Bright Spots or Black Holes?
Europe is nowhere close to achieving its lofty aims of sustainable growth, strong cohesion, sound governance, and broadly supported legitimacy. In other words, the eurocrisis is far from over. Hopeful data that pops up here and there is inundated with negative news. EMU states are still suspicious of each other. They do not see eye to eye on who will foot which bills. Insiders fear the outcome of asset reviews and stress tests at the European banks. Meanwhile, populists seem headed for massive gains at the European elections. In short, Europe has weakened in many respects.
Quartet of Challenges
It goes without saying that growth is a problem. Two factors that put a drag on growth are disproportionate debt mountains and (zombie) banks. UBS chairman Axel Weber said, "I expect some of the banks not to pass this [asset review] test." Christophe de Margerie, CEO of Total, added, "I think Europe should be reclassified as an emerging country."
Debts can be tackled in three ways: Growth, inflation, and/or debt write-downs. Growth is anything but buoyant. Alleviating the debt burden through higher inflation is not really an option as Eurozone inflation is at an all-time low. Writing off bad debts has been done to some degree. However, not sufficiently to allow economies to breathe a sigh of relief. Moreover, this is almost a political taboo in the northern Eurozone. In other words, for the time being these roads lead nowhere.
Equally moribund is the cohesion that is necessary if Europe is to tackle its problems. Take the widening gap between those who benefit from globalization (and Europeanization) and those who feel left out. The abyss between these groups grows ever larger.
European member states are also growing apart. "Anger" is a word that people use more and more when they express their feelings about Europe. A large majority has lost all faith in the EU and national politicians.
Another obstacle to defusing the crisis is the lack of institutions, structures, and instruments needed for an effective approach. Politicians can barely - or not at all - keep pace with the markets. Only coordinated collaboration will enable Europe to keep markets in check without stifling economic activity. But Europe relies on rickety constructions that are passive and reactive. This, in combination with mutual distrust and a reluctance to change existing treaties, has led to a perception of Europe as complex and obscure.
Brussels as Dr Evil
"Brussels" threatens to degenerate into an highhanded monstrosity without focus or prestige - its constituent parts all wanting to go in different directions. Many Europeans picture the EU as an undemocratic, overcomplicated and bureaucratic ogre that meddles in affairs that are not its business and does too little when it should take action.
The legitimacy crisis may well be the Europe's biggest headache. Until a few years ago, a "permissive consensus" existed. Citizens accepted European integration. Not so much because they thought that it was worth pursuing in itself but because everyone seemed better off. Now it is no longer a matter of divvying up the spoils but of spreading the pain. This shows up the weaknesses of the "permissive consensus" as a foundation for a united Europe. Presently, the EU no longer brings countries closer together. Instead, it creates discord.
Europe will not strongly recover in the course of 2014. It would require many reforms at national and European level, which are not (yet) feasible. For the moment, Europe will have to make do with a patchwork of stopgaps, which is adjusted gradually, in incremental steps.
Reggae, blues, and Country Legends Already Knew
But two factors lead us to believe that the Eurozone and the EU may manage to keep their heads above water, via reforms on the back of new crises. First, many Europeans are skeptical about Brussels but a large majority is even more fearful of the alternative - no euro/EU. Anxiety could be the glue that keeps Europe together. This is how political scientist Gary Marks sees the referendums in 2005 in the Netherlands and France on the European Constitution. At the time, voters could easily reject the Treaty because this did not have any direct negative implications. Yet, should a referendum take place on the survival of the euro or EU membership, something tangible is at stake. Voting will no longer be noncommittal so fewer people will be prepared to take high risks. Fear may well win the day.
Second, a demographic trend could help: young people are considerably more pro-European than their elders.
Most people know what is required to create a strong united Europe that flourishes economically. Famously, singers such as Peter Tosh, Patsy Cline, and Albert King also had an inkling: "Everybody wants to go to heaven but nobody wants to die." Europe is unlikely to give up the ghost but there will be a lot of water under the bridge before it implements necessary reforms under pressure from markets.Suggest a correction