The European Union in 2014: Challenges and Opportunities

Part I: Self-Reflection and Internal Reform


By Nicholas Hager, Transatlantic Community Analyst

The European Union invested a great deal of time and effort into preparing Ukraine to sign an Association Agreement with it, which would have benefitted both parties. This agreement would have brought about widespread sectorial renovation and integration, but it would also have secured a stronger EU foothold in Eastern Europe, in addition to helping Ukraine break from the economic doldrums which currently overwhelm it. Unfortunately, while negotiations seemed to be on track for this to happen, they began to fall apart ahead of the EU summit in Vilnius late November. Ukraine ultimately spurned the EU’s advances and opted to join Russia’s nascent customs union instead.


While disappointing to many, the Ukraine episode highlights the need to increase the “attractiveness” of the EU going forward in 2014. Before this is possible, however, the EU must reflect on its current construction and operational efficacy, and work to rectify its shortcomings. There are three major challenges currently plaguing the EU that have eroded its capacity to function and serve as a model of political and economic development for bordering states: the Eurozone crisis, the rising tide of Euroscepticism, and the Union’s seeming neglect of countries which have been attempting to join it for years.


The Eurozone Crisis


The Eurozone crisis is one of the principle challenges which threaten the stability and viability—and therefore the attractiveness—of the EU, and making earnest progress toward resolving it would go a long way toward restoring the public’s waning trust in the institution while also undercutting much of the ideological support of virulent Eurosceptic parties. Yet, predictions about Europe’s economic fate are frustratingly ambivalent. Some suggest that the Eurozone is heading toward imminent deflation which could trap it for decades, while others believe that 2014 will be “brighter” with European stock market rebounds expected and the IMF’s soon-to-be-announced upward revision for EU growth. But significant efforts are being made to shift Europe’s erstwhile moribund economy into the next gear. There is no straightforward plan or silver bullet that will accomplish this goal, but the European Central Bank (ECB) is taking steps to institute stronger financial regulations on non-performing loans and to address capital shortfalls in order to “encourage banks to face reality and sell or restructure bad loans.” These regulations would not directly address the sovereign debt crisis but, because “the main dodgy assets that have been swept under the European carpet are…bad loans made to households and companies,” making progress here should have a substantial, positive impact on the private economy.

An additional pillar to this broad economic reform is the proposed creation of a banking union to help resolve future cases of bank insolvency, thereby obviating the need for bailouts. This proposal also “[adds] a ‘narrowly defined’ ban on…big banks using their own money for trading,” which is intended to keep their clients’ money out of these operations. But these reforms are criticized as not being extensive enough to address the problem, while others argue the new regulations will only increase costs and complexity while actually making regulation easier to skirt. Regardless, it is a positive step toward consumer protection and, with banks “expected to be more active in the debt market this year,” there should be clear, early, indications whether these regulations are adequate. If the EU can focus its efforts on developing and implementing the appropriate reforms, and monitor progress with an eye toward maintenance and problem-solving, it could pay dividends in the near future by easing the economic pain of its citizens, thereby restoring some confidence in the Eurozone and the broader EU.


Rising Euroscepticism


One of the side-effects of this recent downturn is a surge in the prevalence of far-right, Eurosceptic ideologies which typically accompany economic hardship. The concomitant diminution of trust in the EU’s capacity to adequately safeguard its citizens’ interests has eroded its ability to govern effectively, which could create a recursive process whereby its perceived failure is the rationale for stripping the EU of its authority, leading to a succession of future “failures” and subsequent institutional rollbacks. This pattern is manifest in the prevalent calls from some to adopt policies to diminish the role of the Union—as Germany’s Christian Social Union proposes—or reflect an outright desire for separatism—which is the platform of, among others, the United Kingdom Independence Party (UKIP).  Eurosceptic gains in the upcoming European Parliament elections may not be “dramatic,” but the salience and popular currency of these Eurosceptic ideas is sufficient to undermine the public’s faith in the EU. This is perhaps the foremost challenge currently facing the Union because, without the firm support of its member states, establishing and implementing a coherent agenda will be all but impossible.


There is no single approach to dispel this rise of the right, but taking clear steps toward greater institutional transparency and imbuing the process with more accountability would be effective in stymying at least some of the most broadly expressed criticisms of the Union. A few steps that could be taken to achieve this are outlined in a report by the Center for European Reform, which suggests reforming the European Commission to more clearly define its roles and responsibilities as well as reinforce its independence from the politics of the European Parliament. Likewise, expanding the resources and ambit of the European Court of Auditors would help EU citizens feel more comfortable about where their money is going and how much of it is going there. Additionally, the authors of the report advocate an expanded role for national legislatures in the Commission’s rulemaking processes, allowing a certain number of state legislatures to challenge, and potentially block, any proposed reforms.


Of course, these are not necessarily the only reforms the EU could undertake to restore public confidence, and they are not necessarily optimal either. Moreover, it is likely that any such reforms will face opposition from within the EU’s institutional structure and the populace at large. But with that said, these proposals are at least tangible steps toward reinforcing the EU’s legitimacy. Actively confronting this issue is crucial because restoring trust will be paramount if the EU is to weather the Eurosceptic storm, and it will be instrumental in ensuring the success of all of the Union’s future endeavors.


Expansion


A final way to strengthen the EU’s appeal is to focus its expansion efforts on those countries with longstanding applications for membership. The eight countries that have active applications for EU membership—Montenegro, Serbia, Macedonia, Albania, Bosnia-Herzegovina, Kosovo, Iceland, and Turkey—would each make unique economic and cultural contributions to the EU, but would also allow it to consolidate its base of power on the European continent. Arguably the most glaring omission is Turkey, whose application for EU membership actually predates the EU itself, and whose induction would bolster the European Single Market by adding Europe’s seventh, and the world’s seventeenth, largest economy while also establishing a strategic military bulwark on the threshold between Western Europe and Russia.


Yet, there are still numerous hurdles to Turkey’s inclusion. It not only faces longstanding opposition from EU member Cyprus over its support for the illegitimate Turkish rule in the Republic of Northern Cyprus, but it has now drawn the opposition of EU powerhouses France and Germany over concerns that Prime Minister Erdogan is molding Turkey into an authoritarian state. Even so, inducting these countries would offer the Union a unique opportunity to consolidate its influence in the region without necessitating an overextension of its focus or resources. Therefore, it may be wise for the EU take a more vigorous approach to assisting those countries that have a genuine, demonstrated interest in joining to meet the “Copenhagen Criteria” laid out in the Maastricht Treaty. By shifting the focus to facilitating their entry into the EU, instead of allowing them to languish in a bureaucratic limbo, the process of European integration would be sped up dramatically.


The preceding suggestions may be somewhat bromidic and more than a little optimistic, but they are not necessarily intended to provide the solution or the path forward for the EU. Rather, they are meant to illuminate the major obstacles which impede the functioning of the EU and to demonstrate that there are, indeed, viable steps that can be taken to overcome them. Moreover, and perhaps most importantly, this is meant to highlight the fact that the EU’s failure to secure an Association Agreement with Ukraine association might be better seen as an opportunity to reflect on the crux of what makes the Union an attractive idea, and to undertake reforms along those lines so that it is prepared to meet the challenges of 2014 and beyond.       

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