Main Survival Of The European (Dis) Union: Responses to Populism, Nativism And Globalization

Survival Of The European (Dis) Union: Responses to Populism, Nativism And Globalization

The European Union (EU) has reached crisis point. Populist and Nativist forces are militating against years of austerity economics, distant elites, and a rising tide of migration. Despite the EU's shortcomings, this book seeks to determine the future of the EU, outlining how the institution can learn lessons from the elements that have plunged much of Europe into social, economic and political turmoil. This book argues for reform not revolution. By interviewing politicians, economists, representatives of national bodies and EU citizens, this book provides unique insights never before disclosed and makes a major contribution to current debates on the future of the EU and the Eurozone.
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Survival of the
European (Dis) Union
Responses to Populism,
Nativism and Globalization
John Theodore

Survival of the European (Dis) Union

John Theodore

Survival of the
European (Dis) Union
Responses to Populism, Nativism
and Globalization

John Theodore
Manchester, UK

ISBN 978-3-030-31213-8
ISBN 978-3-030-31214-5 (eBook)
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The European Union has transfixed and divided the right of British politics for;  a generation—a virus that has now infected the whole nation
with the narrow Leave victory in the 2016 referendum. The EU is the
talismanic bogeyman that has propelled the rise of Nigel Farage, his
UKIP and now his Brexit party and in response forced a broad church
Conservative party to transmute into a narrow right-wing English
nationalist sect. It has exposed the unwritten British constitution as too
weak a vessel to manage and contain the intense tensions aroused by
trying to fashion an exit from the EU that is not self-defeatingly painful. Beyond all of that, there is the prospect of leaving the EU without
any form of deal—becoming a third country sundering the multiple
relationships built up over 42 years and triggering a major recession.
How did it ever come to this?
The EU has been portrayed by the British right as something it is
not—a triumph of crooked ideology in search of enemies to justify
itself over reality. As this book explains, it is not an aspirant superstate
robbing its members of political autonomy, locking them in a Brussels
devised straightjacket. It is not the locus of a suffocating regulation

vi      Foreword

that muzzles entrepreneurship. Nor is it the cause of every demon that
haunts the white working class, especially immigration. Rather it is a
club of countries with similar values and aspirations that attempts to
ensure peace, trade, openness and prosperity in our shared continent
and for all its members creates the collective capacity to secure their
interests before the challenge of the USA and China.
Britain, far from being the victim of a continental plot, has benefited enormously from membership—fashioning rules that have become
global standards, attracting enormous inward investment, establishing
the City of London as the centre of global finance and raising standards
for the environment and in work.
In fact, the EU has partially mitigated the failings of our political
class in creating an economic model that works for all—yet the right
has brilliantly pinned the blame for failings made at home in Europe.
The EU has replaced nationalized industries and trade unions as the
imagined new threat; rather than thinking through a positive way forward, it would rather blame the foreigner, the other, the European.
This book sets out to dismantle the bogeyman and replace it with a
more rounded vision of the EU, acknowledging its weaknesses while
calmly and rationally stressing the nobility of its aims. It is long overdue. Brexit is but a more extreme example of forces that are rocking the
EU to its foundations. Everywhere in Europe, there is a sense that international co-operation is ineffective and that living standards are under
pressure—from immigration, from globalization and from technological change—that only strong leaders in strong nation states acting only
in their own interests can solve. The EU is ineffective and besides the
Before this assault, European citizens of whatever political hue need
the centre to hold—and the EU badly needs to get better at delivering
tangible benefits to embolden them to stand by it. It is an existential
battle. In Britain, we too need to recognize that the EU is a force for
good and stand by it. John Theodore has done that cause a great service in this timely and carefully argued book—including advice to the
EU as much to its British readers. Nobody knows how this story will

Foreword     vii

end in the immediate future. But eventually, as Theodore argues, there
will have to be an EU working better than it does today. The task is to
do it—and this book is a valuable contribution to making that future
Will Hutton
Principal of Hertford College Oxford University
London, UK


My argument in this book is that, despite its many shortcomings, the
European project still has every chance—and every need—to survive.
But this will only be the case if it learns the hard lessons from the crises
and drama that have plunged much of the continent into social, economic and political turmoil.
The EU is increasingly perceived as an entity its founders never
intended for it: a superstate, ossified and out of touch at best, and corrupt and tyrannical at worst. This image, as I will demonstrate in detail,
is wildly mistaken. But it is one that has been seized on by populists
of both the extreme Left and Right, with devastating political consequences: consequences seen in everything from Brexit to the rise of
SYRIZA and Golden Dawn and other populist movements in Eastern
Europe. Such parties, increasingly, have grasped the pulse of popular
opinion, on issues ranging from political integration to mass migration
and austerity economics.
But the narrative is still a false one. The EU is not a superstate; and,
though its institutions have many flaws, the alternatives to this system
being put forward by its opponents will be far worse. The EU needs
reform, not revolution. The rising tide of nationalism, nativism and

x      Preface

politically polarized tribalism are palliatives for the popular mood—not
the foundation for any real and lasting alternative. Much like previous
phases of social and economic trauma, the crises on the continent since
2008 open up a real space for renewal and reform. The only question
now is will the right lessons be learnt. This book will be a major contribution to this discussion. My take on this topic is unique, and based on
my experiences as professional practitioner, twice-published writer, and
public speaker on the subject. I have directed practical multi-partnered
EU projects, produced two recent books that explored major issues in
Europe, particularly Brexit and austerity economics, and spoken repeatedly at the European Parliament. I guest—lectured at ‘European Cities
Week’ in the Committee for the Regions. I was interviewed on BBC
Radio and BBC TV north on immigration issues and on TV Krakow in
Poland on cross-border EU projects.
I have been researching European matters and international affairs
since the 1970s. Recently, I have published two books entitled: Cyprus
and the Financial Crisis the Controversial Bailout (Palgrave: 2015) and
The European Union and the Eurozone Under Stress (Palgrave: 2017) and
over 30 articles on European Affairs, which have received acclaim for
their research and analysis. These include high profile interviews with
top players in government, academia and European affairs—many of
whom revealed things to me that they did not disclose elsewhere. My
network of contacts in Britain and Europe is extensive, has been built
over decades, and stretches across governments and private institutions.
While passionate about the EU, I remain a fierce critic of its failings
and undemocratic powers. But I will explain that giving voice to peoples’ frustrations is one thing—providing real answers quite another.
Populism in its different forms has become a convenient tool for autocrats and would-be demagogues. It has become their pretext to muzzle the media, erode free speech, threaten the rule of law and endanger
the fabric of the civic society. Recent events in Hungary and Poland are
merely the tip of this ominous iceberg. And isolationist trends and populist shocks in the United States threatening the multilateral order on
which the EU depends.
Manchester, UK

John Theodore


I would like to express my deep thanks to all those who have kindly
given me their valuable time in helping to record the events, especially
Jonathan my son for his editorial help throughout and to Dr. Dimitrios
Syrrakos for his specialist advice and guidance on the latest developments on the Euro and the Eurozone.
My sincere gratitude is also extended to Dr. Will Hutton, the
Principal of Hertford College Oxford, and Jill Evans MEP Plaid
Cymru, George Shishkov, Anna Mikhailova and Hristiana Georgieva,
for their views and reflections on the latest EU developments insightful
observations that have helped in the writing of this book.
Finally, my thanks go to my wife Barbara for all her patience in the
critical period prior to producing the manuscript and to the many EU
citizens in the UK and in Europe providing their insights into the political dramas facing both the UK and Europe at present.


Timeline of the European Union

The Treaty of Rome 1957
This established the European Economic Community (EEC). The
Treaty came into force in 1958. It also established the European Atomic
Energy Community (Euratom).
1973: The Treaty of Accession, bringing the UK, Ireland and Denmark
into the EEC.
1979: The establishment of the European Monetary System (EMS),
Including the Exchange Rate Mechanism.
1979: The European Parliament was established.
1981: Greece joined the EEC.
1986: Spain and Portugal joined the EEC.
1986: The Single European Act was signed coming into force in 1987.
1990: West and East Germany reunified, bringing East Germany into
the EEC.

xiv      Timeline of the European Union

1990: Stage 1 of European Monetary Union (EMU) began, with the
removal of all restrictions on capital movements. (The UK had removed
exchange controls in October 1979.)
1990: The UK joined the Exchange Rate Mechanism.
1993: The Treaty of Maastricht was ratified.
1994: Stage 2 of European Monetary Union (EMU) began, creating the
advisory European Monetary Institute, followed by the launch of the
European System of Central Banks. Monetary Policy.
1995: Austria, Sweden and Finland joined the EU, under the Treaty of
Corfu (signed in 1994).
1997: Stability and Growth Pact signed.
1997: The Treaty of Amsterdam was signed coming into force in 1999.
1999: Stage 3 of EMU began, with the creation of the Euro and the
locking-in of 11 countries states exchange rates.
2001: The Treaty of Nice was signed and came into force 2003.
2002: The Euro replaced member states’ own currencies with euro notes
and coins introduced.
2004: The Accession Treaty entered into force and the EU enlarged to
include 10 new member states: Cyprus, the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.
2007: Romania and Bulgaria join the EU, taking membership to 27
2007: Treaty of Lisbon signed on 13 December 2007 and came into
force on 1 December 2009.
2008: Collapse of Lehman Brothers and the global financial crisis.
2010: European Financial Stability Facility (EFSF) replaced by the
European Stability Mechanism (ESM).
2010: The first Greek bailout.

Timeline of the European Union     xv

2013: Croatia joins the EU on 1 July as the 28th member.
2013: Ireland exits the bailout programme.
2016: Cyprus exits its bailout programme.
2016: UK Referendum 23 June resulting in a vote to leave the EU.
2018: Official date for the UK to leave the EU (March 29).
2018: EU–UK Withdrawal Agreement—unratified by the UK
Parliament (14 November).
2018: Greece ends nearly 10 years of Bailouts (20 August 2018).
2019: EU Parliamentary Elections (23 May).
2019: New EU Commission President appointed (16 July).
2019: Rescheduled date for UK to leave the EU (31 October 2019).


