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Josep Borrell_26122014 (2)On November 26th, the IE School of International Relations welcomed Josep Borrell, former President of the European Parliament, for an enlightening lecture on the euro crisis and the future of the EU. Mr. Borrell began his talk by recalling the evolution of the European Union:  from its origins to the current crisis it faces, the worst one since its inception.

Historically, there have been four main forces that have driven the European integration process: the “never again” commitment based on the  scarring memory of war; the Soviet threat; the need for German rehabilitation, and the Fall of the Berlin Wall. Today there is only one  seemingly clear-cut driver for European integration, and this is embracing globalization. In the 21st Century, size will matter because Europe’s  economy will no longer be the world’s largest economy and because today Europeans are twice as old as their neighbours. Only by acting  united, Europe will be able to compete in a world of great powers.

 

“Believe me, it will be really painful”

Josep Borrell_26112014 (12)Regardless of what the future holds for the EU, the European project has recently confronted the very risk of collapse. At the height of the euro crisis, European leaders and institutions took tough decisions that are having an enduring effect on the way Europeans think and feel about the EU. The consequences of the crisis are pulling European public opinion apart, dividing the South of Europe from the North, the Eurozone members from the rest, and spurring an all-time low desire for further integration.

Mr. Borrell highlighted that this has not been a crisis of the euro itself, but a crisis faced by some Member States of the monetary union. When the Treaty of Maastricht was being negotiated, the design of the euro prompted heightened discussions among negotiators [Mr. Borrell was a member of the Spanish delegation negotiating the Treaty] on how difficult it would be for some Eurozone members to go through a systemic crisis without the necessary tools to confront it. At one point, Mr. Borrell remembered his German counterpart’s warning about the dangers of adopting the euro: “Believe me, it [the adjustment] will be really painful”.

Ten roots of the crisis

It has been extremely painful indeed. The prolonged economic crisis in Europe has shown how flawed the original design of the euro was, and how wrong thee pundits and policy-makers who believed that this was a fiscal crisis. According to Mr. Borrell, the fact that the crisis started in Greece allowed them to build the narrative that this was a fiscal crisis originated in the South, when in fact many countries were facing different crises (i.e. housing bubble, credit crunch, banking hypertrophy). Whatever the case might be, Mr. Borrell explained that the EU had none of the tools needed to survive a monetary union in crisis. For Borrell, the ten big roots of the crisis were the following:

  1. The failure of the Stability and Growth Pact.
  2. Sole focus on fiscal issues.
  3. No mechanism for structural adjustment.
  4. No crisis resolution mechanism.
  5. Correlation between banking and debt crisis.
  6. Strong interdependence between countries.
  7. No lender of last resort in the Eurozone.
  8. Recessive downward spiral through austerity.
  9. Reduction in credit supply.
  10. A governance crisis.

Looking ahead

Josep Borrell_26122014 (4)European response to the crisis has been patchy, inadequate and belated. But, what to do now? Looking ahead, there are some plausible scenarios for the EU. The first option is to revise the Treaties, but this is not realistic given the current political balance in the EU. The second and most likely option according to Mr. Borrell is that European leaders will keep working as usual. However, this option will fail unless there is a stronger political will for the structured cooperation, constructive abstention and enhanced cooperation procedures envisaged by the Lisbon Treaty.

If this option goes wrong, then European leaders will have to consider the idea of creating a two-speed Europe which would temporarily split the EU into two groups: those countries ready to deepen their ties, the Avant-Garde, and those that are not prepared yet for further integration, or that simply do not want to integrate more. To some extent though, the final structure of this two-speed Europe remains unclear. Who would join, and under what political and legal arrangements would this Avant-Garde be created and legitimized?

“Europe will be forged in crises, and will be the sum of the solutions adopted for those crises” as Jean Monnet, one of the founding fathers of the EU, famously said. But for such a costly sum of solutions to work this time, European leaders have to act better and faster in the face of crises if they want the EU to remain relevant to European citizens. In the aftermath of two World Wars, the rationale behind the EU seemed self-evident. Today, this raison d’être can no longer be taken for granted.

In this interview, Josep Borrell, former President of the European Parliament, analyzes the role of the European Parliament throughout the crisis, the agenda of the new European Commission, and Europe’s energy challenges.

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