The EU geopolitical outlook looks like the final round of a show jumping event.
Horse and rider stumbled at the first jump (Brexit), cleared the second fence (Dutch elections) and now face a very high bar (the French presidential election). Despite the pessimism, however, I don’t believe the EU is in danger of unravelling and disintegrating, at least for the time being.
Eurobarometer polling shows two thirds of the EU population “feel” a citizen of the EU. Half the EU population thinks more decisions should be taken at the EU level, and half are optimistic about the future of the EU. Also, half of EU citizens feel very or fairly attached to the EU. Only 15 per cent say they’re not at all attached. Surprisingly, only 23 per cent of EU citizens have a negative perception of the EU. So things need to get a lot worse. But, unfortunately for the EU, they will.
EU integration versus disintegration is a battle between centripetal (moving towards the centre) and centrifugal (moving away from the centre) forces. While I don’t believe the EU will disintegrate in the short term (over the next one to two years), thereafter all bets are off, with the strong possibility that the EU will face an existential crisis in the 2020s.
The existential crisis is likely to be triggered by a combination of what I call the 4Ds, of the Sword of Damocles, hanging over the continent: the disconnect, demographics, default and digital effects. Let’s look at each in turn.
Disconnect – Eurobarometer polling shows the number one issue of concern for EU citizens is inward migration from outside the EU. The disconnect is between the views of the general population towards inward migration from outside the EU, and the EU’s own assumptions regarding migration from beyond its border. European Commission projections show that between now and 2060 there will be 55m new migrants coming into the EU. This is a truly enormous figure, which is surely politically impossible. Going partially down the road towards 55m is likely to begin to unravel the EU.
Demographics – The EU working age population declines every year between now and 2040 (around 0.4 per cent per annum). This is a huge economic challenge. The decline in working age population is not uniform, but it is severe in many countries. The demographic impact, according to the European Commission, is that in order to maintain pre financial crisis GDP growth rates, the EU will need to double its pre crisis productivity rate. A daunting challenge. The interaction between the disconnect and demographics means that the productivity challenge is even greater if migration is less.
Default – This refers to the potential return of the euro crisis, with five contributing factors: one, a banking crisis almost certainly starting in Italy, due to a high proportion of non performing loans and the weakness in nominal GDP; two, continued austerity in peripheral economies; three, the scale of “internal” devaluation – wage reductions – required in the peripheral economies in order to regain competitiveness; four, the structural fault at the heart of the Eurozone, namely the lack of fiscal union; and five, a potential re-emergence of the sovereign-bank default link.
Digital – John Gillingham, America’s pre-eminent historian of the EU, has written that “the very survival of the EU is now at stake”. Gillingham argues that successful adjustment to the future technological and economic challenges the EU faces will require, as a first step, political devolution and the revival of national power. Gillingham sees moribund EU institutions as unable to cope with the twenty-first century challenges posed by technology.
But here’s a really iconoclastic thought. Faced with an existential crisis, the EU could begin to disintegrate in the 2020s, but at the point of maximum danger a hard core of countries could trigger a big bang towards much deeper integration.
The old maxim that, whatever the problem, the solution is more Europe could ultimately come of age. Out of the ashes of disintegration could rise the phoenix of the United States of Europe (USE).