What Next for the EU?

Yves here. This is an informative, high-level overview of how the EU got to where it is now, its internal contradictions, and the prospects for resolving them.

By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Originally published in Frontline

Even before the results of the UK referendum, the European Union was facing a crisis of popular legitimacy. The result, especially in England and Wales, was certainly driven by the fear of more immigration, irresponsibly whipped up by xenophobic right-wing leaders who now appear uncertain themselves of what to do with the outcome. But it was as much a cry of pain and protest from working communities that have been damaged and hollowed out by three decades of neoliberal economic policies. And this is why the concerns of greater popular resonance across other countries in the EU – and the idea that this could simply be the first domino to fall – are absolutely valid. So the bloc as a whole now faces an existential crisis of an entirely different order, and its survival hinges on how its rulers choose to confront it.

A little history is in order first. The formation of the union itself, from its genesis in the Treaty of Rome in 1957, was as much a result of geopolitical pressure from the US as it was of the grand visions of those who led it. The six founding countries (Belgium, France, Germany, Italy, Luxembourg and the Netherlands) built on the hope of the European Coal and Steel Community that was established in 1950, that greater economic relations would secure lasting peace and prosperity. Somewhat ironically, they were egged on by the United States, which in the post Second World War period not only provided huge amounts of Marshall Plan aid to western Europe, but urged the reduction of trade barriers between them to encourage more intra-regional economic activity and provide an effective counter
to eastern Europe during the Cold War.

Subsequent expansion of membership (the UK joined the EU in 1973, along with Ireland and Denmark, followed in the 1980s by Greece, Spain and Portugal, and then by Austria, Finland and Sweden in the 1990s and then some years after the fall of the Berlin Wall, a large intake of 12 central and eastern European countries in the 2000s, with the most recent member being Croatia in 2013) has brought the number of member countries in the EU to 28. Over the years, expansion has been accompanied by the push for “ever greater union”: the Maastricht Treaty in 1993 that laid down the ground rules for economic engagement and strengthened the institutional structure of the European Commission and the European Parliament; the creation of the Single Market of free movement of goods, services and people starting from 1994; the Treaty of Amsterdam that devolved some powers from national governments to the European Parliament, including legislating on immigration, adopting civil and criminal laws, and enacting the common foreign and security policy; and even a common currency, the euro, shared by a subgroup of 19 members from 1 January 1999.

Some would say that it is remarkable that a continent with a fairly recent history of wars and extreme regional conflicts could have achieved such a combination of expansion and integration. There is no doubt that, from the start, this was a project of the political and corporate elite of Europe, and the “voice of the people” was not really taken into account. Yet in many ways it was also a visionary, even romantic, project that could only go as far as it has gone because, even as it increasingly furthered the goals of globalised finance and large corporations, it still contained the (inadequately utilised) potential for ensuring some citizens’ rights across the region.

However, as the EU bureaucracy expanded and as the rules – particularly the economic ones – became ever more rigid and inflexible, with the forceful imposition of fiscal austerity measures in countries with deficits and even in countries where there was no real need to do so, the Commission itself and the entire process came to be seen as distant, tone-deaf to people’s concerns and impervious to genuine pleas for help and a degree of empathy.

Germany, the undisputed leader of the bloc, epitomised this sense of rigid adherence to (often nonsensical and contradictory) rules. The lack of consistency in creating a monetary union without a genuine banking union or any solidarity with fiscal federalism has created years of economic depression in some countries and deflationary pressures across the Eurozone and most of the EU. Nowhere has this been more evident than in the tragic case of the Greek economy, but this is also true of other countries in the periphery that have been forced into austerity measures with little to show in terms of benefit for more than five years now.

So in the expanding but unfinished project that is the European Union, corporate elites have basically achieved their goals and won – as indeed they have been winning in pretty much every region of the world over the past three decades. The implicit project of aiding finance and other large private capital and dismantling the welfare state in these countries has moved ahead.

