The New Old World (90 page)

Consternation in Brussels was no less. This time, however, it was not two of the founding Six, one of them long the most powerful member of the Community, whose electors had produced the wrong result, but one of the smallest states, peripheral in history and position, in the Union. Official fury was thus more openly and brutally expressed. The Treaty of Lisbon, moreover, was the joint creation of Berlin and Paris, an alignment not accustomed to being trifled with in matters of high concern in the EU. Steinmeier in Germany, treating Community law with the disdain of a Bethmann-Hollweg, threatened Ireland with expulsion from the Union––‘exiting the integration process'—if it did not comply with the wishes of the
Aussenamt
and its partners. In France, Sarkozy announced without further ado that ‘the Irish must hold a second referendum' to expunge the verdict of the first. Much of the media outcry was even more violent, leading organs of opinion in Germany, in particular, drawing the lesson that it was folly to submit any proposal for European unity to the popular will. But as matters stood there was little to be done. The Fianna Fáil regime in Dublin, after a decade in office by now deeply unpopular, was unlikely to take the risk of a second rebuff that might prove worse than the first.

Three months later, Lehman Brothers filed for bankruptcy in New York, triggering the worst financial collapse since the Great Depression. The impact on Europe of the crash in America was––
mondialisation oblige
––much quicker this time, putting paid to any notion of a decoupling of EU and US economies. By the end of 2008, Eurozone GDP had fallen more steeply even than American. Denmark, long hailed as the star performer in the labour market flexibility demanded by all right-thinking reformers, was the first
to plunge into recession. Germany, the strongest economy in the Union, was soon suffering a sharper contraction of output than France or Italy, as export markets dived. Worst hit were the two countries that had posted the highest growth rates in the EU since monetary union, Spain and Ireland, in each case primed by real estate speculation. By early 2009, Spanish unemployment was over 20 per cent. The crisis struck hardest of all in Ireland, where output contracted by 8.5 per cent between the first quarters of 2008 and 2009, and the fiscal deficit soared to over 15 per cent of GDP. Though a probable death warrant for the regime in place at the next polls, in the short run the debacle of the Celtic Tiger was a diplomatic godsend to it. Amid popular panic, the government could now count on frightening voters into accepting Lisbon, however irrelevant it might be to the fate of the Irish economy.

But if the Treaty––which in June 2009 received the blessing of the German Constitutional Court, in an opinion dismissing in the same breath the claims of the European Parliament to any democratic legitimacy
¹
—could now henceforward be railroaded through, under cover of the economic crisis, it bore no solutions for the crisis in the Eurozone itself. There, each national government took its own steps to deal with the emergency, with ad hoc measures to bail out banks, feed auto industries or prop up the labour market––Germany, protesting in theory, leading the way in practice. Nine months into the crisis, no coordinated strategy for dealing with it had materialized; spreads in the bond market were widening, forcing up yields in Italy, Spain, Portugal and
Greece; the Baltic economies were in free fall; the IMF was staving off bank-runs in Hungary, Romania and Bulgaria. How deep the rot has gone in the EU, and how long it might persist, has yet to be seen. What is clear is that monetary union, though it created a stable currency, has been no cure for long-standing weaknesses of the continental economies. The low interest rate regime of the European Central Bank had fuelled bubbles in Spain, Ireland and the Baltics. More generally, not merely did per capita income in the Eurozone rise more slowly between 1999 and 2008 than in the previous decade. Productivity growth actually halved. By the spring of 2009, EU unemployment was still lower than in the US, but the exposure of European banks looked significantly worse. In April, the IMF estimated that out of a total of $2.3 trillion in toxic assets poisoning the world's banking system, over half—$1.4 trillion––were held by European banks, as against $1 trillion by US banks. Write-downs in Europe were still a fraction––just a fifth––of those in America, while requirements for recapitalizing the banking system to the levels of the mid-nineties were reckoned to be nearly double.

Compared with the collapse of Wall Street in 1929, the financial crash of 2008—born of a much more explosive creation of credit—has had swifter and wider effects on the real economy across the world. Whether a comparable slump ensues is another matter, if only because all leading states of the advanced industrial world have flooded their markets with injections of public capital of one kind or another that came only haltingly and controversially in the 1930s. Just as the deregulations of the previous period were, if in differing degrees, more or less unanimous across time zones, so the bailouts of the present period have, at any rate so far, been common wisdom––whatever the doubts expressed, here and there, about their consequences in the longer term. In the blink of an eye, a
pensée unique
has become a
pénitence unique
, no less herd-like. Where in the inter-war period heterodox doctrines and iconoclastic recipes, of various sorts, were waiting in the wings, and as the Depression unfolded took central stage, today the intellectual cupboard is bare, and scarcely any alternatives have been canvassed in public debate. How long that will last is anyone's guess. What seems clear is that the crisis, if it persists, is likely to put increasing social pressure on the existing state of the EU, in which there is neither effective policy coordination nor operative national autonomy. Growing unemployment and economic distress could drive the Union in either a centrifugal
or a centripetal direction: towards divergent solutions dictated by national imperatives to protect local populations, or towards deepening integration, whose most probable forms would be extension of the single market to services, harmonization of tax regimes, and creation of a common European bond market.