1 A Hierarchy of Threats
Historical Context
Founding Aims 		
Objectives of the EU 		
The Long-Awaited Battle for the Soul of Europe
The New EU Parliamentary Session 		
Actions to Revive the European Project
The New EU Parliament—Populism 		
How the New European Parliament Will Be Different
Is the USA an Existential Threat? 		
External Threats to the EU Project 		


2 The Survival of the Euro?
The Survival of the Euro: “Whatever It Takes”
Germany and EMU 		
Greece and the Default Threat from Italy 		
Default Threat from Italy 		
Efforts to Confront Weakness in the Eurozone




Is the Euro a Bulwark Against the Dollar? The Euro—A
Weapon to Enhance Global Power 		
The Current International Role of the Euro 		
US and Iran Sanctions—Implications for the EU
The Euro as a Reserve Currency 		
The EU Economy 		


3 Immigration: What Now?
Migration—History of Intra-EU Mobility
Freedom of Movement (FOM) and Fears Raised in the
UK Referendum Campaign
Freedom of Movement—Protecting the Rights of EU
The New Immigration Regime—Search for Skilled Workers 		 54
UK Expatriates—To What Extent Are Their Rights
Preserved Post-Brexit
Non-EU Migration: The Search for a Solution
Causes of Non-EU Migration 		
Opposition to Brussels Imposed Refugee Quotas
Terrorism and Security Issues 		
Stemming the Flow of Non-EU Migrants Status of the
EU–Turkey Agreement 		
Realpolitik in EU Foreign Relations—Negotiating with
Autocratic Regimes in the Middle East 		
EU—Dialogue with the Arab League Summit 2019 		
4 Populism
Populism and the Redrawing of the Political Map of Europe
Right-Wing Populism 		
Populism in the USA 		
The Brexit Effect—And Its Effect on the EU and
Eurosceptic Movements 		
Anglo-Saxon Euroscepticism 		

Contents     xix

The Fight Back Against Populism and Authoritarianism
in Eastern Europe 		
Opposition in Poland


5 The EU’s Illiberal Democracies
The Clash with Europe’s Illiberal Democracies 		
Article 7 Procedure 		
Poland’s March Towards Illiberalism and Autocratic Rule
Brussels Fights Back 		
Loss of Revenue 		
Poland’s Importance to the EU After Brexit


6 The EU, China and Their Changing Relations
EU–China—Commercial Relations 		
Strategic Concerns 		
Chinese Investment in the Eurozone
Security Issues 		
How Much Is China Is Investing in the EU?
Approach to New Deals 		
China and the EU Without Britain
China’s Reserve Currency Status 		


7 Reinvigorating the EU Project
“Ever Closer Union”
Ursula von der Leyen—A New Agenda 		
Multilateralism—EU Relations with China and the USA
G7 and Big Tech 		
The EU—Taxing Big Tech 		


8 Conclusion
Closer Integration
Lessons of Brexit


xx      Contents

The Road to Democracy 		
Demands for Change 		
Recommendations for the Future 		
Benefits for EU Citizens 		


Bibliography		165
Index		173

A Hierarchy of Threats

Its current threats; historical and founding principles; reviving the European
project; the EU parliamentary May 2019 elections; External and existential

Undoubtedly, the EU and the Eurozone are in crisis. Both EU institutions
and national governments are failing “the people”. Enforced Brussels quotas for taking refugees have inflamed public opinion. The austerity programme inflicted on the debt-plagued countries of the Mediterranean after
the 2008 global financial crisis was brutal, ineffective and inflamed public
anger. It is not surprising, then, that liberal democracy—the dominant
political force in Europe since the Second World War—is now reduced
to fighting a rear-guard action, with its pressures and enemies continuing
to mount. Nationalist-populist governments are now in power in Italy,
Hungary, Poland and (through a coalition government) in Austria. The
far-right party has also performed strongly in elections in France, Germany
and the Netherlands and is making important gains in Spain.

© The Author(s) 2019
J. Theodore, Survival of the European (Dis) Union,



J. Theodore

Soon after 2016, UK referendum warnings came from some key international leaders in the economic—liberalist camp each counselling Brussels to address the plight of those “left behind” by globalization. Mario
Draghi, President of the European Central Bank (ECB), was one of the
first to warn Brussels to pay more attention to wealth redistribution and
address the concerns of consumers angered by economic inequality and
job insecurity which has played into the hands of “populist” Eurosceptic
parties’ across the EU spectrum.
“I do not think there will be significant progress in terms of opening
up markets and competition if Europe does not listen to the demands of
those left behind by a society built on the pursuit of wealth and power; if
Europe, as well as being a catalyst for integration and an arbiter of its rules,
does not also moderate its outcomes”, he said at an awards ceremony in
Trento, Italy.
Draghi’s warnings were echoed by Donald Tusk, President of the EU
Council when he reiterated similar fears in a letter to EU leaders, saying
voters wanted to know political elites were “capable of restoring control
over events and processes which overwhelm, disorientate and sometimes
terrify them”. “History has taught us that this [discontent] can lead to a
massive turn away from freedom and other fundamental values that the
EU is founded upon”, he wrote.
The need for reform is undoubtedly very clear. The established liberal
order was accountable for enforcing austerity measures and strict Eurozone
fiscal policies. Brussels as with national governments has to contend with
the new force of social media, which acts as a powerful channel to express
and magnify the voice of voters discontented and marginalized in society.
Facebook, and to a lesser extent Twitter and YouTube, has proven powerful
weapons in the Brexit and US presidential 2016 campaigns—successfully
winning over potentially millions of voters sidelined by the governing
class. The ruling elites in Brussels are acutely aware of voters’ demands—
but they face the challenge of meeting what in some cases are unrealistic
expectations. Globalization has created winners and losers, and European
politicians are the first to admit not enough has been done to alleviate
the economic disasters of the 2008 global financial crash, and severe and
deleterious austerity policies associated with the drastic bailout measures
for many Eurozone member states. But, contrary to voter perceptions, the

1 A Hierarchy of Threats


EU is not a “super-state” but remains a club of nation states pooling their
sovereignty through a set of mutual treaties (culminating in the Lisbon
Treaty of 2009).1
This book will tell the story of what the European Union must become
if it is to succeed. It examines how the EU is trying desperately to redefine its pan-European ideals in a bitter fight to re-establish core values—
values increasingly undermined by a self-serving (new) breed of “populist”
politicians, primarily but not exclusively on the right. Undoubtedly, there
has been a lack of transparency in the EU’s workings, coupled with a
total failure to market its substantial achievements in economic prosperity
and social reform. Brussels is perceived as anti-democratic, as pandering
to big business and as utterly unsympathetic to the concepts of state borders, national sovereignty and even self-determined democracy. Its policies
have fostered regionalism at the expense of the nation state, and resurgent
nationalism is an unsurprising result of this.

Historical Context
To understand what the European Union is, it needs to be set in its proper,
post-war historical context. It is and was originally conceived, as a peace
process to unite Europe after the horrors of the Second World War, combined with a customs union and free trade zone, with the Euro bolted on.
If we strip away the rhetoric of both advocates and sceptics of the EU, this
is what it boils down to in purpose and function.
For 70 years now, the EU has framed the backdrop for relative peace
and stability in Europe—from the ashes of the Second World War and
all through the Cold War and its turbulent aftermath on the continent
(most notably in the breakup of former Yugoslavia). But is this now an
end of an era for an inclusive, pan-European order? My answer is simple:
no. Populist movements satiate the pressing call for change, but they have
no realistic idea of how to effect it. The danger needs to be recognized
in its severity. The EU’s survival is not certain. But there are answers



J. Theodore

to its challenges—some moderate and some radical—that can, and will,
guarantee its future. This book will explain exactly what they are.
It is not just the ongoing Brexit chaos and austerity-related EU disillusionment that are the problems to face up to, but a wider pattern of
identity politics which is taking place all over Europe, as all the EU’s big
states (and some small ones) are facing similar upheaval. The latest example of this is Spain, with the resurgence of a right-wing populist party Vox
evoking the mantra “Spain first”, and even going so far as to celebrate the
legacy of Spanish Fascist dictator Franco.2
Heading off the threats to the EU’s survival includes countering nativist
and protectionist forces, both of which represent the breaking of the norms
and shared values crafted from the founding treaties. Criticism of EU institutions and the “democratic deficit and lack of transparency” are entirely
valid, but exploited for nationalist, nativist and identitarian ends. There
has been constant “voter apathy” and low turnout in European Parliamentary elections, and an increased presence from populist parties and forces
increasingly threatens the stability of the established party structures. Lack
of transparency around the operations of the EU, coupled with a failure
to trumpet and market its successes to electorates, only exacerbates this
problem and the opportunity for groups seeking to undermine it to thrive.
To forget the original vision of the European Union would amount to
a serious blunder for the nation states of Europe, as well as continental
Europe as a whole. This includes the UK and Ireland and beyond to the
world at large where many countries, through their linkage with the old
colonial powers, sacrificed their manpower on the battlefields of mainland
Europe in the struggle against Nazism.
Some post-Second World War visionaries could claim the European
Union was self-consciously created as an attempt to revive the Roman and
Holy Roman Empire—or at least their more redeeming features—namely
through a politically united European sphere: one at peace with itself, after
two destructive world wars, and one made prosperous by the free flow of
goods, people and culture across its borders. Progressing this vision has
taken a serious blow in the wake of the populist and nationalist revolts since


(Latin for “voice”) founded by former members of the Peoples’ Party (PP).