The result has been not only economic stagnation and continued increases in inequality, but a breakdown of communities and a pervading sense of hopelessness among people across the region, who feel they are no longer able to control their own destiny. Low and receding employment prospects, precarious work contracts, flat or falling real wages, increasing insecurity in material life, reduced access or lower quality of essential public services such as health and education, less social protection, and a general sense of economic decline have become pervasive features, even though these are by and large still prosperous societies. All these are indeed not common only to Europe, but are felt in many other parts of the world as a result of economic policies favouring the rich and large capital, and suppressing the rights and aspirations of ordinary people on the grounds that “there is no alternative.” In this context, the EU decision to accept (relatively few, around a million) refugee migrants from war-torn regions of West Asia – mostly tragic victims of instability in the region resulting from wars entered into by the governments of the US and the EU themselves – was in some ways the final straw. In some countries like the UK, there was already resentment at the entry of EU citizens from eastern Europe, who were seen to be driving up house rents and lowering wages. But the possibility of particularly Muslim immigration that was cynically used by the Leave campaign in Britain is also a major element of the public response in many other countries like France and even Germany, where other people, rather than corporate capital, are seen as the threat.

So the tragedy is that growing alienation of many people who have become the victims of financial globalisation has also left them unable to pick on their real enemy. Instead, the tendency has been to pick on others, who are equally or even more the victims, but can be isolated and made into scapegoats because of some apparent differences, particularly recent migrants fleeing either enormous physical threats or economic hardship. The vote in England and Wales both indicates and further strengthens an increasingly unpleasant right-wing surge across Europe, in which “nationalism” is little more than a fig leaf for open or suppressed racism and intolerance to ethnic/cultural differences.

Of course, the alacrity with which other European leaders have said that the Leave vote in the UK must be respected is somewhat surprising. It is worth noting that the European Union so far has not been particularly responsive to the voice of popular will, typically forcing people to bend rather than the other way around, even when there have been significant democratic pressures within member countries against its mandates. Consider just a few examples. In Denmark, 51.7 per cent of voters wanted to reject the Maastricht Treaty in 1992, but the country was made to vote again until the treaty was passed by an even smaller majority. In 2002, the EU Constitution was rejected by 54.9 per cent of French voters and 61.5 per cent of Dutch voters, but these results were simply ignored and the Lisbon Treaty was put in place. In 2008, Ireland voted against the Lisbon Treaty by 53.8 per cent, but were made to vote again until a more satisfactory result was obtained. In 2015, 61.3 per cent of Greek voters – an overwhelming majority – voted against the austerity programme of the EU, but this too was rejected. At that time, the president of the European Commission, Jean-Claude Juncker even said, “There can be no democratic choice against the European treaties.”

So what is so different about this British referendum? To begin with, it comes from a very important – many would say – crucial member of the Union, albeit one that has always had a rather difficult relationship with the body. In the EU, Britain has always been a bit of the tetchy uncle at the extended family gatherings, complaining about the facilities and the cacophony of the younger children present and grudging the occasional present he is expected to give. The country did not join the Eurozone (to its own great advantage) and has fussed about the payments it has to make as well as the regulations for labour and welfare that is has been forced to introduce. Governments in the UK have always contained Euro-skeptic voices, especially in the Conservative Party. But is nonetheless a large and important economy, with a significant geopolitical presence even if that is largely the legacy of history.

Second, ignoring democratic expression at this point of time in Europe is fraught with greater risk. There is already a significant movement against immigration and against the EU, driven again by anger, despair and frustration at economic trends, that is growing across different member countries. If a clear result in this referendum is blatantly denied (despite the best intentions of those working to have a second referendum) or leads to a delayed and watered down response without Britain actually leaving the EU, this will fuel an even greater right-wing response and further strengthen this movement. Then the right-wing surge has the potential to become a veritable tsunami across Europe.

