Ashoka Mody: The EU is in trouble and Ursula Von der Leyen is the wrong person to rescue it

An excellent article providing a good analysis concerning the current crisis in the EU

Ashoka Mody is Charles and Marie Visiting Professor in International Economic Policy, Woodrow Wilson School, Princeton University. Previously, he was Deputy Director at the International Monetary Fund’s Research and European Departments. He is the author of EuroTragedy: A Drama in Nine Acts.

Cross-posted from Open Democracy

Ursula von der Leyen was an unloved choice to replace Jean-Claude Juncker as the next president of the European Commission. She emerged from a ferociously contentious process as a last-minute compromise and she promptly fell into a storm of criticism. Even members of her Christian Democratic Union (CDU) shellacked her. In the thankless role of German defence minister, she was unable to overcome the handicaps imposed by Germany’s postwar pacifism and mindless fiscal stinginess, while a former defence minister blamed her for the “catastrophic” state of the German army. A member of the Bundestag mockingly said: “It’s good for the army that she’s going.” Von der Leyen’s ministry was tainted by charges of unseemly cronyism in the awarding of consulting contracts. Chancellor Angela Merkel, her former boss, even abstained from the final vote for the Commission president to placate her angry coalition partners, the Social Democrats (SDP), who were furious because their preferred candidate was passed over.

Von der Leyen received the European parliament’s endorsement by the narrowest of margins. Casting secret ballots, the most pro-European members of the parliament, the Greens, made known that they voted against her. To get over that final hurdle, she needed the votes of anti-immigrant, euro-sceptic ruling parties in Poland and, especially, Hungary.

The acrimony and opportunistic horse-trading in von der Leyen’s appointment were a microcosm of a deepening European malaise: the inability to act with a common voice in the common interest. Von der Leyen is a product of that system. She is adept at its rhetoric and street-fighting tactics. But to now succeed, she must miraculously find common ground if she is to do better than she did at the German defence ministry. A shrill debate is raging on the size and allocation of EU’s next budget. And with member states staking out their national interests, the EU’s strategic agenda is in disarray.

The budget: “blood will flow”

Von der Leyen has rolled out a trillion-euro “European Green Deal,” to be paid for with funds from the EU’s next budget cycle, running from 2021 to 2027. “The blood will flow,” a senior EU official darkly pronounced after von der Leyen left the European Commission’s new year reception party. The previous EU budget, running from 2014 to 2020, clocked in at one trillion euro, just about one per cent of the EU’s GDP over this period. The next budget begins with a 94 billion euro hole in it following Britain’s departure from the EU. Yet the “net contributors”—the northern states—have ruled out opening their wallets any further; the “net recipients”—the southern and eastern member states—are fighting to retain their fiscal benefits. The knives are out as the effort begins to raise spending by, at best, a trivial one-tenth of one per cent of GDP.

The EU spends its ossified budget wastefully, even egregiously. Over 40 per cent of expenditures are for agricultural subsidies. In a shocking expose, the New York Times reported that the agricultural subsidies “underwrite oligarchs, mobsters, and far-right populists.” The corruption resides at the very top: “national leaders use the subsidies to enrich friends, political allies, and family members,” the paper reported. The European parliament is complicit. It summarily dismissed the latest effort to roll back some of the payments doled out. Simply put, too many influential power brokers have their privileged hands in the till.

The New York Times also revealed a frightening overlap between the geographical payment of subsidies and environmental pollution, an overlap that EU officials are seemingly aware of.

“Structural and Cohesion Funds,” claim another third of the budget. These funds have helped lift the lagging regions of the EU. But as the European Commission itself recognises, these funds have long been associated with corruption through, for example, bribery and falsification of documents. No one wants to disturb this cosy arrangement either. The so-called “friends of cohesion” among the “net payers” are willing to continue the payments only if their national businesses gain from cohesion contracts in eastern Europe. Or else, they darkly warn, plans for the EU budget are “doomed to fail.”

So three quarters of the budget is untouchable. From this morass, von der Leyen wants a quarter of the budget to kick start a trillion euros of green spending. Plus she wants more money for migration and border management, security and defence and a “digital Europe” program.

On environmental protection, the EU is trying to set ambitious emission reduction standards, notable because the Americans are going backward. But the impressive aspiration does not match the dispiriting reality. Gregory Claeys and Simone Tagliapietra, from Bruegel (a Brussels-based think-tank), predict European authorities, starved for funds, will relabel existing spending as green. In a Twitter thread, Claeys gloomily concludes: “The EU is indeed [the] world champion at reshuffling (little) funds around to pretend it has policies. That’s problematic because it leads to high expectations but low results.”

The “geopolitical” fantasy

Von der Leyen has promised to lead “a geopolitical” European Commission. European leaders love to coin new phrases, raising the stakes from “an ever-closer Union,” to “a political union”, to Emmanuel Macron’s favourite “European sovereignty”. Now its Europe as a “geopolitical” force. The swagger of ‘the European Project’ is comforting because the substance is maddeningly elusive.

In her geopolitical crusade, von der Leyen has her eye on China. “We must define and enforce our interests in terms of China together as Europeans,” she pleaded in an interview with Die Zeit. “China gently ensnares us,” she said. “And that’s why we often overlook how consistently it pursues its goals and how cleverly.” She warned especially against entanglement in China’s Belt and Road Initiative (BRI), a transcontinental infrastructure program reputed for trapping host countries in unsustainable debts owed to the Chinese.

