Europe will remain confused with its principal institution, the European Union (EU), direly mismatched to the challenges it now faces: sustaining a common currency (the euro), the political explosiveness of Muslim migration, and a troublesome Russia. It will become still less effective as an American partner than its declining power would indicate.
By Gregory F. Treverton
NOTE: The views expressed here are those of the author and do not necessarily represent or reflect the views of SMA, Inc.
The EU’s Euro Mismatch
One part of the mismatch, the eurozone, was entirely predictable, and was one prediction that I actually got right. The logic was inescapable, even if the timing and trigger event were hard to predict: at some point a financial crisis would strike part of the eurozone but not all, or strike it differentially across nations. In that circumstance, the affected areas would want to devalue their currencies but would be unable to do so. To be sure, when oil prices are low, Texas would like to devalue the “Texas dollar,” and it can’t either.
The difference between the United States and the EU, though, is what economists call “fiscal federalism.” When hard times hit Texans, the blow is cushioned because those Texans then pay less taxes and receive more in transfers from the federal government. In Europe, by contrast, the “federal government,” the EU, has a small budget, 157 billion euros (or less than $200 billion) in 2017—or about 1 percent of EU GDP—and most of that goes for aid to poorer regions and agriculture. In contrast, the U.S. federal budget for the same year was over $4 trillion, or 20 percent of GDP. Fiscal federalism in the United States also means that rich states subsidize poor ones to a greater extent than in the EU. In 2018, for instance, Kentucky received $40 billion more from the federal government than it paid in taxes. That amounted to a fifth of the state’s gross domestic product (GDP), and if Kentucky were a nation would have counted as massive foreign aid!
In fact, the eurozone predicament was even worse than my colleague and I predicted. Because the euro was built on Germany and the Deutschmark, it was a strong currency, which let the poorer European countries, like Greece, borrow at, effectively, German interest rates, much lower than they could have obtained in their own, riskier currencies. And that guaranteed that at some point they would accrue more debt than they could service. The eurozone let the European Central Bank control monetary policy, but there was and is no comparable EU-wide authority for fiscal policy: hence the long, ugly arguments between Brussels and Athens over how much budget-cutting—and thus austerity—Greece would suffer in order to put its financial house in order. The issue of Brussels-ordered austerity became a more searing one when it was applied to Italy, a big European economy, not a small one, and was one of the grievances that led to the emergence of the populist right in that country in the late-2010s.
French President Emmanuel Macron and German Chancellor Angela Merkel agreed in June 2018 to the first step in a common fiscal policy, a consolidated budget for the eurozone countries. Yet the agreement was in principle, general with no details, and given Macron’s travails at home and the ending of Merkel’s tenure, it seemed very unlikely to move forward. It will remain easier to talk Europe than to pay for it.
Migration and Identity
The second mismatch is immigration. The EU was created to give primacy to economics and open borders but beginning in 2014 suddenly found itself flooded with refugees from the Middle East and Africa. The signature achievement of open borders was the Schengen Agreement of 1985 in which 26 countries (22 EU members and four others) abolished border checks between members, with checks only at external borders. At the beginning of the migrant wave, only seven percent of people in the EU were foreign-born, in comparison to 13 percent for the United States and 20 percent for Canada.
In one sense, what occurred was a predictable social process dramatically sped up. In the long run, Europe and its economies need people, and the only real source is the Middle East and Africa. Yet Europeans expected that process to be one of decades, not a few summers. So even if the flood did not involve enormous numbers by comparison to existing populations, the numbers—over a million in 2015—were enough to shock European politics, all the more so because most of the migrants were Muslims. Not surprisingly given the wars, almost half came from Syria, a fifth from Afghanistan and a tenth from Iraq. Four-fifths of the arrivals in 2015 landed in Greece, a number which fell dramatically after the agreement that year between the EU and Turkey to send back to Turkey any migrant who didn’t apply for asylum or was rejected. Total numbers were less than 200,000 in 2017, with two-thirds arriving in Italy, and between January and September 2018, only some 20,000 arrived in Italy and 35,000 in Spain.
