Why the credit crunch continues to cripple parts of the continent, how Tony Blair blocked a European army and how the EU can cure its ills
For Europe, the credit crunch goes on
After the collapse of Lehman Brothers, lending in Europe dropped by 10% in six years, whereas in normal economic circumstances it should have risen by 10%. In other words, the global credit level has collapsed by one-fifth. Only for the large companies and multinationals has there been little or no change. They can still obtain credit as easily as before. But small and medium-size enterprises often find the door slammed in their face when they approach the bank for a loan for expansion or innovation. And these small and medium-size enterprises employ three-quarters of eurozone workers.
An additional problem is that the economic culture of small to medium-size enterprises and family firms is particularly widespread in southern Europe, far more so than in the north, and consequently the south is harder hit. Thus the economic differences between north and south are increasing as a result of the credit crunch. Small but productive enterprises in the south all too often confront the sudden loss of credit lines they were guaranteed before the crisis (and always paid off promptly). Or they suddenly have to pay exorbitant rates of interest.
The situation forced central banker Mario Draghi to sound the alarm: ‘The banking sector and the financial markets of the euro area become more and more fragmented. Companies headquartered in affected countries face significantly higher lending costs than their competitors in countries that are better off.’
In other words, the precarious state of public finances in many southern countries is a significant burden not so much on the public sector itself as on the private economy, which is being dragged down. The conclusion drawn by Draghi, gradually despairing at the lack of action by our European leaders, is crystal clear: ‘If we don’t solve the problem of towering interest rates in some countries, the consequences will taste bitter for the rest of the euro area as well.’
For Draghi, the problem extends beyond southern Europe. The risk of contamination is great, particularly since the whole European business sector is financed almost exclusively via bank loans. Our companies are dependent to the tune of over 70% on credit provided by financial institutions. Only large companies can issue bonds, unlike in the United States, where almost three-quarters of companies finance themselves through bond issuances. In this way, American companies are far less dependent on the health of the banking sector.
In the first years after the crisis, the difference in interest rates paid by companies in northern and southern Europe amounted to almost 2.5%. In 2013, this had doubled, and today this ‘spread’ has tripled or quadrupled.
Blair blocked Euro Army
The discord over the American invasion of Iraq and Europe’s fatal indecisiveness in the face of Russian provocation in Ukraine have taught me that we will never play a significant geopolitical role if we do not first succeed in establishing a European defence community, and soon.
That is not exactly a new idea. European leaders tried to set up such a community as early as 1954. The governments and representatives of the six founding members of the European Coal and Steel Community reached an agreement, but a few months later the French National Assembly withheld its consent. And so we ended up merely with the customs union subsequently established under the Treaty of Rome.
Almost half a century later, in July 2002, I wrote to my French and British colleagues in the European Council, Tony Blair and Jacques Chirac, as they represented the two member states with the strongest military capabilities and resources. Four years previously, in Saint-Malo, both had agreed to provide the European Union with an autonomous and credible military force.
My letter was actually an act of desperation. I was scandalised by Europe’s negligible role in Operation Allied Harmony in Macedonia. For months the North Atlantic Treaty Organization (NATO) had been urging Europe to take over its military operations in the Balkans, but no matter how much EU high representative Javier Solana exhorted them to do so, the majority of member states refused to commit itself. This was only the latest conflict in the Balkans that I feared the Americans would end up having to deal with, as in the case of Kosovo. I suggested that the EU should finally take control of the situation.
The silence from London was deafening. I heard, informally, through my diplomatic advisor, that the letter was the worst initiative I had ever taken. My relationship with Tony Blair had sunk to new depths since informal discussions about a possible invasion of Iraq had started. The letter received a far better reception in Paris. One of the French president’s senior advisors was dispatched immediately by high-speed train to my office in Brussels. His proposal to put paid to Europe’s indecisiveness in the future was music to my ears.
