Britain Is Shamed and Brussels Triumphant. But Is That Good for Europe?
A few capital cities acquire political personalities of their own, not always lovable ones. Donald Trump ran against “Washington” as much as he did against Hillary Clinton. For many people in Europe, “Brussels” is a political character—a bureaucrat plotting an ever-closer European union. That caricature has just staged a recovery that would put Lazarus to shame.
On the eve of the Brexit vote in June 2016, many people sensed that Brussels’ pulse was fading. Two of the European Union’s great projects from the 1990s—the euro and the Schengen Area of free movement—were in different forms of chaos, even as the third, the single market, was still incomplete. Businesspeople, especially from the Anglo-Saxon world, fumed at the EU’s unaccountable bureaucracy. Mismanagement had left the continent with a sluggish economy, too many insolvent banks, and no major tech companies. Politically, the Franco-German alliance that had driven the union forward had collapsed. Even Angela Merkel, who’d fought so hard to keep Europe together, made it clear her success was in spite of the homunculi in Brussels.
Nobody from the EU had been publicly allowed near the Remain campaign in Britain for fear of dooming it; freedom from Brussels was the rallying call of the leavers. And the day after they won, many Brexiteers jubilantly predicted that other countries would follow. The EU was “a political project in denial,” trumpeted Nigel Farage of the UK Independence Party.
Now Brussels is reborn. Two events have changed everything. The first, ironically, was Brexit. Far from killing the EU, Brexit has helped reunite it. The second was the election of Emmanuel Macron in May this year, which has given the European project a purpose—or the promise of one.
For all the public talk of sorrow, Brussels can barely contain its glee at Britain’s spectacular reversal of fortune. The nation that had been Brussels’ main critic and the most adept earner of opt-outs from EU projects hasn’t so much shot itself in the foot as machine-gunned both legs repeatedly. Farage’s triumphant speech looks as premature as George W. Bush’s “Mission Accomplished” banner after the invasion of Iraq. Far from acting as a beacon for other leavers, the chaos the Little Englanders created scared voters in the Netherlands and France into choosing pro-European leaders, while Theresa May’s mistaken desire to urge a hard Brexit united the other members of the EU against her. She called an election in June to consolidate that mandate but lost her majority in Parliament and her credibility—and revived talk of Britain ultimately staying in.
Last month, with Britain’s economy turning downward and banks looking at other European capitals, Prime Minister May’s Brexit negotiators arrived in Brussels for an encounter with what Monty Python would have described as the bleedin’ obvious. The rules for leaving the EU all favor the club rather than the quitter. Meanwhile, for all May’s bluster about “no deal being better than a bad deal,” Britain relies on Europe for some 44 percent of its exports; for Europe, Britain represents just 9.5 percent. No deal would be a disaster. May’s promise of a frictionless Brexit is impossible, as the main European negotiator has correctly pointed out. Some Britons are already trying to reopen the idea of remaining in the customs union.
Watching the arrogant British squirm, pontificate, and gradually capitulate on issue after issue will keep Brussels happy for months—all the more so because May has handed the job of negotiating with the EU to three Brexiteers: Boris Johnson, Liam Fox, and David Davis. But Brussels is also feeling more self-confident in its dealings with the rest of the Anglo-Saxon world.
Americans who used to titter at the sight of European Commission President Jean Claude Juncker representing Europe, alongside Barack Obama and China’s President Xi Jinping, now spend their time apologizing for Donald Trump. Rather than raging against the EU’s protectionism, U.S. business leaders now have to explain steel tariffs from Washington. The EU recently reached a preliminary free-trade deal with Japan while Trump has let Obama’s Trans-Pacific Partnership founder. The euro-area economy is projected to grow 1.9 percent this year, faster than the U.K.’s (1.6 percent) and within range of the U.S.’s (2.2 percent). The EU has begun to fix the banking crisis in Southern Europe—with Banco Santander SA buying Banco Popular SA in Spain and Italy arranging bailouts of its three most troubled lenders. There’s even some support in capitalist circles for Europe having the guts to rein in Google Inc. over its search monopoly.
