraine and the NSA’s spying program were of graver concern. In 2014 don’t expect the troubled waters of the eurocrisis to recede completely, but do look forward to a year full of small scares and pseudo-crises that might seem big but will amount to little. 

While the political calendar is sparse and there are no major elections in any important EU states, one of the core EU countries, Italy, remains a political mess. And with the Italians taking over the rotating EU presidency in June, some analysts are worried the current Italian government might fall before then, which would create an unprecedented situation. The EU presidency is more than an honorific title, the office holder (always the head of state of one of the EU member states) sets the agenda, brokers agreements, and helps coordinate the interests of 27 other countries. Were Italy to find itself between governments, it is unclear what exactly would happen. Could the Italian parliament simply appoint a politician to step in? Would markets react negatively, especially if there’s other turbulence?  Yet, with a key new voting law languishing on the sidelines in Rome, it’s unlikely that new elections will happen before the Italian presidency begins. And there’s enough bipartisan agreement within the country not to cause problems during Italy’s six month tenure of the presidency. Besides we shouldn’t overestimate the significance of the office: Greece just took over the EU presidency and no one is expecting anything particularly brilliant or damaging.

The only real significant political event is the general election for the European Parliament (EP) in May. Most polls are predicting that a long parade of anti-euro and extremist parties will enter the EP, which could lead to political fragmentation and gridlock. Some even fear a coalition of far right parties like the French National Front and the Dutch Freedom Party, led by charismatic figures with a broadly xenophobic and Islamophobic agenda, as well as ambitions to end the euro. Yet a grand coalition of the anti-euro extreme right is highly unlikely. Cooperation amongst ultra-nationalist parties in the EP has never been easy. And while some of these parties enjoy high polling numbers for fringe movements in their own countries (15-25 percent in some cases), it shouldn’t be enough to forge a majority or muck up the gears of government. 

But the EP may also prove to be an interesting battleground for another reason. European politics have long suffered from a “democracy deficit”; the EP is the only truly pan-European political institution that citizens can vote for directly, yet voter turnout hovers at a dismal 40 percent. This isn’t surprising considering most of the power at the European level resides with the European Commission and the Commission President, who is chosen through an elaborate process of horse-trading by the EU member states behind closed doors. Thus there is no psychological or emotional connection between EU citizens and the Commission, and no political campaign to flesh out ideas or establish priorities that voters could respond to and legitimate. More often than not what tends to happen is a high-level bureaucrat or retired national politician no one has ever heard of suddenly appears on the European stage to make pronouncements on arcane regulatory issues like what the proper definition of chocolate is or what the excise tax on African bananas should be. No wonder that the vast majority of EU citizens find it hard to identify with the EU.

The mainstream political parties in the EP want to change this. They are seeking more power and visibility by trying to change the rules so that the EP can put forward candidates for the Commission Presidency that are subject to a parliamentary debate and a straight up or down vote. It wouldn’t be a real political campaign or election, but electing the President via the EP would add a much needed democratic dimension to the current technocratic process. Even though the initiative is destined to lose, it is a hopeful signal that the slow, gradual change characteristic of the European project will come to include reforms that give the European population more direct control over European political institutions.

Another issue that could be blown out of proportion is the threat of “devolution” in certain regions of Europe. Both Scotland and Catalonia are planning to hold referenda on whether to remain part of their respective countries, the United Kingdom and Spain. The vast majority of Scots have shown little interest in leaving the UK, especially since they got their own parliament back in 1998.  And a vote on the issue in the upcoming elections in September has little chance of succeeding, as it is unclear what an independent Scotland would gain from being outside of the UK. The same goes for Catalonia. While the Spanish government has threatened to declare the referendum unconstitutional, the benefits of an independent Catalonian government remain mysterious on their own merits. Plus, the EU has no desire in fostering this type of political fragmentation and certainly wouldn’t help a newly independent Catalonia “re-join” the EU on new terms. Without the EU’s help, Catalonia would be making their problems worse by going it alone. 

Finally, Germany, the biggest and most influential state within the EU, won’t have as much leverage as it has had over the past several years. The biggest decision facing European leaders last year was the Single Resolution Mechanism (SRM), a common procedure among the eurozone countries for restructuring bad banks and unwinding debt; it was finally agreed to in the December meeting as well. But German Chancellor Angela Merkel’s broader suggestion of linking further financial help in the troubled European South to deeper economic reforms fell on deaf ears. With the SRM now in place, what incentives do the weaker countries have of dancing to the German tune? In practice this situation gives the Germans little sway. With growth trending positive, albeit proceeding at an achingly sluggish pace, the European economy might just be strong enough to avoid of a major crisis.  They’ll be bumps along the road this year, but nothing to keep Europe from limping on into a (moderately) better future.

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