Nationalism Wreaks Havoc in Divided Europe
15 February 2016 - 6:54AM
Dow Jones News
Simon Nixon
There are many different ways the European Union could fall
apart in the coming weeks, but all of them have a common thread:
the inability of national politicians to adopt a European
perspective when confronted by common European challenges.
This is as true of the crisis surrounding the U.K.'s membership
of the EU and the migration crisis, which will dominate a crunch EU
leaders' summit this week, as it is true of the eurozone economic
crisis, which have burst back on the agenda following recent moves
in financial markets.
Take Britain's EU membership: When Prime Minister David Cameron
first said that he wanted a new deal for the U.K. ahead of a
referendum he has pledged to hold by the end of 2017, he insisted
that the reforms he was seeking would benefit the whole of
Europe.
Yet the draft deal that EU leaders will discuss does nothing of
the sort. It consists of a series of carve-outs for the U.K.
carefully crafted to stop other countries taking advantage of them.
Indeed, EU officials are clear that if other member states try to
make use of a controversial "emergency brake" that will allow the
U.K. to restrict welfare payments to EU migrants for four years,
the deal with the U.K. government would fall apart.
The deal may fall apart anyway: European Council President
Donald Tusk has warned that the process is "fragile". Mr. Cameron
can't even be sure he will achieve even his limited objective of
persuading key figures in his party to back his deal, complicating
his efforts to win the referendum, which he hopes to hold in
June.
Either way, the deal looks likely to make the EU harder rather
than easier to manage. The price of trying to keep Britain in the
EU has been to put in question core EU principles including
nondiscrimination against EU citizens, the free movement of workers
and the integrity of the single market rule book. That looks like a
recipe to embolden nationalists across the continent, showing that
unilateral threats can deliver results.
Similarly, nationalist thinking lies at the heart of the
difficulties in managing the migration crisis. Northern and Eastern
European politicians blame Southern Europeans for failing to
control their borders or implement agreed asylum processes.
Southern European politicians blame overgenerous Northern
European welfare systems, which act as a magnet to migrants. Angela
Merkel stands almost alone among national politicians in insisting
that migration is a common European challenge that requires a
common response.
Yet so far, her calls for stronger border controls and greater
sharing of the burden of processing applications have achieved
little other than to undermine her own domestic political position.
Instead, Greece now finds itself threatened with suspension from
the Schengen passport-free travel zone, which some European
governments now fear could trigger a domino effect, leading to an
unraveling of wider EU integration.
But it is in the economic sphere that nationalism may yet wreak
the greatest havoc. Last week's volatility in global markets has
been widely attributed to a loss of confidence in central banks.
That is particularly worrying in the European context because the
European Central Bank has consistently proved to be the one
institution in Europe with the power and the willingness to act in
what it perceives to be the wider European interest.
Through its liquidity operations and more recently its
government bond-buying program, the ECB has so far held the
eurozone together and helped engineer a modest recovery but it
hasn't been able to engineer a return to inflation to its target of
close to but below 2%, which would ease concerns about the
eurozone's large debt burden.
Now the market appears to fear that the ECB is running out of
ammunition: Steps it might take to boost inflation may actually
make the economic situation worse, not least through what the
market now clearly believes to be the dire consequences of negative
interest rates on the banking system.
If the ECB now finds its credibility in question, much of the
blame can be laid at the door of national politicians who for years
failed to internalize the implications of membership of a single
currency. If growth is weak and inflation is low in the eurozone,
that is in part because national governments failed to use the time
gained via ECB action to take steps to tackle debt overhangs and
improve productivity and potential growth via reforms to labor
markets, insolvency regimes, product and services markets and
public administrations.
Worse, rules designed to encourage governments to modernize
their economies have clearly failed, as the governors of the German
and French central banks acknowledged in a joint op-ed column last
week. Instead, national governments under pressure from voters are
increasingly threatening to reverse previous reform achievements,
not least in Portugal, whose 10-year bond yield rose above 4% at
one point last week--despite the support of the ECB's bond-buying
program.
Can the EU reverse its drift to nationalism? More than the
stability of its financial system is at stake.
(END) Dow Jones Newswires
February 14, 2016 14:39 ET (19:39 GMT)
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