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Europe’s Midlife Crisis. What the continent needs to do now

20-05-2014, 15:15

According to Karl Aiginger, the director of Vienna’s Economic Research Institute Wifo and adviser of the European Union, after five years of debt and currency crisis, Europe in May 2014 has arrived back at the point of 2009 when the worst started.

That means that the European national debts and the interest rates on them have been stabilized and the euro kept alive as a globally competitive currency; Ireland as the first country left the rescue umbrella of the eurozone, the European Union and International Monetary Funds program of assistance, on 16 December 2013 after serious budgetary adjustments, with Portugal following on May 18th, 2014. Both countries promise to continue the reform and austerity course. The two countries remaining under the umbrella: Greece and Cyprus are making slow, but steady progress; Italy, the third-largest Eurozone economy, and other problem nations are growing again (if only below 1%); the overall outlook in productivity, growth expectation and unemployment rates is cautiously optimistic again; and other parameters such as the ratings of European nations, institutions and banks by the four major U.S. based rating agencies have slightly improved, in some cases remain unaltered.

If Europe is back now where it was before the crisis, at least in its overall situation and outlook, is this good or bad news?

Both. It is good news, because after seven long years in the shadow first of the global financial and economic crisis (2007-11) and then of the subsequent Western debt and euro crises, the greatest trouble eventually seems to come to an end. In April 2014 after a 4-year exile, even the by far hardest-hit eurozone-member Greece made it back to the international financial markets, selling 5-year governmental bonds successfully for US$4.2 billion, more than the government, the international creditors and the EU had expected, at just 4.75%, i.e. way below the 7% threshold considered as unsustainable. Portugal followed in the same month after 3 years of abstinence, selling 10-year bonds for US$1.03 billion at 3.75%, the lowest interest rate since 2006. Without doubt, the stabilization of Europe is the outcome of years of patient and faithful guarantees for crisis nations such as Greece, Spain, Portugal, Cyprus and Ireland by the healthier EU member states and of the assistance provided to others like Italy by the European Central bank which bought their bonds, as well as an effect of the recovery of Europe’s most important trade and investment partner, the USA, and strengthened exports to rising markets like China and Africa. According to EU estimates of May 2014, the Euro-zone is leaving recession behind and will be growing at 1.2 again in 2014 and at 1.7% in 2015. Although according to the EU there is a risk because of loss of confidence due to unimplemented reforms, deficits are likely to decrease, investments increase, and the labor market is to improve.

But the news of Europe’s rebirth “at a younger age” is also bad news, because to be back at the point of departure of five years ago, with some member states still struggling and others damaged at the very bases of their wealth and productivity, as for example Italy, the third biggest eurozone economy, means that half a decade has been lost. Furthermore, the stabilization remains asymmetric between the northern and the southern European countries, and it is rather an effect of steadiness than of serious and consequent financial, economic and political reform.

Indeed, reforms have still not sufficiently been implemented despite all attempts of the 28 member states to break through towards a joint European strategy. The probably most important achievement was the European banking union, which was decided after two years of negotiations by the European parliament in April 2014 and is due to start in November 2014, providing a fast and integrated law for bank failures, joint bank supervision and a European bank execution funds which is going to cover the costs in the case of failure and into which all banks must pay a yearly fee, thus preventing that tax payers money will be used again for ailing financial institutes. In contrast, the attempt of better alignment of the still nationally very different policies has failed in the main, particularly when it comes to the urgent need to strengthen the European institutions, forge closer political union and give the European parliament, the European government and the European Central bank more concrete power to act. Europe’s strategy hasn’t also made much progress when it comes to overcoming cultural nationalism, creating a common, transnational public sphere and working towards a joint European civil religion as the indispensable basis for greater political and fiscal union. All these issues remain still widely unaddressed, and one of the few (though still informal) agreements found in the past years is to introduce a European tax in order to increase the room for maneuver of the European institutions, a move not exactly popular among already heavily tax-burdened European citizens.

In addition, the four most important parameters of progress and motors of most other fields in developed societies: technology, education, science and research are stagnating in the aftershock of the crisis, with the European Union pledging only to “maintain” research budgets at today’s 2.2% of the GDP (what is low compared with the 2.8% of the United States, the 3.7% of Japan or the 3.8% of South Korea) instead of further developing them to increase competitiveness and thus prevent further crises.

The effect is that the worst for Europe is over, but the wounds remain. Many problems remain unsolved. The continent’s social and political psychology reacts accordingly. Thrown back in time, and thus to a certain extent (unwillingly) rejuvenated, a Europe still in many ways fragmented finds itself in the midst of a situation of certain maturity achieved through repeated crises, mixed with a feeling of calm after the storm, an increased overall resilience, but also a new sense of fragility, associated with a fatigue and exhaustion previously unknown. In psychology, this combination is branded a “midlife crisis”.

