In 2010, Europe’s vision of a collective and prosperous future is being brought into question more deeply than at any time since the continent’s first attempts at unification were forged from the ashes of the Second World War. Despite the boost of rapid expansion over the past two decades – as new members from east and central Europe clamoured to join the club – the vision of unity is now becoming blurred. Contributing to this loss of vision is the recent faltering of the continent’s grand economic and social ambitions.
As a transnational, decentralised, quasifederal construct of 27 nations and nearly 500 million people – and one that has made giant strides towards a common space for goods, people and services, common standards, a common currency, and espousing values like democracy and the rule of law – the European Union is a role model for other organisations around the world. And with its combined GDP of $18 trillion, it ranks above the USA.
The EU’s ambitions for an innovative dynamic economy demand internal economic reforms and new decision-making structures to pursue appropriate policies at a time when the Union is beset by multiple preoccupations: ageing populations, its fiscal problems and the extent of regulation, its economic slowdown, its ailing health services and its failing pension schemes. Also in question is the vaguely-defined European social model as opposed to so-called Anglo-Saxon forms of global competitive capitalism.
Other key challenges are the need for coherent internal governance, further rounds of enlargement, financial solidarity in an asymmetric economy, the political and military profile, immigration issues, management of diversity, use of bio-fuels, and normative and moral issues like biotechnology. Even when the current economic crisis is over, those concerns will remain, despite the EU’s status as the most powerful and unified association of independent states ever devised. European governments have been living on loans representing large percentages of national GDP.
The amortisation of these borrowings will add to the burden of public services that are too large a proportion of the total economy. Funding the welfare state at these levels will no longer be possible unless the economy expands. Despite stringent rules in principle, fiscal discipline was not implemented even in good times, and the next generation of governments will have to face their electorates with these realities.
Europe’s economic recovery is extremely fragile. The eurozone was established after countries like Germany and France abandoned currencies that were synonymous with national identity, but there is now acute stress on the euro system, focused on Greece– which after a decade of low interest rates, wage inflation and property booms, needs to raise €50 billion in public debt this year with a budget deficit of 13 percent and a national debt of 120 percent of GDP. Greece may be guilty of falsifying its eligibility criteria data to join the euro and widespread tax evasion, but warnings are also out on Ireland, Spain, and Portugal. California, with a bigger economy than Greece, has long lived beyond its means, but its deficit is underwritten by the US federal government and taxpayer. Unless the eurozone is willing to bite a similar bullet, the EU will be seen as having no economic or fiscal strategy. If Greece defaults, it will make lenders wary of lending to any government, and they all need to borrow. So as Greece gets bailed out, it must undergo a period of economic reforms and monitored belt-tightening of the kind that has already triggered social and industrial unrest.
The political dimension will define Europe as a meaningful international player. It may be respected for conflict resolution and peace building within Europe, but it is neither an actual nor potential political or military force with geo-strategic capabilities outside the continent. In terms of ‘hard’ economic or military power, Europe cannot aspire to a major role in shaping world events, and it is not possible to replicate the abundance of ‘soft’ power generated by its various constituents at the pan-European level. Its present dependence on energy imports makes it vulnerable, as its self-sufficiency declines.
Europe’s fertility rate is expected to continue falling with a drop in its working age population. No country has the 2.1 birth-rate per female that is needed to keep the population stable. One-third of the population will be 65 or over by the middle of the century. In 2050, average EU GDP growth will be around 1.25 percent and the EU’s share of world product is expected to fall from about 30 percent now to 10 percent. Despite the hostility of European public opinion, a strategically calculated enlargement, more legal immigration, and increased flexibility in the workplace, including increases in the retirement age, might all prove necessary for the continent’s future economic competitiveness.
The labour pool in the Arab world will increase by over 100 million in the next quarter century and that of Sub-Saharan Africa by 250 million. The consequences of these demographics cause legitimate concern to Europe, though it will require a measure of controlled immigration to enhance productivity. The problem relates to the authority of the secular state and its impact on religious minorities in general and Muslims in particular, who currently represent 3 percent of the EU population. Only a new settlement between state and religion can successfully incorporate the growing religious minorities in Europe.
Many European nations have enjoyed rising living standards despite budget deficits, appreciating currencies, high interest rates, high wages, periods of labour shortage and limited natural resources. The stock of factors at any time is less important than the way in which they are created and upgraded. Whether its recovery is V- or W-shaped, Europe will eventually emerge from recession to remain a major contributor to the world economy, with its external relations based on normative values. But it has a packed and controversial social and financial domestic agenda to deal with first, and its biggest challenge will be to stay united.
