THE EU EXISTENTIAL CRISIS

The Brexit fallout is likely to further polarize European politics as voters become more insecure. German dominance of the EU will increase, and so, too, will the anti-German backlash in many countries. With a weak and divided EU unable to resolve Europe’s many crises, and with nationalism resurgent, we can expect further disintegration in different forms.

The most extreme form would be further exits by Member States. Brexit now makes leaving seem feasible and, to some, reasonable. Already, Geert Wilders, whose far-right Freedom Party is leading in the polls ahead of the Netherlands’ general election next March, is demanding a referendum on EU membership. So, too, is the Danish People’s Party, which is the biggest party in the Danish parliament, but remains out of government. In France, Le Pen is campaigning on the promise of a “Frexit” plebiscite. She currently leads in polls for the first round of the presidential election next April. And while those polls suggest she would be defeated in the second-round runoff by a more moderate conservative challenger, center-left voters who are fed up with austerity, the political establishment, and German dominance may yet rally behind her. Moreover, the growing sense of insecurity after the Nice attack on July 14 – the third major terrorist massacre in France in 18 months – plays into Le Pen’s hands.

Disintegration could also take a less extreme but more insidious form if governments choose to ignore EU rules with impunity. In Italy, Prime Minister Matteo Renzi sought to take advantage of post-Brexit instability to use public funds to recapitalize Italy’s zombie banks, without imposing losses on their creditors, thereby bypassing the EU’s new “bail-in” rules for banks. In France, Prime Minister Manuel Valls threatened to ignore the EU’s posted-workers directive unless it was modified to prevent employers from hiring workers from other EU countries on worse terms than locals.

Germany claims that France is also bending the eurozone’s fiscal rules, with no objection from the European Commission. And while the Commission threatened Spain and Portugal with fines for their borrowing overruns, it ultimately pulled back. It has also rubber-stamped many governments’ unilateral imposition of border controls in the supposedly border-free Schengen Area.

Worse, the Commission has turned a blind eye to Hungary’s Viktor Orbán, despite his government’s repeated flouting of EU requirements concerning the rule of law and democratic norms. The governments of Hungary and other countries also refuse to comply with the EU’s program to relocate refugees across the Union, which in any case has scarcely been implemented; Orbán is holding a referendum in October to bolster his position.

A third threat to EU integration is the further capture of governments by nationalist anti-establishment parties. As the European Council on Foreign Relations has pointed out, insurgent parties already play a direct role in the governance of eight of the EU’s 28 countries.

In Austria, the far-right candidate Norbert Hofer leads polls in a re-run of the country’s presidential election, set for October. The same month, Italy will hold a constitutional referendum to reform the Senate, and Renzi has vowed to resign if it doesn’t pass. This would open the door for the anti-establishment Five Star Movement, which recently won local elections in Rome and Turin, and has called for a referendum on Italy’s eurozone (but not EU) membership.

Even when populist parties don’t win, establishment politicians still make concessions to their supporters. For example, Alain Juppé, the presidential frontrunner for the Republicans in France, muses about limiting labor mobility in the EU, as does his main rival, former President Nicolas Sarkozy.

To counter these forces of disintegration, the EU must do less and do it better. Economically, plans for new institutions can wait; the eurozone should focus instead on policies to raise living standards for all. These should include looser fiscal constraints; more investment; an end to beggar-thy-neighbor wage cuts; and lower taxes on labor.

Europe’s leaders also need to restore trust. For starters, they should use the EU’s new bail-in rules to clean up banks’ balance sheets, imposing losses on creditors and compensating any small investors who were sold a false bill of goods.

Politically, the EU should emphasize effective cooperation in combating terrorism. And, rather than trying to force recalcitrant governments to accept unwanted refugees, EU authorities should pursue an orderly and safe resettlement program with willing governments. This is particularly important in view of the uncertain fate of the EU’s deal with Turkey to curb refugee inflows, which is looking increasingly precarious in the wake of the recent failed coup.

The EU’s leaders need to wake up. With disintegration looming, they urgently need to demonstrate to anxious Europeans that the benefits of the EU outweigh its costs.

After many good decades, the EU is failing in its promise to deliver lasting prosperity and stability. Unless the EU can find solutions to the problems Europe is facing that are acceptable to its members the Union will be on a glide path to collapse. Many of the elites are trapped by their belief that Europe cannot repatriate powers to national capitals for fear of opening the proverbial Pandora’s box, containing all the evils in the world. By the time member states have each reclaimed the areas of policy they most cherish, there will be no union left and Europe will descend into nationalism .

Acapolyptic Scenario

In early 2017, Geert Wilders’s Party for Freedom wins the Dutch parliamentary elections and leads an overtly rejectionist coalition. Sensing the threat, Germany unilaterally “grants” Britain a new deal on membership, including curbs on benefits for EU immigrants, which, in the final analysis, do not matter that much to Berlin. There is no broader discussion about this around the EU, and France, which opposes concessions for Britain, is marginalised. Britain votes to stay in (just, thanks to the Celtic vote) on the basis of the new deal. But matters do not end there.

In an increasingly radicalised atmosphere, caused mainly by the refugee crisis, Marine Le Pen wins the French presidential election in April 2017 and demands a comparable package of concessions, this time on things that really do matter to Germany, such as French membership of the eurozone, plus much tougher restrictions on immigration – all on pain of secession. Fearing a domino effect around the EU, Germany refuses. This triggers France’s exit, which critically destabilises the rest of the EU. The Netherlands is the next to go. Within weeks, most other states announce their departure, including Britain, which never got to implement its new deal, and by 2018 the EU is all but dead.