Who will exit the EU next?

Financial Nigeria Magazine - - Contents - By Adri­ano Bosoni

Like all po­lit­i­cal con­struc­tions, the Euro­pean Union should be con­sid­ered a mo­men­tary en­tity in the vast ex­panse of his­tory.

The Euro­pean Union's fu­ture has been up for de­bate since the Con­ti­nent's eco­nomic cri­sis be­gan nearly a decade ago. But ques­tions about the bloc's path have mul­ti­plied in re­cent years as Greece came close to quit­ting the eu­ro­zone and the United King­dom voted to re­lin­quish its EU mem­ber­ship for good. "The bloc's demise is not a mat­ter of if, but when," Euroskep­tics in­sisted, to which their Eu­rophile peers replied, "The union is ir­re­versible."

Yet like all po­lit­i­cal cre­ations, the Euro­pean Union is a mo­men­tary con­struc­tion in the vast ex­panse of his­tory. One day it will dis­ap­pear, to be re­placed by other en­ti­ties, or it will con­tinue in name only, look­ing and op­er­at­ing far dif­fer­ently from the Euro­pean Union of to­day. It is im­pos­si­ble to know ex­actly when this trans­for­ma­tion will hap­pen or just how long the process will take. There are some clues, how­ever, as to how the new Europe will come about and, per­haps even more im­por­tant, what the agent of change will be. If any­thing, the Con­ti­nent's cur­rent cri­sis is a stark re­minder that de­spite decades of at­tempts to weaken it, the na­tion-state re­mains the most pow­er­ful po­lit­i­cal unit in the Euro­pean Union. And as it emerges from the rub­ble of the Con­ti­nent's lat­est ex­per­i­ment in in­te­gra­tion, it will play a cru­cial role in chart­ing Europe's course for­ward.

A Union That's Any­thing but Uni­form

Not all EU mem­bers are cre­ated equal. Los­ing a mem­ber that be­longs to the eu­ro­zone, for ex­am­ple, poses a much big­ger threat to the rest of the sys­tem than the de­par­ture of one that does not. The prospect of Greece quit­ting the cur­rency area in 2015 was prob­a­bly more fright­en­ing to France and Ger­many than Bri­tain's de­ci­sion to leave the bloc a year later. To be sure, both events would have se­ri­ous con­se­quences for the Euro­pean Union, but a Grexit would have im­me­di­ately shaken the fi­nan­cial foun­da­tion of the en­tire eu­ro­zone. The con­se­quences of the Brexit, how­ever, will be more grad­ual. Sup­port for EU in­sti­tu­tions like­wise varies from coun­try to coun­try. Ac­cord­ing to the Pew Re­search Cen­ter, 72 per­cent of Poles see the Euro­pean Union pos­i­tively – a view only 38 per­cent of French­men share. Mean­while, the lat­est Euro­barom­e­ter poll has put sup­port for the eu­ro­zone at a whop­ping 82 per­cent in Lux­em­bourg, com­pared with a mere 54 per­cent in Italy. The Euroskep­ti­cism sweep­ing the Con­ti­nent has as­sumed dif­fer­ent forms wher­ever it has taken root: France's Na­tional Front ad­vo­cates leav­ing the Euro­pean Union, while Italy's Five Star Move­ment calls for aban­don­ing only the eu­ro­zone. At the same time, mod­er­ate po­lit­i­cal par­ties are in­creas­ingly seek­ing to end the free move­ment of work­ers and to rein­tro­duce bor­der con­trols, even as they hold onto their EU mem­ber­ship.

Amid these vary­ing de­mands and faced with the prospect of a Grexit and Brexit, the Euro­pean Union is be­ing forced to con­sider the process for leav­ing the union and whether coun­tries should be al­lowed to re­main mem­bers of some parts of the bloc and not oth­ers. Dur­ing dis­cus­sions on the Greek bailout last year, some coun­tries ar­gued that leav­ing the eu­ro­zone also meant leav­ing the Euro­pean Union. Oth­ers pro­posed ways to sus­pend Athens' mem­ber­ship in the cur­rency area while pre­serv­ing its place in the Con­ti­nen­tal bloc. A year later, the same de­bates are be­ing had about Bri­tain. Sev­eral EU mem­bers have said that ac­cess to Europe's in­ter­nal mar­ket comes at price – namely, ac­cept­ing EU work­ers – while oth­ers have proved more open to find­ing a com­pro­mise. Re­gard­less of how the talks be­tween Lon­don and Brussels shake out over the next few years, they will even­tu­ally re­sult in a roadmap for leav­ing the bloc that other mem­bers could use to guide their own de­par­tures.

