Cause and Effect in European Politics and Law

The bitter pill of European integration

Ralitsa Kovacheva, August 11, 2011

Until July 21, 2011 there were debates taking place in the European Union - more or less integration, more or less Europe. After July 21 the question is not whether but how exactly the greater integration can happen. Who will take part, who will determine the rules and above all - how to serve it in a more acceptable way to the euro sceptics, given they are already a large part of European citizens.

On July 21 the eurozone leaders took several decisions in response to the Greek crisis and the debt crisis in general, which clearly demonstrate the irreversibility of processes in the EU and especially in the euro area. The changes in the scope of the rescue fund EFSF (the right to buy debt on secondary markets, to recapitalise banks and to grant credit lines to countries without rescue programmes) prompted French President Nicolas Sarkozy to call it the future European Monetary Fund. Others say this is the first step towards creating a common market of Eurobonds, although the idea has been controversially assessed last year. Third define it directly as a transfer union.

The fact is that the eurozone has committed itself to pay jointly and in solidarity (cash or through guarantees) the debt burden of its struggling members. Not to mention that along with the rescue loans (which are still loans) the ECB bought up Greek, Irish and Portuguese debt worth 80 billion euros and has already started to buy out Spanish and Italian bonds. In this sense, things now look different than they looked a year ago when German Chancellor Angela Merkel used to argue that everyone should pay its own debt.

If we add to that the legislation aimed at strengthening EU's economic governance (and especially of the euro area), the direction of this deeper integration is more evident. Although it is still not finally agreed, the legislative package will most likely be adopted in the autumn. This means that the economic and fiscal policies of the member states will become less national and more common. How common, however, given that every country is thinking only of its own interests?

Who pays, he says

This principle is evident in many of the decisions taken by the EU and especially the eurozone last year. The countries with largest share in the rescue operations (Germany and France) assumed control, thus making uncomfortable some other member states and the European institutions - the Commission and the Parliament. The Franco-German initiatives, more or less altered, laid the foundations of the most important decisions and set the tone of discussions.

Moreover, by demonstrating stronger economic growth, compared to the other eurozone countries, Germany rightly insisted not only to have the final say but to serve as an example for the others to follow. It is hard to judge Germany for its efforts to take control of the situation, since the country is expected to pay for the others and to ensure the stability of the common currency. Moreover, the bill is obviously growing every day and this is not going to change soon.

The revolt of the “rescued”

In turn, the “rescued” countries or the potential candidates to be rescued, are not satisfied. Because saving has a price and conditions, but they simply do not accept them, and even seem to be offended, taking this help for granted a priori. While the governments in distressed countries made serious efforts to conduct fiscal consolidation and reforms, they were not supported by the citizens. Remember the public opposition in Greece and continued protests in Spain. The media also took part in the general chorus of accusations against the “bad” and solidarity lacking Union and most of all – the “selfish” Germany.

However, I think if the media had tried as hard to convince citizens in their countries, that the whole society was responsible to deal with the crisis and would benefit from the needed reforms rather than seek culprits for the problems elsewhere, the measures would have given faster results. But obviously, as euinside repeatedly wrote, the problem of the euro area (and of the EU as a whole) is not just lack of common economic and fiscal policies, but of shared values.

The New Favourites

However, obviously there are countries outside the euro area who share those values. In this respect, Poland loomed clearly among the new member states in recent years. Not just because it exited the crisis “dry”, but because it demonstrated spirit and ambition to have a say in the taking of important European decisions. Unlike other new member states, Poland was not “hiding” but insisting to be a “first class” EU member. Just remember the acute response of Polish Prime Minister Donald Tusk to Angela Merkel's proposal the Pact for the Euro to be applied only to the eurozone. Perhaps this was the reason why the German chancellor went personally to Warsaw and invited Poland to join the pact, which later became the Euro Plus Pact.

And now Poland, together with the Czech Republic, is a subject of courtship by Germany to join the eurozone. In an article for the Czech medium Respekt Katerina Shafarikova is citing diplomatic sources, according to whom Germany is persistently inviting Poland and the Czech Republic to declare their desire to join the eurozone in the foreseeable future. As the author notes, ”the Germans aren’t doing it out of any affection for Donald Tusk or Petr Necas [the Czech PM], or from heartfelt concern for Polish and Czech economic interests in the EU. Their arguments are more in the line of self-preservation.”

If the two largest and most disciplined economies in Eastern Europe apply for membership in this difficult moment for the euro area, this will inspire market confidence in the common currency. It will also strengthen the German camp of supporters of strict fiscal discipline while balancing the French influence. And last but not least – it will facilitate German investments in both countries. In other words, Germany is looking for new members of the euro area among the supporters of the “German model”.

What is Berlin promising in return? A place at the table when deciding on issues like the Common Consolidated Corporate Tax Base (CCCTB), for example. For countries like Poland and the Czech Republic “with a number of 'subsidiary' companies, this is a significant matter. We have an obvious interest in taking a seat at the table where it will be hashed out,” the author notes. Moreover, even if the Czech Republic applied now for the euro area, it will need several years before joining effectively and during that time the country will be able to negotiate the accession conditions and participate more closely in rewriting the rules for the eurozone.

Bulgaria has pointed out similar arguments when it joined the Euro Plus Pact - to participate in the decision-making process. Note the example of the CCCTB - this is one of the strongest arguments of the opponents of Bulgaria' participation in the pact. But the pact offers too frivolous and loose political binding (maybe that's why the Czech Republic refrained from participating), unlike the application process for the euro area where the country can effectively take advantage and gain better conditions.

Against this background, it is strange to hear the more and more frequent statements of Bulgaria in the face of Prime Minister Boyko Borissov and Finance Minister Simeon Djankov that our country does not want to join the euro area until the financial discipline there is tightened. One possible explanation is that Bulgaria is also a subject to courtship, like the Czech Republic and Poland, but if so, instead of throwing inappropriately arrogant statements, it would be right to have a meaningful and open public debate – does Bulgaria want to enter the eurozone now, what it would win and what are the risks. Another explanation is that no one wants anything from Bulgaria and it is all about cheap populism. Which only confirms the thesis of the (not)shared values.

All this points to the conclusion that the pill of European integration, although healing for all, will be bitter for many. But there is a catch: the pill only helps if all take it. Otherwise, some will always be sick and the others will have to cure them. Who benefits from such a Union? And is does such a result really worth all these efforts?