But no one paid attention. The list of who have joined the BRI includes Austria, Bulgaria, the Czech Republic, Greece, Portugal, Hungary, Poland and Slovakia. Unity on this front finally collapsed when the Italians signed on to the BRI, in the hope that it will help their struggling economy upgrade infrastructure and expand exports to China.

The differences among European member states on strategic and policy issues is endless. Charles Grant of the Centre for European Reform warns that France and Germany are increasingly operating unilaterally, each pursuing its national interest. “Germany,” he points out, “did not consult its EU partners over its support for the Nord Stream 2 Russian gas pipeline, although it will increase the EU’s dependency on Russian energy and cause tensions with the US.” On the contentious involvement of Huawei in European networks, Grant notes that “in March 2019, Merkel kept the French in the dark before saying that she would allow Huawei to compete for contracts in parts of Germany’s 5G network; she ignored the French view that Huawei was a potential security threat and that there should be a common EU response to the Chinese company.”

Macron believes what is good for France must also be good for Europe. He vetoed the start of the talks on North Macedonia’s accession to the EU, although that aspiring country had made a huge preparatory effort—including accepting a controversial change in name—to reach the threshold set for the talks. Macron’s veto came as a shock, especially to Germany because of its strategic interest in the Balkans. Macron also alarmed other member states with his surprise overture to Russia, hinting at a new relationship with the EU.

Together Macron’s nixing of the North Macedonia accession process and extending his hand to Russia added to the tensions between France and the Visegrad countries—the Czech Republic, Hungary, Poland and Slovakia. Macron has made it a habit to antagonise these countries. Right after he became president in May 2017, he pushed the European Commission to restrict the posting of Eastern European workers in France. These workers—such as the fabled Polish plumber—were a form of “social dumping,” Macron charged. Looking for political brownie points at home, Macron’s was a mean-spirited move since the numbers of posted workers is small in relation to the French labour force.

A fragmented continent in decline

Underlying this recurring drama on matters of high politics and policy is an unyielding reality: the EU is a confederation of states, just as the United States was after the War of Independence in 1776. By 1786, member states threatened to paralyse the newly-minted United States. Madison, a proud Virginian, wrote a history of confederations in which he mercilessly catalogued the bitter divisions that caused them to repeatedly blow up. Madison then teamed up with George Washington—and with zero-probability chances all falling their way—in March 1789, they helped install a federal government with coercive fiscal authority and absolute national defence responsibility under the U.S. constitution.

Von der Leyen airily talks of a United States of Europe. “All member states will have to be ready to contribute to deeper integration,” she says, without explaining why member states—deadlocked on fiscal, foreign, defence, and migration policies—would abandon their conflicting national interests to move forward on the path to greater integration.

Europeans emphatically steered away from a United States of Europe even in the shadow of the Second World War when the impetus to come together as a way of erasing the bloody memories was the greatest. The circumstances today are particularly inimical to such a goal—and likely to become steadily worse.

Europe is a continent rapidly declining in economic and political clout, as Jean-Claude Juncker underlined. Famous for occasionally imbibing an extra drink, the truth-telling Juncker brutally noted that Europe’s share of global value added will fall from 25 per cent now to about 15 per cent in the next generation; by then, no European country is likely to be a member of the elite G7 group of countries. And as Europe’s shrinking populations also become older, it will be ever harder to stem the downward slide.

One consequence of the economic and political decline is the increasing social anxieties and political alienation within member states, leading to domestic political fragmentation. Italy is the classic case of economic coma, precarious work options and dysfunctional politics. Germany, dangerously poised at an economic tipping point, is tearing itself apart politically. Inescapably, fragmentation at the national level is mirrored in the European parliament, where euro-sceptic parties have gained ground and so have the Greens at the expense of the traditional conservative and social democratic parties.

Political fragmentation creates a trap. Nation-states struggle to articulate their priorities. At the European level, compromises to achieve forward-looking policies become harder. Unilateral actions and gridlock become the norm on sensitive issues impinging on core national sovereignty. Economic decline persists. European evolution stops. The obsession with process and ceremony becomes the norm.

In January 2018, when I completed the manuscript for the hardcover edition of my book EuroTragedy: A Drama in Nine Acts, my criticism was aimed at the euro. I argued that the broader European project was largely a benign effort to resolve national differences to achieve common goals, especially on matters related to trade and competition policy. Even then though it was clear that irreconcilable differences on how to deal with migrants would plague the EU for years. But by July 2019, when I drafted the afterword to the paperback edition, Europe was clearly losing its way.

As if to validate that bleaker view, distrust and divisions have grown alarmingly. This has only been made worse by the chaotic selection of Ursula von der Leyen as European Commission president and in anticipation of a fractious debate on the EU budget. Today it is hard to identify one strategic goal on which European leaders are unified to better the lives of European citizens.

Member states recognise that, even as a collective, they can barely influence international outcomes. Europe’s large common market allows political leaders and bureaucrats some leverage in matters related to trade. But that leverage will decline with Europe’s global economic standing. Nation-states will be further seduced by unilateral actions in their perceived national interests. Meanwhile, European structures, compulsively running their processes and performing their ceremonies, will remain in place long after they have lost their purpose and their ability to bring Europeans together.

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