So, Europe will have to choose, and soon: import dozens of millions of non-EU hands, probably from Muslim societies, with all the social challenges that portends; raise taxes, which will depress economic competitiveness and growth and lead to the EU’s long-term economic decline; or cut back its welfare state. Europe is already on a path toward increasing its Muslim population from 4.1 percent to 8 percent by 2030. Dozens of millions of mostly Muslim immigrant workers would double that percentage. Will these new Europeans assimilate to Europe’s cultural norms? Already, Europe’s racist and xenophobic extreme right, notably the mouvance identitaire, has loudly embarked on a campaign to preserve Europe’s secular and lay heritage – which really means keeping the Muslims out. Many among Great Britain’s Tories have their own point of view. They do not consider the EU to be a cultural and political entity and they resent meddling Brussels bureaucrats telling good Little Englanders how to conduct their lives. They believe that the EU should be a common market, on the far side of the Channel, “in Europe,” and that is that.

In sum, the elements of the EU’s current economic and demographic dilemma are flaccid birthrates, robust immigration from Muslim societies, bloated social expenditures, and some countries that have always been reluctant EU member states. Serious as these challenges are, however, I am relatively optimistic about the EU’s future. Here is why.

Geography Decides Destiny

The EU has always tacitly accepted higher unemployment in exchange for generous social transfer payments, in the form of unemployment insurance, protective labor laws, robust medical and educational programs, and so on. This has been the broadly accepted social democratic model – accepted in Europe even by the putatively “conservative” parties in European countries. Most EU officials do not even entertain the possibility that the price of labor market rigidities and the heavier taxation required to fund social transfer policies – solidarité sociale, my French interlocutors would term them – was fiscal strain and higher unemployment (10.7% EU-wide, in November 2012) than the “savage capitalist” system across the Atlantic (7.7% in the US, January 2013), and, ultimately, structural fiscal strains. The cultural and political objectives, initially of binding Germany to Europe, and then of creating a single European entity, always have driven decisions. Even Great Britain’s Tories have grudgingly recognized this: geography decides destiny, too.

Fifteen years ago, I frightened a number of German journalists. They had asked me how I saw Europe evolving. “If Germany does not lead Europe,” I told them, “Europe will not be led.” They were shocked to hear an Europeanist calling openly for a dominant German role; after all, the whole point of post-WWII European history, and of the EU, was to keep Germany from reverting to its unfortunate history of forceful intervention.
But the solutions to the EU’s crises are relatively clear, if painful.

German Lead?

Europe will adjust its structural fiscal and monetary posture, and will continue its long, halting, economic and political integration. Germany will require the more profligate EU members to align the costs of their social programs with their productivity and their expenses with their GDP and tax revenues. Inflationary policies – printing money as a way out of the problem – may mitigate some of the costs of fiscal restructuring, but inflationary policies alone will not lead to the structural reform needed to address the EU’s budgetary and fiscal imbalances. The structural adjustments that will instead be required will cause substantial human suffering, at least in the short term. Greece’s gross domestic product has declined for five years running and will continue to decline for at least another year or two. The EU as a whole, and especially its fiscally laxer southern members (Italy, Spain, Portugal) will pay for structural reform with years of continued low growth and higher unemployment (Spain’s unemployment rate is currently 26%.)

But there is no other way to foster economic growth long-term, balance budgets, strengthen the Euro, and strengthen the EU’s political union – whatever France’s Socialist president François Hollande affirms – than to have structural national budget deficits within a point or two of a nation’s core inflation rate. Germany will grudgingly save the Euro by bolstering the economies of the EU’s prodigal southern members, but will not succeed in changing in the short or medium term the southern members’ political and economic cultures, which led to the crisis in the first place; these cultures are almost impervious to government policy, except over decades. But in fiscal, monetary, budgetary, and social policies, Germany will succeed in forcing change on EU member states and on the EU as a whole.

Great Britain will realize that it is part of Europe – trade flows, political involvement, millennia of history, all these, over time, are stronger than Little Englander pique. The UK is far more integrated with the EU than it was forty years ago when it became a member. It cannot afford to leave; and even if it does, the EU will continue without Great Britain, diminished, but more coherent. Great Britain is not so important anymore that it can decide the fate of the EU.

