The European Project, from Riches to Rags

It isn't only for Greece that hope has proven the handmaiden to misery, as it always does in the classical tragedies. Rather, after the turmoil of the last month, what little remains of the European ­project also lies in tatters.

Once a widely held aspiration, the "ever closer union" promised by successive European treaties has degenerated from a slogan into an embarrassment, which even Europe's leaders are now hesitant to embrace. As that promise's unravelling fuels a poisonous populist reaction, the prospects for the European Union, whose share of world gross domestic product has fallen from 30 per cent in 1980 to 17 per cent today, seem fraught with risks.

The problems the EU faces are far from being solely economic, though the prolonged crisis has made them more pressing and more intractable. After nearly a decade without economic growth, whatever sense there may have been of a common European ­polity has given way to bitter divisions. Accused of forcing its will on its weaker counterparts, Germany has become the lightning rod for resentments that are being expressed increasingly openly.

The accusations themselves are hardly new. Already in 1990, as German reunification loomed, the eminent German philosopher Jurgen Habermas lamented the rise of a "chubby-faced deutschmark nationalism", which, he argued, was inherently undesirable and could only damage the federal ­republic's standing. By the time the well-known economic commentator Martin Wolf, writing three years ago in London's Financial Times, claimed that instead of being a monetary union, the eurozone was "more like an empire" (with little question as to who was the imperial power), he was ­repeating a long established trope.

That the most recent lurch in the eurozone's drama would give fresh vigour to those accusations is therefore unsurprising. But the clamour about a "German Europe" belies a far more complex ­reality.

There is, in particular, no doubt that Angela Merkel would have been much less effective in imposing tough terms on Greece had she not received solid backing from large parts of northern Europe and from the former communist countries that joined the EU in its eastern enlargement. Indeed, the German Chancellor's approach was significantly more accommodating than that of many of her allies, who range from the governments of The Netherlands, Austria and Finland to those of Latvia, Lithuania and Slovakia.

The split in Europe, in other words, is not between Germany and the rest: it is between Europe's south, with France as its spokesperson, and much of Europe's north and east, led by Germany. And underpinning that split lie sharp differences in economic performance, which have, for example, seen the former communist countries grow in this decade at annual rates close to 4 per cent, while the economies of southern Europe were shrinking by 2 per cent a year.

As for labour market outcomes, the differences are even starker, with Germany's unemployment rate now barely half that of France, while unemployment rates in the former communist countries are less than half those of Europe's south.

In turn, those divergences reflect a marked contrast in politics. The salient feature of southern Europe is that it turned to the left just as the rest of the Europe was wearying of the social democratic dream.

In the elections held during the period from 1970 to 1979, socialist parties gathered an average 27 per cent of the vote in Greece, Portugal and Spain; by 2000-09, that share had grown to 41 per cent, giving rise to a series of governments that tightened labour market regulations, expanded spending commitments and allowed actual and hidden increases in public debt.

In contrast, in the German-speaking countries and in Scandinavia, the socialist vote, which reached 43 per cent of the total in 1970-79, fell to an average of 31 per cent in 2000-09, before declining even further.

And in the east, meanwhile, electoral volatility did not prevent solidly reformist parties from enjoying long spells in office, notably in Poland and in the Balkan and Baltic countries, where fierce ­austerity policies laid the basis for the ex-communist economies' subsequent growth.

The disagreements between France and Germany consequently go well beyond them alone, instead reflecting broader fracture lines in the EU. But while they crystallise those wider differences, the Franco-German tensions undoubtedly have special significance.

After all, the EU has been built around the two countries' fears and goals. From integration's first steps, taken with the launch of the European Coal and Steel Community in May 1950, France's objectives were clear: tying in Germany, while assuring France a leadership position in Europe. "Europe," as Charles de Gaulle famously put it, "is the means for France to recover what she has not been since Waterloo: first in the world."

As for Germany, its aims were equally clear: by anchoring itself in Europe, it sought to regain its place in the community of nations. A once powerful state at the centre of Europe, the Germany which emerged from the devastation of World War II had lost half its territory and was reduced to semi-sovereign status on the eastern fringe of the free world.

