25 June 2017

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QUO VADIS, EUROPA?

Discussions on possible perspectives of European integration has recently turned to be a matter of life or death for the EU

Author:

15.03.2017

The European Union will turn sixty on March 25. It is going through rather unfortunate times. It's not about the leave of the UK, which significantly contributes to the strengthening of the pan-European market but the remaining 27 countries have many claims to each other. The problems have been solved half-heartedly or ignored at all. As a result, they continue piling up like an avalanche, and may eventually cause irreparable damage to the whole community.

Many in Europe believe that the problems began when the EU has overestimated its strength by opening its gates instantly to a large number of Eastern European neighbors (13 countries in total) during 2004-2013. As it turned out, the adoption process went much faster than the general market could “digest”.

Not only did the “Young Europeans” (the so-called countries of the post-Soviet bloc) have fallen behind economic development rates (with the average per capita income equal to only 40% of the average of the 15 EU countries), but they were not yet familiar with social economic model of the Western Europe. This further complicated the integration process.

Until 2017, subsidies from various EU funds accounted for almost 20% of GDP of the Baltic states and about the same number of other “newcomers”. According to Die Welt, Poland received €9.4 billion, Czech Republic €5.7 billion, Romania €5.2 billion, and Hungary €4.6 billion more than they paid to the EU budget. But the European Union has already begun reducing aid to Eastern European countries although the program of structural support should last until 2020. According to preliminary estimates, subsidies will decrease in 2017 by 24%.

Eventually, with new expenditures such as refugee accommodation and security programs, stimulation of economic growth and unemployment reduction, including the withdrawal of the UK, the pan-European treasury will shrink by 10%, or about €14 billion. Incidentally, the main financial donors of the EU are Germany (€17 billion per year) and France (€6.1 billion per year). In fact, some of this amount returns at the expense of various benefits, which in case of the Great Britain was about €5-7 billion. That's why the EU expenditures in 2017 are reduced by 7% compared to the past periods - up to €133.8 billion.

There are no other options. Plans for the introduction of new taxes will not save the situation significantly, including 1-2% cut of the VAT in each country, as well as the gasoline tax (according to the declaration, to equalize fuel prices throughout the EU).

 

The Eurosceptics attack

Redistribution of Britain's financial obligations to other donor countries is not desirable, as it will lead to even greater growth in the popularity of Eurosceptic parties such as the Alternative for Germany, the French National Front, the Italian Five Stars Movement, the Dutch Party of Freedom and many others.

But the EU does not want to give up easily intending to teach Britain a lesson. For example, the recent invoice issued to the UK indicates €60 billion. The European Commissioners believe that this amount should cover all budgetary obligations of the UK. It also includes spending on previously approved European projects implemented using the British infrastructure.

These requirements are unlikely to get a green light. The reason is not only the retaliatory claims from the UK. In fact, any attempts to “punish” member-states for withdrawal from the EU undermine the Union’s ideological foundations as a voluntary union of sovereign states.

Therefore, it turns out that the popularity of Eurosceptics is growing daily. And this is not only about dissatisfied residents of the donor countries but also the subsidized member-states. Mutual accusations grow from year to year. The countries of Western Europe are outraged by the fact that they actually sustain the “newcomers”. In 2015, the Netherlands was the biggest donor of the EU with €331 per capita followed by Sweden (€262), the Great Britain (€215), and Germany (€211). The discontent is caused also by the flow of cheap labour from the countries of Eastern Europe.

The “newcomers” also have many complaints. They believe it was the EU's subsidized policy and the expansion of Western capital, goods and services that led them to escape the tenacious paws of the socialist system unable to fully embark on the path of independent economic development. Moreover, the countries of Eastern Europe blame their benefactors for treating them as a metropolis with colonies.

The ever growing scandal associated with food and industrial goods supplied to the countries of New Europe has fueled the flames. It turned out that many of these goods are inferior to those sold in the developed countries of the continent as far as their quality is concerned. This is confirmed by inspections conducted in countries such as Hungary, Slovakia, Poland, and the Czech Republic. It turns out that the leaders of these countries have been applying to the European Commission in vain for many years requesting the elimination of double standards of quality.

 

Pending changes

It is obvious that the European community is far from being in a complacent mood. Therefore, the EU could not resist the trials of recent years failing to demonstrate a united power. It has badly suffered the economic crises of 2008-2009 and 2014 unable to address issues such as the protection against terrorism, massive influx of refugees, confrontation with Russia, Brexit, change in vectors of the US foreign policy under the new administration, etc.

Since last summer, Europe is waiting for inevitable changes. It is already clear to everyone that this cannot continue “as usual”. The UK’s decision to leave the Union had a detonating effect on these processes. Then came the failure of Italian referendum supposed to support the concentration of power under the umbrella of the national government and close cooperation of Prime Minister Matteo Renzi with the EU. With the departure of Britain, Brussels' relations with the ruling party of Poland and its leader Jaroslaw Kaczynski became even more complicated. And, of course, the victory of Donald Trump in the presidential elections has strongly alarmed the European leaders.

