Piketty in FP: How to Save Europe From Itself

At the heart of the continent’s numerous crises is a broken democracy. Here’s how to fix it.

By Thomas Piketty, Jeremy Adelman, Anne-Laure Delatte | April 4, 2016

 

The old world is in trouble.

A prolonged economic slump, a debt crisis it can’t shake, malaise in the face of the humanitarian catastrophe generated by waves of asylum-seekers from the Middle East and North Africa, and security institutions seemingly incapable of keeping citizens safe — together, they have revealed the crippled state of EU institutions. Europeans are more interdependent than ever, but their system of government is unable to cope with the pileup of crises. A great half-century experiment in integration is on the ropes.

This is bad for everyone. Frailty in Europe means a weak link in the wider interdependent world. As the world’s largest economy, Europe is an engine of global wealth. It is a major front in the fight against terrorism. It is the main hope for terrorism’s first victims — the refugees. With prosperity, security, and humanity at stake, a weak Europe weakens everyone else. For this reason, it’s in the world’s interest to understand how integration went awry — and how to get it back on track.

For the past six decades, the continent has followed a model of integration that brought it astonishing success: peace, affluence, and social betterment. That model is now exhausted.

After 1945, a coterie of European leaders agreed that a lasting peace required more than the simple coexistence of rivalrous countries on the crowded fringe of Eurasia. Coexistence had been the mainstay of European diplomacy since the Congress of Vienna in 1815; it broke down in 1914; it imploded in 1939. Instead, these new federalists argued, European states needed to embrace their interdependence and bury old enmities. What followed was the systematic dismantling, step by step, of national sovereignty on the continent.

The process started with the alignment of France and Germany under the Schuman plan in 1950, which put their coal and steel production under a common, binational roof. The Netherlands, Belgium, Italy, and Luxembourg soon followed, forming a core of relatively homogenous democratic welfare states, built upon industrial societies that shared a common identity and common values, all sharing pooled resources.

This initial tightly knotted union eventually sprawled, spreading southward and eastward, incorporating states like Spain and Greece. (Even the standoffish Brits joined in 1973, though they did not embrace the common currency.) This spread diluted the homogeneity of the original club — but the union held, thanks in part to the Cold War, which created a common foe and allowed Western leaders to hold up the union of democratic, capitalist European societies as a counterpoint to the centrally planned regimes.

The fall of the Berlin Wall removed the threat from the left and the Soviet Union. With no common enemy and no common identity, what remained to hold Europe together? All that was left was the economy, which, for a time, looked like a powerful binding force. Indeed, the sprawl eastward to Poland and other former Warsaw Bloc countries was part of a general effort to support market-friendly transitions from planned economies.

But this foundation has grown increasingly shaky since the union’s early days. The original stolid coal-and-steel coalition has given way to a nimbler moneyed market, transforming the union from a trading bloc to a dynamic financial bloc. Today, capital crisscrosses European borders in sums and velocities that eclipse the older flows of commodities. The introduction of a common currency only sped up this transformation: In the wake of the euro rollout in January 1999, the financial imbalances between lending countries and borrowing countries billowed.

Today, we are left with a Europe comprising disparate states, its economy on the ropes, and plagued by a common enemy in some of its major cities that, rather than uniting them, divides the continent into two separate blocs. Indeed, more than any time in its modern history, the threats to Europe’s common fabric come from within, not from without.

The past decade or so has exposed almost all of Europe’s fundamental weaknesses, starting with its economic defects. The massive capital flows across the continent weren’t a problem, as long as the money kept moving, from richer countries to poorer ones, from savers to spenders, from the old core to the newer peripheral members. But capital flows suddenly reversed themselves in 2010, in the wake of the Wall Street meltdown: After a decade of infusion, suddenly households, banks, and firms in borrowing countries saw money stampeding out, leaving them unable to service their debts.

The structures of the union snapped under the weight of the crisis. The priorities of the two founding countries did not align: Today, Germany is a creditor and France a debtor, and they diverge on how to manage the string of financial crises that have affected Europe since 2008. Thus, instead of a coordinated and collaborative response, leaders resorted to emergency last-minute solutions that only just succeeded in preventing catastrophe but set off a ruinous spiral of public-sector borrowing. Budget deficits ballooned, putting governments at the mercy of their creditors. The effect was to partition Europe into two blocs locked in a winner-take-all struggle. Gone was any sense of shared interest, not to mention higher purpose: Creditor countries came together to impose conditions on debtors; Greece and other borrowers withdrew, after a ruckus, into a kind of sullen silence. In a horrible, perverse trap, governments have had to muzzle the discontents of their citizens lest unrest spur more capital flight and more misery. All that is left on the horizon is endless austerity, deteriorating faith in public institutions, and a Europe more divided than any time since the fall of the Berlin Wall.