Ultimately, for all the crisis and structural problems causing the EU and the Euro to stumble and the EU to appear to be in existential crisis, the long-term solutions for Europe are achievable, and will happen: the EU’s demographic, geographic, economic, and political crises will either adjust themselves, or Germany will, in the end, win the arguments, and impose adjustments. No member, possibly Great Britain excepted, will break the union. No one will dare to.

The EU need not jettison its model; it needs structural reform. This is what will happen to the EU over the next decade, albeit imperfectly and with pain, recriminations, and error.

Social Programs – the EU’s social model: the EU will align its social welfare expenditures with the revenues its labor force, however constituted, can produce. This will agonize and antagonize many on the European left; but a country cannot pay for social programs without money unless it chooses to be poor and fall behind the rest of the world (see Soviet Union, Cuba, China pre-1979, North Korea, et passim.)

Structural fiscal and monetary reform: the EU needs to, and will, address its fiscal and monetary imbalances; Europe’s national budgets have been out of balance; they can and will be better balanced (see Greece, German steps to oblige the wayward to walk a straighter and narrower fiscal line.)

Labor rigidities:Europe’s labor markets have been too rigid; labor laws can be made more flexible, and mobility can be increased. If Europe can accept dozens of millions of immigrants, and it will, it can address its labor rigidities.

Budgetary pressure: governments will be better able to address labor rigidities as budget pressures ease (i.e., flexibility to hire and, yes, fire; less burdensome tax and regulatory obligations on corporations, such as the 35 hour work week in France…)

Growth: as the EU addresses its fiscal and monetary imbalances and starts to address its labor rigidities, EU growth will return and increase and the unemployment rate will fall.

These solutions to the suffering and problems the EU faces will inflict pain on already suffering populations. However, with Germany’s leadership, the EU will make these critical changes to strengthen the EU’s fiscal and budgetary imbalances. The EU is the latest embodiment of the cacophony that has always defined the West. Yet what at times has appeared incoherent and ungovernable chaos has frequently been the key to the West’s success. Strength, flexibility, and dynamism have come from the endless series of challenges Europe and the West have confronted. Long-term, the outlook for the EU is favorable. We need not agonize too much about the short-term crises, grave and real as they are. The Europeans can go back to bed. It would be good for them, too.

*The views expressed in this article are the author’s own and do not necessarily reflect The Corner nor Fair Observer’s editorial policies.

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“Please know,” Reagan wrote, “you have an enthusiastic supporter out here in the ‘colonies.’”

Many underestimated Ronald Reagan at the time. “A grade B actor,” they called him. But Mrs. Thatcher didn’t and their ascension was parallel. She would win the elections four years later, and be a Primer Minister from 1979 to 1990, a period that encompassed Reagan’s two terms in the White House. Their political friendship was one of the most solid and fascinating of the past 50 years, the most important Anglo-American alliance since that of Winston Churchill and Franklin Roosevelt.

As Mrs. Thatcher said once, she and Mr. Reagan shared a rather unusual characteristic: they were in politics because they wanted to put their philosophy into practice. Both shared humble backgrounds, both were committed to a conservative revolution: fight communism, dismantle government bureaucracies and deregulate key industries.

Unquestionably, they played as a team. Together they exerted pressures on the Soviet Union that helped speed the end of the cold war. The sharp-tongued Iron Lady backed up President Reagan as he stationed intermediate-range American missiles in Western Europe to challenge the Soviet’s, a decision that caused big protests in Europe. He offered her the same unconditional support when she resolved to send troops to the Falkland Islands.

Several months before Ronald Reagan passed away, Mr. Thatcher recorded an elegy for her friend, who as herself had always struggled to be part of the boys club:

“As the last journey of this faithful pilgrim took him beyond the sunset, and as heaven’s morning broke, I like to think — in the words of Bunyan — that ‘all the trumpets sounded on the other side,’” she said.

Mrs. Thatcher said Mr. Reagan was the second most important man of her life. He called her “the best man in England”.

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Our savings are at risk, he said. But to figure that Münchau seeks to trigger a bank run in Spain or in any other eurozone country would be absurd. The question, then, is: what was the intention one of the most celebrated columnists at the Financial Times? Do lenders in the City need more deposits? Or is it Swiss banks that need them? Or is it the offshore banks under the British crown umbrella? This sounds even more absurd.