The symptoms of this state of mind are many. As a time-delayed consequence of the crisis, Europe is confronted with trends toward re-nationalization, with single nations like Germany seeking “special relationships” with non-European powers such as China without coordination with the European institutions or other member countries despite the existence of a Common Foreign and Security Policy (CFSP) office within the European Union; a growing divide between economic winner and loser countries of the euro, with Germany, Austria and the Netherlands the winners paying record lows in interest rates on their debts, and the southern countries such as Italy, Spain and to a certain extent France the losers with much higher burdens; the de-solidarization between euro- and non-euro-nations, with David Cameron’s UK drifting dangerously far away from the continent; the legitimacy problem of the European unification project as a whole; and the democracy deficit of the existing European institutions. Contrary to the (probably too optimistic) hopes of the pre-crisis expansion-years, the European enlargement has stopped at the borders of Turkey and the Ukraine, two nations torn by inner conflicts. All in all, the unification project is not progressing, but rather finds itself in stagnation, if not in the midst of a slow but insistent regress.

The rise of new, not necessarily nationalistic, but explicitly anti-European movements throughout the continent signals political, social and cultural (re-)fragmentation. It is not only occurring in crisis-ridden Southern Europe countries such as Greece (“Chyrsi Avgi” and “Independent Greeks”), Spain (non-partisan Anti-austerity movement) and Italy (comedian Beppe Grillo’s “Five star movement”), but also in clear winner nations of the eurozone such as export champion Germany (which is enjoying one of the wealthiest periods of its economic performance after World War II) with, for example, the remarkable result of Bernd Lucke’s party “Alternative for Germany” at the German parliamentary elections of 22 September 2013, where it achieved 4.7% at the first attempt. This is in addition to the remarkable gains of traditional nationalist and authoritarian movements, such as the framework of the parliamentary elections of Austria on 29 September 2013 with Heinz-Christian Strache’s “Freiheitliche Partei Österreichs (FPÖ)” reaching 20.51% and Austro-Canadian billionaire Frank Stronach’s “Team Stronach” achieving 5.73% at the first attempt; or Marine Le Pen’s “Front National” in France, which since 2010 has constantly increased its votership, reaching 13.6% in 2012 and up to 47% in single cities like Béziers in Southern France in the framework of the municipal elections on 23 and 30 March 2014, gaining 12 city mayors as well as 1,546 and 459 councillors at two different levels of local government, making it the third-largest political party of France.

All these movements built the core of their victorious electoral campaigns on anti-European resentments – harvesting outstanding success among voters and huge gains at the expense of pro-European parties. The current rise of Anti-Europeanism among Europeans is not just related to simple crisis psychology and is not directly dependent on the development of wealth, given that, for example, Austria is rated by Eurostat as the second richest country of the European Union, just behind Luxembourg. Almost all anti-European movements took advantage of the fact that their campaigns addressed populations who in large parts were consulting (and consuming) mono-lingual national media only, who were not informed by different European realities and viewpoints, but in the large majority (over 70% of the voters) relied mostly on domestic discussions of national problems and viewpoints.

Without doubt, the metaphor of “midlife crisis” has been used too often lately for phases of political and social transition. But with regard to the case of after-crisis Europe, it could be fitting. In 2014, the European Union is turning 63 (founded in 1951) – and is simultaneously feeling better and worse, sensing that it has accomplishments, but not enough; that it has made progress, but not to the point it hoped: a feeling typical of the threshold situation that characterizes the midlife crisis. Having the Nobel Award for Peace 2012 conferred to the European Union for reconciliation and peaceful cooperation didn’t help sooth this psychology.

So, how to get out of it?

In order to overcome its midlife depression, Europe must do its homework now with regard to the future rather than to celebrate its - certainly impressive - historic achievements of the past. With the approach of the European Union parliamentary elections of 25 May 2014, where 28 member states featuring 24 languages and more than 507 million citizens with 375 million eligible voters elect, in a potentially emotional celebration of European unity, the 766 members of the joint parliament (the second largest of the world after India) of the biggest economic area in the world, featuring a combined gross domestic product (nominal) of US$18.45 trillion, it is time to get the European project from “humble” back to “ambitious”. This is not only in its own interest, but for the sake of international growth beyond the EU.