Then Europe got thumped by the migrant crisis, which, perhaps even more than the financial crisis, has brought the union’s incapacity for decision-making into sharp relief. Unrest in the Middle East and parts of Africa has sent more than a million asylum-seekers across the Mediterranean, about half of them from Syria. Attempts to share the humanitarian burden have pulled back the veil on the depth of Europe’s various divides. Unable to act in concert, the current governance has pushed crisis management down to the national level. Countries like Germany and Sweden have thrown open their doors, to the dismay of many of their neighbors; Poland and Hungary have refused to take in asylum-seekers. Fences are going up all over the Balkans. One of the pillars of European integration, the Schengen system, which created open borders for the internal movement of people, is on life-support.

The spate of terrorist attacks in Paris and Brussels have only emboldened the skeptics’ view of European authorities as singularly incapable of doing the bare minimum expected of states: keep citizens safe. That the latest attacks unfolded blocks from the capital buildings, set off by bombers who rely on regional networks for training, shelter, and coordination, only darkened the clouds hovering over the European polity. While it was largely Belgian and French security officers who failed to connect the dots, faith in Europe as a whole took a hit.

Then there’s the gathering political crisis, stemming from a growing lack of confidence in the ruling classes. The above crises, dire as they may seem, might not loom so large were not the EU also confronting a phenomenon that has swept across the advanced, industrial world: The populist rebellion against government by closely knit insiders, who govern by consensus building and share the same underlying ideologies and values. In the United States, this rebellion has been marked by the rise of radical candidates like Ted Cruz and Donald Trump. But they, at least, do not threaten the dissolution of the union and, in fact, burnish their brand of nativism in the name of defending it. Not so with the heartened nativists in Europe, who blame the plutocrats in Brussels for their countries’ woes.

The old Franco-German bond was based upon intergovernmental agreements between ruling circles that were willing to share sovereignty — but not necessarily open up decision-making to democratic principles and practices. The original founders formed a cliquey, visionary group and promised the public greater opportunities for consumption and personal betterment but kept the reins of public power for themselves. The result was a union with some technocratic prowess but weak democratic foundations. At first, this was a limited concern — as long as the Eurocrats delivered, their legitimacy went relatively unquestioned. The past few years, however, have shown clearly what happens when they don’t. Those who decried unaccountability and lack of transparency once sounded like cranks; today, those cranks seem like prophets. In their reform efforts, those who wish to save the EU must focus on this above all else: If European leaders can’t fix the union’s underlying political foundation, their efforts to tackle the continent’s lethargic economy, ongoing migration crisis, and security weaknesses will be in vain.

Europe badly needs a reset. The threats of the past few years have revealed the limits of a model of integration better equipped for an earlier, simpler, crisis-free era. The representative institutions no longer work; they do not articulate the diversity of Europe into a functioning democratic polyarchy — a regime that accommodates a diversity of interests and lets constituents feel that their claims are honored, which breeds loyalty, or are effectively voiced, which breeds legitimacy. Faced with waves of crises, officials retreated into their bunkers. Emergency management eclipsed democratic decision-making. And when that failed — as it often did — national leaders found themselves corralled into hastily arranged summits to prevent disaster, which have done nothing to bolster confidence in the underlying structures.

Sound grim? It should. But all is not lost: There is a fix. But first, a primer on European integration.

If there is a central weakness to the union, it is its feeble bicameral system. The system has two chambers: the European Parliament, with its 751 MEPs, and the Council of the European Union, which comprises a rotating cast of ministers from national governments. (Just which ministers turn up for meetings depends on what is being discussed at the time.)

The Parliament is supposed to grapple with region-wide concerns. But the scale and heterogeneity of the union makes it large, ungainly, and immune to the creation of ruling cross-country coalitions. Meanwhile, the Council of the EU has evolved into an important decision-making body. An outgrowth of the old Special Council of Ministers charged with managing the coal-and-steel pact, it has become more important as the EU has grown. But since it is made up of one single representative from national governments that are looking out for their domestic interests and often blame the union for the mounting problems, there is little incentive to compromise and come to shared agreements — and this leads to deadlock, most notably over how to handle the refugee crisis. Meanwhile, a complex latticework of intergovernmental institutions, composed of much-derided “Eurocrats,” has grown over the years to fill in the gaps.