1 A Hierarchy of Threats


the financial and migrant crises, exposing the fragility in the European
project faced by the post-2004 and 2007 (ambitious) enlargement.
There was a determined goal by the post-Second World War leaders
to put an end to Europe’s devastating military conflicts in the nineteenth
century’s two world wars. This aim more than anything galvanized the
founding fathers and statesmen of France, Germany and Italy. It was the
collective vision of men like Robert Schuman (France),3 Konrad Adenauer
(Republic of West Germany) and Alcide De Gasperi (Italy) in joining
forces with their counterparts in Belgium, the Netherlands and Luxembourg to pioneer the formation of the European Economic Community
in 1958. Winston Churchill—reflecting on the need for post-war cooperation—had even expressed the term “United States of Europe” that he
used in a famous speech in Switzerland at Zurich University (19 September
But this was not a call for European federalism. Rather, it represented
a much more restrained approach and set the tone of UK–EU relations
for decades to come. Moreover, Churchill’s vision reflected the “Unionist
position”, i.e. a consultative body, rather than an interstate superstructure.
This was contrasted with the vision of politicians on mainland war-torn
Europe advancing “the federalist position”—and what has since meant full
integration with a {European} constitution.
By the 1950s and 1960s, Europe saw the emergence of two different projects: the European Free Trade Association (EFTA) and the much
more political organization of the European Economic Community. Real
progress only started in 1951 when the six founding members signed—
based on a plan by the French politician Jean Monnet—the European
Coal and Steel Community (ECSC). The six European states: France, the
Federal Republic of West Germany, Italy and the “Benelux” countries; Belgium, the Netherlands and Luxembourg then signed the Treaty of Rome
in 1958. The UK was invited to join but declined, a decision that had a

3 Europe

day on 9th May marked the anniversary of the 1950 Schuman Declaration when European
governments concluded that pooling coal and steel production would make war between historic rivals
“not merely unthinkable but materially impossible”.


J. Theodore

significant impact on its negotiating position when it finally joined the
European Economic Community in 1973 (with Ireland).4
The “founding fathers” knew they could end war in Europe by neutralizing the means for making war possible. They stated: “The mission
of the ECSC was to contribute to economic expansion, the development
of employment and the improvement of the standard of living in the participating countries through the institution” (Treaty of Paris 1951 Article
2, emphasis added). Put simply the aim was to neutralize the means of
creating steel production for military aims.
The ECSC integrated the coal and steel industries of Western Europe
and was later expanded to include all members of the European Economic
Community renamed the European Community and finally the European
Union. Although the original treaty was dissolved in 2002, its importance
lies in a deliberate effort to avoid wars between France and Germany.
Coal and Steel were the means for making the weapons of war, and the
ECSC made this impossible. These (visionaries) saw this as merely a first
yet important step in progressing European integration. But the ultimate
objective was to create a “United States of Europe”.
Britain always saw its security interests closely linked to mainland
Europe5 but in other respects has never been “at the heart” of Europe.
Historically, it pulled towards the safety of its Commonwealth links, as
part of the legacy of Empire, which had come to its rescue in both the First
and Second World Wars. From early on, it was the protectionist nature
of the Common Agricultural Policy (CAP)6 and the perceived “supranational” element of the founding Rome Treaty which focused opposition
in UK governing elites. Hostility to “closer integration” is shared by many
of the new post-2004 accession states challenging this approach, and the
following chapters will expand this narrative citing further examples of
hostility to “closer union” even among founder members.
4 Britain

joined the EEC the forerunner of the EU in January 1973 with Denmark and Ireland, and
in a referendum in 1975, the UK electorate voted “yes” by 67.2–32.8% to stay in the EEC under
renegotiated terms of entry.
5The UK became a founding member of the North Atlantic Treaty Organization (NATO) in 1949.
6The CAP is the agricultural policy of the European Union introduced in 1962 providing agricultural
subsidies—originally weighted in favour of France and German farmers—costing 71% of the EU
budget in 1984. Its proportion of the EU budget has fallen to 39% in 2013. But Eurostat figures
show that agriculture still represents less than 2% of EU GDP.

1 A Hierarchy of Threats


Founding Aims
The current problems facing the EU have to be seen in this historical
context and by citing the texts of the Treaty of Rome with the founding
fathers: “AFFIRMING as the essential objective of their efforts the constant
improvement of the living and working conditions of their [member states’]
peoples” (Preamble to Treaty of Rome 1958).
European citizens—unless their school curriculum provides for it—
may not be aware of the original founding aims of the European Economic
Community (EEC), forerunner of the EU in the earlier treaties. But the
expansion of those aims, made in a post-war setting, does not invalidate
its original purpose. If the original goal was valid for its time, but is now
dated, we must consider what ought to be the goal of the EU today. There
is an argument/view that the vision of the EU political elites is not in
harmony with the aspirations nor the priorities of its EU citizens.
But a political union cannot exist without a firm basis of fundamental
political principles. For the sake of a functioning and integrated European
Union, its supporting institutions must take the gloves off, so to speak
and defend European “values”. There will be a long-awaited battle for the
soul of Europe. With Brexit, this battle has arguably now begun.

Objectives of the EU
The EU’s modern agenda is set out in the Lisbon Treaty Act on 2009,
which builds on the legal foundation laid out in earlier major European
treaties such as Maastricht Treaty of 1992. Its core principles include,
among others:
• the promotion of peace and the well-being of the Union’s citizens,
• an area of freedom, security and justice without internal frontiers,
• sustainable development based on balanced economic growth and social
• a social market economy—highly competitive and aiming at full
employment and social progress and
• a free single market.


J. Theodore

Putting the EU in a historical context and establishing its original aims
may enable us to measure its relative success, but most citizens would now
argue that it has not achieved at least some of these goals.
The first and most important EU objective was the establishment of a
common market. Subsequent treaties included the aims of establishing: an
Economic and Monetary Union; a Common Foreign and Security Policy;
and an area of Justice and Home Affairs. The Lisbon Treaty includes an
even wider range of broad objectives, such as a commitment to “justice”,
sustainable development and a social market, as noted above.
Recent and current crises have drowned out many of the EU’s success stories contributing to the well-being of its citizens. The Union is
founded on “respect for human dignity, freedom, democracy, equality,
the rule of law and human rights”.7 There have been important regulatory achievements towards these goals, including legislation on consumer
rights and employment protection. The EU has been at the forefront in
progressing employee rights on discrimination in the workplace and promoting social justice and protection, equality between women and men,
solidarity between generations and the protection of children’s’ rights—
all guaranteed by the European Court of Justice (ECJ). These can rightly
be claimed by Brussels elites as genuinely being in the interests of their
electorates. But ranking higher in priority for most EU citizens is creating
jobs, economic growth and investment—including actions to stimulate
investment in which less success has been perceived and where expectations have not been met—and where the Europe crisis has generated
enormous disappointment and resentment in this regard.
On the plus side, vast budgets have been allocated by Brussels for
regional aid through Cohesion and Structural Funds. Both the European Regional Development Fund (ERDF) and the European Social Fund
(ESF) have dispensed billions of Euros to regenerate the infrastructures
of poor regions to close the gap between the richer and poorer member
states. In recent years, the largest beneficiaries of these funds have been
Hungary and Poland (and other post-2004 EU beneficiaries states), the

7 Article

2 TEU 2009.

1 A Hierarchy of Threats


very members who today defy and ignore the very EU fundamental principles—to which on accession they have subscribed/signed up to—on the
rule of law and judicial independence.8
The first and most important economic objective was achieved in the
establishment of a common market. This developed into a thriving customs union and single market (essentially for goods). The EU 28—soon
to be EU27—represents a powerful economic bloc of 500 million consumers with unrivalled commercial power to negotiate free trade agreements (FTAs) with China, Japan and the USA. Individual EU member
states would clearly not have the same power and influence to negotiate
bilaterally such advantageous commercial terms.
There has been an apparent lack of transparency in its workings, coupled with a total failure to market its achievements. Brussels is perceived
as anti-democratic, as pandering to big business and as utterly unsympathetic to the concepts of state borders, national sovereignty and even
self-determined democracy.9 Its policies have fostered regionalism at the
expense of the nation state.This makes the current nationalist revival across
Europe unsurprising—even as it has been poorly handled by Brussels.

The Long-Awaited Battle for the Soul
of Europe
The EU is at a crossroads, and the catalyst for its survival—at least in
its present form—may well be decided in the next 5-year parliamentary
session. The recent direct elections that took place on 25 May 2019, while
showing a higher voter turnout (51%), have surprisingly not given the
desired outcome for the populist and Eurosceptic parties that they hoped
for. Although they did increase their representation, they only won 29% of
the seats but this is still their best performance yet—helped by the 29 seats
of the UK Brexit Party. The centre-right European People’s Party (EPP)
remained the largest group, but with a loss of 38 seats and the Socialists


be discussed in Chapter 6 “Europe’s Illiberal democracies”.
that featured prominently in the 2016 UK Brexit campaign.

9 Allegations


J. Theodore

and Democratic group down 35 seats. Losing their overall majority puts
the EU integration agenda on hold without new allies.10
Proceedings to start formal meetings of the new session in Strasbourg
faced the new MEP intake with hostile speeches from Brexit party MEPs.
However, their attendance with other UK MEPs will be cut short if Brexit
as scheduled takes place on 31 October 2019, “deal or no deal”.11
The effect of the UK’s exit will be to reduce the total number of MEPs
from 751 to 705 seats. With the departure of 73 British MEPs, 27 seats
will be re-allocated to member states to better reflect the principle of
“degressive proportionality”.12 The 27 seats will be distributed to France
(+5), Spain (+5), Italy (+3), the Netherlands (+3), Ireland (+2), Sweden
(+1), Austria (+1), Denmark (+1), Finland (+1), Slovakia (+1), Croatia
(+1), Estonia (+1), Poland (+1) and Romania (+1), and no member state
will lose any seats.13
This arrangement is clarified in a proposal by the European Parliament
made in February 2018 when the European Council adopted in June of
that year a decision on the composition of the European Parliament. This
set out the number of representatives in each member state to be elected
to the European Parliament for 2019–2024, 9th legislative parliamentary
term.14 The proposal guarantees that seats are dispersed in an “objective,
fair, durable and transparent way in line with the Treaty on the European
Union”. The new distribution of seats respects the principle of “degressive
proportionality”. The latter ensures that larger member states like France
and Germany have less seats than smaller states in proportion to their
population; MEPs from larger member states represent more citizens than
those from smaller ones.15

10The Liberals (the centrist ALDE group) and the Greens (The European Free Alliance) could—with

support for their agenda—be potential allies having gained the largest increase in support.
the terms agreed with EU leaders in Brussels, the UK was given a Brexit extension until 31
October 2019.
29583117_EN.pdf 9 of the report.
14 EUROPEAN COUNCIL DECISION (EU) 2018/ 937 - of 28 June 2018 …
11 Under

