21 February 2016

Is the dream of a European superstate over?


Last week, David Cameron secured a reform deal with the European Union that, despite appearances, offers an alternative model of the future for Europe. Should Britain vote to remain in the EU on June 23rd, it would be supporting a model of Europe that ensures the primacy of the nation state. The UK would not only express a wish to keep its currency and retain a reasonable degree of control of its borders, but it would be expressing approval for a model of Europe that differs from the experience on the continent.

For many, a vote to stay in Europe will also be a vote for a Europe of cooperative nations rather than support for a superstate. If Cameron manages to win the referendum, he could find that leaders in other countries start demanding similar arrangements. It would mean a EU that works very differently from how it does now, and how it was dreamed to be, but it could be what keeps the union – which has failed to build a demos – from disintegrating entirely.

If we’ve learnt anything from last year’s eurozone saga, it was that fresh faces and new deals were not enough to break the intractable politics of the euro and, ultimately, of European integration in the long term. The fellow feeling was simply not there.

The real solutions, which we know to be unfeasible, have been known for some time. Countries like Greece need more debt relief if they are to stay in the eurozone. The wider euro area needs to complete its banking union. That means common deposit insurance, lender-of-last-resort facilities for the ECB, and the limited issuance of Eurobonds, which – notwithstanding serious issues of moral hazard – would allow member states in periods of distress to access funds. Most controversially, steps need to be taken to establish a federal treasury to effect fiscal transfers when member states are distressed.

The United States has all of these, and if Europe-wide polls are to be believed – that 61% of the eurozone’s population are federalists– it would appear that there is enough basis for the world’s second largest economy to move in this direction. That this is not happening suggests national feeling is still strong in the European psyche. In the end, currency integration has not been sufficient in driving political union.

The idea that economic integration leads inexorably to political integration or is in itself sufficient was the brainchild of Jean Monnet, the “Father of Europe”. But it is based on a misreading of the unification process of Germany in the 19th century, which involved a customs union called the Zollverein. This misunderstanding continues to undermine the single currency because its advocates fail to appreciate that a polities are rooted in shared consciousnesses and their primary concern is security rather than trade, as Otto von Bismarck, the “Father of Germany”, well understood. However with the migrant crisis and terrorism moving to the top of the political agenda in recent months, issues of continental security have come to the fore. This carries the potential to deepen and broaden a European consciousness that might drive integration in the coming decades.

So can the EU draw any lessons from the story of Germany? It is commonly known that the threat from Napoleon was a catalyst for German unification, a state which hitherto was a loose arrangement of autonomous fiefdoms known as the Holy Roman Empire. Prussia was the most significant state in this polity and had been gaining territory since the mid 17th century under bold leaders. In 1813, with Napoleon on the retreat from Russia, Frederick William III, the then King of Prussia, appealed “An mein Volk,” a call to arms for ethnic “Germans” to rise up against the French to dissolve the occupied Confederation of the Rhine. Napoleon’s Confederation incorporated practically every German state except Austria and Prussia as French satellites.

The crusade against the French Empire expressed a nascent German nationalism built on the foundations of print capitalism, and which led to the creation of the Deutscher Bund, adding parts of Austria and Prussia to the Confederation of the Rhine. The Deutscher Bund was by no means a political union but instead a formal understanding of common interest in the event of future invasion by a foreign power, a sort of NATO.

French obsession with this German NATO led to paranoia from Prussia, which began cultivating the states of the Bund by establishing the Zollverein in 1834, a customs union that excluded Austria and its German allies due to their highly protected industries. The stated purpose of the Zollverein was to integrate German states economically and to hasten the progress of industry, but there was also latent political motivation. Friedrich von Motz, the Prussian finance minister at the time, remarked that “political unity would be the necessary consequence of commercial union.” These sentiments reflected the remarks of Richard Cobden’s on the importance of free trade in his crusade against the Corn Laws in the 1840s. Trade “destroyed the antagonism of race, and creed and language; and made large and mighty empires, gigantic armies and great navies redundant.”

But as in the case of the European Union today, while trade is in each state’s interests, there is little incentive to go further without the prod of necessity. However, weaker states can become dangerously dependent on the dominant one. In the 1800s, middling German states began to take advantage of implicit Prussian beneficence. Bavarian military spending, for example, fell by 30% in real terms between 1819-1830. This is a classic case of the free-rider problem. Smaller states knew it was in Prussia’s interest that they be protected and so understood that the need to provide for their own defence was greatly diminished by their affiliation with Prussia in the German Confederation.

There are parallels here in how the likes of Greece and Spain behaved in a German-led eurozone before the financial crisis, but succumbing to moral hazard is very different from assuming another state will take care of defending your territory. The latter assumes a shared pathos that is simply lacking in the European Union today.

Otto von Bismarck, who – it must be said – was not much of a democrat, knew the limits of economic integration very well. His most famous piece of high oratory was in 1862 at the Prussian Budget Committee, known as his “iron and blood” speech.

“Prussia must concentrate and maintain its power for the favorable moment [German unification] which has already slipped by several times. Prussia’s boundaries according to the Vienna Treaties are not favorable to healthy state life. The great questions of the time will not be resolved by speeches and majority decisions—that was the great mistake of 1848 and 1849—but by iron and blood.”