To handle the emergency traffic, what were once occasional summits of European leaders have been repurposed into a European Council. Technically mandated to meet every six months, this group has had to resort to hasty, ad hoc summits to deal with the mounting crises and break regional impasses. Emergency summitry is exhausting. It is also failing. Partly, this is because member countries’ interests no longer align and so leads to endless wrangling — as we saw in the handling of Greek debt. As is so often the case with emergency management, when getting through the day stands in for planning, the solutions that Angela Merkel, François Hollande, and others conjure up are often the result of elite deal-making behind closed doors. This damages any sense of democratic accountability; the quest for expedients has come at the expense of legitimacy.

Europeans might be willing to swap a bit of illegitimacy in return for some efficiency. But they don’t even get that. Summitry, as it has become a habit, also allows spoilers to wreck any deal. We saw this dynamic at work in the handling of the migrant crisis: The recent efforts to use a summit to cobble together a deal between Turkey and the EU to stanch the flow and steer payments to Turkey nearly fell apart over the provincial concerns of the government of Cyprus, which wanted Ankara to officially recognize its government and open its ports to Cypriot vessels. Weeks of carefully laid plans on the part of European Council President Donald Tusk for a deal to resolve the crisis were rendered moot, when Merkel and Turkish Prime Minister Ahmet Davutoglu bilaterally forged a different deal, that they presented to their colleagues for approval.

The EU’s complex chains of pluralistic representation are made up, in other words, of many weak links.

Finding the way forward requires acknowledging two points. The first is that any resolution to Europe’s various crises has to invent a democratic, public, and deliberative arena — so that the decisions are understood. Democracy is more than a method for making collective decisions; it’s a way of legitimating them, which is all the more important when the decisions involve sacrifice.

The second is that Europeans need to see beyond the dichotomies of having national sovereignty or European rule. Old federalists and new isolationists agree on one thing: Both see “integration” as an either-or solution — either leaders surrender national sovereignty to supranational authorities or they defend the homeland. Those who hope to keep the union together need to find a way out of that deadlock — because, right now, it is very hard to make a compelling case for deepening a union that promises anything more than austerity, more dysfunction, and less control. National leaders are more hesitant than ever to transfer power to a distant European Parliament, at the very time we need coordinated, representative decision-making to make Europe functional again.

We have a proposal. Create a model of union that transcends the either-or logic of integration or sovereignty, that will provide further decision-making capacity without simply relocating power from democratic nation-states to a less democratic supranational state, and can burnish the democratic and deliberative credentials of European lawmakers.

Our proposal: Scrap the exhausted Council of the EU. Replace it, instead, with a new, second, parliamentary chamber; let’s call it the “European Chamber,” which at least has the merits of not being a council — a word now so overused that it has been drained of significance. The original Parliament needs to remain in place, just as congressional systems often rest on large assemblies to express the full diversity of a polity’s membership. But the new body will be not unlike an upper house. Its members would be chosen by and drawn directly from the corps of elected national parliaments. In other words, the assemblies of France or the Netherlands would select their representatives to the Chamber. The selection process for the European Chamber deputies could be left to national parliaments. Importantly, the number of delegates from member states should be scaled to each country’s population. These chosen national parliamentarians would do double duty for their constituents, representing them in national arenas and in the Europe-wide body.

Unlike the European Council and the Council of Ministers, the European Chamber’s members would be elected to serve European-wide interests rather than just serve as advocates of their national stakes in region-wide affairs. And unlike the sprawling European Parliament, the Chamber’s deputies would be tasked with doing more than just representing local constituents at the pan-European level. (The notoriously low, and sagging, turnouts for MEP elections is an index of how little stock citizens place in the fractured assembly.) Finally, unlike the U.S. Senate, the European Chamber would be composed of a balanced representation of EU member states by population.

The European Chamber would tackle several challenges at once in the reconstruction of European pluralism. First and foremost, the Chamber would redress the democratic deficit of the current regime: It would be elected and make decisions in open, deliberative fashion. With no end of emergencies in sight, the habit of ad hockery has to be broken to restore confidence in the publicness of Europe’s policies.

Second, it would also solve stubborn coordination problems. The Chamber’s regular meetings and public debate would take some of the burden off emergency summitry and weary national leaders who have one eye trained on their polling data. Regular deliberation would also get around the sense that Germany functions as a Leviathan behind closed doors. It would put the brakes on smaller polities that can act as spoilers when the doors are open. And it would encourage badly needed coalitions across states to legislate in the regional interest. A tighter body of deputies, meeting on a regular basis, would dispense with widespread ad hockery, which favors spoilers and unilateralists.