1 A Hierarchy of Threats


The New EU Parliamentary Session
The EU Parliament (EP) opened its new five—year session in Strasbourg
on July 2. There were protests in support of Catalan separatists MEPs.
They were barred from joining proceedings having failed to pledge their
allegiance in person to the Spanish constitution. But this incident and
the actions of UK Brexit MEPs—snubbing the EU anthem—failed to
interrupt parliamentary business.
Proceedings commenced with appointments of presidential candidates
and other high-level EU officials. MEPs throughout the member states had
fought their election campaigns raising aspirations on effecting change.
The parliamentarian’s right to scrutinize and approve presidential candidates (and other top officials) was vital to this process. Voters looked to
those (candidates) more closely aligned to their political standpoints many
of which appear in the text of new Strategic Agenda.
A YouGov poll, conducted in 14 EU member states—representing up
to 80% of seats in the European Parliament—canvassed views on a wide
range of issues has helped to identify EU citizen’s concerns. These covered security issues, migration, climate change, living standards and the
economy.16 The findings of the European Council on Foreign Relations
(ECFR), a think tank with its head office based in Berlin17 showed that
European electorates were more concerned with emigration and “domestic
issues, such as corruption, the cost of living, health, housing, and unemployment”.18
‘A new strategic agenda 2019–2024’19 set out the four priority areas
protecting citizens and freedoms which focused on the following:
• protecting citizens and freedoms,
• developing a strong and vibrant economic base,
• building a climate-neutral, green, fair and social Europe,


17 Offices

in London Madrid, Paris Warsaw Rome and Sofia.
and declining birth rates is discussed in Chapter 5.
18 Emigration


J. Theodore

• promoting European interests and values on the global stage
• and setting out how to achieve those objectives.20
In adopting the Strategic Agenda (20 June 2019), the European Council
drew attention to effective control of external borders—to allow it to fight
illegal migration, agree an effective asylum policy and ensure the proper
functioning of Schengen.
The document’s text embraced a wide range of challenges, while leaving implementation on detail to the respective EU institutions. Security
issues were given critical importance, demonstrating the need to improve
collaboration on information-sharing to fight terrorism and cross-border
crime and the protection of the EU sphere from malicious cyber activities, hybrid threats and disinformation across all present EU 28, including
the UK (after it leaves).21 Built into MEPs’ manifestos, the issues address
well-published voters’ concerns of citizens. The EU is now charged with
realizing/delivering on their expectations.
Europe’s competitiveness, prosperity, jobs and role on the global
stage all depend on a strong economic base. In this field, the European
Council is focusing on:

deepening the Economic and Monetary Union,
completing the banking and capital markets union,
strengthening the international role of the euro,
strengthening cohesion in the EU,
working on all aspects of the digital revolution and artificial intelligence:
infrastructure, connectivity, services, data, regulation and investment,
• reducing the fragmentation of European research, development and
innovation activities and
• ensuring fair competition within the EU and on the global stage.22


EU’s co-operation with a post-Brexit Britain would be a vital component of this policy.


1 A Hierarchy of Threats


But new political re-alignments will now have to take stock of the increased
representation of the Greens and the Liberals championing their (ambitious) agendas on climate change and the environment. Right-wing and
Eurosceptic MEPs are not yet in alliance, and the parties remain fragmented. In the short term, Parliament will be a more unpredictable body,
as parties form groupings and determine their policy positions. Simon
Kuper, writing in the Financial Times on 23 March 2019, remarked that
the challenge for the EU in the next few years is not “Leave Eurosceptism”—namely the British form that manifested with full force in the
Brexit vote—but “Remain Eurosceptism”, a label that can be aligned with
Hungary’s Prime Minister Viktor Orban—a leading beneficiary of EU
funds. Kuper suggests the ultimate challenge will come from “Eurosceptic
Remainers”—those powerful Eurosceptic opinions that seek to reform the
EU from within but with no desire to leave the EU. There are others like
Matteo Salvini, the leader of the Lega (Nord) party in Italy, and Jean-Luc
Mélénchon in France who echo this approach.23

Actions to Revive the European Project
The May elections stand to be a reality check on Brussels’ past record in
achieving priorities set out by (EU) Commission President Jean-Claude
Junker for his tenure and Commission mandate for the period 2015–2019.
These have been summarized as:
1. Jobs, growth and investment: Stimulating investment and creating
2. Digital single market: Bringing down barriers to unlock online opportunities,
3. Energy union and climate: Making energy more secure, affordable
and sustainable,
4. Internal market: A deeper and fairer internal market,
5. A deeper and fairer Economic and Monetary Union: Combining
stability with fairness and democratic accountability,

23/24 March 2019.


J. Theodore

6. A balanced and progressive trade policy to harness globalization: Open
trade—without sacrificing Europe’s standards,
7. Justice and fundamental rights: Enhancing cooperation between different EU justice systems and preserving the rule of law,
8. Migration: Towards a European agenda on migration,
9. A stronger global actor: Strengthening the global role of Europe and
10. Democratic change: Making the EU more transparent and democratically accountable.
While the EU remains a bastion for promoting justice, social change and
democratic values, Jean-Claude Junker’s legacy may not be so kind in
evaluating what has to be the main priority of his mandate for “Jobs,
growth and investment: Stimulating investment and creating jobs”. But
progress has been made. In the first quarter of 2018, the ratio of vacancies
to total jobs reached its highest level since Eurostat data became available
in 2008. In addition, the EU’s overall unemployment rate fell to 7.1% in
April 201824 —the same level as in September 2007, just before the global
financial crisis.25
Progress has been made in bringing down barriers to unlock online
opportunities, aiming for an inclusive digital society which benefits from
the single market. The EU agenda on Migration26 vital to defusing tensions with anti-immigration populist parties has made sustained progress.
EU actions have been taken in control of the central and western Mediterranean routes, reinforcing arrangements with Turkey on the Aegean entry
points to be discussed in Chapter 4. A progressive trade policy to date
has led to the signing of thirty-six FTAs with non-EU countries the most
recent being the EU-Singapore Free Trade Agreement (EUSFTA). The
EU-Japan deal ratified on 8 December 2018 created a trading zone of 635
million people representing a third of global GDP.


unemployment in Spain stood at 14.7% in first quarter of 2009 and with the seasonally adjusted
rate in Greece down to 18.5% in February 2019.

1 A Hierarchy of Threats


The New EU Parliament—Populism
Even with strategic alliances between them, populists’ parties have yet to
formulate a common reforming agenda and won’t necessarily be able to
control the legislation programme in the new session, as their parliamentary representation doesn’t allow for it. All the EU Parliamentary elections
have shown a greater degree of fragmentation threatening established party
coalitions. It is very clear, therefore, that the new EU Parliament will have
to bolster its strength and resilience to nativist and populist forces. A
recent analysis suggests their rise may have reached a “high-water mark”,
but this remains to be seen.27 The newly appointed EU Commission
President, Ursula von der Leyen, officially in post from November 1 will
need to develop a menu of actions to avert political disruption from the
Eurosceptic and populist groups—a monumental challenge that can only
be met by seriously addressing the main priorities of the Strategic Agenda
as discussed. Her appointment by the European Council had bypassed
the “spitzenkandidaten process”.28 But Jill Evans MEP (Plaid Cymru) has
noted.… that as part of her manifesto, Ursula von der Leyen has promised
that she will support a two year conference starting in 2020 on the “Future
of the EU” and she is committed to involving citizens as much as possible
in having an input into that… “She is also open to the idea of a member
of the European Parliament chairing this Conference and has committed to bringing forward a European Green Deal in her first 100 days as
The EU Parliament can rightly claim its democratic credentials vis-à-vis
other EU institutions. It is elected directly by EU citizens through a proportional representation method of voting. The Maastricht Treaty (1992)
empowered it to approve (and, therefore, also to reject) the Commission
as a body before it took office. The treaty also requires that Parliament
to be consulted by member states before they nominated the person to
be appointed as EU Commission President. Currently, the candidate for
the President of the Commission is proposed by the European Council,
28 A

German term for lead candidate referring to a European political party’s lead candidate for EU
Commission President.
29 Interview with Jill Evans MEP 5/9/2019.


J. Theodore

but the latter must do so while “taking into account” the parliamentary
elections and “after having held the appropriate consultations” (Article
17(7) TEU). The President is elected by the Parliament by a majority of
its component members (376 of 751 votes or 353 of 705 post-Brexit).30
The centre-right European Peoples’ Party (EPP) and centre-left Socialists
and Democrats (S&D), following the recent EU elections, have lost their
dominance, and without forming alliances with other groups, the tilt of
their agenda on measures towards further integration remains unlikely.
Some analysts are focusing on the continued rise of right-wing antiestablishment movements and the growing tensions between Brussels and
post-2004 accession members over adherence to EU values and the rule of
law, while others express the need for the EU to expand its responsibilities
in matters such as security, terrorism, migration31 and taxation where
it has already made a good start.32 Globally, other governments also face
radical and reactionary forces united in opposing social-liberal democracies
perceived as defenders of global capitalism and big business and corrupt
At an event in Gothenburg Sweden on 17 November 2017, the presidents of the European Commission and Parliament, Jean-Claude Juncker
and Antonio Tajani, with Estonian Prime Minister Juri Ratas signed a
so-called “European Pillar of Social Rights” promising to “put the best
interest of our citizens in the heart of the EU agenda”.34
This statement, based on the document, accepted the need for concerted
action to stem the potential fallout from the 2016 UK Brexit vote. It
triggered a series of efforts to tackle rising populism in the European
Union, focusing on strengthening the social aspect of the EU’s role in
protecting workers and assisting the disadvantaged.
Twenty principles were adopted, ranging from gender equality to fair
wages to assisting the homeless. Social policies vary widely across Europe,
so implementation will be in the hands of member states. “If we allow

issues to watch in 2019—
31 Migration Chapter 4.
32 European Parliamentary briefing 22 March 2019.
33 Election of Jair Bolsonaro a populist right-wing Brazilian politician 1 January 2019.