Of course, this raises an­other ques­tion: Why would coun­tries want to leave the Euro­pean Union or its struc­tures in the first place? Again, the an­swer de­pends on the mem­ber. Some gov­ern­ments, whether backed by a pop­u­lar ref­er­en­dum or par­lia­men­tary ap­proval, might vol­un­tar­ily choose to leave. Stud­ies like the lat­est Euro­barom­e­ter, which showed that the Con­ti­nent's trust in the Euro­pean Union dropped sharply from 57 per­cent in 2007 to 33 per­cent in 2016, sug­gest that the Bri­tish ref­er­en­dum may not be the last of its kind. On the other hand, some gov­ern­ments

might be forced out of the bloc, should they be­come po­lit­i­cally or fi­nan­cially un­able to ac­cept the con­di­tions at­tached to re­tain­ing their mem­ber­ship. (Athens, for in­stance, made a con­scious de­ci­sion to con­sent to cred­i­tors' de­mands in or­der to stay in the eu­ro­zone.) Still oth­ers could de­part as the en­ti­ties they be­long to dis­solve, ei­ther as the re­sult of a con­sen­sual de­ci­sion or be­cause of an ex­is­ten­tial cri­sis.

Like­li­hood and Con­se­quence

Which coun­tries choose to re­nounce their mem­ber­ship in the Euro­pean Union or its in­sti­tu­tions will de­ter­mine the bloc's fate. The or­ga­ni­za­tion could prob­a­bly weather Croa­tia's de­par­ture, but it would not sur­vive France's. There is also some­thing to be said for the strength in num­bers: The flight of a sin­gle, small econ­omy would not en­dan­ger the Euro­pean Union, but a co­or­di­nated exit of sev­eral as­suredly would.

Cer­tain po­lit­i­cal and geo­graphic fac­tors will af­fect mem­bers' chances of some­day with­draw­ing from the Con­ti­nen­tal bloc. A large Euroskep­tic pop­u­la­tion could pres­sure its gov­ern­ment to opt out of the Euro­pean Union, or en­cour­age politi­cians to do so in pur­suit of higher ap­proval rat­ings. Coun­tries with strong economies or strate­gic lo­ca­tions on the Con­ti­nent could use their ad­van­tages to wran­gle a bet­ter exit deal – or to ex­act con­ces­sions from Brussels in ex­change for stay­ing in the bloc. Mem­bers with weaker economies, mean­while, may have less choice in the mat­ter, since they would likely be the first ca­su­al­ties of any new EU cri­sis to arise.

By and large, EU mem­bers can be di­vided into four cat­e­gories of coun­tries based on the like­li­hood and con­se­quences of their de­par­ture from the union.

The Out­siders

In re­cent years, some of the Euro­pean Union's harsh­est crit­ics have been Cen­tral and Eastern Euro­pean mem­bers that do not be­long to the eu­ro­zone. Many of these coun­tries view the Euro­pean Union as a pact among states that should re­main sov­er­eign, and they have guarded their na­tional pow­ers from Brussels' ev­er­ex­pand­ing reach. Hun­gary and Poland lead the pack in their re­sis­tance to deeper Euro­pean in­te­gra­tion, but states like the Czech Repub­lic, Ro­ma­nia and Bul­garia have be­come sim­i­larly skep­ti­cal of the eu­ro­zone and pro­pos­als to in­crease Brussels' au­thor­ity.

This is not to say that these coun­tries are will­ing to desert the bloc. All are net re­ceivers of EU aid and sub­si­dies, and they see EU mem­ber­ship as a route to mod­ern­iz­ing their economies and at­tract­ing for­eign in­vest­ment. Some even view the bloc as a guar­an­tee of the West's pro­tec­tion against Rus­sian ag­gres­sion. The ma­jor­ity of vot­ers in the re­gion, more­over, still sup­port the idea of stay­ing in the Euro­pean Union.

Nev­er­the­less, Cen­tral and Eastern Euro­pean states will not hes­i­tate to as­sert their na­tional rights and ad­vo­cate weaker EU in­sti­tu­tions. Their op­po­si­tion to in­te­gra­tion will lend mo­men­tum to Euroskep­tic move­ments across the Con­ti­nent seek­ing to rene­go­ti­ate terms with Brussels. Over time, per­sis­tent an­tiEU rhetoric could boost na­tion­al­ist and pop­ulist forces in the re­gion, cor­ner­ing gov­ern­ments into mak­ing de­ci­sions that may run counter to their strate­gic goals.

The Frag­ile Pe­riph­ery

By com­par­i­son, coun­tries in the eu­ro­zone's pe­riph­ery tend to sup­port deeper Euro­pean in­te­gra­tion, though they are also among the most vul­ner­a­ble economies in the bloc. These states, which in­clude Greece, Por­tu­gal and Spain, rely on EU sub­si­dies and devel­op­ment funds to stay afloat. They will con­tinue to back the con­cept of Con­ti­nen­tal in­te­gra­tion as long as it means fi­nan­cial aid for their founder­ing economies.