An article under negotiation for insertion into the European constitution would lay the foundations for the establishment of a European General Staff, which would plan and carry out military operations autonomously. Each of the three ‘major’ states – Germany, France, and the UK – already had its own operational headquarters. Three other countries – Italy, Spain, and Greece – had plans to establish one. This not only represented a terrible waste of money but reinforced disagreements about the European order of battle.
Which headquarters should take the lead, when, and in which operations? Instead of three dogs fighting for the bone, we would now have six. A single European headquarters was the only solution. Belgium would provide buildings and infrastructure, and the European General Staff itself would comprise high-ranking army officers from the countries that wished to participate.
Germany was also enthusiastic. Jacques Chirac, Gerhard Schroeder, and I decided to strike while the iron was hot and set to work immediately. Our main concern at this stage entailed preventing the plan from being watered down. We decided to offer it to the other member states as a fait accompli, on a take-it-or-leave-it basis. To give momentum to the plans and policy, we held several high-level meetings in rapid succession. We also presented our proposal immediately to the group of politicians and experts writing the European constitution.
This group, under the leadership of former French president Valéry Giscard d’Estaing, took inspiration from the 1787 Constitutional Convention in Philadelphia. It aimed to replace the endlessly complex treaties with a simple but appealing constitution that would make the EU more transparent, democratic, and efficient. (Years later, their text was rejected in the 2005 French and Dutch referenda.)
Although the German press wrote scathingly about the defence discussions, Chirac and Schroeder were undeterred. In the spring of 2003, we decided to hold a defence mini-summit to set the seal on the whole business. The press labelled it the ‘Chocolate Summit’, expecting very little more from it than some Belgian chocolates and sweets with the coffee.
Yet the announcement still caused a huge stir. There was great resistance to the plan in the UK, Denmark, and the Netherlands, but far more important than the protests were the many quiet expressions of support that flooded in, and not only from minor personalities. Javier Solana and Romano Prodi, for example, expressed their solidarity. Greece, Portugal, and Hungary were keen to participate, although under enormous pressure from London not to do so. We saw clearly that we could do only one thing: hold to our purpose. Although ambitious, the plan was also entirely reasonable. In Europe, however, that is no guarantee of acceptance.
[At the summit it was decided] countries wishing to enter into military cooperation should do so within the new structure of the European General Staff. This staff would be responsible for planning and carrying out autonomous European operations. A real European intervention force should also be set up by integrating troops from Belgium and Luxembourg into the existing French/German brigade. We should also create a European high command for strategic air transport and a European protection force to combat nuclear, bacteriological, and chemical weapons. Finally we agreed on establishment of a European weapons agency to procure military equipment, among other things. In the end, this summit of European heads of government produced rather more than just hot air…
By then, Blair had realised that there was no way back and – after getting the green light from the Americans – had expressed a willingness to cooperate on an ‘if you can’t beat them, join them’ basis. But he had an ulterior motive, as soon became clear.
As ever, the British tried to weaken and torpedo the whole enterprise. To keep Blair and the British on board, Schroeder and Chirac had to make one final concession: retention of the unanimity rule on a vote related to using the strategic civil/military planning cell to lead a military operation.
This mistaken concession actually handed the British a veto on every decision regarding the assignment of operation leadership to the European headquarters, a veto they have since used constantly. The planning cell, now housed in a barracks of the Military Academy on the Kortenberglaan in Brussels, a stone’s throw from the European institutions, has led not one European operation. As before, the operational headquarters of a major member state always takes over operational leadership and supplies the majority of the forces. There still exists no real European operation or intervention.
The return of nationalism
The primary goal of the European project was to cure Europe once and for all of the plague of nationalism. The results of the past sixty years might seem to indicate that the cure worked. But it has become apparent that this is an illusion. Virulent nationalism is once again on the rise.
It is as though we are being catapulted back in time, to the turbulent, terrifying years before World War Two. In Hungary, the paramilitary troops of the ultra-nationalist party Jobbik patrol the streets, wearing black with a matching cap embroidered with the party logo. You would have to be blind to miss the similarity to the Nazi SS.