1 A Hierarchy of Threats


unemployment to grow due to unfair practices, if jobs are left vacant
because young people lack proper education or parents haven’t received
retraining, then social discord in our countries will grow”, the host,
Swedish Prime Minister Stefan Loefven said.
“After challenges and uncertainty in the EU in recent years, I firmly
believe that the best way to increase trust in the EU and in its institutions
is that to bring about real improvement in people’s daily lives”, he added
in a joint press conference with Jean-Claude Juncker (EU Commission
President) and European Council President Donald Tusk.35 “Today we
have shown this does not need to be the case… Today has shown, there is
a clear commitment to put the best interest of our citizens in the heart of
the EU agenda”, Loefven, a Social Democrat representative, added.
It was clear that even before the May elections, EU citizens had to put
aside their usual (voter) apathy if they wished to reinforce the European
project under attack from nativist anti-elitist forces on the left and right
of European politics. The message was successful to the extent that it
showed increased voter turnout to 51%, a point raised by Jill Evans MEP
stating that: “which was not expected and should give Parliament more leverage”,36 with the Greens and Liberals gaining most, although populists
saw some increases too.37 Matteo Salvini, Italy’s deputy prime minister
and leader of its far-right League party, continues to work to form a grand
alliance of European right-wing parties for the European Parliamentary
elections. This could include Austria’s ruling coalition of the conservative Austrian People’s Party, and the radical-right Freedom Party may also
join an alliance. While Le Penn’s French National Rally party may join,
it is not yet certain whether Hungary’s Fidesz party will be an ally in
Salvini’s coalition—although its leader Viktor Orban has expressed solidarity with Salvini. Fidesz is still technically a member of the European
People’s Party (EPP). But it has recently been suspended from the EPP for
its anti-Brussels rhetoric and breaches of the rule of law contrary to EU

36 Recognition

of the democratic legitimacy of the EU Parliament although no right in the treaties
to initiate legislation.


J. Theodore

How the New European Parliament Will Be
The 2019 European elections are the first when a member state (the UK)
is in the process of leaving the EU club. The departure date and process
still remain unclear as the UK Parliament has not signed off the EU–UK
Withdrawal Agreement. As a result, after decades of growth in EU parliamentary membership, the Parliament will become smaller—the number
of members for 2019–2024 will be reduced to 705 from 751. The number of members will remain unchanged until UK’s departure actually takes
With the UK’s involvement, EU policymaking could suffer havoc with
long-term EU–UK relations. On these issues, the outstanding guide is
“The European Elections and Brexit”, a report by the UK in a Changing
Europe, a research group at King’s College London.38 In the UK, the birth
of the “Brexit” party is of much more concern to both Conservatives and
Labour politicians as it is ahead in the polls with 35% of the vote albeit a
protest vote with no political manifesto except to leave the EU if necessary
with “no deal”.
The EU Parliamentary elections seem certain to produce a more fragmented European Parliament. The two main party groups on the centreright and centre-left are set to lose their combined majority. A hotchpotch
of right-wing nationalists, anti-establishment populists and anti-EU critics
may win 30% or so of the assembly’s 751 seats.
Such an outcome could destabilize the EU Parliament’s cross-party consensus on Brexit held since the UK’s June 2016 referendum. It may also
result in the appointment of a European Commission that would reconsider the Brexit line of Jean-Claude Juncker, outgoing Commission President, and Michel Barnier, the EU’s chief Brexit negotiator. There is also the
prospects of a future EU–UK trade deal, relationship on security, sharing
of intelligence on terrorism and migration matters post-Brexit.


1 A Hierarchy of Threats


In fact, ratification of an EU–UK trade agreement might be a Herculean
task in a European Parliament pushed one way by right-wing protectionism and another way by left-wing demands on climate change, regulatory
standards and social policy.

Is the USA an Existential Threat?
The simple answer is probably no—although actions on the ground may
appear to suggest otherwise. The Trump administration, personified by
Trump himself, demonstrates a deep disdain for dealing with multinational
organizations even in his own backyard. This was clearly evidenced by his
behaviour with neighbours in the revision of the NAFTA trade treaty
with Canada and Mexico accusing both countries of stealing American
jobs with an unfair balance of trade. The USA withdrew from the TransPacific Partnership (TTP) and is in a retaliatory trade conflict with China
which if pursue could threaten to destabilize global commerce.
This pattern of US protectionism and hostility with doing business
through multilateral treaties—preferring bilateral agreements—extends
to relations with Europe. Trump has nothing but contempt for EU institutions and for the social and democratic values it champions. Trump has
shown to be more at home with autocrats and dictators than working with
long-standing democratic alliances.
The European Union is supposedly where the USA has its staunchest
political and military allies in NATO. But as with China and Japan is no
exception to the imposition of tariffs with Trump singling out the German
auto industry. His administration’s first act on this front was to impose
steel and aluminium tariffs by invoking a “national security” provision and
refusing to exempt allies in Europe and Canada.
In tense relations with the EU, Trump has singled out Merkel’s Germany in particular for criticism for both failing to raise defence spending
(to 2% agreed among NATO member but only by 2024) and for continued EU–UK trade imbalances. On the political front, US diplomats
are seen to be courting Europe’s populist leaders ahead of the EU Parliamentary elections which could be taken as a deliberate slight on Europe’s
more established centrist party leaders. For example, in blatant contrast to


J. Theodore

President Trump’s habit of railing against the leaders of Germany, France,
Britain, Canada and other democratic allies, he has deliberately courted
Hungary’s “illiberal” strongman at a bilateral venue in the Presidential
Oval Office on 13 May only 10 days before European elections. In the
meeting, Trump referred to Viktor Orban as a highly respected leader who
was doing a tremendous job: “You have been great with respect to Christian communities, you have really put a block up [against non-Christian
The forces of liberal democracy may appear to be on the defensive,
but the EU’s real problem is not Trump’s America—even if it continues to drive a wedge between Germany (and France) and his new found
“populist” friends. Polls still show that post-2004 accession states are still
pro-EU. A new survey in 2018 by CBOS showed that 92% of the electorate wanted to remain in the EU.40 But future economic benefits of
membership will be tied to adherence to the rule of law and other fundamental freedoms. Both Poland and Hungary are on notice of sanctions
for breaches of EU law. The EU Commission has its crisis management
in top gear to deal with the insurgent Italian coalition, but Salvini and his
Eurosceptic partners in Central Europe will have difficulty creating the
majority (in the EU Parliament) needed to disrupt EU institutions from
a pro-European stance. The election of Zuzana Čaputová as President in
Slovakia is evidence that parties with a pro-European agenda can still win
elections.41 With Brexit on the horizon, the EU’s financial largess directed
eastwards since 2004 will be reduced—with the loss of the British contribution. Rich northern states like Germany, the Netherlands and Finland
express no appetite to fill the budgetary financial gap.

41 See Populism Chapter 5.

1 A Hierarchy of Threats


External Threats to the EU Project
The European Union may be “dis”-united in many fundamental issues
like immigration, the rule of law and the Eurozone, but when it comes
to Brexit, the EU27 members closed ranks. Regarding the growth of populism, what is striking is that although the “populist” parties made their
advance, they didn’t make their political advance as much as they had
hoped. They remain well short of their swing vote in the European Parliament. In Greece, it was the centre-right party that won their general
election on 7 July 2019 and not the anti-European party.
The UK is a net contributor to the EU budget, and members have been
united on extracting what is owed to meet British financial obligations.
The efforts made by the UK with Theresa May racing around European
capitals during negotiations to “divide et impera”—a trait used from its
colonial past—fell on deaf ears. Money and Citizens Rights were the EU
27’s own red lines and that’s before any final trade negotiations in the
“transitional period”. That said Brexit is recognized by all parties to be
Europe’s biggest turning point.
Both President Macron and Chancellor Merkel have cautioned EU
members to remain united against external threats; “there is no doubt
that Europe needs to reposition itself in a changing world” Merkel said
“There is no doubt that Europe needs to reposition itself in a changed
world,” Merkel said in a conversation in her office in Berlin. “The old certainties of the post-war order no longer apply.” Addressing external challenges posed to the EU by its three main global rivals, China, United States
and Russia.

These challenges range from Russian interference in elections, territorial
ambitions to the EU’s east to China’s economic power enticing Italy and
Greece to join (the European end) its Belt and Road Initiative. These
and the US trade threats necessitate the EU to remain united. Merkel
adds that: “Simply stating that we’ve enjoyed seven decades of peace is no
longer enough to justify the European project. Without forward-looking


J. Theodore

arguments to justify Europe, the European peace project would also be in
greater jeopardy than one may think”.42
One of the biggest strategic questions facing the EU and the whole European project is how to position itself in a world dominated by the USA and
China, in a superpower rivalry being played out by different rules. Courtesy of Donald Trump, the EU is operating against a background of an
incoherent and unpredictable US foreign policy which ignores both America’s long-standing allies and the advice of key internal advisers, bodies and
institutions. For the EU’s part, it must be seen to take a strong stand against
Russia on Eastern Ukraine, on Iran where it (at present) holds steadfast to
the Joint Comprehensive Plan of Action (JCPOA) Nuclear Treaty. This
is in defiance of the USA, who unilaterally exited the Iran nuclear deal
on 8 May 2018, consequently re-imposing punitive sanctions on Iran. It
is axiomatic that the “Brussels” effect recognized in the context of trade
and economic policy must extend and translate into a robust and credible
foreign policy which, while working with the USA, holds the latter to
account where necessary.


The Survival of the Euro?

Saving the EU’s southern flank; Greece and default threat from Italy; Efforts
to Confront Weakness in the Eurozone; Economic analysis/assessment of
the impact of Brexit on trade, value chains, innovation in the EU27. Is the
Euro a bulwark against the dollar? The Euro—a weapon to enhance global
power. Its potential role as a reserve currency.

