The European Council on Foreign Relations

ECFR Council meeting: Europe’s crisis

Date: 7th June 2012  |  Author: Hans Kundnani,

Categories: Europe and the world, Reinventing Europe,
Tags: , council meeting, crisis, ecfr, euro, berlin

There was a sense of urgency as ECFR’s Council gathered in Berlin last Thursday for its annual meeting. In the weeks leading up to the meeting there seemed to be increasing pessimism about the euro crisis and predictions of a break-up of the euro. In the week of the meeting, the ECB rejected the Spanish government’s plan to recapitalise Bankia, which led to a further increase in Spanish borrowing costs and speculation about an imminent bailout.

Meanwhile there was increasing criticism of Germany, on which, Martin Wolf wrote in the Financial Times the day before the Council meeting began, “the fate of Europe” now hung. On the day of the meeting, Ireland voted in a referendum on the fiscal compact.

Around 80 Council members from 20 European countries were in Berlin for the meeting. On Wednesday evening before the meeting began, we also held a public event on the future of Europe featuring Joschka Fischer, Ivan Krastev, Christine Ockrent, Ana Palacio and Mark Leonard. (Fischer’s warning at the event that the eurozone was “close to break-up” was later reported in the FT.) The meeting itself began the following afternoon and took place under the Chatham House rule. Guest speakers included European Council President Herman van Rompuy, who joined us for an informal chat chaired by Quentin Peel of the Financial Times; and Steffen Kampeter, the Secretary of State in the German finance ministry (i.e. Wolfgang Schäuble’s number two), who defended Germany’s approach to the euro crisis over dinner in the Italian embassy.

The meeting began with a panel discussion with Council members Marta Dassù and Joschka Fischer and Anne-Marie Slaughter, the head of policy planning in the US State Department from 2009 to 2011, on the implications of the crisis for European foreign policy. I chaired the discussion and began by outlining the ways in which, as we argued in the introduction to the Foreign Policy Scorecard, the crisis seemed to have negatively impacted European foreign policy in 2011: it had led to a loss of European soft power; constrained Europe’s ability to respond to the Arab Awakening; led to cuts in defence and development budgets; and to a “renationalisation” of European foreign policy. So how should Europe respond to this situation?

Everyone agreed that a collapse of the euro would be a catastrophe for Europe that would have also a devastating impact on the global economy. But where, I asked, did that leave European foreign policymakers and in particular foreign ministers? American academic Daniel Keleman recently argued in Foreign Affairs that the crisis is “Europe’s new normal” and could last for years. In the meantime, Europe faced foreign-policy crises such as Libya last year and Syria this year. The consensus from the panel was that, while Europe must do its best to respond to such foreign-policy crises, it was right to focus above all on the euro crisis in the hope that, if it succeeded, it might recover some of the soft power it seemed at the moment to have lost. In other words, as one of them put it, “there is no meantime”.

Much of the discussion for the remainder of the day focused on the euro crisis and in particular the role of Germany. As one participant put it, what it came down to was that, because of its fear of moral hazard, Germany would “rather do little too late than too much too soon”. Another said she believed Merkel when she said would do what it took to save the eurozone; the problem was that she had the wrong idea about what it would take. Others, however, criticised the tendency to think that Germany alone could solve the crisis and argued that others should also ask themselves what they could do for Europe. Some of the German participants said they were prepared to move forward towards political union in order to solve the crisis; it was just a question of how. “Don’t be so pessimistic about Germany!” said one.

There were also fears that attempts by the eurozone to solve the crisis would create another crisis. In particular, greater integration among the the 17 euro-ins could widen the gap between them and the 10 euro-outs and thus create a political problem. Thus as Wolfgang Münchau argued last October, what needed to be done in order to save the eurozone could also kill the EU. As an alternative, some participants suggested a “club of clubs” or a “core” Europe surrounded by overlapping circles of member states. But could such a loose arrangement – in effect, a collection of coalitions of the willing – work? What, one participant asked, would you do with the EU institutions? In any case, some participants said, this would make the EU even more complicated; instead, we should be trying to “streamline” Europe.

The focus of the second day of the Council meeting, as it emerged that Ireland had voted in favour of the fiscal compact (albeit with a low turnout), shifted to foreign-policy issues such as Iran, Turkey and the US pivot towards Asia. But in the last session, George Soros returned to the subject of the euro crisis and made many of the points in his speech in Trento over the weekend that has made news around the world. He said the possibility of a breakdown of the eurozone was increasing and argued that Germany now had only three or four months to shift course before a slump in exports to the periphery constrained Chancellor Merkel even further. Unless this happened, the divergence between creditor and debtor countries within the eurozone would increase and turn the EU into “a German empire with the periphery as the hinterland”.