This latest episode of the AIQ Podcast explores what the future holds for the European project ahead of the European elections.
Although Brexit is continuing to dominate headlines in the UK, the European Union faces other long-term challenges from the rise of Euroscepticism in Italy to the stalled progress of euro zone reform.
Exploring what the future holds for the European Union. Find out more in this episode.
Wearing a sharply tailored suit and a twinkling smile. France's new president, Emmanuel Macron, strides across a calm blue ocean behind him. UK Prime Minister Theresa May's leopard print shoes float on the surface of the water, a symbol of the doomed Brexit project.
But McCrone presses on. Eyes fixed on the limitless horizon. The Economist's cover image of June 2017 summed up Europe's grand hopes for the Macron presidency, having created a new party from scratch and beaten his far right rival in the French election.
The crowd was hailed as the man who would revive France, see off the threat of populism and save the eurozone. But 18 months on, things that very different Macron's approval ratings have dropped amid mass street protests.
Nationalist parties are on the rise in the south and east of the European Union. Frustrating Macron's hopes of EU reform.
And to make matters worse, his close ally, Angela Merkel, will soon step down as German chancellor. In this episode of the AIQ podcast, we look at how Europe will respond to these challenges and what the future holds for the European project. In many ways, Europe's become kind of lightning rod for a whole lot of anxieties and concerns that people have really concerns about Europe that are palp peoples worry, which is very real, that they've lost control of their own lives.
Lustick Kultury through forces of immigration, lost economically through the forces of globalization. And my point is that the political leaders have got to respond to those anxieties and not end up in a situation where the kind of populism that rides the anger but doesn't provide the answers takes control.
Well, that was former U.K. Prime Minister Tony Blair speaking at the World Economic Forum in Davos in January. Blair's point is that the backlash against globalization that fed into the Brexit vote in the UK is evident in the rise of populism across the West. And this has big economic implications for Europe. Continuing global trade tensions and the threat of a disorderly Brexit could affect eurozone growth in the short term, or that the European Central Bank has left some room for manoeuvre when it comes to normalizing policy.
Here's Stuart Robertson, senior economist for the UK and Europe. At a fee for investors.
The harder of Brexit is, the greater the head. If it's a hard Brexit, then there's going to be some sort of economic shocks and with some possible political ones on the back of it, if there's some sort of smooth transition or a soft Brexit, then I think we've heard commentators from a European point of view. If it's hard, then I think there'll be a little bit of a dance, the pause in growth. But I don't think it means a eurozone recession.
It just means we probably do get that extra bit slowing down and perhaps easing the way instances for longer. Yes, it's a concern. But from economics point of view, I don't think it's absolutely major event for them politically. As I say, there's other angles.
The European Parliament elections in late May will provide an indication of post Brexit political sentiment across the EU. Some analysts believe the elections will amount to a protest vote against McCrone, who has become a lightning rod for Eurosceptic discontent across the continent. However, Italy's populist turn arguably presents the biggest threat to the European project. The ruling coalition government. An alliance between the far right Northern League and the Broad Church Five Star Movement has threatened to flout the eurozone's fiscal rules, although it did reach a belated agreement on spending with the European Commission in December 2018.
The new budget will see Italy's deficit rise to just over two per cent higher than a previously mandated limit, but below the two point four per cent projected in the original proposal. Robertson says this deal has calmed markets, although further trouble may lie ahead.
It looks as if it was going to be an outright conflict, culminating in a excessive deficits programme for Italy, which I don't think any of us would particularly have minded suits of their agenda. The European elections coming up in May because they could increase their political strength if they got support in Italy by being a bit tough with the commission. But they're also aware of the reality of much higher borrowing rates. And with Italy's debt levels, that's critical. So suddenly paying upwards of three 1/2 percent on 10 year rather than one off as it was before the election is a reality that they have to replicate.
They didn't want. And it looks as if this is dying down. And you can just see that the spread between German 10 year bond deals so big, but it's not quite as big as it was. So it seems to be coming down, but that doesn't mean it can't erupt again.
The standoff between Italy and the European Commission points to a deeper crack between north and south in the eurozone, like Italy and other southern European nations, including Greece, Spain and Portugal, are still suffering the economic consequences of the sovereign debt crisis that followed hot on the heels of the global financial meltdown in 2009.
And in a dramatic escalation of the anger unleashed by the economic crisis engulfing Greece, protesters stormed the Acropolis today as the euro and world markets plunged on concerns about spiraling Greek bond yields and the debt choked country's huge bailout from the EU and the IMF bound to the single currency.
These weak economies were unable to take the conventional route out of hardship, slashing interest rates to devalue their currencies and make their exports more competitive. Instead, they had to push down wages and prices to achieve the same result. Austerity and widespread unemployment contributed to populism in these nations. Meanwhile, northern European states have recovered much more quickly if another crisis hits a more direct fiscal transfer from north to south. Might be required to rescue indebted economies. But bailouts are politico.