The Survival of the Euro: “Whatever It Takes”
At a speech in London on 26 July 2012, the President of the European
Central Bank (ECB) gave a stark account of the state of the Eurozone economy. Bond yields of weak Euro-member governments were soaring, and
international markets were questioning whether national governments,
Euro or EU-level institutions could act appropriately to prevent economic
disaster. Mario Draghi’s—the ECB President—task was to calm nervous
markets and convince international investors that the Eurozone economy
wasn’t about to collapse.
© The Author(s) 2019
J. Theodore, Survival of the European (Dis) Union,



J. Theodore

Clearly, the Eurozone was seen by some to be in terminal decline, with
numerous bailouts in play to rescue debt-ridden member states—a crisis
jeopardizing the very existence of the currency union. But Draghi will
always be remembered for his famous phrase: “whatever it takes”. His
message of reassurance was that: “Within our mandate, the ECB is ready
to do whatever it takes to preserve the euro. And believe me, it will be
This may have to be the approach for the next ECB President as well,
after Mario Draghi stands down on 31 October 2019. But will there be a
willingness to renew the promise to do “whatever it takes” to stop the euro
failing. A failure to do so may produce an “existential issue for potential
crisis countries, especially for those too big for the ESM [European Stability Mechanism]”—Italy in particular. It generally remains “a question
for the stability of the monetary union as a whole”, whereas “far-reaching
deepening of the monetary union” could change the market perception
of how safe sovereign bonds are”, he said, concluding that “It’s a very
touchy issue”.2 Angela Merkel has recently indicated her vision of a future
European Monetary Fund (EMF) and an investment budget designed to
address “structural weaknesses” in euro area countries. But her concept of
an EMF remains closely aligned to German financial orthodoxy: in that
it is seen as a tool for strengthening budgetary discipline, rather than the
new, bigger instrument for fighting future financial crises in the Eurozone
as proposed by President Macron.
Merkel said that the IMF should play a role in surveying national public finances and that its long-term loans would be contingent on “wideranging structural reforms” and only awarded “when the whole Eurozone
is in danger”. It would also have “appropriate instruments that could be
used when necessary to restore [a Eurozone member’s debt sustainability]”,
in an apparent nod to the possibility of sovereign bond restructuring. Italy
would also reject such an idea, said Lucas Guttenberg, a senior research
fellow at the Delors Institute in Berlin. “It could change the market perception of how safe sovereign bonds are”, he said. “It’s a very touchy issue”.3


2 The Survival of the Euro?


If keeping the Eurozone intact requires maintaining an absolute commitment to “whatever it takes”, there may well be other challenges for which
the next ECB President will need to find adequate solutions.

Germany and EMU
It was Chancellor Helmut Kohl who was the driving force in the unification of the Federal Republic of West Germany and East Germany (DDR)
on 3 October 1990. This was a colossal achievement requiring international support from USA, UK and the tacit approval of the Soviets and
France. There was of course a heavy financial price to pay for the Federal
Republic in giving up its 3:1 Deutschmark/Ostmark supremacy, by allowing parity for the Ostmark—a steep financial price for West Germany, but
one deemed worth paying for the unification process. The 1:1 exchange
rate, apart from ensuring price transparency, also guaranteed the purchasing parity of savings in East Germany thus preventing a run on the banks
in the East, which would have to be bailed out by the West anyway.
For Helmut Kohl, the vision of greater (EU) integration would be
strengthened by a currency union with Germany as a prime mover (with
France) for a broad and comprehensive Economic and Monetary Union.
Kohl was noted for creating a narrative “that the euro was an instrument
of peace”, which many critics have subsequently claimed (with hindsight)
was not a good idea.4 However, it has to be noted that the country that
paid the highest price for the creation of the European Monetary Union
(EMU) was France. Following German re-unification massive increases
in government expenditure took place in the Eastern parts of the country
driving inflation close to 10%. This was anathema to the Bundesbank
which reacted by increasing interest rates. However, this took place in the
background of an international slowdown in growth, warranting a decrease
in interest rates. The UK and Italy, not able to withstand the increase in
interest rates following German re-unification, left the Exchange Rate
Mechanism in August 1992, with Italy re-joining in November 1996.
France did not follow through with the UK and Italy and remained in the
4 M.

Feldstein. (1997). “EMU and International Conflict”, Foreign Affairs, 76, pp. 60–74.


J. Theodore

system in order to “honour” the French franc–Deutsche Mark exchange
rate parity. As a result, throughout the 1990s, France paid on average in
excess of 9% interest in order to finance her debt obligations. The French
debt-to-GDP ratio, from one of the lowest in the EU at only 41% in
1991, reached 62% by 1999 (Marsh 2009). The Bundesbank rejected
adopting other policies, such as accommodative monetary policy, due to
their potential inflationary impact. As a result, in similar fashion to the way
the ECB rejected Quantitative Easing Programmes from 2010 to 2015,
Germany has exerted immense deflationary pressures to the rest of the EU
twice in the last three decades.
For Germany and France, a currency union was a critical element in
the process of evolving further European integration. With German politicians, however, this never meant a true fiscal union—with all its implications. In a speech on 24 April 1998 (in the Bundestag), Kohl made it
clear that “Germany will not pay the bills of other member states”—a
statement which has since set the tone for Germany’s approach throughout the last decade of Eurozone crises. Germany was asserting its national
interest. This led to a policy of austerity economics imposed on Eurozone debtor nations: one pursued with tenacious precision by Wolgang
Schauble, Germany’s finance minister, especially against Greece in the
brutal bailout packages offered to the ailing nation in 2010–2018.
Pro-integrationist politicians eagerly advanced the economic rationale
for EMU. The elimination of separate currencies would provide stable
exchange rates and promote economic growth and shared prosperity.5 In
the early years, Eurozone economies enjoyed benefits from lower interest
rates. International investors assumed that the discipline of a single currency would force the less rich Euro members to grow their economies
and gauged that lending risk would be supported/bailed out by others—
ergo, if lending risk declined, then more credit would be subsequently
With low interest rates, a credit boom soon followed in Greece, Ireland
and Portugal, Italy and Spain (the PIIGS). But the effect of the global
5 In

1999, the Euro replaced 11 national currencies and today 19.

6The euro area today (the region composed of countries in the European Monetary Union or EMU)

has nominal gross domestic product (GDP) of roughly $13.8 trillion, making it the second-largest
economic bloc in the world after the USA.

2 The Survival of the Euro?


financial crash in 2007–2009 put these countries into recession with the
decline in global trade. Increasing debt forced reliance on credit from
central banks and the IMF and governments reduced public spending and
raise taxes. Bailouts imposed tough conditions and decades of austerity,
mass unemployment and low growth for these debtor nations, sowing the
seed for voter resentment now seen in the populist movements today.
Germany and other (northern) creditor nations from the start benefited
from strong exports financed by credit from debtor countries’ banks. This
inevitably created a North–South divide, geographically and economically,
between the richer Northern EU states including Germany, France and the
Benelux countries (Belgium, the Netherlands and Luxembourg) and those
members on the Mediterranean littoral. The draconian bailout terms for
those states provided finance, but also prompted debate about reverting
to national currencies—but to abandon the euro at favourable exchange
rates would be impossible, as even for Greece to return to the drachma
would have led to a catastrophic currency devaluation.

Greece and the Default Threat from Italy
By 2010, the attention of the international financial community was
rapidly focused on Greece, the weakest link in a brittle chain of Eurozone economies. Greece had been living beyond its means even before it
joined the euro. The country was only allowed to join the euro by blatant
mis-accounting that hid the equivalent of 10 billion euros in its debt. In a
now notorious financial manoeuvre, Goldman Sachs helped the country
obscure the true extent of its debt—limited by Maastricht Treaty rules
to 60% of GDP and a 3% deficit—through a credit swap scheme that
engineered an artificially low public deficit within the maximum entry
criteria. But after the country joined the single currency, public spending soared. Wages in the public sector rose over 50% between 1999 and
2008. Around 10 billion was consumed by the 2004 Olympic Games
in Athens. As money flowed out of government coffers, revenues were
increasingly redirected towards debt repayments—a process which accelerated exponentially after the financial crisis and culminated in Greece’s
near debt-default and bailouts in 2010–2011.


J. Theodore

The IMF-EU austerity measures that followed with a series of bailout
interventions have effectively seen Greece reduced from an economically
“developed” to an underdeveloped nation. Sources from the Greek side
close to senior officials in Brussels, who wished to remain anonymous,
suggest in strong, somewhat robust language that “the middle class are
being pauperized and destroyed” and that, despite an awareness of their
own economic mismanagements, they feel “a sense of betrayal by their
European partners”. They further add that “all the evidence points to the
fact that the consequences of the austerity measures on its citizens is to
promote social unrest on a worrying scale, and has promoted the growth
of extremism as seen in the European election in May 2014”.
Such opinions find plenty of corroboration in the data. Underpinning
the rationale of these policies has been the notion that Greece—as well
as Ireland, Spain and Portugal—can recover by means of an internal pricing devaluation as an alternative to the currency devaluation that a single
currency straitjackets away as an option. This has meant increasing unemployment through austerity measures to the point that wages fall enough
to make the country more internationally competitive.
But the social costs of such a move are extremely high—and the evidence it works thin. At the time, unemployment doubled in Greece (to
27%), more than doubled in Spain (to 24.7%) and more than tripled
in Ireland (to 14.7%). It took years for sustained recovery to materialize.
The biggest problem facing a government in an austerity-driven economic
spiral is how it can service debt repayments from an ever-dwindling source
of revenue instead of investing in infrastructure and economic development (Wyplosz 2014). This was always the main contention of the Greeks
throughout the darkest years of austerity. Overall, e336 billion was provided to the country in order to meet debt obligations, in the form of
three bailouts from 2010 to 2018, with almost e300 billion used by
the Greek authorities. These sums will cover the country’s debt obligations up to 2022. Of these, 91% were used to ensure the country does
not default, and only the remaining 9% was directed towards investment


