A Crisis of Faith within the European Union

A Crisis of Faith within the European Union

The two-day EU summit in late June was marked by growing disagreements among members of that organization. Even the signing of the economic sections of EU association agreements with Ukraine, Georgia, and Moldova could not conceal this fact. It is entirely possible that by the time these documents take effect, the EU itself will have changed enormously, prompting a radically different approach toward, for example, the admission of many Balkan states...

«[T]here is nothing in these agreements ... that might harm Russia in any way. [They will help us] chart together a safer future for our common continent,» claimed EU Council President Herman Van Rompuy about the documents that were signed. He declared this the «the most ambitious external relationship ever developed with the European Union» and «a starting point» on the European path of Georgia, Ukraine, and Moldova. 

EU leaders are fond of pompous generalizations and metaphors. References were made to these «most ambitious projects» during the introduction of the euro, as well as on the eve of the 2004 admission to the EU of ten new states and also at the debut of the Eastern Partnership program. And in regard to the outcome of the last summit, another two unprecedented events should be mentioned that were certainly detrimental for the European Union. A vote was held for the first time at the level of the Council of the European Union concerning the candidacy of the new head of the European Commission, and for the first time the EU Council found itself almost equally divided on the issue of further cooperation with Russia ...

Italy is currently the EU’s most vocal opponent of sanctions against Russia. But Austria, Spain, Cyprus, Greece, Slovakia, Hungary, and Bulgaria have staked out a similar position. The United Kingdom heads the camp of those who favor what is known as the third round of sanctions against Moscow, which affect energy supplies. The Financial Times also places Germany, Sweden, Denmark, Poland, Romania, and the Baltic countries into that category. [1]

The intensity of this conflict and the approximate parity of their efforts meant that the summit was unable to make a decision about stepping up the sanctions against Russia: the EU’s political and business elite are becoming increasingly aware of the damage those cause to Europe’s economy. After all, Russia currently provides at least a third of Europe’s gas and conducts 12 times as much trade with the EU as with the United States.

The political situation in the EU itself, which is looking at serious changes in its governing bodies, will soon help ease European minds. The conflict between British Prime Minister David Cameron and his colleagues at the last summit was only temporarily ameliorated. Cameron also failed to block the nomination of the former prime minister of Luxembourg and former Eurogroup chair, Jean-Claude Juncker, for the chairmanship of the European Commission. London views Junker as a supporter of the rigid centralization of the EU’s political and financial institutions, which is a threat to British interests. Budapest supported London’s position, creating a definite axis of confrontation against Brussels within the organization. And although David Cameron promised to work with the new chair of the European Commission, despite the prime minister’s comments that «a face from the 80s can’t solve the problems of the next five years,» this was a shot in the arm for the British policy of maintaining a certain distance from the EU, a stance also favored by the countries of Central and Eastern Europe and Scandinavia that side with London regarding the EU’s future.

Everyone in the European Union, and especially in the eurozone, realizes that the organization in its current incarnation is in need of serious modification. And time is running out to take decisive action to reform the EU and the eurozone. Experts from the World Bank quite recently issued their Global Economic Prospects report, which warned Brussels about the threat of deflation. «Inflation expectations remain anchored so far,» the document claims, «but downward adjustments could unleash a pernicious debt-deflation cycle.» But sovereign debt, despite all the measures taken to combat the crisis, remains at a very high level today. It equals 96.2% of GDP in the eurozone, and 87.1% across the EU, which limits the ways the European Commission and the European Central Bank can respond to the crisis. Even the arrival of new faces at the helm is unlikely to reverse the situation. 

As the European Commission has acknowledged, the composite index of business and consumer confidence in the eurozone economy fell in June to 102 points, instead of the anticipated rise to 103 points. According to the corrected data, the confidence level in May stood at 102.6 points, not 102.7 as had previously been reported. Confidence in European companies fell from an adjusted -3.1 points in May down to -4.3 points in June, although a weighted average decline of only -3 points had been predicted. In June, the estimation of consumer confidence eroded to -7.5 points, as opposed to the -7.4 points that had been previously announced. That figure stood at 7.1 points in May - the lowest in the last seven years. However, we see that even this abysmal record did not stand for long. All this augurs a worsening business climate within the European Union, which in turn might herald a new banking crisis. In any event, panic has already broken out among the depositors of several major Bulgarian banks...