Notes from a small island on the future of a continent

This essay appears in Shaping a Different Europe [PDF] edited by Ernst Hillebrand and Anne Maria Kellner (Verlag JHW Dietz Nachf, 2014).

Introduction

The development of European integration in the post-war era rested on a clear promise that unity would secure peace, jobs and rising living standards. During les trente glorieuses, the countries of the nascent union made good on these promises and their peoples enjoyed an era of unrivalled peace and prosperity. The pillars for this success were those of the settlement between capital and labour forged in the 1940s: the pursuit of full employment, fairly shared proceeds of growth, and the construction of inclusive, generous welfare states. But from the outset, the project of European integration would be an elite one, constructed by bureaucrats, lawyers and the political classes. Democratic legitimacy would be conferred instrumentally, from successful economic and political steerage by its elites, not by citizens shaping the construction of the new Europe.

Given this dependency of the European project on its material foundations, it might have been expected that the end of the Bretton Woods era of managed capitalism would signal its demise. Instead, the dismantling of the global post-war framework served to intensify and accelerate the process of securing deeper economic and social integration. Deindustrialisation and globalisation in the 1980s provoked the nation states of western Europe to seek further pooling of sovereignty, setting off on the path towards economic and monetary union. With the historic achievement of the reunification of east and west Europe in sight, a new European architecture was constructed, with the single currency at its core. Plebiscitary endorsements were sought for the new union but its democratic moorings remained shallow and weak.

The global financial crisis exposed the fragility of the new economic and political arrangements. So far from closing economic differentials, the introduction of the euro widened them, coupling wage restraint and productivity gains in the European core with asset bubbles, construction booms and banking sector excesses in the periphery. Financialisation and a glut of cheap global capital stimulated increases in consumer debt, masking poor wage growth and stagnant household incomes. When the crisis struck and the eurozone economy tipped into recession, property values and banks collapsed in the periphery, shunting private debt onto the public sector balance sheet. Sovereign debt crises followed in short order.

The response of the eurozone's leaders - chiefly the troika of the European Commission, European Central Bank and the IMF, under German leadership - has served only to magnify Europe's twin economic and democratic crises. Austerity has been imposed on countries that, with the notable exception of Greece, had bigger problems with their banking and property sectors than the mismanagement of public spending. Severe economic contraction and mass unemployment, combined with the temporary suspension of democratic government in two countries, has been the result. Meanwhile, the European Central Bank answers only to the goal of price stability, ensuring that the euro remains the sole major global currency without a central bank that can (formally at least) stand behind it as the lender of last resort. The central doctrine that price stability will in the long run ensure economic stability remains enthroned in the eurozone, even as its credibility is shredded by economic reality. The spectre of deflation now hovers over the continent.

These existential economic and democratic crises have revealed both the enduring strengths and chronic weaknesses of the European Union. Its strengths are visible in the deep political commitment - widely shared across nations - to the survival of the euro and the wider project of European unity. Even the peoples of those countries most denuded of democratic rights and economic capability by the crisis display a strong, almost grim determination to staying within the fold. And even as Europe's leaders have stumbled from summit to summit of crisis management, their tenacious grip on European integration has not been lost.

Yet the deep flaws in the construction of the eurozone remain painfully visible, as Germany's trade surplus widens again while the periphery restores balance through contraction and internal devaluation. The promise of rising living standards has receded into the past, and with peace now taken as a given, the 'ultimate purpose' of the union is obscure, 'the sense of a finality lost, or gone astray in bureaucratic doldrums...'.1

In what follows, I outline some thoughts from the perspective of the British centre-left on how the European project can be renewed, mindful of the fact that it has always been a pluralist, open-ended and political endeavor. For good or ill, it is a project that has not ushered forth a state on conventional federal lines, ensuring that Europe's capacity for decisive, centrally directed action remains weak (although this increasingly appears true of most advanced democratic polities), but also that the spaces of political cooperation (or 'intermediate sphere') between nation states will remain centrally important to its evolution. A realist sensibility would suggest that Europe will make progress incrementally, rather than take a great leap forward at this historical conjuncture.