What is important to underscore is that members of the Chamber would function as bridges between national parliaments and the European Union. Members of the European Chamber would, in effect, be elected not to represent constituents at the national or regional level; their loyalties would not be split but reconnected.

Instead of seeing integration and blurred borders as coming at the expense of nations, why not think of models that recombine national and wider notions of sovereignty?

Members of the Chamber would be chosen on the basis of ideology, interests, and style, each step of the representative system working to aggregate the sum of a polity’s diversity. Imagine a national election in France in which French citizens send a gamut of deputies to the National Assembly, including far-right and some fringe left delegates; from the corps of that assembly would be drawn a subset to serve simultaneously in Paris and Brussels. Each step along the way, extremes would tend to get weeded out; remember, few elected assemblies are as diverse as the constituents that choose them.

The subset of national parliamentarians would shuttle back and forth, articulating the national concerns at the European level and regional matters at the National Assembly. It is important to understand that they would not be tasked with any one perspective, either national or regional. Their job would be to represent their voters by finding means to reconcile both — and if they are seen to fail, they’ll be deposed. Since they would serve in national parliaments, they would not compete with fellow MPs, but rather serve as their envoys in Brussels. As a smaller group than the lower house of the European Parliament, and thus less prone to fringes, the Chamber would facilitate the forging of new political coalitions.

Combining transparency and accountability with better cross-border coordination between members who have gotten to know each other and formed habits of co-governance would reverse the strong impression among Europeans that region-wide rule has to be autocratic to be effective or dysfunctional if representative. Furthermore, it addresses the underlying contradiction plaguing the union in its current state — that representatives are always forced to decide between loyalty to local constituents versus loyalty to a wider project. The European Chamber transcends the either-or logic that inspires massive resistance to more integration. It provides a legitimating response to the turn of anti-elite feelings sweeping the Western world.

How to proceed? This new European Chamber should only include the eurozone countries first. One of the lessons of the debt crisis is that having a common currency without budgetary integration is a recipe for failure; the Chamber would curate revenue and spending rules and design fiscal transfers through democratic deliberation. By making membership contingent on the democratic management of fiscal policy, it would resolve the deadlock produced by having a common currency without a shared budget.

In the long run, the objective may be to convince all EU countries to join the Chamber. But we urge that such a Chamber grow in steps, starting with the four countries — Germany, France, Italy, and Spain — which together represent more than 75 percent of the combined population and GDP of the eurozone. If these four countries endorse a European Chamber, then the new institution can be put in place very fast and begin to tackle the obstacles to better management of the region’s hobbled economy. Once the rules and norms of democratic deliberation start to work and show their worth, especially in economic affairs, the Chamber can become more inclusive. There remain many important technicalities to be sorted out. Should budgetary decisions be made by majority rule? How to dispense of the veto power — which comes as a result of each decision requiring unanimity — that has trapped Europe in its current state of paralysis? These important details, however, are more easily tackled within a vision of a stronger union to come.

Creating new governance institutions from scratch is no easy task. But the alternative is a nightmare of paralysis. The current impasse over economic growth, migration, and the rising tide of Euroskepticism threatens to turn into a rancorous and dysfunctional equilibrium trap, in which countries feel locked in because to leave would be punishing, while other countries feel they are perpetually subsidizing their spendthrift neighbors but can’t kick them out of the neighborhood. We might get the occasional outright Brexit, or even Grexit. But the trend will more likely be a slow gradual degradation — a dismantling by stealth of the sort we’re already seeing, as the Schengen agreement falls apart, and as Balkan governments spit at one another over their fences.

Ours is a proposal imagined in the spirit of overcoming what are seen now as the intractable obstacles to integration. It requires fleshing out important details. But we believe that what is intractable is also a matter of perception. Integration was good for democracy and prosperity in the wake of the horrors of World War II. To keep it alive means reinventing the democratic foundations of the union.

To address Europe’s mounting crisis, the solution is not to retreat from integration. Disintegration panders to defeatists and extremists. What is needed is a campaign to reimagine Europe’s representative institutions and to restore a strong sense of European citizenship. It is time to take a look at the core institutions of the union and reinvent them. A strong Europe gives ballast to a strong world economy. A strong Europe is better poised to grapple with wider problems of security and the deteriorating humanitarian crisis in the adjacent Middle East. A strong Europe is a counterpoint to nativists and isolationists everywhere.

Reprinted with the permission of Foreign Policy Magazine.