Nicolas Veron
Subject: Will the EU Hold Together?
Bio: Senior Fellow at Bruegel in Brussels, Senior Fellow at the Peterson Institute in DC and author of Europe’s Banking Union at Ten: Unfinished Yet Transformative
Transcript:
Larry Bernstein:
Welcome to What Happens Next. My name is Larry Bernstein. What Happens Next is a podcast which covers economics, politics, and international relations. Today’s topic is Will the EU Hold Together?
Our speaker is Nicolas Veron who is a Senior Fellow at Bruegel in Brussels as well as at the Peterson Institute in DC. He is also the author of the book entitled Europe’s Banking Union at Ten: Unfinished Yet Transformative.
I want to learn from Nicolas about the resilience of the European Union and how it has been affected by the European banking crisis, Brexit, the war in Ukraine, and fears of increasing immigration.
Nicolas, can you please begin with six minutes of opening remarks.
Nicolas Veron:
European integration is an experiment. There is no precedent for what the Europeans have been doing since World War II. The project ultimately is to prevent another war in Europe.
For a decade, the Eurozone was on the brink of collapse at risk of breaking up, certainly between 2010 and 2015, which was the most intense phase of the crisis. There were cliffhanger moments where the end looked near. The Eurozone weathered that crisis. They built new institutions: European banking supervision, the European stability mechanism, etc.
It has been survival against difficult odds. At the same time, this framework is incomplete. There is no fiscal union to the European Banking Union. It lacks essential risk sharing and risk diffusion. So, there could be a future Eurozone crisis. That said, having survived that first big test is a proof of some resilience.
There were predictions that if the UK were to leave the EU, there would be a chain effect. Many people who were promoting Brexit were betting on that explicitly. It has come as a surprise to many that this did not happen. If anything, there has been more ability of the remaining EU 27 to do things together. For example, in the spring of 2020, the decision of all EU member states by all 27 to borrow jointly and to issue EU bonds at scale to weather the shock of the COVID-19 lockdown. It is plausible that this would not have been possible if the UK had still been in.
There have been elements of additional cohesion and resilience coming from Brexit. To state the obvious Brexit happened, so it showed that a member could leave, and the EU was not able to prevent that from happening.
The jury is out in Ukraine. Many observers do not understand the extent to which the war between Ukraine and Russia is existential for the EU. This is a very widely shared view in European public opinion that the Russian aggression of Ukraine is an aggression of Europe and that if Ukraine loses Europe may not survive.
But the upshot is that the European Union and its member states have taken an enormous commitment to help Ukraine and are delivering on that commitment. At the beginning, most external financing of Ukraine’s war came from the U.S. Now, most of the financing including of the weaponry and all the non-military expenses of the Ukraine government comes from Europe. Other non-EU countries like the UK, Norway, Canada, Japan, Korea, are helping in different ways.
There have been individual country situations where anti-Brussels political forces have gained access to government, whether in coalition or alone like in Hungary. This has not reached the level of an existential threat because many of those populists do not want to destroy the EU. They want to leverage it, but they do not want to get rid of it. This is even true of Mr. Orban. Mrs. Meloni who comes from the far right in Italy has turned out to be a Europe friendly political leader for her own political interests.
And that connects with something which is often under underappreciated, particularly outside of Europe, which is that the European integration projects are extremely popular. National politics are very messy in many places. European politics have shifted right in the last 10 years. That has a lot to do with issues of immigration and identity that parallels the U.S. That has not become a major challenge to the future of EU integration.
To end on the note of caution, there might be a tipping point. Maybe if you have more member states than just Italy, where insurgent political forces gain power, they will dismantle the EU. But my general point is that the European integration project have more strength and resilience than they are often given credit for, and that the experience of the last 10 years supports that.
Larry Bernstein:
Let’s start with Brexit. The Brits left. What happened to Europe afterwards?
Nicolas Veron:
The referendum vote was in June 2016. The UK only left the EU in early 2020 and they stayed in the single market until early 2021. So, it took almost five years to decouple and for the UK to leave the single market. Negotiations were dramatic, but from the financial perspective, there was good cooperation behind the scenes between the European Central Bank and the Bank of England. This was managed quite smoothly.
Despite media attention and the drama at the political level, the transition was orderly. The decision of Brexit is now quite unpopular. But even with that, there is no indication that the UK would consider anytime soon reversing that decision and reenter the EU or even reenter the single market, which would be a step in between. For example, Norway is not a member of the EU, but it is in the single market.