The view from the United Kingdom

Eurosceptic sentiment has risen sharply in the UK, in common with pan-European trends. The proximate cause has been immigration, since membership of the European Union is blamed for the unexpectedly large wave of inward migration that followed the opening up of UK labour markets to eastern European accession country nationals in 2004. But the British have always been ambivalent at best about the European project, a tepid attitude that is not satisfactorily explained by recourse to the legacies of the British empire and the UK's Atlanticism. These traditional accounts of the country's European exceptionalism ignore more important post-war political and economic factors.

The first of these has to do with sovereign power. For most of the twentieth century, the UK was an unambiguously unitary state in which executive power was strong and relatively untrammelled. It has never had a written constitution and a constitutional court with codified powers of judicial review. Multi-party government is also rare. Unlike many of its continental partners, therefore, the state has not historically been structured as a series of constraints, checks and balances. It has prized parliamentary sovereignty over the construction of a Rechtsstaat. Critically, it did not share in the post-war endeavor to promote European cooperation on the basis of 'delegated powers to unelected democratic institutions and to supra-national bodies in order to lock-in liberal democratic arrangements and prevent any backsliding towards authoritarianism'.2 Where the founders of the European Union consciously sought to tie down the nation state in an interlocking series of internal and external constraints, in the United Kingdom, the primacy of parliament and concomitantly powerful executive government remained the lodestar of political identity. In consequence, the pooling of sovereignty in the European Union since the 1970s has been experienced as a process of loss and subjection, particularly amongst sections of the political elite.

Britain's post-war economic history also does much to explain its Euroscepticism. The decision to join the common market in 1973 was a product of declinist sentiment as much as anything else: a view that Britain's endemic economic weaknesses could only be reversed if it embraced the European social market model. Pro-Europeans in both of the major political parties saw Europe as a means of overcoming Britain's persistent failure to secure stable class compromise and to coordinate relations between labour and capital in the national economic interest. The collapse of this project in the 1970s amid the turmoil of stagflation and class conflict, and the subsequent neo-liberal reshaping of Britain's political economy by the Thatcher government, dealt a fatal blow to Europeanism on the right of British politics. Today, the few remaining pro-Europeans in the Conservative party are all grandees, slowly shuffling off the stage of history, having long since given way to the Eurosceptics who now dominate their party. Mainstream conservatives are either now dismissive and disdainful of Europe, or actively hostile to it. They are flanked by an increasingly popular, populist and bellicose United Kingdom Independence party (Ukip), whose name belies the English nationalism at the core of its identity, fed by discontent at the state of England's two unions, Europe and the United Kingdom.

For its part, the Labour party followed the reverse trajectory after the 1970s, abandoning its 'socialism in one nation' stance to embrace Delors' social union in the late 1980s. New Labour then governed in a pragmatic pro-European register after 1997, but maintained a largely liberal market economy and did not need the European Union to prosecute its egalitarianism, which rested on the tax and spend apparatus of the national state. Hence it left Britain after its period of government without deeply embedded structural and political interests in the European project beyond those of the single market, and few anchors for pro-European sentiment.

Consequently, there are limited political and economic resources in contemporary Britain available to those who wish to deepen its European ties. Foreign owned companies exporting to the single market are a major source of pro-European commitment, as are most large corporates, the trade unions and significant sections of the City. But they are likely to do no more than defend the existing settlement between the UK and Europe, not advance it. The same is true of the Labour party, whose space for political maneouvre is constrained by public opinion and institutionalised Eurosceptisicm in the conservative press.

The only way out of this impasse is for Britain to hold a referendum on its membership of the union. That is a matter of regret to many pro-Europeans, as it will bring uncertainty and may deter investment in the UK. But some sort of referendum now appears inevitable, whether triggered by treaty change or because of manifesto commitments entered into by the political parties ahead of the general election in 2015. A referendum will not forever settle Britain's role in Europe, but it offers the best prospect of responding to democratic alienation from the union, and establishing a secure platform for the UK's engagement in its future.

