Ideas for a united & federal Europe

During a news conference in Warsaw some weeks before the parliamentary elections, Beata Szydło, then deputy leader of Poland’s conservative Law and Justice party and now designated prime minister, called on the Polish government to abandon the idea of adopting the euro and promised that her government’s first decision would be to close down the office in charge of preparing Poland for adopting the euro. Similarly, President Andrzej Duda, also from Law and Justice, repeatedly praised the złoty for protecting the country during the euro area crisis and voiced his opposition to the introduction of the euro until the average salaries of Polish workers is in line with those of their German colleagues (i.e. not in the foreseeable future as they are currently one third).

Last Sunday former Polish Eurosceptic Prime Minister Jarosław Kaczyński led Law and Justice to government with an electoral programme based on a mix of promises of better living conditions for workers and rural populations, hostility to the European Union, and a good deal of nationalism and populism, if not overt xenophobia. No doubt, the new government of Beata Szydło will carry out nationalistic policies and oppose further transfers of competences to the European Union. The ongoing migration crisis, and the European Commission proposals for an obligatory burden sharing mechanism and European management of European borders, will provide a field of confrontation in the immediate future. But it is on the development of the euro area that the Polish elections could have a more lasting effect.

Poland is one of the nine member states of the European Union that are not members of the euro area. Apart from Denmark and the United Kingdom, which negotiated opt-outs from the euro provisions, all other EU countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden) are legally bound to adopt the euro once they meet certain criteria. They relate to the public debt and deficit levels, reference values for inflation and long-term interest rates, participation in the European Exchange Rate Mechanism, and compliance of national laws with the ECB statute and the Treaty on the Functioning of the European Union. Of the seven countries, Poland is the largest and the most strategic country. Currently it falls short of only two criteria and both are just a matter of little more than political will. The alignment of certain national laws could rapidly be implemented. And the still excessive budget to GDP ratio, resulting also from recent anti-cyclical policies to counter the economic crisis, could also be reined in a few years. But the victory of a Eurosceptic government – and the deeper trends in the Polish society it reflects – postpones membership in the euro to an undefined future, regardless of its Treaty obligations. Some of the other non-euro countries are in a similar situation.

At a time when the euro area is discussing its future – including on how to structure the relationship between euro and non-euro countries in the event the euro area deepens its fiscal, economic and political integration – the postponement of Poland’s entry into the euro area for the foreseeable future changes the terms of the debate on if and when to deepen the euro area integration and the relations between “ins” and “outs”. Poland joining the euro area in the short term would mean a closer overlapping between the euro area and the EU itself, it would reinforce the image of the UK as the main if not even the only real anti-integrationist Member State, and it would counter the need for more differentiated integration. Poland outside the euro has obviously the opposite effect.

The most integrationist Member States in the euro area have three options.

They could invest efforts to try and pull Poland and other reluctant countries in order to preserve the unity of the Union, waiting for as long as it takes for them to eventually go back to the European path, including joining the euro area and participating to its future evolution. This would include postponing further integration of the euro area for the next decade or beyond. Nobody can predict for how long. This could be extremely costly. If no changes were made in the economic and institutional structure of the euro area, the sustainability of the single currency could be in question, especially if a new financial or economic crisis hits Europe. Moreover, if the euro area were unable to reform itself, and if it did not deliver what it is expected to in the next few years, Eurosceptic feelings could spread even further across the entire Union, thus putting in jeopardy the entire European construction.

Alternatively, they could press on for deepening the monetary union, towards greater fiscal and economic union, but avoid any further “political integration”. This would means also avoiding any differentiation in the composition and way of working of the European institutions that could broaden the gap between countries in and outside the euro zone. French ideas for a euro area parliament, German ideas for a European finance minister having a say on national budgets, and the idea of a euro area budget financed by own forms of taxations (that would impact somehow the countries outside the euro) would all be a no go. The results may be in fact not different than under the first option.

The only far-sighted option would be for the euro area countries (and, in the first place, for Germany and France) to insist in taking a leap into deeper integration, combining fiscal and economic integration (particularly through a budget for the euro area and instruments for risk sharing) with deeper political union. Obviously, such advancements imply changes to the European Union Treaties which could be vetoed by non-euro countries. This brings about the question of how the euro area countries can regain control of their own destiny and not be blocked ad infinitum by those outside, if necessary by resorting to additional treaties. The efforts of the integrationist Member States should focus on providing the other countries with an acceptable deal that would allow them to benefit from the results of the current phases of the European integration without taking part in or being bound by all other European decisions. In exchange, they should ensure their support to the federalisation of the euro area.

Poland is not an isolated case. All the countries composing the so-called Višegrad group (the Czech Republic, Hungary, Poland and Slovakia) are experiencing a return of nationalist forces and are nurturing increasing suspicions against neighbours, EU partners and foreigners. And then, obviously, there is the United Kingdom. The elections in Poland, and similar developments in other of the countries currently outside the euro area, oblige everybody to confront the reality that the EU will not be able to progress its integration as a block at the same time. The European Union will remain for a very long time, maybe forever, a multi-currency Union. The type of integration which is required for the euro area is fundamentally different from the one which underpinned the single market. It requires a level of commitment and sense of community of destiny that some Member States do not have yet and will not have in a foreseeable future. Europeans should accept that the ever-closer-Union principle and the obligation of joining the euro are not realistic under the current circumstances. On the contrary, only if the core of the Union, the euro area, is able to move forward alone will the EU acquis and its values be preserved.

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