Discussion: (0 comments)
There are no comments available.
View related content: International Economics
UK Department for Business, Innovation, and Skills
After the European Union’s latest crisis summit last week, international financial markets reacted cautiously. And well they should, since this umpteenth effort to save several Eurozone countries from fiscal collapse, and the common currency itself, produced mediocre results.
Less understood are the summit’s political consequences, as Great Britain broke sharply with the continental duopoly, Germany and France. Both the EU and NATO will be dramatically affected, with enormous implications for America and the West’s security posture globally. Geostrategically, the EU has always been less than the sum of its parts, so Washington should welcome change which restores national autonomy in opposing security threats to the West.
By blocking an EU-wide treaty on the euro, London opened the possibility of radically changing or even fracturing the EU itself. (Prime Minister David Cameron’s Liberal Democrat coalition partners roundly criticized his stance, but if he retreats, Tory Euroskeptics could revolt, also threatening his coalition government.)
The full impact of Britain’s decision remains unclear, but the EU tendency to “muddle through” is almost certainly history. It now faces a choice between two “corner solutions,” with huge stakes for Europe’s future shape. In one, the euro implodes, many of its members revert to national currencies, and what’s left of the common currency remaining is a new Deutschmark for Germany and its economic satellites.
In the other, the euro is preserved, but with a massive transfer of national sovereignty (fiscal as well as monetary policy) by Eurozone members to the bureaucracy in Brussels, which would become the true capital of 17 former nation-states, now Eurozone provinces. The United Kingdom and other non-Eurozone countries could break away from the EU entirely, or have a vastly different relationship with the new EU state.
“The markets increasingly realize that even Eurozone members are deeply skeptical of the supposed triumph, as they wonder what the summit actually agreed to.”–John R. Bolton
This political and economic convergence of policy-making is central to the theology underlying the euro in the first place, but its ultimate implications were well concealed (or ignored) before the current crisis. No longer is that possible. Britain as we know it will never accept having critical policies first decided by Eurozone members, and only then presented to the non-Euro EU members as faits accomplis.
The media have wrongly stressed that Britain stood alone in opposing an EU-wide treaty, thus effectively barring the EU’s central bureaucracy from dominating fiscal policy. In fact, no actual agreement yet exists. Eurozone leaders needed to declare a political victory, so (as is their custom), they announced a deal to satisfy financial markets, but left the hard bargaining for later. The markets increasingly realize that even Eurozone members are deeply skeptical of the supposed triumph, as they wonder what the summit actually agreed to.
Clearly, several EU members, not wanting to break openly with Germany and France, took cover under Britain’s defiance. And skepticism about the deal will grow, not diminish, as actual treaty language emerges from the typically labyrinthine EU negotiating process, spelling even more trouble for the summit “agreement.”
But even if the dissident bloc (inside the EU, but outside the Eurozone) consists of Britain alone, this major power will then inevitably have a different relationship with the EU. By retaining far more sovereignty and freedom of action than currently possible in the EU, Britain will make itself more consequential, and the EU less so, in world affairs.
Moreover, a radically restructured EU could have significant security implications, with NATO also reshaped by which “corner solution” the EU adopts. If EU members retain their sovereignty, a more robust NATO could return — perhaps even going global, adding the likes of Japan, Australia, Singapore and Israel, as former Spanish Prime Minister Jose Maria Aznar has suggested.
If, by contrast, Eurozone members become less sovereign, an increasingly lock-step, Franco-German bloc inevitably means a less effective NATO. Should Germany continue insisting on a “little Europe” approach to international affairs, America would have to consider forming an entirely new alliance, among non-EU NATO members and some members still remaining in the EU. This smaller, like-minded group could then also decide to globalize their new partnership along Aznar’s lines.
All these possibilities are profoundly unsettling, but this EU Summit, intentionally or not, has opened the door to potentially sweeping consequences. The United States has to consider what its strategy in response should be, not simply watching passively as the Obama administration is doing.
John R. Bolton is a senior fellow at AEI
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2014 American Enterprise Institute for Public Policy Research