Europe could be heading for another crisis driven by deflation, high unemployment and low growth. A north-south split and concerns over who leads Europe mean the entire project faces its biggest challenge since the Maastricht Treaty in 1992.
European Parliamentary elections last week produced a shock for the ruling elite as eurosceptic parties made stunning gains. Can the grand European project emerge stronger or will the rise of the eurosceptics see a fundamental reassessment of what the EU means?
Lars Seier Christensen, co-CEO and co-founder of Saxo Bank, believes the EU is just a “big mess”. Speaking before the elections took place, he was very hopeful that the polls would spark Europe’s rulers into action.
The results were certainly dramatic. Britain’s UK Independence Party and the National Front (FN) in France topped the polls in their respective countries with a quarter of the vote, while there were also significant gains for right-wing parties in the Netherlands, Hungary and Denmark.
But will the surge for the anti-EU bloc actually lead to any meaningful change? For Christensen, the key problem is the single currency, which he thinks needs to be tackled first. “It’s clear what you would have to do to get Europe back on a growth path,” he explains, “you need disassemble the euro and go back to multiple currencies. Unless you fix that problem you can’t really fix any other problem.”
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Christensen does not think the EU as a whole needs to be dismantled, but unless there is radical change and the scrapping of the euro, eventually it will dissolve - “either by planning or by the markets taking the whole thing apart”.
There is no reason for the EU to dissolve if it can return to what the whole concept was about originally - free trade and the removal of restrictions on the movement of goods and people, he says.
The elections have been a massive wake up call, but doubts remain about whether anyone at the heart of the European project will listen. In spite of some significant gains for the likes of UKIP and the Front National in France, the old guard retains a substantial majority in the European Parliament. The anti-EU tidal wave didn’t reach into every nation and the major pro-European parties are still the dominant force in Brussels. In contrast to the UK and France, voters in Italy and Germany staunchly backed the pro-integration camp.
Indeed, Mark Littlewood, Director General of the Institute of Economic Affairs, believes the impact of the elections is less important at EU level than it is at the nation state level. If eurosceptic parties are doing well, national governments will find it very hard to take a pro-Federalist stance. UKIP could even act as a catalyst for the Conservatives to become a full-blown eurosceptic party.
Already the French and British governments have led calls for EU reform. President Francois Hollande called on leaders to "pay attention" to the rise of the FN, while Prime Minister David Cameron said Brussels was "too big, too bossy".
If reforms don't happen the situation could deteriorate more quickly and the EU could start falling apart. “It could be looked back on in five or ten years’ time as the first domino that led to the UK’s exit from the EU,” adds Littlewood.
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As ever in Europe there are complications. For example, two strands of euroscepticism are emerging: one that is broadly pro-free trade that wants to see the EU return to its roots as a common market. The other is populist, anti-big business and wants to see even more protectionism. Can those in the financial markets rely that the eurosceptics will actually be good for business? Many are worried that anti-EU will not necessarily be good for the economy.
Indeed, would there be any real difference if the EU were to end tomorrow? Member states are already footing massive social welfare bills. While there is some contribution from the EU in terms of legislation, it’s hard to see countries suddenly rolling back the state spending if the EU were to collapse.
Littlewood notes that with EU social spending at around 50 percent of GDP, the size of the state is closer to the former Soviet Union than the world’s fastest growing economies. How you get that level down goes “well beyond” the EU and its structures, he says.
Yet despite all of its problems, the EU has shown an incredible ability to carry on regardless. Talk about impending doom for the project could be overblown.
Indeed, while Christensen thinks there is a very strong risk of violence and social unrest in places where there is no more money and no more jobs, so far there has been remarkable restraint and an ongoing belief in the EU concept.
Greece managed to tolerate a lot of pain to stay in the Eurozone, shedding a quarter of its GDP, while as noted earlier, the eurosceptics still do not dominate the European Parliament.
As Littlewood puts it, the EU continues to show a remarkable knack of ambling on. Whether or not the recent elections alter this may not be known right away, but the poll is clearly going to shape Europe’s future.
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Is this going to be like the war in Belgium ?
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