There are no expectations that the UK would consider that soon, maybe in 30 years’ time, but not in this cycle. So, the relationship is stable. Has it been a good or bad thing? Most British economists think it hasn’t been good for the UK, for the European Union it’s ambiguous. The UK was a difficult member. For some purposes life is easier without the UK, for other purposes, including the general direction of economic policy, the UK was viewed as an anchor that regulation would not be too onerous, you would not turn protectionist, there would not be too much industrial policies and national champions. The departure of the UK may have shifted the policy balance of the EU in a French direction. Trade policy of the EU after Brexit has become extremely active, agreements with India.
Larry Bernstein:
How do you think about democracy with the European parliament?
Nicolas Veron:
Is the European legislative process democratic or not? Yes, it is democratic. Democracy is always imperfect in terms of the representation of citizens and the distortions. In the U.S. you have a massive distortion in the ways the Senate has built up with states like Wyoming being represented the same way as California. You also have political life financed in the way special interests can buy political power with the financing of political life, which does not have an exact equivalent in most of Europe.
The ways the European parliament operates is that citizens are not given a full voice because the European parliament is comparatively weak compared to both the House of Representatives in Congress and lower houses in individual member states of Europe. It does not have the power of the purse; it does not have the power of legislative initiative. It is a weak institution because it hasn’t been granted that power by the successive treaties. Conversely, the Council of the European Union, which the rough equivalent to an upper chamber like the U.S. Senate and is by far the most powerful of the two legislatures. The other being the European Parliament is very imbalanced because it gives disproportionate power to the largest member states, but it also does not provide equality of representation. It’s also very untransparent. It does not debate in public and there are elements of council negotiations that would shame an upper chamber in the national context.
Is it democratic? Absolutely. I do not think any democracy is perfect, some come closer to a perfect ideal. I do not think either the US or the EU are in the top league for that. But it’s more difficult to organize a perfect democracy in a large and complex territory than in a city-state or a small cohesive nation like Scandinavian countries. I am very aware of the frustrations that Brussels can generate.
Larry Bernstein:
In 1861 Abraham Lincoln asked Robert E. Lee to the White House, and he asked Lee if he would run the US Army in the Civil War. He declined; he viewed himself to be a citizen of Virginia and that he would join forces with the Confederacy.
Core to the European mission is that same question. Are you European or are you a Swede or a Spaniard, et cetera? After the Civil War, the concept switched to being an American first. And that tension, nationalism at the state level versus the multinational European Union is a core problem which represents interests, transfer of money, or power. How do you think about that question?
Nicolas Veron:
Younger Europeans feel more European. The legal answer to your question, a bit like the U.S. in 1861, is that European citizenship exists, but it is derivative of national citizenship. And that interestingly was clarified after Brexit because there were several people who initiated legal action wanting to retain their EU citizenship and lost.
Frontex is a European external border agency, the European Coastguard, if you will. That was the first time ever that the EU had agents with uniforms and weapons. They have not fired their weapons. At this point I am not sure how consequential it is, but that was certainly symbolic. The EU flag is a banal non-emotional presence in most EU member states. You have it next to the national flag, it’s an institutional marker that doesn’t get people’s blood pressure going up.
Larry Bernstein:
During Trump’s first administration, he was asked by a reporter if Montenegro were attacked, would the United States pursue the aggressors? He said, no. What about Article Five? What about Article Five? And it brings into question the Baltic states, which have historically has been part of the Russian influence. It has not been a strategic interest of the United States, but the logic of the domino effect as it relates to the Baltic states being so close to other European states, it will give them tremendous concern and the desire for the United States to come bring in the calvary after a Russian invasion of the Baltic states. How do you think about something that is a strategic interest to the Europeans but not a strategic interest of the United States, and an integrated defense alliance that depends upon it?
Nicolas Veron:
We’ve seen with Ukraine already, a divergence of attitudes between Europe and the United States. United States in the Biden administration decided to stop giving money to Ukraine because it was not important enough for the U.S. and the U.S. keeps enormously important critical assistance to Ukraine in non-financial terms by selling weapons, by sharing military intelligence. And all that is mission critical. But the financial support ended and that started before Trump was elected, and you see the difference with the European stance, which is offsetting that withdrawal of US financial support.