Some of this is already evident in the open glee of far right nationalist forces in response to the UK referendum. The day after the result, Marine Le Pen of the anti-immigration National Front in France, who hopes to win the next Presidential election in 2017, wrote, “The European Union has become a prison of peoples. Each of the 28 countries that constitute it has slowly lost its democratic prerogatives to commissions and councils with no popular mandate. Every nation in the union has had to apply laws it did not want for itself. Member nations no longer determine their own budgets. They are called upon to open their borders against their will. Countries in the eurozone face an even less enviable situation. In the name of ideology, different economies are forced to adopt the same currency, even if doing so bleeds them dry. It’s a modern version of the Procrustean bed, and the people no longer have a say… We have tried to deny the existence of sovereign nations. It’s only natural that they would not allow being denied.”

In Italy, Prime Minister Renzi is under pressure because of implementation of neoliberal austerity policies, with the rise of Eurosceptic Five Star movement that recently won important mayoral elections in Rome and Turin. Yesterday the EU rejected his plan to provide public support for banks with large non-performing loans, and he may not survive a referendum in October on sweeping constitutional reforms.

Ironically, far-right anti-EU movements are on the ascendant even in supposedly economically successful countries. Geert Wilders, leader of the anti-immigrant Party for Freedom in the Netherlands, tweeted, “Hurray for the British! Now it’s our turn!” In Germany, the Alternative for Germany began as an anti-euro party but is now more openly anti-immigrant and anti-Islam. It now has seats in eight of Germany’s 16 state assemblies and is expected to win seats in the national Parliament the Bundestag in the elections next year. In Austria the candidate of right-wing Freedom Party almost won in the Presidential election, with just under 50 per cent of the vote.

So which way will the European Union go now? The immediate response appears to be a closing of ranks and circling of the wagons, with strict terms applied to the UK as punishment and also deterrence to other would-be leavers. But stronger political union with much greater federal powers no longer seems to be on the table. Instead, there are also likely to be calls for greater flexibility, with respect to both economic policies and migration. Donald Tusk, the Polish President of the European Council, has already warned that that ordinary European citizens do not share the enthusiasm of some of their leaders for “a utopia of Europe without nation states, a utopia of Europe without conflicting interests and ambitions, a utopia of Europe imposing its own values on the external world, a utopia of Euro-Asian unity”. It is likely that there is much less political appetite for greater integration, for example in a banking union, and this will make other forms of economic union even less effective, especially in countries experiencing continued economic difficulties and consequent social unrest.

The European Union as it exists today is unstable and probably unsustainable. But it will be tragic indeed if it collapses under the weight of its own contradictions only to yield to the petty and xenophobic forms of national neoliberalism that are currently the most forceful alternative to neoliberal economic integration. What Europe and the world require are more internationalist alternatives based on popular sovereignty, solidarity, the improvement of workers’ conditions and the rights of citizens. Sadly, at this time there are only very few voices making such demands.

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  1. Jim Haygood

    “The EU decision to accept … refugee migrants … from wars entered into by the governments of the US and the EU themselves – was in some ways the final straw.”

    Probably so. But let’s dispense with the euphemisms.

    In plain words, “wars entered into by the governments of the US and the EU themselves” means NATO — headed by a European puppet to provide a fig leaf for 70 years of U.S. occupation.

    It will be a fitting irony if Europe’s failure to expel its American occupiers ends up overturning the EU as well.

    Yet just this month in Warsaw, Europeans approved even more grandiose “out of area” NATO interventions, which predictably will produce yet more refugees. Plus, NATO is doing everything humanly possible to provoke a shooting war with Russia.

    Paris to Spain, countries in pain
    Caught up in flight, feeling the sight
    Europe dying

    — Steve Winwood, Night Train

  2. TW2

    Makes sense:

    stronger political union with much greater federal powers no longer seems to be on the table.