The Muslims are relatively small in numbers: nowhere in Europe did they amount to more than nine percent of the population in 2016. Yet for virtually all the “populist” parties on the right, even Poland where Muslims are 0.1 percent of the population, they are a handy scapegoat. As European politics moves from economic divides toward cultural ones, Muslims are potent symbols for questions about identity. Perhaps even more so than immigrants in the United States, who are mostly Christian Central Americans, they evoke questions of ethnicity, religion and nationalism: what is France? What does it mean to be French? The answers sometimes are and will continue to be ugly, for the Muslim population of the EU (plus Switzerland and Norway) will continue to grow. It was estimated at 4.9 percent of the total population in 2016, up from 3.8 percent in 2010. Because Europe’s Muslims are younger and have higher fertility rates than other people in Europe, their numbers are estimated to grow to 7.4 percent by 2050 even if there were no new immigration.
Yet given that virtually all the trends in the greater Middle East are negative—from demographics to weaponry to sectarian conflict—the stream of refugees will continue, and it will continue to roil European politics. Already fences have gone up, and apart from the agreement with Turkey, the EU has been unable to agree on arrangements for sharing the refugee load. As in the United States, the numbers hardly matter; rather the refugees have been a scapegoat for the populist right. That was glaringly evident in “Brexit,” when passion over immigrants was almost entirely untethered from any facts. The disconnect between governments and the governed was and is, alas, alive and well in Europe.
The Brexit debate is sad to watch because it was only about myths and fantasies. It was clear from the beginning that the EU would bargain hard with Britain: it was obliged to do so lest other countries be tempted to follow Britain out of the Union. Yet, that fact seemed not be understood on any of the sides in Britain. Instead, for much too long the debate remained shrouded in the myth that Britain could get a good deal, enjoying many of the benefits of membership in the Union with few of its obligations.
It would be fool’s play to predict confidently what will happen in the next few years, but it seems inevitable that Britain, formally the United Kingdom, will come apart. Paradoxically, Brexit is likely to turn out to be a boon for Scottish independence and Irish unity. Scotland never wanted to leave the EU, and it is well-prepared for independence—a functioning legislature, a committed set of civil servants and an educational system that is one of the world’s best. The tortured debate over post-Brexit borders between Northern Ireland and Ireland seems likely to make unity more appealing, especially since neither of the two wanted to leave the Union in the first place.
In the short run, seeing the price Britain paid for its exit is likely, at the EU always intended, to deter other would-be exiters. Yet the absence of Britain will leave a hole, as Britain was a leader in completing the various aspects of the fully common market. Moreover, the disarray, already visible, will continue after Britain’s departure, emboldening the Italian populists and others to visibly defy Union guidelines. The larger question is the hole in Europe’s center, with France internally preoccupied and Germany uncertain in the wake of Angela Merkel’s departure as chancellor.
Uncertainty in Germany is new and worrisome. I wrote my doctoral dissertation on U.S.-German relations during the high Cold War. The first German chancellor I had the honor to work with was Helmut Schmidt. I met him with my boss, National Security Advisor Zbigniew Brzezinski, in 1977, while he was in the middle of a crisis over the kidnapping (and subsequent killing) of industrialist Martin Schleyer by the Red Army Faction (RAF), also known as the Baader-Meinhof gang. When we met him, Schmidt plainly was in his element, high on crisis management mode. At other times, he came across as though Germany was too small a country for him, and perhaps he should lead something bigger—like the United States! He was the best politician I’ve known at taking a group, even an audience, into his strategic thinking through ever-narrowing circles of analysis—in English to boot.
Yet most of the time working on Germany, in and out of government, was pretty boring. After its history of Weimar and Hitler, stability was practically an icon. More recently, while it sometimes tended to treat the other EU members like it was the schoolmarm, at least it was a predictable schoolmarm, sternly lecturing about budget deficits and other forms of economic profligacy. So far, the fissures in its politics have been pretty familiar, running back to the Cold War Federal Republic. Then, as more recently, “grand coalitions” of the two main parties of the center opened spaces on the edges of the political spectrum. The parties are different, but the pattern is the same. On the right, the Alternative for Germany (AfD) has done well, and in 2019 held a third of the seats in the Bundestag, but less well than many expected. On the left, the Greens have benefited. The center parties, the Christian Democrats and Social Democrats have lost votes but remained in control.