What Europe must do now is to focus on (socially balanced) growth and employment. And it must work harder on political union. It must in particular concentrate on the reduction of youth unemployment (currently at 23% in the EU, with peaks of 55% in Greece, 53% in Spain, 37% in Portugal and 35% in Italy); it must fight corruption and tax evasion; it must simplify and reduce bureaucracy; and it must relieve work of the existing exaggerated side costs by reducing taxation. Overall seen, tax reduction is the most important task and key to most other issues, given that Europe has the highest taxation rates in the developed world, with Italy featuring the sad record of the highest combined taxes in the world currently standing at 52% for an average income according to Confindustria, the association of Italian industrial entrepreneurs, a percentage that is strangling the Italian economy at both production and consumption – while, for example, U.S. President Obama and his wife Michelle pay 20.4% for a combined income of US$480.000 in 2013, and China applies a tax rate of in average 25%.

Another issue in the goal to become more efficient and free up money for economic and political impulses is to revisit the cooperation between the 28 different military systems in the EU costing US$267 billion in 2013. Due to lack of coordination which leads to over-spending and duplication of roles, better cooperation and the creation of a joint military force replacing national ones could make the European military (at least) three times as effective, and (at least) 20% cheaper.

In order to achieve these goals, an alignment and simplification of different national standards is needed: in fiscal, political, bureaucratic and military issues. Europe today has one of the highest and most diverse densities of national, regional and local laws in the world; too many to be efficiently applied. The number of laws must be reduced and those that remain better coordinated across national borders. That implies greater powers for transnational institutions, starting with the European Parliament and the European Commission (which is the government of united Europe).

But perhaps what is needed most as the prerequisite of all other actions is a new audacity and the regeneration of an entrepreneurial spirit in the European institutions. The crisis can no longer be a pretense for timidity. In an open letter to Herman Van Rompuy, the president of the European council (comprising the heads of state of all 28 European Union member states), and its members, former EU commissioner for agriculture, rural development and fisheries Franz Fischler, economic researcher Jean-Paul Fitoussi and others in March 2014 rightly called for a new European ambition and asked the European Union bodies of government along with all national leaders to more aggressively pursue the “Agenda Europe 2020”.

The “Agenda Europe 2020” is a 10-year strategic masterplan proposed by the European commission in Brussels on March 3, 2010. It defines ambitious perspectives for the further overall development of the European Union. It has four important goals, all to reach until 2020: To increase employment to 75%; to increase the budget for science and research to 3% of the GDP; to get 20 million European citizens out of poverty by reducing the number of poor to 98 million; to make decisive steps in coordinated energy efficiency.

However: These and other goals are not on track. Employment stands at 68%; expenditures for research is at 2.2%; the number of poor in the EU currently comprises 124 million citizens; energy efficiency is far from being achieved, with huge asymmetries between countries like Germany which has undertaken a veritable (and costly) Energiewende (energy revolution) on the one side, and nations like Greece or Spain which in the past years had no room to do anything on the other. A better coordination of the respective measures of the 28 member states is needed now to make “Europe 2020” a reality. Its practical implementation should (and will) depend on the overall political and economic situation, and the (ever-changing) global contexts into which Europe is embedded today more than ever before.

Wherein lies the perspective?

Taken together, Europe must proceed with new energy now on its way towards becoming the “United States of Europe”, thus realizing the motto of the European Union “United in diversity” by concrete steps. At the European People’s Party (EPP) Congress in Dublin on March 8, 2014, U2 frontman Bono aptly summed up the state of the union in one sentence: “Europe is a thought that needs to become a feeling”. The sentence was promoted by the European Union as the official motto of the European parliament elections of May 25, 2014. Bono’s bonmot was not only an allusion to the need of a European civil religion, i.e. for a new political idealism which indeed is probably the pillar missing to build a true European identity. It was also the plea for new, more energetic ambitions to overcome the current European midlife crisis. Will the continent be able to grow up to this motto?

It would be in the interest not only of Europe, but of the greater global community.

 

About the author

Roland Benedikter, Dr. Dr. Dr., is Research Scholar at the Orfalea Center for Global and International Studies of the University of California at Santa Barbara, Full Academic Fellow of the Potomac Institute for Policy Studies Washington DC, Trustee of the Toynbee Prize Foundation Boston and Full member of the Club of Rome. Previously, he served as Research Affiliate 2009-13 at the Europe Center of the Freeman Spogli Institute for International Studies, Stanford University. He is co-author of two Pentagon and U.S. Joint Chiefs of Staff White Papers on the ethics of Neurowarfare (February 2013 and April 2014) and of Ernst Ulrich von Weizsäcker’s Report to the Club of Rome 2003: “Limits to Privatization”. His latest book is “China’s Road Ahead: Problems, Questions, Perspectives” with Springer New York, February 2014, http://link.springer.com/book/10.1007%2F978-1-4614-9363-1. E-mail: r.benedikter@orfaleacenter.ucsb.edu or rolandbenedikter@yahoo.de.

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