At the turn of the century, looking back at his account of the origins of the post-war Common Market, the greatest historian of European integration asked himself what might now lie in store for it, with the arrival of monetary union.
²
Milward had argued that the EEC, far from bringing any diminution of the nation-states that founded it, helped restore them to life after the catastrophes of the Second World War by delivering to their populations a material security, at once internal and external, that they had never before enjoyed. Governments answerable to voters had chosen to pool some of their prerogatives, in order to reconstruct their legitimacy by enhancing their ability to satisfy voters. Forty years later, did the same logic hold? Structurally, Milward thought, it did. Whether integration proceeded, stalled or regressed would depend, as it had always done, on its compatibility with the domestic policy choices of national governments. But in the interim, a sea-change had taken place in the way their economies were managed. Since the eighties, growth had slowed, and not only had competitive capacity declined, but social solidarity with it. Full employment and the provision of welfare—keystones of the original rehabilitation of the European nation-state—had ceased to be common priorities. The new imperatives were control of inflation, and deregulation of markets to enforce it. It was the demands of these, allied to traditional concern for the containment of Germany, that had led to a single currency and the European Central Bank at Maastricht.

Where did this leave the nation-state that was saved by the Community? ‘Since all history is change, that rescue could only be temporary', for ‘the process of economic development itself has eroded the political consensus which sustained both nation and supranation after the war'.
³
That did not mean the Community
was doomed, but its destiny was now uncertain. A major international currency managed by a central bank answerable to no government was without precedent. It was pointless to blame Brussels or Strasbourg for the absence of a democracy in which the ECB might be rendered accountable. Voters would only take the European Parliament seriously if it acquired powers of taxation, but its lack of them—like the unelected character of the Commission—was not any unintended flaw of the EU, but the deliberate choice of the national governments, each democratically elected, that had created it. ‘If that however is construed as evidence that the nation-states themselves are not truly democratic, or that in internationalizing policies they are seeking to restrict the force of postwar democratic pressures', Milward concluded grimly, it was difficult to object. ‘Indeed there is much to suggest that the post-war role of more democratic political parties in formulating the immediate post-war domestic policy choices on which consensus depended was only a temporary phase and that these parties, especially since 1968, have become increasingly part of the executive'.
⁴
Since 1968 . . . The date, and all it implies, says enough. Tacitly, what needed to be rescued now was not the nation-state, but democracy within it. Or even beyond it? Forces might emerge to propel integration further, but everything would depend on their political nature. ‘In whose interests will the brutal power of the state continue to exist? Who will run it? And for whom? It is the answers to these questions which will determine the future of the European Union'.

Written as the euro came into being, these lines found their first response six years later, in the pitched battle when the European Constitution was submitted to a popular vote. Milward's blunt voice, with its characteristic ironies, came from England. What of later judgements from the core continental cultures? In France, the country's leading authority on integration, Renaud Dehousse—a Belgian—reacted to the result of the French referendum with a work entitled, misleadingly,
La fin de l'Europe
. The Union, he remarked, might be compared to the bourgeois societies of the nineteenth century, that had replaced absolutism with constitutions that, while they protected the liberties of the subject, ignored women and the poor.
⁵
It had, in effect, yet to pass from a censitary liberalism to a citizens' democracy. But the principles
of such an order should be understood realistically. Neither of the opposite camps in the French referendum had grasped them. The Constitutional Treaty itself, a document opening with grotesque flourishes of diplomatic anachronism, had been touted with a rhetoric of novelty that concealed its substantial continuity with past instruments of integration, to the point that most of the fire directed against it had fastened on to an
acquis communautaire
already long embodied in the Union—imperatives of the free market, allegiance to NATO inscribed in the treaties of Nice and Amsterdam—as if these were provocative innovations, rather than on the modest though useful institutional changes it did contain. But, of course, electors had never been much informed, let alone consulted, about the
acquis
, and were anyway little interested in the intricacies of institutional machinery. They had divided into two social blocs over their perceptions of what the EU represented to them: workers, the young, the least well-off and educated, but also now a significant layer of the middle class—all those exposed to the costs and risks of the economic and social development of the past decades—against all those who stood or hoped to gain from them.

The Constitution had failed because it offered no concrete project that could have overcome this division. For legitimacy in the EU came from the output rather than the input side of its institutions—not abstract principles of accountability or subsidiarity, but the practical benefits it could deliver. This did not mean that Moravcsik's apology for the status quo, dismissing any concern with a democratic will at Union level, was valid. The French referendum had revealed a crisis of legitimacy in the EU, and one that was not unfounded, since decisions in Brussels had a real impact on national social policies, without electorates having any say in them—politicians indeed typically shifting blame to the Commission. Modernization was not a neutral process. It involved winners and losers. It could not be sealed off as a technical arena from democratic conflict. But if the Constitutional Treaty had been unable to convey any compelling project to European publics, that was because no consensus—of the kind that had informed the Community after the war—any longer existed as to the raison d'être of the Union. As objectives for Europe, neither international autonomy, nor social solidarity, nor even just a free trade zone, commanded any general agreement. But this was not set in stone. The EU will be judged by what it does, not what it is. Foreign policy ambitions should be set aside. The public goods the
Union could offer are protection of the environment and income support for the worst-off. A European social pact should not be beyond reach.

If little in Dehousse's analysis appeared to warrant this prospect, or perhaps simply proposal, its general tone remained relatively sanguine, if compared with the most conspicuous German reaction to the same conjuncture. Jürgen Habermas, who had signed one of the most intoxicated appeals to French voters to ratify the European Constitution, on pain of nothing less than regression to barbarism, dried out in the aftermath.
Ach, Europa
, which records his subsequent interventions on the EU, offers a chart of the process. The Treaty of Lisbon, though little more than a decorous Xerox of the same Constitution, met with a very different reception. For Habermas, it offered no solution to either the democratic deficit of the Union or its lack of any moral-political finality. It could only ‘cement the existing chasm between political elites and citizens', without supplying any positive direction to Europe.
⁶
The problems the EU needed to tackle were plain. The nation-state was being drained of much of its substance, without the Union gaining powers to compensate for what it had lost. The market, no longer tamed by social rules, was increasing inequality and threatening the environment. The international scene was wanting in any united action from Europe to uphold international law and reform the UN.