Economic reform in the eurozone

Just as in the 1970s, a referendum on British membership is most likely to be won if the 'output' legitimacy of Europe is restored through renewed economic growth and rising living standards in the eurozone. The stuttering crisis management of the eurozone crisis that followed the implosions of 2010 ushered in a new framework for economic policymaking: the fiscal compact, the European Semester of fiscal coordination, and macro-prudential supervision. To a significant degree, these reforms are based on what the Oxford economist Simon Wren-Lewis has described as 'myths' about the origins of the crisis and the tools available to solve it, principally, that it resulted from excessive public sector debt, rather than private debt and structural imbalances within the eurozone, and that the independence of the European Central Bank must prohibit it from purchasing government bonds.

The fact that the crisis abated only when the European Central Bank began its programme of outright monetary transactions demonstrated the folly of issuing a single currency without a central bank that could act as a lender of last resort. Yet political divisions over the bank's role persist, sharpened by the prospect of Japanese-style deflation in the eurozone, and they are inhibiting the steps necessary, beyond the immediate interest rate cuts, to tackle the fundamental problems of the structural imbalance between Germany and the periphery.

Germany's competitive advantage can no longer be offset by currency appreciation, but the European Central Bank is either unwilling or unable to allow inflation in Germany to rise, while the eurozone's fiscal policy imposes austerity and demand contraction on southern Europe. The consequence of this is that Germany runs a current account surplus, while the costs of adjustment are born by the deficit economies:

'As a result, the path we seem to be on involves German inflation at around 2% and average eurozone inflation well below 2%. This may be in Germany's narrow national interest, but for the eurozone as a whole it is much more costly, partly because of the difficulties of reducing inflation when it is close to zero. Deflation in the eurozone as a whole is also costly for those outside [it] when everyone's interest rates are near zero.... The German current account surplus is a symptom of the underlying problem, which is a tight fiscal and monetary policy in the eurozone.'3

The optimum path would therefore be to loosen monetary and fiscal policy in the eurozone in the short term, and to coordinate demand stimulation in Germany with structural reform of the peripheral economies. This may seem a distant prospect in the present conjuncture, but a policy prospectus of this kind may prove the only way of holding the eurozone together if deflationary trends worsen. The Japanese experience tells us that the costs are higher the longer the policy adjustment is delayed.

Conversely, improving the competitiveness of the periphery should call forth, not just labour market and banking sector reforms, vital as they are, but a new generation of productive capital investment in energy, transport and social policy infrastructures. Europe needs a 'Delors 2' process of investment (financed by the European Investment Bank and the proceeds of the Financial Transactions Tax) in a continent-wide low carbon energy grid, fully electrified rail networks, and the institutions to support full employment, such as childcare centres. This investment programme should be accompanied by an EU-wide industrial strategy. Industrial production has fallen by 10 per cent in the European Union since 2008 and EU industrial policy remains trapped in the logic of tackling intra-European protectionism rather than focused on developing the continent's capabilities for competing in world markets. For countries such as the UK, which are seeking to rebalance their economies away from the dominance of financial services, the renewal of export strength in both industry and services (which are now increasingly combined in major manufacturing companies) is a compelling priority, and one which must not be inhibited by state aid laws fashioned for the internal single market, not the global one.

For its part, the European Commission needs to take further steps to reform its budget, concentrating resources on pro-growth investments and devolving regional development funding back to the nation states (a side benefit of these reforms is that they could go part-and-parcel with Britain giving up its rebate). A reformed commission would help too, with a single commissioner driving forward a new growth agenda.

Democratic renewal

The most important of these reforms implies institutional change in the eurozone. Above all, placing the European Central Bank onto a sustainable footing as a lender of last resort - to mirror its counterparts in the US, UK and Japan - requires fiscal union in the eurozone. Pooling sovereign debt risk requires enforceable fiscal discipline across the eurozone (if not the 'balanced budgets' of the fiscal compact), and ultimately, this must entail a single fiscal policy framework. The political consequences of such a move are evident for all to see: unifying fiscal policy above the level of the nation state demands a concomitant strengthening of democratic accountability, lest power is sucked away from citizens without matching democratic structures at the supranational level. While loose fiscal coordination can be achieved without such a move, an integrated fiscal union demands it.

