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The Battle for Europe Integration Has Failed and Russia Provides Proof

It's time to concede European integration failed. What are the consequences?
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Image courtesy of Eurointelligence 

Image courtesy of Eurointelligence 

When Did We Lose the Fight?

Eurointelligence founder Wolfgang Münchau is a strong pro-Europe advocate. He has been that way for the entire decade I followed him.

Earlier this month he commented: "The battle for European integration has failed. It is time to recognise defeat, and to think through the consequences."

Please consider Münchau's thought-provoking article When Did We Lose the Fight? Emphasis below is mine.    

When you fight for a cause that does not materialise, at what point do you recognise, and admit, defeat? There are some causes you may want to keep fighting for no matter what, like human rights or climate change. Is European integration in that category? For me, it is not. My biggest area of disagreement with my fellow European federalists is not in what we think is desirable. What we disagree on is where the dividing line between realpolitik and wishful thinking lies.

A good example occurred this weekend. The fool whose committed the crime of saying what everybody in the SPD is thinking was Kay-Achim Schönbach. He was forced to resign as head of the German Navy for revealing to the world that Germany’s natural ally is Russia.

Germany also plays a non-cooperative game in the EU’s monetary union, through an economic model that is reliant on large savings surpluses. Whether the issue is economic or foreign policy, other member states have been reluctant to challenge Germany.

The euro area’s sovereign debt crisis deprived me of my last great European illusion, the notion that crises make us stronger. That particular crisis made us weaker. So has the pandemic. I see no trajectory whatsoever for Italy to generate the degree of productivity growth needed to render its foreign debt sustainable. The only way to avoid disaster is for the ECB to support Italian debt forever. It might do so. But that would set the ECB on a toxic path, leading to a wide selection of other horrible destinations. Then again, the euro area would probably not survive an Italian debt default intact either. Pick your poison.

My scepticism is not impatience, but concern that opportunities have been lost forever. Take ECB asset purchases. There was a short window for a genuine eurobond between 2008 and 2015, when the ECB’s programme of quantitative easing started. Afterwards, the ECB bought national sovereign debt in the trillions, and turned them into euros. This is what QE does: it swaps debt for money. Money is a liability similar to bonds, except that the maturity is shorter.

The idea behind a real eurobond could not be more different. It would not have been about the monetisation of national debt. A real eurobond would have been a debt instrument of a federal fiscal union with limited tax raising powers.

If only. I have come to the conclusion that this ship has sailed. Once you realise this, the consequences are far-reaching. If a proper economic union constitutes the first-best option, it is does not follow logically that a dysfunctional economic union is the second best. 

But if you don’t, you have to ask yourself some rather troubling questions. This is where I am at. One of the questions is this: even if the European solution is optimal, is it possible that the national alternative is superior to a malfunctioning hybrid?

Fatal Flaws

I disagree with Münchau that there ever was a chance for a united Europe.

  1. The euro itself is fatally flawed. There is no way for a single interest rate to work for Italy, Germany, France, Spain and Greece with monstrously different work ethics, hours pension plans, productivity, etc.  
  2. There is no way to change the rules. 

When the Eurozone was formed, Germany insisted on rules that could not be changed without unanimous consent of all countries and without consent of the German constitution. 

Over the years Germany bent in minor ways, but did not break on some constitutional debt rules. 

But point two still remains. It take unanimous consent to do nearly anything in the EU or Eurozone that was not explicitly spelled out in the Maastricht Treaty that created the EU.  

This is why it took a nearly a decade for the EU to work out a simple trade agreement with Canada.

Germany will never give up on debt brakes and France will never give up on Agricultural policy. The latter has stymied every global global trade agreement for at least two decades. 

Russia is Germany's Natural Ally 

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RECOMMENDED ARTICLES

Russia is and has been Germany's natural ally. Note that Germany even blocked sending military aid to Lithuania and Ukraine

Former Chancellor Angela Merkel, bowed to the Greens and dismantled German nuclear reactors. 

Now Germany is in desperate need of Russian natural gas. 

What About China?

Germany will not stand up to China, once again over trade issues. 

Is Germany a US ally?

The US has still not figured out Germany is a weak ally at best. The EU has not figured out that Germany has no intention of ever changing its trade stance.

But everyone does understand that France will never change its agricultural policy.

What About the UK? 

The UK did good to exit the EU mess via Brexit even if they have so far mishandled many steps along the way.  

The National Alternative

Münchau asks the right question: "Even if the European solution is optimal, is it possible that the national alternative is superior to a malfunctioning hybrid?"

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