When Konrad Adenauer, the federal republic's first chancellor, said that "German problems can only be solved under a European roof", he was therefore recognising the reality of a country whose ability to defend its interests depended entirely on the Westbindung - the binding of Germany to the West. All that created a convergence of interests, which received its highest recognition on January 22, 1963, when de Gaulle and Adenauer signed the "Treaty on Franco-German Co-operation", commonly referred to as the ­Elysee Treaty, whose procedures for extensive consultation and ­co-operation still frame relations between the two countries.

Yet, strong as the bond between de Gaulle and Adenauer was, it was also apparent that they had very different aspirations. Zbig­niew Brzezinski, who was later Jimmy Carter's national security adviser, formulated the contrast succinctly when he wrote that "France seeks reincarnation as Europe; Germany hopes for salvation through Europe".

For the Germans, the ultimate aim was a European federal state based on a Rechtsgemeinschaft, or community ruled by law, much like the federal republic itself. But de Gaulle, who believed the nation state was the only enduring reality in the international system, opposed any surrender of France's sovereignty, viewing European ­institutions as simply an extension of national policy.

The outcome of those differences was an uneven balancing in which every initiative that strengthened the community as a centre of power was at least ­partially offset by changes that shifted powers back to national governments.

But that institutional structure faced successive French governments with a dilemma: as Germany's economic clout increased, France wanted to confine it by subjecting it to joint decision-making at a European level; it could not do so, however, without accepting limits on its own independence of action as well.

As France grappled with that dilemma, European decision-making structures became ever more opaque, with heads of government meeting both in the Council of the European Union, where outcomes were determined by a complex voting scheme, and in the European Council, which required unanimity. And the process of enlargement, which took the six members who in 1958 formed the European Economic Community to the 28 members of today's European Union, made a structure that already struggled to function all the more likely to fail.

But enlargement did not simply increase the inherent difficulty of a system that, in theory at least, ­relied primarily on consensus; it also shifted the balance of power between France and Germany. In the 1980s, France championed the accession of Greece, Portugal and Spain, which it considered would support its interventionist views; but that was followed by enlargement, promoted by Germany, to the north and the east.

Thanks to that geographical extension, chancellor Helmut Kohl's foreign minister, Klaus Kinkel, explained to the German parliament in 1996, "unified Germany will not remain the country constituting the eastern frontier of the European Union"; rather, "it will reposition itself in a political sense in the middle of Europe", which is "an essential step towards the re-establishment of a balance in Europe and a considerable gain for Germany in its central position".

Yet that rebalancing was deeply problematic from France's ­perspective, all the more so as ­reunification had accentuated the growing asymmetry between the two countries: in 1960, France and Germany had roughly the same population and GDP; by 2000, Germany's population was about a third larger, while the gap in GDP was a bit greater than that.

For sure, France's GDP increased slightly more rapidly than Germany's from 2000 to 2012; but that was entirely due to unsustainable public spending, which allowed consumption and wages to rise twice as rapidly in France as in Germany, despite very similar rates of growth in productivity.

Once the burden of public debt forced that spending to slow, the French economy came to a standstill while Germany's powered ahead, taking German GDP to the point where it was 44 per cent larger than that of France.

France's response was an effort to retain Franco-German parity in voting weights in the EU's decision-making structures, leading to a compromise that ensured France and Germany together accounted for 80 per cent of the votes required to veto decisions in the EU's Council.

Every bit as significant, however, was France's tendency to take decision-making entirely out of the EU's formal structures, cutting through those structures' complexities by a Franco-German negotiating process that both mobilised the EU's two key players and transformed them into the bargaining agents for their respective allies. While that allowed the process to work, it also widened the already yawning gap ­between the outcomes that confronted individual Europeans as a fait accompli and their expectations that they would have a role, as voters and citizens, in shaping decisions which had huge consequences for their lives.