Discussions on possible perspectives of European integration has been one of the main issue on the agenda of various summits but recently it has been perceived as a matter of life or death for the European Union. Therefore, the presentation of the so-called White Paper by the EC President Jean-Claude Juncker on March 1 in the European Parliament, outlining five possible scenarios for the development of the EU by 2025, was not surprising.

The document contains many pathetic and gloomy colors. Mr. Juncker explains this by saying that “soft power” is no longer sufficient at a time when “strength can prevail over rules.” Europe, he believes, should “act with the collective weight of its individual parts.”

 

Five scenarios

According to the first scenario, the EU “continues with the previous course”, i.e. the remaining 27 countries of the union continue to focus on reforms, unemployment, economic growth and investments. At the same time, the experience with the migration crisis shows that “in case of serious disagreements, unity can be broken again.”

The second scenario is based on focusing the EU’s main efforts on the development of common domestic market while stopping integratory political processes. Meanwhile, “resources for joint trade are limited,” warns the head of the European Commission, which will lead to “a widening gap between expectations and results at all levels.”

The third scenario envisages “Europe at different speeds”, which is based on the principle of “do more to get more”. Integration processes will develop in a group of countries within the EU, and countries that do not want to participate in them will be left on their own. The EU can become an even more opaque and complex structure, warns Junker.

Under the fourth scenario, the EU will concentrate the efforts in several areas led by the principle of “less but more effective.” Technological innovation, security, migration, border protection and defense will remain priority areas, while regional support, the labor market, medicine and social policy will be managed by member-states individually. The European Commission believes that this will result in significant progress in a number of areas.

And, finally, the fifth scenario is based on the premise that the EU countries “will share powers, resources and responsibility for solutions”. That is, the member-states will increase joint activity. The main focus will be the strengthening of the Eurozone under the slogan “what is good for Eurozone countries is good for everyone.” Accordingly, the jurisdiction and powers of the EU will be expanded. “This will spoil the mood of that part of the society that doubts the legitimacy of the EU and believes that it takes too much power from national governments,” warns Juncker.

 

Hot debates

Immediately after the release of the White Paper, the most heated debate erupted around the idea of ​​two or more speeds.

In fact, the first talks started back during the economic crisis of 2009. At that time, these were limited to timid assumptions of some analysts, and now it is being presented almost as a way of saving the EU from collapse.

For example, the speakers of the lower chambers of the parliaments of France, Germany, Luxembourg and Italy issued an open letter published in the Italian newspaper La Stampa, which reads as follows: “Now is the moment to move towards closer political integration: Federal Union of States with large skills... Those who believe in the European ideal is to be able to revive rather helplessly to its slow decline. And other EU member-states who do not want to join immediately in that closer integration (the European Federation) should be able to do it later.”

The “other states” refer primarily to the countries of Eastern Europe, those who continue receiving the EU grants, as well as those who have not joined the Eurozone (nine states of the Union) and the Schengen zone (five EU countries).

As suggested by the authors of the White Paper, it is possible to create within the EU groups of 15 more and 12 less integrated countries.

However, the selection criteria in the coalition are not yet clear. As far as the economic achievements are concerned, then Italy, which is one of the largest economies of the EU and one of the six “founding fathers” of the Union, has a national debt equal to 132% of GDP. Only Greece has a higher debt. The lowest debts are in Estonia, Luxembourg and Bulgaria - less than 30%, Latvia and Poland have a lower debt than the leaders of the European Union - Germany and France. This means that the criterion will not be the economy but political expediency.

According to the Belgian Prime Minister, Charles Michel, it is necessary to form a “solid core” within the Eurozone, which would become a driver of growth and reforms with a focus on the developed states of the Old Europe.

 

The road leads to Rome

Everyone who is familiar with the White Paper ask the only question: “Quo vadis?” (Where are you going?). This is a meaningful analogy with the famous historical dialogue between the apostle Peter and Jesus Christ, who in reply to Peter’s question “Quo vadis, Domine?” (“Where are you going, Lord?”) said: “Romam eo iterum crucifigi” (“To Rome, to be crucified again”).

There is a church, Domino-Quo-Vadis, in Rome, where according to the legend, the above conversation took place.

Then again, on March 25, in Rome, maybe even not far from this church, the leaders of 27 EU member-states will celebrate the 60th anniversary of the Treaty of Rome, which initiated the European Union. For the first time in its history, the Union is shrinking, not expanding. Juncker’s White Paper is an attempt to answer the question: what will happen now?

There are five scenarios so far. Let’s see…



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