    In essence the EU’s path to survivial is recognizing nations have differing goals. If the EU is to survive it will have to do so by devolving power out of Brussels and becoming more of a trade union than a political one. No more “ever closer Europe” foolishness.

    What does that do to the EuroZone currency group of nations?

    Hard pressed to see even further divergent countries having enough economic alignment to keep the Euro going. The logical choice would be to go back to national currencies, but that brings all sort of difficulties too.

  3. Synoia

    The European Union as it exists today is unstable and probably unsustainable. But it will be tragic indeed if it collapses under the weight of its own contradictions…

    Possibly. Assumes condition not in evident, that there is a better “greater whole.” The history of empires is littered with such wishful thinking.

    only to yield to the petty and xenophobic forms of national neoliberalism that are currently the most forceful alternative to neoliberal economic integration.

    Otherwise know as sovereignty. The problem is the requirement for trade in this overpopulated, technological world. Possible self sufficiency would be a solution.

    What Europe and the world require are more internationalist alternatives based on popular sovereignty, solidarity, the improvement of workers’ conditions and the rights of citizens.

    Oh that works well. How is that different from today? Imposition of “popular sovereignty” on massive empires? How’s that working out in the United States today? Or is the author hoping for the Swiss model (which only works if one has the same defensible territory).

    I call bullshit in the conclusions, as having no practical merit, and denying any no suggestion of a possible solution, dissolution of empire.

    It is not clear that the local population suffered more under Roman rule, or under the local control in the dark ages. It is clear the people of Saxon England took a large step backwards after the imposition of Norman rule – a regime from which we still suffer the after effects.

  4. Watt4Bob

    Brexit debate reminds me somehow of this;

    Then they said to Moses, “Is it because there were no graves in Egypt that you have taken us away to die in the wilderness? Why have you dealt with us in this way, bringing us out of Egypt?

    Exodus 14:11

  5. digi_owl

    And a large part of why the right wingers are rising is that they are getting the ear of industrial workers (present and former).

    This because the left wing workers parties have, thanks to the post-war success of their polities, become the parties of academics and career politicians.

    The party elite have a fervent belief that by continued education all social ills will be solved, as everyone can just educate themselves to upwards social mobility. After all, they are walking proof of the process (even though few have ever picked up a tool on a factory floor these days).

  6. Gerldam

    Dismantling the welfare state??? When in a country such as France where state spending accounts for 57% of GDP, talking about any dismantling of the welfare is ludicrous.
    In fact France’ woes come from such a heavy hand of the state and its functionaries.

  7. The Trumpening

    In Britain, the EU opposition cannot be “national neoliberals” since this is an oxymoron. UKIP and Euro-sceptic Tories are just anti-EU globalists. However, in France Marine Le Pen is 100% hostile to neoliberalism. Her calls for protectionism, closed borders, national currency sovereignty (issued at 0% interest), increases in the welfare state, increases in welfare payments, are all anathema to neoliberals. So there is a very viable, working class oriented solution to the problems of the EU that in no way can be labelled “national neoliberalsim”. I would have preferred the author to explain to us exactly why European working classes should not support these types of parties.

    Also I object to the notion that the British working classes have been tricked into “xenophobia” by right wing politicians. In other words the working classes are without agency and are not able to spontaneously develop resistance to mass immigration themselves. Of course this infantilized version of the working class is preferable to the typical Bourgeois Left’s haughty antipathy towards the working class. But a better way to understand working class intolerance of mass culturally-estranged immigration is a simple result of basic human nature. Instead the author is implying the working classes’ natural internationalist tendencies were sabotaged by a couple boring UKIP posters.

    The European Union as it exists today is unstable and probably unsustainable. But it will be tragic indeed if it collapses under the weight of its own contradictions only to yield to the petty and xenophobic forms of national neoliberalism that are currently the most forceful alternative to neoliberal economic integration. What Europe and the world require are more internationalist alternatives based on popular sovereignty, solidarity, the improvement of workers’ conditions and the rights of citizens. Sadly, at this time there are only very few voices making such demands.