2 The Survival of the Euro?


Small businesses (SMEs), the main drivers of a modern economy, closed
down at the rate of 5000 per month—not to mention the other 100,000
which have gone bankrupt since 2008. Those SME businesses that were
actually able to trade and conduct business failed to grow as interest rates
on loans are so prohibitively high in Greece, in contrast to what at the
time were effectively “negative” interest rates in Germany: a scenario in
which German banks in effect paid the debtor to borrow from them.
These circumstances are ironic, considering the EU’s treasured ambition
to enable the private sector to regenerate employment in Europe.8
Whether in fact it would have been easier for Greece to exit the single
currency—aside from the constitutional crisis in the Eurozone and likely
contagion effect—and undergo monetary devaluation is an important
question to ask when looking at the calamitous effect of a single currency
on the southern states of post-financial crisis Europe. EU ministers warned
of a sharp increase in Greek debt from such a sharp currency devaluation
(likely over half and up to two-thirds) if it were to have left the Eurozone.
The infrastructure of the single currency rendered these options impossible
for member states such as Greece. In any event, this possibility is now a
historical counter-factual, whose final answer we will never know.
From a creditors’ point of view—the views of which European Union
authorities had apparently adopted—a country that has accumulated too
much debt must be punished, so as not to encourage “bad behaviour” and
to prevent moral hazard. A chief Merkel economic advisor went as far as to
say that emergency bailouts to Greece and future EU aid recipients should
bring with it deliberately harsh and punitive penalties. But punishing an
entire country for the past mistakes of its leaders or governing class, while
apparently morally satisfying to some, was hardly the basis for sound and
sustainable policy. Indeed, it is worth noting in this respect the special
irony that France and Germany were among the first countries to break the
Stability and Growth Pact—an agreement which forbids member states to
have more than 3% of budget deficit to GDP, while Spain and Ireland ran
surpluses before the 2008 crisis. Germany was in breach of the deficit/debt
rule in 1998–1999, 2002–2005 and 2008–2010. Such a fact sits ill at ease
8 Dr.

D. Syrrakos an expert on Eurozone economics is a member of Future Economies University
Research Centre at Manchester Metropolitan University interviewed on 16 and 23 June 2019.


J. Theodore

with the unyielding rhetoric from the France and Germany about the
indulgent and dissolute behaviour of the profligate South.

Default Threat from Italy
Arguably, Italy’s budget crisis remains a bigger threat to the EU than
Brexit. This is because Italy—the third biggest economy in the Eurozone
has the capacity to destroy the European single currency, the Euro. While
Britain is a major budgetary contributor, its planned forthcoming exit
will impact EU finances overall, but not in direct respect of the Euro, as it
is not in the Eurozone, unlike Italy. The latter country’s public finances,
like its banking system, are long-standing problems and constantly under
scrutiny (by international markets) and the European Commission. Italy’s
debt-to-GDP ratio stands at 135% and is the second highest in the EU
after Greece—its sovereign debt level, at e2.37 trillion, by far the highest.9
Brussels has warned Italy’s populist government by letter over its rising debt levels, setting up a fresh clash between the EU and Rome less
than a week after European elections. The European Commission on
Wednesday wrote to Italy’s finance ministry asking for an explanation on
the country’s deteriorating debt situation. “Italy is confirmed not to have
made sufficient progress towards compliance with the debt criterion for
2018”, said a letter cosigned by Valdis Dombrovskis, Vice-President for
the Eurozone, and Pierre Moscovici, Commissioner for the economy.10
The letter acts as Stage 1 in a process made by the EU Commission’s to
evaluate the deterioration in Italy’s public debt and budget deficit. This is
not an uncommon procedure but puts Italy’s new government on notice
that it must be in compliance with mandated budget debt limits of 60%
of GDP. Stage 1 letters have also been sent to Belgium and Cyprus.
Previously, the European Commission had already warned the new
government against increasing the budget deficit and its national debt
threatening sanctions/fines for violating budget discipline. Tensions with
the EU Commission were initially resolved with an agreement to keep to

2 The Survival of the Euro?


a forecasted deficit of 2.04% of GDP for 2019—but this is seen as only a
temporary solution to the overall problem of Italy’s finances.
The Italian banks are heavily saddled with government debt that could
lead to a default similar to the Greek banking crisis in 2012 crisis. The
(Italian) government relies on the banks to lend it enough money to carry
on. “The Italian banks and treasury are like two drunken giants propping
each other up, inextricably linked by mutual weakness. When the crisis
hits, they will go down together”.11 With the departure of Mario Draghi
(in October 2019), there is no guarantee that Italy will have influence
on the ECB board. The new populist leader Matteo Salvini, leader of
the right-wing League, said earlier that the leadership of the Bank of
Italy should be “zeroed” for failing to protect savers during the country’s
banking crisis.12 His coalition partner, Luigi Di Maio, leader of the broadly
anti-establishment Five Star Movement, turned his criticism on Draghi’s
decision to halt the ECB’s e2.6 trillion Quantitative Easing (QE). This
programme is unsustainable without a wider reform of the Eurozone and
integration into a fiscal union, a policy that President Macron proposes
but which is not supported by Chancellor Merkel.
Regarding future representation by Italy on the board of the ECB, this
would be expected for political reasons: “Italy should have a seat no matter
what other country the future ECB president comes from”, said Melvyn
Krauss, a senior fellow at Stanford University’s Hoover Institution. “Italy is
a country with great central banking talent … when Axel Weber dropped
out eight years ago and Berlin, much like this time, could not find a
suitable German candidate, the Italians actually had two - Mario Draghi
and Lorenzo Bini-Smaghi”.13
The pressure on the Italian coalition will now be to make good on their
election promises. Their hostility to the EU is not to leave, but to change
it from within, by pursuing a populist agenda of anti-immigration and
devolving more powers back to national control. There will be pressure
from voters now expecting anti-austerity measures which would lead to
borrow and spend policies which Italy can ill afford.



J. Theodore

Although Italians have no desire to leave the EU or even the Eurozone,
they have become “Euro-hostile” rather than “Eurosceptic” and determined that it should work in their interests—connotations of the Trump
election campaign mantra except, in this case, branded “Italy First”. Sooner
or later, it is likely this approach will provoke another Eurozone crisis. The
flaws in the single currency are real and have not gone away since the Greek
financial debacle and other Eurozone crises. In each case, financial rescue
demanded members to deflate when they became uncompetitive without the ability to devalue their currency (boxed in as they are by a fixed
exchange rate). Deflationary policies have meant cutting public services
and wages, as in Greece, which led to a sharp decline in popularity of the
governing Italian centrist parties of both left and right.
Greece’s economy may at the time have been small enough to save via
a bailout programme. But Italy’s is not: and for that reason, it must not
fail. The survival of the Euro depends on this not happening. If Germany
wasn’t enthusiastic about bailing out Greece, even with the most punitive
economic terms, then it certainly won’t bail out Italy. In any event, a financial rescue of Italy would be beyond Germany’s financial (and political)
ability to implement. As the third largest economy in the Eurozone, and
with its sovereign/national debt at 2.37 trillion euros, investors would
fear an Italian default precipitating the disintegration of the Eurozone,
its banking sector and political instability spreading economic contagion
throughout Europe.
With the arrival of the populist coalition, the crisis in Italy has broadened beyond simply economics into a much larger political standoff. A policy of undermining the unity of the European Union has been threefold:
blocking the EU’s recognition (supported by the USA) of the supporters
of the coup in Venezuela as the legitimate “elected” authority; opposing
the implementation of further EU led sanctions against Russia; and offering support for the “gilets jeunes” or “yellow vest” movement in France,
much to the annoyance of the Macron government. More importantly,
Italy is once more slipping into recession with negative economic growth.
Italian banks face deep financial problems burdened with over 185 billion euros of non-performing loans (NPLs) higher than in any other EU

2 The Survival of the Euro?


state—although Greece has a higher percentage (45%) of NPLs by comparison.14 The Italian economic crisis could have serious consequences for
the entire European banking system.
On the one hand, the EU Commission could (inadvertently) push Italy
to the brink of bankruptcy—or even trigger economic crisis and a likely
implosion of the current government. If this happened, there is a very
real risk that Italy could declare either a default on its government debt,
and/or even an exit from the Eurozone. Ironically, the institutions worst
hit by such a scenario will be French banks, which Bloomberg15 estimates
have Italian loans worth hundreds of billions of euros on their balance
sheets. Such a shock would very likely see foreign investors—even European ones—diverting their holdings and leaving the Eurozone, adding
a currency component to the banking crisis. Time will tell whether the
European Commission proves willing to take those risks to punish Italy’s
government, but we can already agree with Luigi Di Maio, Italy’s deputy
prime minister, who, after meeting the French “yellow vests”, stated (on
Twitter) that “the winds of change have crossed the Alps”.16 Populist politicians in Europe love comparing the European Union to the late USSR,
with its failing, highly centralized federal structure, and this comparison
is starting to ring true like it never has before.

Efforts to Confront Weakness in the Eurozone
The Italian economy’s return to recession in February 2019 implies that
the Italian authorities are presented yet again with renewed pressure from
the Italian public, the EU Commission and debt investors. While in 2017
bond investors increased their holdings of Italian debt by e13 billion, in
2018 they reduced their holdings by e60 billion. This places additional
pressure on the Italian government when seeking to finance the country’s
debt, considering that authorities have to service a staggering e250 billion

contagion factor of non-Italian banks’ credit exposure to Italy, as of June 2018: France 285B,
Germany 58.78B, Belgium 25.2B, Spain 21.4B and the UK 17.4B.


J. Theodore

maturing debt in 2019 while still selling long-term debt.17 This is the
equivalent to almost 11% of the total Italian debt burden.
The case of the Italian debt is symptomatic and reflective of the wider
problems that the Eurozone is facing. In particular, the efforts to strengthen
the foundations of the single currency remain in the forefront of the EU
Commission’s policy initiatives. However, the progress registered so far
based on the “Five Presidents’ Report ”18 falls short of the one required to
ensure the single currency’s viability (Commission 2015). The EU Commission identified the main dangers to the single currency and put forward
areas required to be addressed.19 The first threat relates to the economic
divergence between the Eurozone core and periphery caused by the debt
crisis. This is exacerbated by the economic and financial fragmentation
in a number of periphery countries, including Italy, emanating from the
high share of NPLs. Second, the threat continues to arise from the rise
of populism, with populist parties winning 29% of seats previously 24%,
in the recent European elections amounting to 218 of the Parliament’s
751 seats. This isn’t the expected landslide culminating from debt crises
high Eurozone unemployment and mass migration. But populists will be
important in voicing their continued hostility to the European project
and to Brussels technocrats who they accuse of being deaf to the needs of
ordinary citizens.
The ECB’s Quantitative Programme (QE) from April 2015 to December 2018 has been crucial in assisting large Eurozone banks in re-building
their liquidity and capital ratios from 8.9% in 2010 to approximately 13%.
European banks own large amounts of sovereign domestic sovereign debt.
For example, Italian lenders hold 387 bn euros. This implies that any
spike in the cost of refinancing national debts could translate instantly to
a higher cost of finance for domestic banks.
The solution to “breaking” this link is the creation of a comprehensive banking union for the Eurozone. While there has been considerable

18, 22 June 2015.