Sensitive issue in Germany and other northern nations such as Denmark, Finland, Ireland, Sweden and the Netherlands and the Baltic states. A group dubbed the New Hanseatic League, some economists believe unlikely Europe will ever fix this problem if it retains its current structure. A Shoka Modi, an economist at Princeton, worked for the International Monetary Fund during the eurozone crisis. In his book Euro Tragedy A Drama in Nine Acts, Modi lays out the economic vulnerabilities of the currency union.
He spoke to us down the line from Delhi.
By beating us 70 years of economic history, political history of the eurozone and eurozone untiring newsbeat never create enough of a union because of proper fiscal union. In fact, requires a political union which requires national parliaments be subordinate to parliament. I don't believe that that would happen. However, I don't think that the German Bundestag will one day just become provincial legislating by the inside of the euro.
The EU's divisions are not just about economics, where insurgent parties in southern Europe have set out their stall against the fiscal austerity imposed by northern countries. Right wing leaders in Hungary and Poland tend to be more opposed to social liberalism and immigration, challenging the values by which Europe defines itself. Far right leaders have won electoral success by whipping up anti-immigration sentiment. Part of the problem is that the EU has little power to tackle the root causes of global instability that cause mass migrations such as the Syrian refugee crisis.
Whether the rest of Europe would be willing to sign up to Macron's plan to create an EU army to take on a more assertive geopolitical role remains to be seen. Although France and Germany have agreed to ramp up their military cooperation under a new treaty signed on January the 22nd, here's Angela Merkel explaining the thinking behind the agreement through a translator at Davos in January.
Lazard's Together we decide to build tanks of the future aircraft of the future. That's a very important strategic decision, such as the adoption of the Treaty of Arfon yesterday between France and Germany as a further development of the Elysee Treaty. We are strong and important partners working for Europe, developing the European Union for that. And for me, it was most moving to see that not only the French president and the German chancellor signed a treaty, but this was done in the presence of the president of the commission, the president of the European Council and of the rotating presidency.
The president of Romania, in order to make it very clear, we want to give a strong contribution to strengthening Europe, given the deepening political and economic faultlines across the EU.
Shrewd statecraft will be needed to ensure the European project survives and the continent's leaders have shown they are aware of the need for reform. At last year's World Economic Forum, McCrone spoke out in favour of a two speed EU in which countries that want to push for closer integration are free to do so.
We have to redesign a 10 year strategy to make Europe economies social, green, scientific. And political pour it, sure. That's what we have to build. Which means we need more ambition in order to have a more sovereign, united and democratic Europe, which means. On migration, digital energy, defense development, finance, investment, the core of what makes you sovereign in this current environment. We have to build Aukerman policies. I am not naive.
We will never build something sufficiently ambitious at 27. But you need more ambition for an opponent. Avant garde of Europe to deliver on these critical issues. And we have to change our methodology, which is not to wait for all the people around the table before moving forward, that it's just to see if some people are ready to be more ambitious, to go further in terms of integration and ambition, of what makes you sovereign as a poorer in this global environment to defend your values and your interests.
Let's move. But McCraw is finding that moving forward is easier said than done, especially on economic and financial integration. In 2018, McCrone and Merkel agreed the eurozone should create a budget to respond to financial crises. But the proposal would form part of the EU's financial infrastructure, and it would need all the EU's member states to accept it, which is far from certain. Merkel herself is due to step down as German chancellor before 2021. Having already been succeeded as leader of the Christian Democratic Union Party by her onetime protege and gret camp Caringbah, it's unclear whether cramped Caringbah would be willing to push through the Merkel plan in the face of domestic opposition if she becomes chancellor.
So where does this leave the European project? Some analysts argue that greater integration might happen as a result of external factors in an ever more dangerous geopolitical environment. Europe might be compelled to come together to strengthen its digital and military defenses, forming the groundwork for closer economic cooperation. Another possibility is that Europe becomes more decentralized without fracturing wholesale. In a shocker Modi's view. Such an outcome would revitalize the EU by giving up aspirations to fiscal integration and handing national governments more autonomy via a new debt restructuring mechanism.
Europe could open the way for what he calls a vibrant, competitive decentralization that spurs innovation and educational standards.
For all that populism grabs the headlines, the European project retains the support of vast swathes of the continent's population. The European Commission's latest Eurobarometer survey, conducted in May 2018, showed support for the EU is at its strongest for 35 years. Whether Europe's leaders back decentralization or push for closer union, they will need to balance the competing demands of national sovereignty and collective stability to keep Europe's citizens onside. But then that was always the case. In an 1833 essay, the German historian Leopold von Rank describe the development of great power relations on the continent and set out a vision of the future based on equilibrium.
His words still resonate today with states and nations. The union of all depends on the independence of each. A decisive, positive dominance of one over the other would lead to the others ruin. A merging of all of them would destroy the essence of each out of separate and independent development will emerge. True Harmony.
Thank you for listening to the AIQ podcast. Stay tuned for future episodes.