Unfortunately, eurozone leaders are likely to resist this conclusion, preferring the path of relatively undemocratic fiscal coordination by Europe's politicians to democratically accountable new economic institutions and policies. At best, this may enable Europe to inch forward out of the crisis; at worst, it will cement the loss of public legitimacy on both democratic 'input' grounds and economic 'output' grounds.

For its part, the UK could certainly live with a strengthening of the political and economic institutions of the core eurozone, as long as this was not formalised into a two-tier Europe, which excluded those countries who are likely to remain outside the single currency for many years to come, from key areas of EU business. Differentiated political governance of this kind would see the UK place greatest diplomatic and political resources into securing cooperative advantage on trade, the single market, environmental policy, and foreign affairs - all issues on which the UK public is prepared to be more committed to collective European decision-making.

Each of the options for strengthening Europe's democratic institutions and practices is problematic, however. A directly elected president has its supporters in the UK - most recently Anthony Giddens - but such a figure would have to contend with the Realpolitik of German economic hegemony in the eurozone, and if the countries of the single currency core chose a federal path, Europe would end up with dual political leadership, to add to the existing complexity of its governance. Similarly, calls for a strengthening of the European Parliament fall at the first hurdle of public indifference to the institution. Despite accreting power through treaty changes since 1979, turnout has fallen at every European election, reaching a new low of 49 per cent in 2009. Consequently, attention has turned towards strengthening the accountability of European laws and Council decisions by national parliaments, and towards the oft-mooted proposal for a forum of national parliamentarians in Brussels, to deepen the engagement of the political classes of each nation in the workings of the EU.

These are prosaic conclusions that do little to address the depth of democratic discontent with the EU, but incrementalism currently looks unavoidable on political reform. In turn, this implies that the energies of social democrats in Europe must be directed towards the empowerment of its citizens in the core dimensions of economic, social and environmental policymaking.

Refounding the European social model

What of the prospects for a social Europe? The best hope for embedding and not abandoning the European social model lies in feminising it, in particular by following the Nordic model of investing in universal childcare, shared parental leave and flexible working. As Gosta Esping-Andersen has shown, the Scandinavian countries have most fully completed the revolution in gender roles that began in the 1960s and in the process have secured the highest employment rates and most equal gender relations on the European continent. The socialisation of care functions is the critical lynchpin of this success, enabling women to participate in the labour market without suffering a motherhood penalty. Equality in parenting responsibility, reflected in leave entitlements and rights for part-time workers, also ensures that women's skills are utilised and not degraded by childrearing, while high-quality early learning for children provides the foundation stone for social mobility through the life course.

A number of European countries began taking the 'Nordic turn' before the financial crisis by expanding family leave entitlements and childcare provision. The process has furthest to go in the family-based welfare states of southern Europe, although it is notable that female employment rates, underpinned by increased support for parental leave and family care, grew dramatically in Spain in the decade before 2007. The Christian democratic welfare regimes of Germany and the Netherlands have also undergone transition towards the inclusive, gender equal patterns more typical of their northern European neighbours in order to facilitate higher employment and to meet the new demands for caring services. Demographic anxiety has played its part too: restructuring welfare states to weaken the trade-off between work and family life has become part of pro-natalist project to arrest falling birth rates in ageing societies.

These welfare reforms are successful in large part because they respond to underlying drivers of socioeconomic change, first and foremost the entry of women into the labour force, with its associated liberalisation of gender roles, which has accompanied the decline of male industrial employment. As European societies continue to age, high rates of female employment will only remain possible if the care needs of the elderly are met, as well as those of children. This will require a further strengthening of collectively financed social care services, since reliance on the family or the market to look after the young, disabled and elderly will prove more costly, inefficient and inegalitarian than publicly organised alternatives. In this sense, 'grey social democracy' has a plausible claim to being the best answer to Europe's demographic challenges. Either way, full and fulfilling employment is impossible in contemporary Europe without the achievement of feminist ambitions for work and care.