That is so far. The boring, stable German we’ve been accustomed to was rooted in the postwar experience and, specifically, in two preconditions that seem in danger of passing away. One was the American security guarantee, which let West Germany rearm and join NATO without becoming a threat to its neighbors. The second was the liberal economic order, which let Germany, which always had been export-oriented, flourish without becoming a threat. For its part, the United States not only tolerated Germany’s economic success but encouraged it. Western Europe grew faster than the United States from 1950 to 1970, with industrial production expanding 7.1 percent per year on average, over-all GDP by 5.5 percent, and per capita GDP by 4.4.
Moreover, the world in which West Germany existed was a far cry from the beggar-thy-neighbor economics and authoritarian politics of the interwar period. Democracy seemed the wave of the future. After the collapse of Weimar and the rise of Hitler, a careful observer would not necessarily have predicted a German commitment to democracy, and Germany’s east did indeed trade one authoritarian form, Nazism, for another one, communism. Allied occupation itself could have ended Nazism and militarism in West Germany but could not necessarily have guaranteed democracy. Yet with the fall of the Berlin Wall in 1989 and the founding of the European Union in 1993, ideological history did seem to have come to an end, leaving democracy triumphant.
So, too, the transnational institutions, the EU and NATO, served to contain the nationalism that had been Europe’s scourge earlier in the twentieth century. Perhaps the creation of the eurozone, and Germany’s willingness to trade the Deutschmark for the euro, stands as the starkest evidence of that containing force. Yet, paradoxically, the commitments to the eurozone and to remain in NATO, along with reunification itself, returned Germany where it was after its first unification in 1871—the dominant power in Europe. When the eurozone crisis hit in 2009, Germany-as-schoolmarm became the target of the ire of Greeks, Italians and others who were being lectured. Germany couldn’t hide behind the façade of the EU, and for its part came to resent feeling that it was bailing out the economically unworthy. It was, in the words of one observer, the “geo-economic version of the conflicts within Europe that followed unification in 1871.” It is a “geo-economic semi hegemon,” too dominant to be balanced by its EU partners but not strong enough to impose economic stability on its own.
Ominously, the emerging world undercuts the pillars on which that stable, boring Germany was based. Democracy is in retreat, with Germany’s neighbors becoming nationalists—full-throated populists in one direction and illiberal democrats or worse in another. The liberal economic order is breaking down, the presumption of free trade is under attack, principally by the United States, and America’s own president has scoffed at the American security guarantee. In these circumstances, Germany turning nationalist is all to imaginable. Already, the right-wing AfD talks of getting beyond the “cult of guilt” (Schuldkult) for World War II. Suppose a new economic crisis hit Greece or Italy or another EU country. Germany might be neither able nor disposed to respond generously, setting off a nasty nationalist row in the EU, perhaps even leading to its disintegration.
Nor is it impossible to imagine a remilitarization of Europe, Germany included. As Robert Kagan noted: “There has always been something ironic about the American complaint that Europeans don’t spend enough on defense. They don’t because the world seems relatively peaceful and secure to them. When the world is no longer peaceful and secure, they probably will rearm, but not in ways that will benefit Americans.” Indeed, in Oscar Wilde’s phrase: when the gods wish to punish us, they answer our prayers.
 “Whither Europe’s Economy? (And Can European Politics Survive EMU?),” (with C.R. Neu), Jobs and Capital, VII, 1 (Winter 1998), 76-79.
 All the numbers are from the UN High Commission for Refugees (UNHCR).
 All the numbers in this paragraph are from Europe’s Growing Muslim Population, Pew Research Center, November 29, 2017, available at https://www.pewforum.org/2017/11/29/europes-growing-muslim-population/.
 My reflections on prospects for unified Germany after the Cold War’s end are America, Germany and the Future of Europe, Princeton University Press, 1992.
 Robert Kagan, “The New German Question: What Happens When Europe Comes Apart, Foreign Affairs, July-August 2019. The numbers are his, page 111.
 Hans Kundnani, The Paradox of German Power, Hurst Publishers, 2014.
 Kagan, cited above, p. 119