With the Baltics, you would have that on steroids because they are members of the European Union, the Eurozone, the body politic of European integration. It is true that if you are in Portugal, Spain, or even France, it feels far away. So, the cultural connectivity is not what it is with the neighboring countries. But everybody in France understands that the aggression of the Baltic states is an aggression on the EU.
The transatlantic alliance has been beneficial to the U.S. in terms of its role in the world and its economic, strategic diplomatic heft. Having said that, alliances are not cost neutral. The Trump administration seems to believe that every alliance cost money. We will see how that stance develops over a longer-term period.
Larry Bernstein:
You mentioned that Estonia has different interests than the Portuguese, and we see it in relative defense spending within Europe that is consistent with that philosophy of the threat. The Trump administration clearly stated that the Europeans have underinvested in defense and that it is not fair. The threat is theirs, then they should deal with it.
Nicolas Veron:
There is this extraordinary chart where you map the military expenditure and correlate it with a distance to Moscow, and the correlation is extremely strong. The closer you are to Moscow, the more you spend on defense, and that tells you the perception of where the risks are coming from. There is this dominant collective perception that the existential risks come from the East.
Now you mentioned the controversy about defense spending. The dispute, which started in the 1960s more than half a century ago was we need more burden sharing.
At this point, the conversation has shifted a lot because there’s a critical mass of Europeans, that have acquired the conviction, which they didn’t have 10 years ago, that spending more on defense is something that Europeans have to do. There was one consequential episode in March when for a week the Trump administration suspended military intelligence sharing with the Ukrainian forces on the frontline. And that was felt in European circles as immensely consequential because this was the US just abandoning its security commitment to something that was essential for Europeans.
Now, there are differences across Europe. Spain, Italy, Portugal, are less eager to allocate immediate budgetary resources to this effort than the Baltic countries or Poland. It will get sorted out. I am optimistic about that.
Larry Bernstein:
Populist parties and immigration seem to be a particularly hot topic, not only in the United States but in Europe, that immigration, both legal and illegal, has reached levels that are unsustainable and has caused backlash. There’s anger and frustration all around. Hungarians behaved differently than the Germans. Tell us about immigration and whether this is the key issue for the foreseeable future.
Nicolas Veron:
It is a key issue in European politics, no question. It’s an urban versus rural divide. Small towns are much more negative about immigrations than people who live in big cities. And to a certain extent, you also have an educational divide. Higher educated people are less worried about immigration than lower educated people, but that again, interacts with other parameters, including geographies.
The salience of the immigration issue has driven a very unambiguous rightward shift of European politics as it has in the U.S. The median point of the European Parliament now is no longer in the center. They are part of the left. Immigration has been the central driver of that shift.
The mistake that is made in many corners is to equate that rightward shift with an anti-European shift. Many of those parties once in government want to leverage the EU institution.
Larry Bernstein:
Compare and contrast US and Europe on the immigration issue. There was substantial illegal immigration to the United States during the Biden administration, and Trump ran on that in the campaign. His first act of business was to shut that down. What have we seen in Europe?
Nicolas Veron:
The European situation is different because we do not have a single country in charge. We have freedom of movement, crossing borders, freedom to work, asylum is important, and that puts pressure on the system because there are many asylum seekers. The U.S. has a long and difficult border with Mexico, but Europe has multiple borders with all kinds of places. So, it’s a different proposition.
Larry Bernstein:
Nicolas, what are you optimistic about as relates to the continuing success of the European Union?
Nicolas Veron:
Europeans want the European Union to thrive. They see their future as proud members of their local communities, their respective countries, and the European Union. Our passports have both identities. European Union and the country. National and European are not viewed by citizens as contradictory. On public buildings, you have the national flag and the European flag. You have this interplay between national government and EU institutions. It is different from the rest of the world where you have a country that defines who you are. Get used to it. It is here to stay. It is the future for Europeans. Let’s leave it at that.
Larry Bernstein:
Thanks to Nicolas for speaking on the podcast.
If you missed the last podcast, the topic was Convicting Ex-Nazis: the 80th anniversary of the Nuremberg Trials. We had two law professors for speakers, Jonathan Bush at Columbia and Eugene Kontorovich at George Mason.
We discussed the success and failure of the Nuremberg Trials to educate the German public and punish the Nazi perpetrators. We also reviewed the trials historical importance and their precedent for the laws of war in international courts.
You can find our previous episodes and transcripts on our website
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Check out our previous episode, Convicting Ex-Nazis: The 80th Anniversary of the Nuremberg Trials, here.
