Report on the State of the European Union

That which does not kill us makes us stronger. Those famous Nietzschean words should become the European Union’s motto, instead of “unity in diversity.” In the now half century of European integration, testifying to its talent for survival, progress has indeed often been made through crises. Political Europe was actually born out of a “crisis”: World War II.

While the EU has been a driving force for the expansion of civil liberties, political rights and human rights, making Europe the most democratic continent in the world, democracy is in crisis within nation states because of the very nature of European integration that structurally relies more on output than input democracy (discussed below). The European crisis of efficiency in the course of and the aftermath of the “great recession” has logically turned into a crisis of trust with respect to the European project itself that must be fixed if Europeans want to curb the rise of anti-EU populism.

From the very beginning, the Eurozone was conceived as a new brand of economic governance institutions: a single currency, with a single, independent central bank conducting monetary policy according to a simple — and almost single — objective of price stability; and decentralized fiscal policies, in the hands of national governments of member states, with simple fiscal rules — the Stability and Growth Pact — and a minimal , rather informal, coordination institution : the Eurogroup. Alongside the objective of monetary stability, the ambition was to foster further economic integration, convergence in living standards amongst member states and sustained growth. Indeed, the “Lisbon strategy” adopted by the European Council in March 2000, a little more than one year after the launching of European Monetary Union, bravely stated that the objective was to make the EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” by 2010. The successor strategy, adopted in 2010 — “Europe 2020” — posted similar, yet less precise objectives of “smart and inclusive growth.” In the minds of its founding fathers, the Eurozone was to be the spearhead of this leap forward in economic and social performance; launched with 11 of the then 15 member states, it would act as a shield from the rest of the world instability and disturbances and would eventually become so successful as to attract all EU member states, including those (Denmark and the UK) that had willingly opted out from the beginning, and those (Central and Eastern European Countries) that would join the EU a few years later.

In March 2014, the Spanish Prime Minister Rajoy officially announced that his government would engage in a “fiscal devaluation.” It apparently was the first official recognition by the government of an EU member state that tax policies combining a Value-Added-Tax (VAT) rate hike and a cut in social contributions levied on wages were indeed equivalent to a devaluation of the domestic currency:¹ import prices are immediately affected by the higher VAT rates, while export prices are not; and domestic labor costs are cut, granting domestic producers a competitive advantage over foreign producers.

In the spring of 2014, the Irish government, and a few weeks later the Portuguese government, announced that their countries were pulling out of the financial assistance program and returning to financial markets for borrowing. Does this signal the end of a bleak episode in the short history of the Eurozone? Only Greece … Much as in the spring of 2010, at the start of the “sovereign debt crisis, it is tempting to focus on a scapegoat: the situation in the Eurozone’s public finances is on track, except for one outlier. But is it? The Stability and Growth Pact (SGP), which was suspended during the Great Recession, an “exceptional circumstance” if ever there was one, has been amended by a set of new enforcement rules, and is again ruling the public finances of the EU member states. The famous public debt criterion — the threshold at 60% of GDP — is back in force, national stability programs and the EU Commission’s recommendations to member states’ governments are now based on a scenario in which public gross indebtedness ratios are brought below the 60%-of-GDP threshold by 2032: the new set of fiscal rules adopted in the aftermath of the “sovereign debt crisis,” mandates national governments with debt ratios exceeding the threshold — all member states of the Eurozone except Finland and Luxemburg¹ — to reduce their debt ratio by 1/20 of the excess each year.

Only weeks after a new European Parliament was elected in May 2014 for a five-year mandate, the European Council met in Brussels to designate the new President of the Commission and negotiate the content of the policy program to be implemented by the incoming Commission over the next five years. Since 2009, the Lisbon Treaty rules that the European Parliament has to vote, with a simple majority, to confirm the Council’s choice for the Commission. In the campaign preceding the May 2014 election, this step in the direction of a “more democratic” functioning of the European Union (EU) institutions was presented as a major innovation, and each of the main political groups in the European Parliament designated its champion for the election of the Commission’s President. This move was supposed to make stakes clearer for European citizens and to favor a debate over the policy platforms: as in all parliamentary democracies, voters would be called to choose a party, hence a candidate for the Commission’s presidency and a proposed set of policy orientations for the EU over the next five years. The outcome of the May election was not quite as expected: with very low voter participation in most EU member states and no clear majority in the newly elected Parliament, it would seem only natural that negotiations be conducted by the main political groups to form a coalition and define the roadmap for the new Commission. But is there any choice to be made with regard to EU common policies?

The state and dynamic of global inequality are complex to assess and not easy to describe, let alone analyze, with general assertions. At the very least, two types of inequality have to be distinguished: international and domestic inequality, or inequality “between” and inequality “within” countries.

Determination, anxiety, resolution: the ambitions were high, and were made quite clear in both treaties. The Treaty on European Union (Maastricht), that laid the foundations of the European Monetary Union, made the objectives even more explicit: “strengthening” and “convergence” of the member states’ economies. In almost six decades, the European Community — now EU — has attracted most countries on the continent, enlarging membership from the six founding countries to 28; and in this long time span, there have indeed been major improvements in average standards of living throughout the EU. In particular, those countries that had not, for various reasons, benefited much from the three decades of fast economic growth that followed World War II in Western Europe, did catch up after adhesion: it has been so for Greece, Spain, Portugal and even more for Ireland during the 1980s and 1990s, and more recently for most new members from Central and Eastern Europe and the Mediterranean islands (Malta and Cyprus), at least up to onset of the Great Recession.

The EU, a unique experience of pooled sovereignty and cooperative regionalization, has become a global ecological leader: What happens in the EU regarding environmental policy now matters globally (be it on climate change, biodiversity or chemicals regulation). This chapter tries to understand how the EU has managed to develop this prominent position in the world, which is a distinct feature of the European model in our globalization.

In the last two decades, the European Union has become the global climate leader and is thus well positioned to play a key facilitating role in the coming decisive climate negotiations between the US and emerging countries (chief among them China) culminating in the Paris summit in December 2015. Yet if the convergence achieved among member states on climate policy is substantial, albeit partial and still insufficient to build a low-carbon economy, their divergence on energy policy is undermining the EU leadership on climate issues.

The year 2014 marks the 70th anniversary of the reign of Gross Domestic Product (GDP): conceived in the 1930s by Harvard development economist Simon Kuznets, it was crowned king of all economic data at the Bretton Woods Conference in July 1944, when western nations embraced it as their common power and success currency. It will take time to complement it and eventually replace it by indicators able to yield true and lasting policy change. But the revolution of new indicators of well-being and sustainability is under way and the European Union (EU) has been an important force in driving this revolution since 2007 when it organized the “Beyond GDP” conference.