Therefore, I am led to conclude that Münchau’s simply attempted to project some philosophical light, again, over the eurocrisis, the European Union’s incongruous structures and its denial to act as a single issuer, while issuing a single currency, before its creditors.

Yet, theoretical reflections must respect the reality. To be sure, the truth is that in the very extreme situation of Spain, the Spanish taxpayers, having to guarantee all bank deposits, this would be impossible. So it would be for any other country. The current guarantees are set to boost confidence among savers, but no one expect them to be implemented. In all modern states, this is how it works because their banking systems have several times the size of their GDP. Would the British Treasury be able to cover a massive run on Barclays, Lloyds TSB or Santander UK?

There is no bank in the world, no matter how solvent it is, that could survive such an event. And there is no state that could deal with it when savers and investors panic, dragging down with them the entire financial industry. That is why commentary scaring savers–whether in Cyprus, Spain, Italy or France–smells of negligence at the very least. In Spain, where we had to face capital outflows of over €200 billion in 2012, we are particularly aware of it. Financial journalists, as all journalists, have to be accurate and behave responsibly. Münchau appears to have forgotten that a pretension of aseptic analysis is never enough.

Coincidentally, bank deposits in Spain from non-residents savers increased in February for the second month in a row, which in part compensates the correction of domestic deposits. In January, according to the latest data, Spain received €14 billion in short-term foreign financing, the highest amount since 2011. Münchau should mind.

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Our point of departure is the competent study by Vivien Pertusot, the head of the Brussels office of Ifri, Institut français des relations internationales (French Institute of International Relations)–@VPertusot on Twitter. The Ifri note (in English) is downloadable here: In Europe, not ruled by Europe: Tough love between Britain and the EU, of March 2013.

About the British newspaper propaganda for secession, I leave the description to Pertusot (page 17): “Any European reading the UK press will undoubtedly note two traits: how much the media talk about Europe and how negative the tone usually is. It is difficult to quantify how influential the media are in shaping public opinion, but it does not help the cause for Europe that the UK press constantly criticises every nut and bolt in the EU.”

“In the UK, four media owners are known to hold eurosceptic positions, Rupert Murdoch (The Times, The Sun), Richard Desmond (The Express, The Star), the Barclay brothers (The Daily Telegraph), and the Daily Mail and General Trust. In September 2012, these titles accounted for the circulation of 74.1%, about 6.4 million copies, of British daily newspapers.”

‘Not negligable’ is certainly correct, but my impression is less hesitant with regard to the effects. I see the sustained campaigns by anti-EU mass market papers as deliberately distorting and poisoning public opinion, preparing the ground for secession (Brexit).

Queen Boudica would envy the hero status these newspapers have conferred on ”independence fighters” such as Nigel Farage and Daniel Hannan, as well as columnists, reporters and campaigns prepared to drag the public down to their level.

Using the force of gravity is not very demanding intellectually, but while vilifying the eurozone and the wider European Union as undemocratic and anti-democratic these people vehemently battle every step towards democratic reform of political Europe.

After being misquoted, the Polish foreign minister Radek Sikorski remarked on slipping media standards at The Daily Telegraph.

Compare what has become standard UK political discourse on Europe with the civilising speech of the German federal president Joachim Gauck.

And I remind you of the simple test you could make on UK politicians.

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The next annual UK-Nordic-Baltic summit will take place in Riga on 28 February 2013. The first summit was the initiative of British Prime Minister David Cameron and took place in London in 2011. Last year, the UK-Nordic-Baltic summit took place in Stockholm, where its name was changed to the Northern Future Forum. This year, the summit will focus on the green economy and the digital divide. However, the institutionalisation of a “Northern bloc” may be a more important outcome of these meetings than the topics on the official agenda.

In January 2011, David Cameron initiated and hosted the first UK-Nordic-Baltic summit, which saw politicians, policy-makers, thought leaders and business leaders gather for two days in an informal setting to discuss economic growth and job creation. The summit in London was attended by the Premiers of Norway, Sweden, Denmark, Finland, Iceland, Estonia, Latvia, Lithuania and the UK. Cameron explained what these states have in common and what they can achieve together: ‘Right across the North of Europe there stretches an alliance of common interests. We get enterprise. We embrace innovation. We understand the potential of green technologies for economic growth. So at a time when much of Europe is in desperate need of fundamental economic reform, it makes sense for us to come together for the benefit of all our economies: an “avant garde” for jobs and growth.’

