Should we worry about the future of Europe?

Should we worry about the future of Europe?

We entered 2020 with a Trade War between the two superpowers. As a third World War would be devastating for all of us, humankind invented first the cold war and now the trade war. We are living in an era which is dominated by finance. It is thus not surprising that we are shifting towards these kind of conflicts.

The origin of it is a long-term fight for global hegemony. China threatens to displace the ruling power of the USA. Fights linked to superpower alternance have happened many times in history. From Athens against Sparta brilliantly explained by Thucydides, to the cold war between the USA and Russia. This new era means competition (opposite to collaboration), absence of sharing (COVID19 is a good example) and a weaker world for the years to come.

With a weakened economy, coming elections, growing populism and do-it-alone rhetoric (my country first), I would not expect any meaningful global multilateral agreement arise to accelerate the economic recovery. 

The world order, as described by Henry Kissinger, is broken as global institutions from the WTO to the NATO have progressively lost their power. The pandemic has exacerbated those trends. Many countries are looking inward, connections with other countries are weakening at an accelerated pace. We Europeans have been taken hostage in the middle of this new war. Europe should not count much on the USA or China for collaborations. The question is rather what Europe is going to do for Europe.

In 1950 the Schuman Declaration, inspired by Jean Monnet and drafted by Robert Schuman, initiated the process of the European integration with its vision of a joint French and German coal and steel production. Today, 70 years later, the single currency produced a degree of unity that has not been seen in Europe since the Holy Roman Empire. It is a unique deep integration, unparalleled in the world. But this unity is on the verge of being broken.

Covid-19’s economic impact will not spread proportionally across Europe. We can expect that tourism-dependent southern European countries, Spain and Italy in particular, will be hit the hardest. The level of public debt will soar in these countries. We learned from the last crisis that austerity will not make things better. These countries will need liquidity, financial support and economic reforms to adapt their economies quickly.

New challenges are waiting down the road as ageing demographics will become soon the heavy-weight gorilla increasing again public deficits and debt. Northern European countries have shown relatively low levels of trust on southern economies, despite the efforts that have been made by the latter in the past few years.

Contrarily, the ECB has lately played a key game to support them through massive bond buying for quantitative easing . This drove up the price of the bonds and decreased the associated costs, meaning interest rates. Without these interventions, the level of interest rates that these economies would have had to bear would have been unsustainable. The validity of these bond purchases is now questioned by constitutional German authorities. This is opening again Pandora’s box on Europe’s future.

What we have recently learnt is that in the eyes of world superpowers, a divided Europe is an attractive option, an easier-to-beat competitor. In one-to-one country negotiations, European countries will have no chance against global superpowers. The UK is already feeling the heat rising in their negotiations with the US;  agriculture will be the first hurdle but certainly not the only one.

If the European Union breaks up tomorrow, which is a real possibility, individual countries will be very small to survive in a competitive world. Nobody will win. Even Germany, the biggest country in Europe, with its 80-million population and strong economy, will become irrelevant.

In a divided Europe, Germany might need to build military and nuclear powers and change its economy. Its exports will become expensive for its European neighbors. German cars sold at strong Deutsche Mark production cost will not be bought by Spanish Peseta and Italian Lira. In case of a European breakdown, Italy and Spain would also collapse.

Brits have not seen yet the benefits of Brexit, and I’m not sure it will find it in the near future. Most European countries have much weaker economies than the UK. If they make some basic numbers, they will understand that if mathematics do not work for the UK, then it is highly unlikely they will work for the rest.

I am afraid that we forgot too quickly some of the basic benefits linked to European Union membership such as the free movement of people, goods and capital. The freedom to live in any of the European countries, the advantages of a strong and stable currency, the absence of war, etc...

Despite all the difficulties mentioned above, the European project is still a beautiful reality. Not sure that its benefits have been well explained to the people, especially to the struggling middle class that is suffering the most from globalization.

Populist parties across Europe are trying to convince the voters that isolation is the solution. They praise the return to old currencies and blame Europe as the origin of their problems. Problems certainly exist, but they are due to the inability of our governments to lead efficiently and make the right decisions in a complex world.

Our role as European leaders is to explain to their people the benefits of remaining united, while we strengthen the Union and make it evolve. This will help us to better face the challenges ahead of us. I remain always optimistic and deeply in love with Europe!