Europe’s options: brew beer or reform

The European financial crisis is not just about the immediate debt problem: it's about Europe's longer term viability in a more competitive world. For the sake of future European generations we need to start the hard bargaining process over real and painful reforms straight away.  

What do Aldersbacher in 1268, Affligem in 1074 and Weltenburger in 1050 have in common? Firstly they are all breweries; secondly they are also three of the oldest companies in Europe (the numbers are the dates when they were founded). The list of the oldest companies also includes a few restaurants and hotels, the odd wine or cognac maker, and the port of Aberdeen. Is there a lesson in this for the crisis-befuddled Europe of today?

Well, maybe. A simple lesson is that very little lasts, and those things that do tend to be obvious. We will, it seems, always drink beer, eat food and need somewhere to rest our heads. Most other things change, from industries and systems of government to bureaucratic methods and economic advantages. This is not a bad thing, but it is a lesson that Europe needs to remember as it reinvents itself once the immediate debt-based crisis is over. Rather than hang on to what has worked so far we need to see what will continue to work in the future, and the answer lies in substantial reform, towards a knowledge based economy that builds upon European and EU strengths and allows us to hold on to the prosperity and influence that we are in danger of losing. Without this, the current debt crisis suggests that an unreformed European Union will find it impossible to survive in the future.

The crucial insight is that the current crisis is not simply one of this moment. It is one of the future. The markets are not betting that many fundamentals have changed in Europe’s economies, Greek economic figures notwithstanding. Instead, they are betting on Europe’s inability to deal with the situation in the near and not so near future. The evidence is mounting, from sclerotic growth figures and a loss of economic libido to flaccid political leadership and the wailings of vested interests. Put this alongside the increased competition from dynamic new centres in a globalised world, and the focus of the debt situation changes.

There is nothing intrinsically wrong with the idea of debt, but for many Europeans it has become a method for subsidising income in the absence of genuine economic resources. It pays off neo-corporatist interest groups that have ring-fenced their own privileged positions, usually at the expense of economic dynamism and of outside groups like the younger generation. It pays off public sectors that have entrenched themselves behind often noble ends, such as a unemployment insurance, state pensions or Britain’s National Health Service. It pays off consumers who have seen their incomes outstripped by the desire for flat-screen TVs. It pays off economic sectors who can no longer keep pace with international competition, but who resist reform under a protective government blanket. It also paid off the need for southern economies to become competitive after joining the euro, and look where that left them. Forget about the euro becoming a transfer union; real wealth is being transferred between Europe’s generations, and the markets are asking whether there will be anything left to pay for it once our children emerge blinking into the harsh light of a multipolar world. The prosperity engine that fired the EU’s magnetism has stuttered to a halt. Both deeper and wider Europe have alienated Europe’s citizens, who have started to look to less tasteful political entrepreneurs who more directly address concerns such as immigration, perceived loss of sovereignty and disparities between EU neighbours. Leadership from Europe’s mainstream politicians, alas, has not been much in evidence.

Many of the changes that this crisis will bring about are already coming into sharp focus. Even the British Tories can see that a future eurozone will take on a more federal nature, perhaps involving some form of Eurobonds and central governance. A new gearbox will be fitted to the European project, perhaps with many more than two speeds. This may even allow the Gordian Knot of Turkish membership to be unpicked, consolidating the Anatolian giant within one or several European orbits, without having to confront hostile public opinion.

This new Europe would be shorn of some of the seeming triumphs of the last decade, when it sought to set a template for multilateral cooperation and the spread of ‘European’ values of democratic liberalism, human rights and the rule of law.  Perhaps, rather than regretting what has changed, we ought to see this as an opportunity to reinvent Europe and its place in the world. After all, an unreformed European Union is unlikely to survive, with structures such as the euro demonstrating catastrophic internal flaws and its decision making processes unable to deal with much more than kicking cans down endless roads. Many of Europe’s former core strengths remain vital for the future: its success in building the world’s biggest market out of so many individual states; its leveraging of trade power into raising industrial standards, environmental awareness and – sometimes – democracy; its power to work together. The European framework will remain relevant, however many gears the multi-speed Europe of the future has.

The biggest opportunity, and the biggest challenge, is to use this framework for the building of a new European economy that can punch its weight on a 21st century stage. Luckily, hard times bring opportunities for tackling the hardest issues, such as the vested interests and unreformed economies mentioned above. This is a time for bargaining, and those countries putting money on the table to bail their neighbours out of their immediate troubles have the right and the duty to demand something in return. That something is genuine and meaningful reform.

Deep down Europe knows this, as projects such as the Lisbon Agenda and Europe 2020 demonstrate. The future for Europe must be a technologically far-sighted economy that builds upon our strengths such as understanding the need for sustainability and reducing carbon dependence, innovative business models and for world class services (that means the financial sector too, despite its substantial role in precipitating the current economic problems). Taking the environment and climate change seriously is likely to be a real European advantage, as the world gradually moves towards a low-carbon, technologically-innovative and sustainable economy

This will hurt. We have benefitted from a globalised world (indeed we are greatly responsible for bringing this about), and we cannot now complain that the competition is too hot for us to continue our sacred mission of protecting certain blessed groups from reality. Vested interests and virtual Ponzi schemes like unsustainably underfunded state pension entitlements need to be tackled, and reforms, from Europe’s education systems to its attitude to innovation, brought in. Those that refuse or renege should lose whatever lies at the other end of the bargaining table.

Thorny issues such as immigration can be made to work for this goal, for instance by instituting a stronger link between the needs of a knowledge economy and the abilities of the immigrants (not including asylum seekers, of course). Europe should not be simply looking for large numbers of new low-paid EU citizens as the fuel for maintaining entitlements at a time of demographic decline, tighter credit and faltering growth. This is simply another recipe for transferring both economic decline and political trouble from the current generation to future ones.

Europeneeds to remember the great sweep of history as it seeks to reinvent itself beyond the current crisis. What works now is unlikely to work in the future, but the current crisis gives us a negotiating platform that our leaders must use to tackle some of the trickier challenges in Europe. It is unlikely that Europe will be able to reinvent itself as a beer brewer, a company for the ages. That means that we must change with the times, difficult though that may be, and reinvent, reform, and face up to the competition and challenges of a 21st century world. If we hide then Europe will cement its growing reputation as a good place to be unemployed, and all we will leave to our children will be menial jobs working for small change in a tourist theme park called Europa.


The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.

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