    This conclusion is also problematic and highlights long-standing internal contradictions in Left thinking. These revolve around the National Question, Democracy, and the “Revolutionary” (or in the case International) character of the working classes. The best illustration appears in Leszek Kolakowski’s Main Currents of Marxism where he describes a conflict between Rosa Luxemburg and Lenin:

    Rosa Luxemburg sought to be the champion of orthodoxy, but instead of regarding the party as the infallible fount of orthodoxy, she preferred to believe in the revolutionary mission of the masses as the spontaneous source of truth. Lenin was not guilty of the inconsistency, and his form of Marxism was effective in practice because its doctrine was the exclusive property of an organization of professional revolutionaries. In the case of Rosa Luxemburg, strange results followed from believing absolutely in the predetermination of history and also in the “essential” revolutionary character of the masses. In her pamphlet on the Russian revolution, she urged Lenin to introduce unfettered democracy and at the same time to crush all nationalist movements with an iron hand, not suspecting for a moment that there might be an inconsistency in these two demands.

    Jean-Claude Juncker clearly understands the contradictions between imposing utopian globalism and expecting approval from democracies with his statement: “There can be no democratic choice against the European treaties.” And EU doctrine is the exclusive property of an organization of professional Eurocrats. But admittedly the EU does not exactly try crush all nationalist movements with an iron hand, but they do use some pretty official-media propaganda. In these aspects Juncker follows the realist Lenin and rejects the idealist Luxemburg.

    The fact is that the first world working classes are never going to accept more “internationalist alternatives” if that means leveling their standard of living with that of 3rd world peasants, or if it means destroying their welfare states with a huge influx of poor immigrants. But the Left refuses to let go of it internationalism. An ideological pure Leftist approach would be to see the EU as a nationalist entity and demand its destruction and total open borders and free trade for all the world and a denunciation of the concept of citizenship.

    Social Democracy in One Country is a far better approach where in each country the working classes seek to use national borders as much as possible to restrain Capital from seeking the cheapest labour. The 1st world shows solidarity to the 3rd by resisting imperialism and the 3rd world shows solidarity to the 1st by staying home and making their own nations the best and the fairest they can be.

    1. IDG

      Amen to your conclusion. Unfortunately there is an inherent cowardice of the population because “families have to feed their kids” and in general people avoids conflict and suffering, hence they rarely turn onto their masters. Evil people triumphs because good people does nothing, as someone used to say.

      This is more relevant so in 3rd world where working class does not have luxury to turn on their masters without great pain and suffering (in the 1st world there must be certain appearance of democracy and justice, for now). But they gotta learn, 1st world working class had to bleed back in the day to get their positions and more or less working democracies; although current generations in the 1st world have to fight to maintain their right (and turning ‘nationalist’ is a first steep into that direction, as that will remove leverage from globalist elites). Now capitalist interests are as usual abusing globalism to undermine those regimes.

      I won’t deny though that the 3rd world needs restitution from certain abuses by 1st world elite interests and help, but that wouldn’t be a problem if there was enough stability in the 1st world and a better functioning system.

      A race to the bottom does the opposite of that, and global elite interests very well know that.

    2. Ruben

      Very interesting views. I am coming around to the value of nationalist thinking. There has been a successful nationalist variety in 3rd world pro-working class movements. It seems their time is coming now in 1st word countries, because of the toxicity (to working class people) of neolib-globalist policies now prevalent in Europe and the USA. To me their value stems from their opposition to the building of super states.