That a Tory Prime Minister expresses affinity with the Nordic Model should not come as too much of a surprise given the relative economic success of these countries over the past number of years, as well as their ability to carry out far-reaching reforms to the welfare state and budgetary policy. Cameron has had a close friendship with the Swedish Prime Minister, Fredrik Reinfeldt, for many years and has looked to Nordic countries for ideas on education, cutting public spending, the development of the digital sector and the use of green technology for economic growth. The annual summits are therefore designed to serve as catalysts for sharing expertise and best practice among countries that face similar economic and social challenges. Participants at the first UK-Nordic-Baltic Summit discussed technology and innovation; jobs, family and gender equality; and the green economy and sustainable business. At the 2012 meeting in Stockholm, the renamed Northern Future Forum focused on the role of senior citizens in the labour force and the role of women as entrepreneurs and leaders. The two key issues at this year’s summit are: “Can green economy be competitive?” and “Addressing the digital divide”.

Perhaps the most important question does not feature on the Forum’s agenda: Is this grouping of Northern states designed with a longer-term strategic purpose in mind? Has the UK successfully forged an alliance with other “awkward partners” of Brussels?

The Nordic and Baltic states cover the entire spectrum from minimum to maximum EU integration: Norway is outside of the EU, Iceland is negotiating its way in, Denmark and Sweden have opted out of the Euro, Latvia and Lithuania are single currency “pre-ins”, with Finland and Estonia being the only countries in the group inside the Eurozone. Nevertheless, the Nordic countries in particular could be valuable allies of the UK over the coming years as the UK seeks to renegotiate the terms of its EU membership and obtain safeguards against Eurozone caucasing. The Nordic states and the UK tend to take a similar stance on many EU issues. Most recently, Sweden, Denmark and Finland refused to sign up to the EU’s Financial Transaction Tax. Sweden and Finland joined Britain to push for a budget cut during the negotiation of the EU’s Multiannual Financial Framework. Perhaps most importantly for the future agenda of the EU, the Nordic states also share the UK’s concerns that closer Eurozone integration will undermine the fundamental structure of the Union.

Within the EU, the seven Member States in the group could cooperate to bring about greater budget discipline, a lighter regulatory burden, and more focus on competitiveness and increased free trade. At the first summit in London, Cameron gave his vision of how the states in the group could work together in Europe to drive economic reform: ‘I want to see action on economic reform by Europe as a whole, on trade, on regulation, the single market, on innovation, but I believe the UK, Nordic and Baltic countries can be the avant-garde’. On foreign policy, some of these Member States favour a close transatlantic relationship and a strong role for NATO. They remain more wary of Russia than many EU Member States and have been strong supporters of enlargement and the Eastern dimension of the EU’s neighbourhood policy.

Although there has been no hint from London of a deliberate effort to forge a long-term alliance, Finland’s Foreign Minister, Alexander Stubb, was forthright in describing Cameron’s initial summit in 2011 as a “smart move”: ‘He’s looking for allies in the EU. Small member states are always flattered when approached by big member states’. As Nordic and Baltic countries step up their cooperation with the Visegrád Four (Poland, Czech Republic, Slovakia and Hungary), the UK could be tapping into a valuable network of allies within the EU. And it is not only the Conservatives that are seeking to increase engagement with potential EU allies. Last week (beginning 18 February), Ed Miliband and the Shadow Foreign Secretary, Douglas Alexander, visited Sweden, Denmark and the Netherlands to meet social democratic leaders in each country. Speaking ahead of his trip, Miliband stated: “I will be talking to allies across Europe – in Denmark, Sweden, and Holland – about how we change it to make the EU work for working people and help us all begin building for the future.”

Now in its third year, the UK-Nordic-Baltic Summit has become an institutionalised forum for its nine participating states. It remains to be seen what impact this grouping will have on the EU’s long-term agenda and to what extent the Nordic and Baltic states will prove to be useful partners for the UK as it seeks substantial EU reform. Loose sub-groups already exist within the EU – for example the Visegrád Four and the Weimar Triangle – but this northern grouping is exceptional because of the disparate historical experiences and EU integration ambitions of its nine members. However, if the situation in the EU’s southern periphery deteriorates further, the ideas that emerge from the annual Northern Future Forum may become ever more influential within the Union.

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