Bismarck took advantage of the strengthening position of Prussia and growing nationalism. He unified Germany by taking two significant steps. A war with Austria in 1866, over Schleswig-Holstein which broke the Deutscher Bund, unified northern Germany. A war with France and Napoleon III four years later, which he deliberately provoked by contriving the notorious Ems Dispatch, unified the rest.

German unification was founded on nationalism and security concerns, and was facilitated by economic integration. Today, there are those who believe that emerging threats to Europe from ISIL to the South and Russia to the East provide a similar impetus that furthers EU integration in a way that the euro crisis has failed to do on its own. Yet, while the EU today takes the place of the Deutscher Bund, and Isil, Russia and China take the place of Napoleonic France, there is no similar urge among the peoples of Europe to unite.

The world is changing fast. China will have more clout on the global stage, and may find it expedient to export its Confucian values of relations based on reciprocal networks of trust and an acute appreciation of interdependence. After all, the Chinese do not see themselves as a nation but as an ethnically homogenous civilisation. They don’t see themselves as descendants of the homo sapiens that reached Asia 70,000 years ago, but as children of the 100,000 year-old Xuchang Man. Huang Di, the Yellow Emperor who first centralised the Chinese state almost 5,000 years ago, is seen not merely as a common ancestor but as the initiator of Chinese civilisation. That is why loyalty to the state is deeply embedded in Chinese culture as the natural extension of loyalty to family.

Their approach is up against the contractual model of the West, which gives primacy to the importance of a nation state underpinned by the rule of law, property rights, individual rights and cultural pluralism. As developing countries grow bigger geopolitical muscles to counteract the perceived hegemony of the United States, they will realise that they can further their common interests by forming robust coalitions with their neighbours, many of which may not prioritise Western modes of society. That is what the Asian Infrastructure Investment Bank, Vladmir Putin’s Eurasian Union, the growing spaghetti bowl of bilateral trade agreements, and meetings of the BRIC economies are all about.

It is easy to foresee a world riven in the decades ahead by competing interests. As the US turns its military attention away from the Middle East and towards Asia, as rogue and absurd violence masquerades as a borderless state in the Levant, and as Russia’s willingness to test the resolve of NATO’s post-war settlement continues, new threats to Europe’s security appear to be developing. This time, NATO might not be there to help Europe meet these challenges. In the early 1980s, the United States had 350,000 troops and 6000 tactical nuclear warheads stationed in Europe. Today, that figure stands at 65,000 and 200 respectively. With isolationist sentiment in the US at a post-war high, even this limited American engagement with Europe cannot be taken for granted.

These imperatives may end up pushing the member states of the European Union to integrate further. The United Kingdom, as the union’s leading military power, could lead a more coherent EU-wide defence and foreign policy programme and further the commitments made in the 2010 Lancaster House Treaties to share defence assets.

However, there is little to suggest that the Bismarck Doctrine, which worked so well in the late 19th century, is relevant in today’s world. Germany, the EU’s reluctant leader, is in many respects developing a closer relationship with Russia. As Hans Kundnani writes in Foreign Affairs, many Germans have become disillusioned with the United States after the NSA spying scandal, while others blame the financial crisis on supposedly unfettered Anglo-Saxon capitalism. The Körber Foundation found last year that when asked with which country Germany should cooperate in the future, 56% named the United States while 53% chose Russia. And in the 2014 NATO Summit in Wales, Angela Merkel blocked plans to establish a permanent base in Eastern Europe.

Meanwhile, as the US reorients its geopolitical focus to Asia, China will find it in its interest to cooperate more with Europe – particularly with Germany, whose economy is a strong complement to theirs, and Britain, which last year became the first European country to join China’s Asian Infrastructure Investment Bank. And unless the Islamic State starts to present a serious existential threat to the idea of Europe, there is unlikely to be enough popular support for measures that push the EU towards a superstate.

But there could and should be further steps towards a common security and defence policy. Europe, despite appearances, relies heavily on NATO and the United States, which contributes 75% to NATO’s budget, for its security.  This was very much the case in Kosovo, and also during the 2011 Anglo-French campaign in Libya, but assistance cannot be guaranteed in the same measures in the future.

In such circumstances, is the European Union a lost cause? Or could Jean Monnet be proved right about eventual integration? By 2030, the Indian economy is expected to be as large as all the economies in the eurozone combined, according to the OECD. By 2060, India and China are expected to claim 46% of global GDP compared to just 9% in the Euro area. Geopolitical clout is the close cousin of economic might, and even in a world which is more collaborative and less belligerent than Bismarck’s Germany, there will remain significant benefits from pooling sovereignty and risk, and leveraging shared ideas and customs in an increasingly multi-polar global political economy.

However hard it may be to imagine today, the small Westphalian states of Europe are going to find it hard to make much of an impact in a world where countries with large populations grow in influence. This much applies to Britain too. Relying for security on an ageing superpower increasingly occupied with a rising China will become untenable.  That being the case, Europe needs to see beyond its present troubles, and start thinking of the type of world it wants its descendants to live in.

It looks like the EU will not become a superstate, and that is welcome. But it is not a lost cause either. A future for the EU that keeps a role for nation states, but with strong economic integration and a common foreign policy, would look very different from the status quo, but it might be what gives it a new lease of life and ensures European cooperation for the challenging decades ahead. Britain has a golden opportunity to forge this new arrangement, but it needs to vote to remain in the club this June.

Zac Tate is Deputy Editor of CapX