    3. animalogic

      The siren song of nationalism should be resisted. Nationalism is a recipe for conflict, if not war. It’s another version of divide and rule. It pits the working class against each other.
      Capital globalisation is NOT internationalism. It is the transference of national Oligarchy onto an international scale. The EU is an Oligarchy of nations. It serves the purposes of German, then French, UK, Dutch, etc Capitalists. (Not forgetting that bloated spider in the background, the US ).
      (Right-wing) Nationalism, will likely reorder the power of various oligarchs.
      The answer is not nationalism–it is socialism. NOT the gutless, bloodless socialism of various “labour” parties, nor the pseudo leftism of Syriza etc.
      The EU is likely unsavable on its current trajectory: sadly, the basic answer is not that difficult to grasp: a federal Europe, based on democratic representation on all EU persons. However, such is unthinkable, at the moment…

  8. Remedial σύνοιδα

    “What Europe and the world require are more internationalist alternatives based on popular sovereignty, solidarity, the improvement of workers’ conditions and the rights of citizens.”

    Agree 100%, but as Synoia’s reaction shows, the alternatives are so alien to NATO-bloc ideology that they sound like empty words. People have no idea what Ghosh is talking about. But the institutional and doctrinal basis of the alternative is up and running. It’s under continual attack by US coercive interference but it is The System for the overwhelming majority of the world.

    Take any breakaway people: Scotland, Catalunia, Quebec, or Vermont from their states; Britain or Denmark from the EU.

    Go ahead, secede, drop out, exit, leave. Welcome to the G-192. You’ll find that there’s an acquis for joining the world just like there’s an acquis for the EU. For supreme law you have the International Bill of Human Rights, the UN Charter, the Rome Statute, and ultimately the core human rights conventions. State sovereignty is nothing more than a state’s acceptance of these rules for how the state must treat its humans. Subject to performance standards that the International Bill of Human Rights sets for the state, domestic institutions are up to you. That’s more self-determination than you can shake a stick at.

    To ensure that the state measures up to the standards you have a National Human Rights Institution as defined by the Paris Principles, and independent treaty body protection of your rights by The Human Rights Committee, The Human Rights Council, ECOSOC, and other treaty bodies. If the government doesn’t measure up, civil society goes over the government’s head to these institutions and to the international community, which intervenes in the first instance with Pillar II of the Responsibility to Protect. You can get technical assistance in meeting the standards from the ILO, UNCTAD, the UNDP, or the OSCE.

    NATO-bloc countries rely exclusively on authority as a unifying force so their subject populations have a hard time getting their head around solidarity, which is a substitute unifying force. Solidarity is similar to what the commies called internationalism from below, in the service of keeping the state’s nose to the grindstone fulfilling more and more of our rights. When the Europeans stopped Reagan’s missile emplacements and turned him around toward START, that’s solidarity.

    Screw this rigged electoral pageantry. We have here a parallel government that will supplant the US junta bit by bit. More people just need to take it for a spin.

  9. Gaylord

    The rich get richer and more callous in their disregard, until the poor overthrow them.

  10. VietnamVet

    This is a good article that is nearing the truth. There is an existential crisis. The Western Alliance is splintering. An Islamist Turkey has risen out of the ruins of secularism right on the border of Europe. The leadership of the EU, France, UK, Germany and the USA are astonishing incompetent. The reason; what drives corporate profits is not what is best for the people. The consent of the governed is being withdrawn. Ending the wars, stopping climate change and providing jobs for all able bodied males have to be accomplished if mankind is to survive.

  11. H. Alexander Ivey

    The author’s analysis is quite good, but his concluding paragraph may be due to a ‘too close to the people involved’ problem. I assume the author of such an analysis is capable of much better solutions.

    1. Yves Smith Post author

      The author is an Indian economist, and solidly left-leaning and so I doubt has strong ties to key actors. The big issue is that Serious Economists tend to be very measured in their policy recommendations, particularly if they are smart enough to recognize there are no happy answers.

  12. Ignacio

    The word that defines the European Comission is arrogance. We have created an arrogant monster completely unable to recognize its errors, then to mend them. A recipe for a bad end.

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