However, the person who’s really raised spirits in Brussels is Macron, who’s brought the prospect of France embracing economic reform. The Franco-German engine has sputtered back into life—and with it hope of integration in the euro zone. Even the most dreamy Eurocrats know that institutional change is impossible in the broader EU, because it would require referendums in too many countries. But the core euro zone doesn’t need that. Hence the hope of a deal: As Macron reforms France, Merkel will allow greater integration of the diverse monetary and economic institutions in the euro zone. She’s already mentioned a euro-area finance minister.
Most economists agree that it’s very hard for a currency union to survive without a deeper banking union and some risk-sharing through joint debt sales or a transfer union (the U.S. has both). Germans hate the idea of having to put their taxpayers on the hook to support others, but the alternative is a series of crises of confidence in less productive economies that are unable to let their currencies depreciate.
A more integrated euro zone would involve an even clearer multitrack Europe, but that too might suit the union: The outer ring of non-euro countries could perhaps eventually include a penitent Britain, the Western Balkans, and (close your eyes and dream) maybe even Turkey. The comeback by Brussels could augur a future with a more cohesive and regulated single market.
This is the sort of thing that makes elderly Eurocrats start to hum Europa on their bidets. But getting back on your feet is a long way from marching forward. There are a lot of “ifs” in the EU’s renaissance. They begin with Macron. Talking about reform is a long way from enacting it. He’s already lost a couple of cabinet ministers. The real test of his resolve will come in the National Assembly and then in the streets: France has a huge public sector that consumes more than half its gross domestic product and which will fight against reform.
There’s a bigger problem than France: Italy’s debt is 133 percent of GDP, its economy is basically unreformed, and it faces an election next year that could be won by a coalition of Silvio Berlusconi’s center-right party and the anti-immigrant Northern League or even the anti-euro Five Star Movement. Merkel knows that German voters won’t be pleased with the prospect of salvaging such an Italy. Rather than rejoicing in their role as the euro’s main beneficiary, let alone feeling guilty about the austerity they’ve enforced on the rest of the continent, some Germans see themselves as long-suffering philanthropists who’ve bailed out the lazy people of Southern Europe repeatedly.
Indeed, both the politics and the economics of the EU look good mainly in the sense that they’re no longer disastrous. Across Europe more voters would rather Brussels return power to the member states than increase its own. The EU hasn’t solved the problem of refugees: Its southern borders are still far too porous, with Italy desperately seeking support from its partners. The economy is still reliant on the European Central Bank printing money. The single market remains pathetically unfinished. The continent has nothing close to a Pan-European bank. Europe measures the pace of reform against its own sluggish historic standards. Looked at globally, it not only appears to be far behind America, but it’s also in danger of being caught by emerging economies. And the main proponent of structural reform, the British, are leaving.
That ties into a deeper danger in dealing with Britain. Some European leaders want the British to suffer to put off other potential defectors and to persuade the British to reconsider leaving. There’s a fundamental danger of going too far, however. Ask a Eurocrat what the Union should do if Britain, having consumed more humble pie, begged, say, for the Norway option—that is, nonmember customs-free access to the EU and allowing for the free movement of people—and the immediate response in Brussels is to list all the extra punitive conditions the British should accept that the Norwegians haven’t. This seems counterproductive on many levels. Inducing an economic crisis in a market of 65 million people (which will still house much of the EU’s financial system) would hardly help European businesses. The one unarguable achievement of the EU has been a more peaceful continent. An embittered Britain, where even those who never wanted it to leave in the first place think Brussels is treating them unfairly, is in nobody’s interest. There is a big difference between a grumpy participant and a deeply alienated neighbor.
The truth is that Brussels is a bit like a patient that’s had a heart transplant. It shouldn’t assume that its new lease on life is an endorsement of its previous lifestyle. If it doesn’t reform its habits, then it will be back on the operating table.