The EU: Not fatally broken, but it needs fixing soon
Even in the middle of a global pandemic, the EU appears to be charging full ahead into deeper, murkier waters. The UK has left, casting dark clouds on notions of the bloc’s resilience and unity, and inspiring right-wing euroskeptic movements in other countries seeking the EU’s disintegration in favor of some form of insular nationalism.
Of concern are the power grabs by ruling parties in Poland and Hungary, the latest iteration in a contentious relationship with Brussels on matters of judicial reform, climate change, refugees — and now, democracy and fairness. Elsewhere, Malta, Bulgaria, Greece and Croatia are under the spotlight for stalled reforms on existing laws to boost press freedom and prevent retaliation against journalists for exercising such rights.
As if that were not sufficient, the German Federal Constitutional Court delivered a stunning blow right at the heart of the EU, opening yet another assault on the bloc’s uniting principles of mutual trust, fairness and uniform application of the law. The court ruled against the European Central Bank’s 2015 bond purchasing scheme, judging that while the program itself was not improper, the ECB had failed to assess its impact on retirement schemes, pensions, government debt, real estate and state aid for economically unviable companies.
As a result, German public institutions such as the Bundesbank are barred from participating in asset purchases within 90 days until the ECB furnishes an assessment acceptable to the court.
The ruling raises a host of issues, not just for Brussels but for Chancellor Angela Merkel’s government — given that the EU treaty specifically forbids the ECB from seeking or taking instructions from member state governments or any other body. Should the Merkel government ignore the ruling and force the Bundesbank to cooperate with the ECB in order to shore up or enforce the EU treaty’s directives, it would widen existing rifts within Germany, entrenching euroskepticism by swelling the ranks of right-wing nationalist parties such as AfD.
Alternatively, obeying the court ruling risks an avalanche of similar challenges from courts in other member states, especially those under pressure from what they believe is an overbearing and overreaching Brussels. The Polish government, for example, was quick to praise the court’s decision in retaliation for the ECJ ruling against changes to the Polish judiciary that would have further eroded its independence, contravening EU laws.
In response, the EU has threatened to escalate the matter to the European Court of Justice, which already ruled in 2018 that asset purchases were legal — a ruling that the court in Berlin dismissed as “incomprehensible.” Merkel’s government, on the other hand, has opted for the less confrontational approach of complying with the court's demands. However, there is a good chance that the details of the proportionality assessments demanded by the court will lead to further headaches for the EU since the ECB has had to pump billions of euros into the bank reserves of 19 member states since 2014, in an effort to boost small-business lending. Thus, if the ECB’s asset purchase programs are found to have negatively impacted the areas outlined in the constitutional court’s ruling, it would hamper any planned coronavirus stimulus package for the bloc, which could see unsustainable debt levels and shrinking economies long after the pandemic.
Unfortunately, the coronavirus pandemic has revealed a number of flaws in the EU. Domestic woes are eating away at European solidarity while heads of states have found an effective scapegoat — pointing the finger at Brussels for their own shortcomings.
The ruling by the constitutional court and its wide-ranging implications for the EU’s precepts are not the first crisis the eurozone has faced since its infancy as a coal and steel community in the immediate aftermath of the Second World War. With each challenge, be it nationalism, economic headwinds, geopolitics and even war, somehow the eurozone has hobbled along, resulting in the largest single market and beacon of liberalism and responsible capitalism we see today.
Unfortunately, the coronavirus pandemic has revealed a number of flaws in the union. Domestic woes are eating away at European solidarity while heads of states have found an effective scapegoat — pointing the finger at Brussels for their own shortcomings.
The EU itself has failed to rise to the occasion on a number of issues from the poorly coordinated response to the pandemic to impotent Article 7 procedures — designed to strip member states of voting rights for disobeying the EU’s foundational principles — aimed at Poland and Hungary for their ruling parties’ assaults on press, judiciaries, academic institutions and central banks. Despite the descent into authoritarianism, the two countries will remain part of the eurozone since member states cannot be officially expelled.
Doomsters are eager to point at the souring relations with Warsaw and Budapest, the bitter aftertaste of Brexit and an intractable north-south divide as telltale signs of a eurozone on the brink of disintegration. However, the reality is far from that. The spat between Brussels and Berlin is solvable in the interim but it would be unwise to ignore its ramifications, especially when Poland and Hungary are so keen on testing the limits and patience of other member states.
It necessitates a more radical approach beyond the patchwork of amendments and compromises. If the EU is to survive and thrive, it needs to shake off Brexit and adapt to the reality that the different member states want different things out of the eurozone; a uniform approach may look good on paper, but political systems with such consistently dismal outcomes during times of crisis inspire little faith in their continued existence.
The EU needs a new treaty that empowers its institutions, broadens their mandates and strengthens their enforcement powers. It must go hand-in-hand with the EU parliament assuming complete control of legislative and budgetary powers with an eye on shoring up members states’ capabilities in defense, security, crisis management and — exceedingly important — currency.
The euro is still not as resilient to crises as it should be given the large disparities between wealthier and poorer members. Without deeper financial integration, poorer member states are far more susceptible to downturns — which they may attempt to mitigate by cutting lending, but that only hampers any meaningful recovery efforts, with potential spillover effects to other members.
Furthermore, failure to reform the EU treaty risks burdening the ECJ and undermining the rule of law while economic collapse would severely cripple the euro, placing the bloc firmly on the path of disintegration. Hopefully, once the worst of the pandemic is over, the EU can get to the business of addressing a critical flaw in its structure that crafts idealistic political objectives but fails to muster the requisite capacity and willingness to act toward achieving them.
There is no excuse for holding off on talks for treaty reform despite rising levels of mutual distrust. It is a necessary, albeit painful, exercise to ensure the eurozone’s longevity, and the sooner it is done the better. After all, the bickering between Beijing and Washington has left a sizeable void for the EU to step in as a level-headed alternative to a global community wary of a return to a Cold War east-west duopoly.
- Hafed Al-Ghwell is a non-resident senior fellow with the Foreign Policy Institute at the John Hopkins University School of Advanced International Studies. He is also senior adviser at the international economic consultancy Maxwell Stamp and at the geopolitical risk advisory firm Oxford Analytica, a member of the Strategic Advisory Solutions International Group in Washington DC and a former adviser to the board of the World Bank Group. Twitter: @HafedAlGhwell