Labour market activation and skills development strategies have provided the other major plank of welfare reform in northern Europe in recent decades, orientated towards what analysts have termed the 'social investment state'. As European economies have liberalised, labour market activation has been critical to reintegrating lower skilled workers displaced by technological change and deindustrialisation into work. It has taken different forms according to the distinct political economies of EU states: from the famous 'flexi-security' of Denmark, to the 'dual flexibility' of the German labour market after the Hartz reforms, and the US-inspired 'work-first' approaches of the UK. The most recognisably social democratic of these reforms are those that combine job guarantees for the long-term unemployed, extensive skills training, and measures to regulate the lower end of the labour market through decent minimum wages. The moment for defending 'insider' groups in the jobs market while failing to extend social solidarity to the young, unemployed and socially excluded has long since past: the key task in the liberal and so-called dual labour market countries is to use the state's convening and funding powers to extend the rights of low-skilled and insecure workers, enhance their productivity through training, and boost their wages.

The European crisis of youth unemployment demands an urgent and distinct response, however. Insofar as it has structural, rather than cyclical determinants, it is evident that youth unemployment is lowest in those countries with strong apprenticeship systems, such as Germany, Austria, Norway and Denmark. Simply transposing such systems to countries that lack strong social partner coordination mechanisms is not tenable, however. Instead, those countries with relatively liberal market economies or weak institutional structures in the labour market for human capital formation will need to develop stronger college-based vocational education to accompany workplace learning, and robust school-work transition arrangements. In the Netherlands and Denmark, recent reforms have taken created distinct employment and learning tracks for those under the age of 25 (or 27) who are out of work and unskilled, rather than dealing with them in general systems for the adult unemployed and inactive population. Those with limited skills are helped to upgrade their education, while work is guaranteed to the unemployed. Similar reforms are being advocated in countries such as the UK, where earlier welfare and skills reforms have not succeeded in securing sustainable employment for lower-skilled young people or keeping young parents in the labour market. The European Commission's 'Youth Guarantee' is a small step in this direction. Greatly expanded, and properly financed, it could offer the basis for a pan-European effort to rescue young people from the misery of long-term unemployment.

Endnote: the common good of Europe

The European Union has long cultivated educational and cultural exchange between the peoples of Europe, exchanges that have been significantly enhanced by labour migration and cheap leisure travel in recent years. But Monnet's claim that the architects of European integration were connecting people, not states, has not been borne out. The prospect of a single European demos is remote to the point of vanishing. Cosmopolitan national identities are more likely to shape Europe's future than a post-national cosmopolitanism. But a 'persistent plurality' of national identities - each under constant pressure of change from without and within - need not doom European citizens to inhabit only the most parochial social imaginaries of its nation states. The Republic of Letters that once characterised Europe, in which intellectuals engaged freely and liberally across national cultures, has not been entirely submerged by the insularity of 'globalised' popular culture. The recent writings of Perry Anderson, Jan-Werner Muller and others bears witness to this European tradition - one in which intellectual curiosity and political solidarity extend across national borders. Europe's public intellectuals would do well to ape these examples of 'translation and mediation', not least better to explain why particular ideas and institutional practices are so deeply embedded in different national cultures.

Paradoxically, an explicit goal of educating European elites for the wider common good of the continent might also serve the cause of deepening its democracy. As the political theorist Elizabeth Anderson has written in the context of class and race inequalities in the USA, the education of those who will serve in leadership positions in a democratic society is of critical importance to its social integration: where individuals are educated on a largely segregated basis, their ability to understand, engage with and serve others will be constrained by cognitive deficiencies and biases. The same holds true of Europe. When its bureaucratic, political and academic elites are schooled in their national cultures, and serve time in the institutions of the union to further national interests, their ability to understand and act in a way that is cognisant of the broader common good, and indeed of the different national contexts animating their peers, will be limited. The European Union must learn to educate its elites for a wider engagement with the continent and its peoples: to take the Passage to Europe, in Luuk Van Middelaar's felicitous phrase.

Notes

1 Anderson P (2012) The New Old World, London: Verso: 520 ^back

2 Muller J-W (2012) 'Beyond Militant Democracy', New Left Review, 73: 44 ^back

3 Wren-Lewis S (2013) 'The view from Germany', Mainly Macro blog, 10 November 2013 ^back