Jobbik won three consecutive elections and represents 20% of the Hungarian electorate. It describes itself as ‘a radical Christian party’ whose ‘fundamental mission’ is to ‘protect Hungarian values and interests’. It rejects ‘global capitalism and Zionism.’ This rhetoric sounds familiar.
In Greece, Golden Dawn troops scour the streets, beating up immigrants. And anybody who thinks that these are marginal phenomena in ‘crazy’ Hungary or crisis-ridden Greece is hopelessly naive. In the Netherlands, Denmark, Sweden, Finland – in all these so-called tolerant northern and Scandinavian countries – nationalist and racist parties are on the rise…
But developments in Germany are just as worrying, if not more so. In a number of towns there, Pegida (Patriotic Europeans Against the Islamisation of the West) frequently organizes large anti-Islam marches. The party’s rhetoric uncoincidentally bears similarities to the writings of Norwegian terrorist Anders Breivik, who in 2011 carried out a massacre in Oslo and on the island of Utoya, killing seventy-seven young people. The politicians of the traditional German parties are outraged by Pegida’s scandalous rhetoric and unscrupulous political aims but conveniently forget that they themselves have jointly set the tone.
Alternative for Germany, the right-wing party that backs Pegida, as well as prominent figures such as Christian Democrat and Bavarian party leader Horst Seehofer have declared that multikulti, German slang for multiculturalism, is dead. Until recently, we heard such language only from the extreme right. Even Chancellor Angela Merkel said not so long ago that ‘multikulti had utterly failed’. With a finger raised, like an old-fashioned schoolmistress speaking to a class of children, she added: ‘Immigrants had better do their best to learn German.’ Even the German socialists are saying much the same….
But this rejection of ‘multiculturalism’, of course, reflects much more than just complaints about immigrants with inadequate knowledge of the German language or appreciation of German culture. It is about drawing clear distinctions regarding who does and does not belong to a community. In the interwar years, eastern European countries required Jews to abandon Yiddish in favour of German, Czech, or Polish, promising them full participation in political and economic life in exchange for assimilation.
Today we are well on the way to making the same dangerous mistake and the same hypocritical promises with regard to a generation of non-white, non-Christian fellow citizens.
A United States of Europe?
Even before that vote [Brexit], Americans were wondering out loud whether Europe still had any life. Simon Tisdall wrote an article provocatively titled ‘Is Europe Dead?’ in response to the Greek crisis and the latent conflict with Vladimir Putin. It expressed great concern about events on the other side of the Atlantic and concluded, ‘Europe is not over, yet. But it is in deep trouble’.
From an American perspective, that’s a harsh but fair take on reality. The long list of problems and unresolved issues discussed in this book show that Europe is dangerously ill. And the disease afflicting Europe knows no borders, so it can no longer be treated independently by each of the nation-states. Only by working together and making a new leap forward in European integration can we cure the malady.
Our forefathers already knew this. They had to find out the hard way that we must resolve economic and political differences not on the battlefield but in conference rooms – in other words, we need to cooperate rather than draw our daggers.
But the further away we get from the two world wars of the previous century, the more we lose sight of this fact.
We are no longer able to perceive the European project as a force for good. We fail to realise that today’s world order – one dominated not by nation-states but by wealthy ’empires’ like China and Russia, multicultural federations like India and the United States, and sub-regional blocs like Mercosur and the Association of Southeast Asian Nations — compels us to adopt a new, positive, joint approach …
No single European nation-state can do that alone – not even Germany or the UK and certainly not France. We need to form a close-knit economic bloc to vie with China or the US, especially if we want to safeguard our ecological norms and social standards. We can only hold our ground against an authoritarian Russia, whose leaders no longer believe in liberal freedoms or human rights, by also becoming a political and military superpower…
We must be led by the following question: How can we strengthen our position in a constantly changing world? We must be guided not by our prejudices or fears but by our ambition to play a meaningful role in the world of the future… A federal Europe is the only option. It is both logical and inevitable.