It was against that tangled backdrop that the European debt crisis exploded at the end of 2009. As it placed national governments under immense stress, all the dysfunctions in EU decision-making became more pronounced.

That is not to say decisions were not reached; nor would it be correct to deny Germany made very substantial compromises along the way.

On the contrary, from the outset Germany had three objectives: to enforce the "no bailout'' provisions set out in article 125 of the Treaty on the Functioning of the European Union; to retain the independence of the European Central Bank while preventing its use to monetise public debt; and to make binding the rules, codified in the Stability and Growth Pact, which limit budget deficits and debt accumulation.

Ultimately, however, it had to give way on each of these, as one bailout package was negotiated after the other, the ECB (mindful of mounting demands for ECB action from France and its allies) intervened ever more massively in public debt markets, and the debt reduction targets of the pact, and of the Fiscal Compact that succeeded it, were not rigorously implemented.

Moreover, especially after the agreement reached between Merkel and then French president Nicolas Sarkozy at Deauville in October 2010, each of those concessions was primarily made under pressure from France.

The notion of an imperial Germany imposing its will against all opposition therefore bears no relation to reality. What is true, however, is that the processes by which those decisions were made and implemented were far removed from the ordinary functioning of democracies.

Some European leaders came close to treating the disdain for normal legislative mechanisms as a virtue. Italy's Mario Monti, for example, in criticising Merkel's approach of submitting all agreements to scrutiny by parliament and the German constitutional court, said that "if governments let themselves be fully bound by their parliaments without protecting their own freedom to act, a break-up of Europe would be a more probable outcome than deeper integration".

Equally, the hugely influential Jean-Claude Juncker, then prime minister of Luxembourg and now president of the European Commission, regretted the fact that across northern Europe, "since the Greek crisis, members of parliament are no longer kowtowing to heads of government; they want to know what taxpayers are being asked to pay for".

For many leaders, however, it was the sheer difficulty of reaching agreements in the midst of crisis that justified the approach that was taken. The EU's institutions had little crisis management ability; responsibility was shifted back to national governments - that is, to intergovernmental negotiations - just as those governments were themselves struggling. With exhausted ministers and advisers seeking outcomes in the dead of night, all decisions became, as the Germans say, chefsache - a matter for the boss.

But that could only undermine those decisions' already tarnished public legitimacy. The consequence was a reaction that is becoming more ferocious by the day.

The indicators are telling. When the German constitutional court considered the legality of the eurozone's major bailout fund, the European Stability Mechanism, in 2012, it received a record 37,000 complaints about the legislation from German citizens. In the same year, 60 per cent of Europeans for the first time said they felt more distrust than trust in the EU, with the wave of disquiet affecting both creditor and debtor nations. And the picture is even bleaker when one examines the data by age group, as support for Europe among the young, usually the most idealistic cohort, has collapsed from nearly 70 per cent 15 years ago to barely 40 per cent today.

The result is that the only mainstream politicians who have done well in recent elections are those - such as Merkel and her Dutch counterpart, Mark Rutte - who are viewed as tough on bailouts and even tougher on conceding more powers to the EU.

Little wonder then that the process of European integration has ground to a complete halt. The ambitious agenda for advancing political and economic union that Herman van Rompuy, then president of the European Council, ­tabled in December 2012 has been shelved; instead, within a broader context of paralysis, the trend has been for member states to seek an ever greater number of exceptions, exemptions and carve-outs from the common framework.

No doubt, in the wake of last month's disastrous episode, European leaders will seek to give new impetus to European unity; indeed, Francois Hollande last week promised such an initiative, on a joint Franco-German basis, for later this year. But with a British referendum looming and the very real likelihood of the Greek debt crisis reigniting, the probability of anything other than cosmetic changes is extremely slight.

One thing, however, is clear: that Merkel was right when she predicted in November 2011 that "the debt crisis will not be solved all in one go, and it is certain that it will take a decade to get back to a better position". As it drags on, the ideals European unity once stood for - peace, prosperity, supra­nationalism - will become increasingly besmirched. And Europe's already weakened capacity to overcome its problems will decline with them.