2 The Survival of the Euro?


progress towards establishing a European banking union, its most crucial element namely a Eurozone (or European) deposit guarantee scheme
remains elusive. The Italian debt case is a case in point.
Eurozone periphery countries’ authorities are claiming that a Eurozone
banking union, including a deposit guarantee scheme, is the only remedy
ensuring that speculation would no longer provide a strong incentive for
investors and savers to shift part of their liquid assets to other Eurozone
countries, in the case of a crisis. Core Eurozone countries led by Germany
are opposed to the creation of a European Deposit Insurance Scheme
(EDIS)—in other words, an insurance guarantee scheme. The fear is that
countries would be less diligent in policing the liquidity of their domestic banks. Stricter regulations are being demanded on bank holdings of
sovereign debt before any final decision is made in spite of the efforts of
the EU Commission Vice-President, Valdis Dombrovskis. Regarding the
capital markets union (CMU), Mr. Dombrovskis suggested there may be
delays when he said:
“What we call for now is that CMU is made a priority, not only in words
and political declarations but also in practice, and that tangible progress is
made with the legislative proposals that are on the table.” Mr. Dombrovskis
“It still remains our ambition to have our main building blocks for CMU
in place by the end of this mandate,” he said, in reference to the end of the
commission’s term of office in November 2019. “We still think it is realistic
but it requires intensive work … all legislative proposals needed to reach
this goal are on the table.”

Each perspective involves different policy prescriptions to address the single currency’s incomplete nature. These prescriptions are not necessarily
mutually exclusive but deviate on the degree to which initiatives should
focus on member states’ policies or, alternatively, on reviewing EU institutions. Be it as it may, vital questions remain unanswered regarding the
legacy of high debts in the EU. For example, have the Eurozone’s institutions evolved sufficiently as to be able to withstand the next recession in


J. Theodore

the EU? Is a fiscal union necessary to ensure the single currency’s viability?
Is a complete banking union required?
In doing so, it is acknowledged that the overarching framework of
the EU features a single currency with immense external potential but
internally fragile. The main cause of internal concerns stems from Italy
and the country’s ability to maintain its fiscal sustainability and social
cohesion. Its external potential relates to its legitimate claim of acting as a
substitute to the US dollar’s major reserve currency status. Each dimension
is addressed below, starting from the external one.
In a speech on 28 March 2019, Christine Lagarde, MD International
Monetary Fund (IMF), urged Eurozone leaders to make progress on the
completion of the CMU when she said:
But today I urge euro area leaders to reignite the discussion, to negotiate in
good faith and make the difficult compromises, to unlock the full potential
of the banking union.20

The audience at Banque de France in Paris heard of the need for the completion of the banking union for an integrated single European capital
market. With Brexit looming and as yet no firm agreement on level of
access to the London capital markets, more diversified sources of financing must be unleashed. Ms. Lagarde highlighted that in the USA, the
corporate bond market accounted for more than two-fifths of GDP, compared with only one-tenth in the euro area—and she quoted the former
Federal Reserve Chairman Alan Greenspan, who once referred to capital
markets as the “spare tire” of the financial system.21 Taking this approach,
therefore, would expand the range of domestic and cross-border financing
options for European companies and (individual) borrowers heavily reliant
at present on (and exposed to) the banking sector for channelling savings
and for investment financing. Deposit holders and (bank) shareholders

21 Alan Greenspan. (1999). “Do Efficient Financial Markets Mitigate Financial Crises?”, Remarks at
the 1999 Financial Markets Conference of the Federal Reserve Bank of Atlanta, Sea Island, Georgia.

2 The Survival of the Euro?


especially in former “bailed” out states like Greece and Cyprus know full
well what happens to their savings when their banks defaulted.22
The operation of a CMU would introduce a uniform cost of funding
across EU borders in close geographic proximity.

Is the Euro a Bulwark Against the Dollar? The
Euro—A Weapon to Enhance Global Power
The euro is the currency of 19 EU countries (out of 28 member states),
and over 340 million of its EU citizens use it daily. Launched on 1 January 1999, it is the second most important currency in the world. With
its international role as a unified European currency, the Euro can be an
important tool to reinforce Europe globally, to promote its trading interests
and influencing global affairs according to rule-based multilateralism. But
this is best done in combination with a deep CMU and a pan-Eurozone
treasury bond and treasury bills. The CMU project aims to harmonize
procedures with the EU to improve cross-border investment despite the
fact free movement of capital is part of EU treaty law—ironically a measure that the UK was earlier than most in implementing. But legislation
the CMU project is still in the process of completion, delayed by the introduction of policies to simplify bankruptcy proceedings, the development
of pan-European pension funds and the creation of a cross-border market
in “covered” bonds or debt securities to protect bondholders.

The Current International Role of the Euro
Economic strategy for the Euro has focused almost exclusively on maintaining price stability and fiscal consolidation. In recent years, this has
drawn attention on the challenges the currency faced following the

22 Cyprus and the Financial Crisis—The Controversial Bailout and What It Means for the Eurozone.
London, Palgrave Macmillan (2015).


J. Theodore

financial crash of 2008—and its responses to subsequent crises. But the
importance of the Euro goes beyond its internal concerns in playing an
important role beyond EU borders the euro area.
As a bloc, the European Union’s share of global gross domestic product
amounts to an estimated around 17%. The share of the euro area is estimated to be around 12%.23 It is the second most widely used currency in
terms of its share of global payments amounting to around 36% in 2017.
By comparison, the US dollar accounts for about 40% of total payments
(ECB data from Swift).24
The euro can still enhance the resilience of the global financial system by
providing market operators across the globe with an additional alternative,
especially versus the dollar, and by making the international economy less
vulnerable to the shocks that come from so many sectors being reliant on
a single global currency—and the US financial systems, institutions and
policies underpinning it. The euro has a role in facilitating and expanding
Europe’s trade agenda, for European companies to trade globally for the
benefit of Europe’s economy. Sixty other countries and territories around
the world, with a population of over 175 million people, utilize the euro
as their currency or peg their own currency to it.
The proportion of global holdings of foreign exchange reserves held as
Euros currently stands at around 20%. The US dollar’s share, by comparison, is over 60%.25 But no other currency exceeds 5%—safeguarding the
European social and regulatory model at home and highlighting its global
The EU is the world’s largest trading bloc and the top trading partner
of 80 countries across the world. But recent trade wars between USA and
China and broader threats to globalized trade patterns from protectionist
US policies under the Trump administration will start to require a more
robust (international) role for the European Union.
US protectionism, manifesting as it currently is in a war of competing tariffs and counterthreats between the USA and China, affects the

25 B. Eichengreen. (2019). “Two Views of the International Monetary System”, Inter-economics 54,
no. 4, pp. 233–236.

2 The Survival of the Euro?


European Union in several ways. First and foremost, it puts at risk multilateralism in trade relations and, in particular, the smooth functioning
of the World Trade Organization (WTO). Secondly, it opens the door to
additional trade protectionism that could possibly target the EU, which
has the world’s largest trade surplus.26 Thirdly, protectionist measures
taken by the USA against China—with consequent Chinese retaliation—
have indirect consequences for Europe. This can have the positive effect
that European exporters have gained a comparative advantage against US
exporters in Chinese markets for those US goods on which import tariffs have been imposed and that Europe can itself produce (Wolff 2018).
However, this positive scenario is offset by the inherent complexities of
global value chains, which can lead to rising costs of production because
of third countries’ import tariffs that will lie along Europe’s supply chain
(Chiacchio 2018). This is absolutely the case with China.27

US and Iran Sanctions—Implications
for the EU
By defaulting on the Joint Comprehensive Plan of Action (JCPA) known
as the Iran nuclear framework deal (2015), the Trump administration put
at risk its political relations with its closest allies. But worse still came when
they (the USA) imposed sanctions on Iran that would apply to foreign
companies from other countries that continued to trade with that country.
The US President was able to do this because of the strength of the
dollar’s international role in international trade and finance. The dollar’s
international role has been famously called “an exorbitant privilege” by
Ben Bernanke (7 January 2016) the former Chairman of the Board of
Governors of the Federal Reserve from 2006 to 2014.28 This enabled the
26 Struggling

trade talks between USA and EU renew the threat of tariffs on European cars.


term was coined by a former minister of Finance Valery Giscard d’Estaing but it had been
referred to by Charles de Gaulle (post-First World War French President) as “Americas first privilege”
repeating economist Jacques Rueff.



J. Theodore

President to cut off foreign companies’ access to US capital markets and
dollar transactions—including even most of those that take place outside
the USA.
France, Germany and the UK are all co-signatories to the JCPA created
Instrument in Support of Trade Exchanges (INSTEX),29 as a means to
protect European companies threatened by US sanctions. But this only
demonstrates that the second most powerful currency, the Euro, has no
infrastructure empowering it to share at least a portion of the dollar’s
privilege. Eventually, projects like INSTEX could in turn have an effect
on the capacity of the USA to employ sanctions. The diplomacy behind
the collapse of the Iran nuclear deal is a test case of the power of modern
financial instruments on foreign policy and global geopolitics.
The effectiveness of sanctions per se has often been questioned and for
good reason. Take for example those imposed by the EU on Russia for its
invasion of Crimea and its proxy war in the Ukraine, but where sanctions
have not changed the status quo on the ground—though economically
harmful to Russian citizenry. But in sanctions against Iran, th