The re­gion has had its own com­plaints about the Euro­pean Union, but most did not ap­pear un­til the Con­ti­nent's fi­nan­cial cri­sis – and the austerity mea­sures that fol­lowed – be­gan. Even then, in­stead of the right-wing na­tion­al­ism that emerged else­where in the bloc, these coun­tries largely sup­ported left­wing par­ties that wanted to in­crease spend­ing and re­struc­ture debt rather than close bor­ders or re­strict im­mi­gra­tion. (Right-wing na­tion­al­ism rose some­what in Greece, but it did not rise nearly as dra­mat­i­cally as it did in North­ern Europe.)

The states along the eu­ro­zone's south­ern edge may leave the cur­rency zone at some point. But if they do, it is more likely to be in re­sponse to an un­ex­pected cri­sis than a planned de­ci­sion. Though these coun­tries have sim­i­lar vi­sions of what they think the Euro­pean Union looks like in the fu­ture, their po­lit­i­cal and eco­nomic weak­ness will make it dif­fi­cult for them to form an ef­fec­tive al­liance and to take charge of the bloc's de­ci­sion-mak­ing process. And as weak growth, fee­ble bank­ing sec­tors, large debts and high un­em­ploy­ment con­tinue to take an eco­nomic toll, these coun­tries' tra­di­tion­ally pro-Europe pop­u­la­tions could slowly start to turn on the bloc.

The Coali­tion Builders

The closer Euroskep­ti­cism creeps to the Con­ti­nent's eco­nomic and po­lit­i­cal core, the more dan­ger­ous it will be­come for the bloc. North­ern Euro­pean coun­tries such as Aus­tria, Fin­land and the Nether­lands are some of the eu­ro­zone's rich­est and most fis­cally dis­ci­plined mem­bers. These states are largely pre­oc­cu­pied with pro­tect­ing their na­tional wealth from South­ern Europe, and they have strong Euroskep­tic par­ties that seek to de­fend their sovereignty against the in­ter­fer­ence of EU in­sti­tu­tions. That said, they also have an in­cen­tive, given their economies' re­liance on ex­ports, to pro­tect their mar­kets abroad – most of which be­long to the Euro­pean Union. North­ern Euro­pean coun­tries tend to co­or­di­nate their moves with their neigh­bors and with larger pow­ers. They are far more likely to col­lec­tively push for Con­ti­nen­tal re­form or for the cre­ation of re­gional blocs than they are to risk their own iso­la­tion by act­ing uni­lat­er­ally. Though states like Den­mark and Swe­den are not part of the eu­ro­zone, they are cul­tur­ally and ide­o­log­i­cally sim­i­lar to their coun­ter­parts in North­ern Europe and could some­day join them in a re­gional re­place­ment for the Euro­pean Union. Talk of form­ing a "north­ern eu­ro­zone" or "north­ern Schen­gen" has be­come com­mon in this part of Europe.

Lithua­nia, Latvia and Es­to­nia are in some ways an ex­cep­tion, though. They joined the Euro­pean Union and eu­ro­zone to dis­cour­age Rus­sian ag­gres­sion by link­ing them­selves as closely to the West as pos­si­ble. As the home of the Euro­pean Union's most im­por­tant in­sti­tu­tions, Bel­gium is also set apart from its North­ern Euro­pean neigh­bors, and re­gional pol­i­tics of­ten take prece­dence over na­tional ef­forts to chip away at the bloc's in­flu­ence. Each of these coun­tries is un­likely to leave the Euro­pean Union or eu­ro­zone of its own vo­li­tion, though they could be­come part of a north­ern al­liance should the bloc dis­solve.

The Big Three

If the na­tion-state will be the pri­mary agent of the Euro­pean Union's com­ing trans­for­ma­tion, it stands to rea­son that the bloc's largest mem­bers – Ger­many, France and Italy – will be at the fore­front of it.

Italy has his­tor­i­cally seen Euro­pean in­te­gra­tion as a means to tie it­self to its pros­per­ous north­ern neigh­bors and to pre­serve the unity of the coun­try. But over the past decade, Ital­ians have be­come some of the Con­ti­nent's most Euroskep­tic ci­ti­zens, thanks to their coun­try's sky­rock­et­ing debt and po­lit­i­cal in­sta­bil­ity. Italy is there­fore one of the coun­tries that is most likely to use the threat of its exit to squeeze con­ces­sions from Brussels. Rome has al­ready leaned on the "too big to fail" ar­gu­ment in its ne­go­ti­a­tions with the Euro­pean Union, and fu­ture Ital­ian ad­min­is­tra­tions are likely to do the same. But as Europe con­tin­ues to frag­ment, each threat will be­come more dan­ger­ous to the bloc than the last.

France and Ger­many, mean­while, hold the key to the Euro­pean Union's fu­ture. Even the sug­ges­tion of a French or Ger­man exit from the bloc or its cur­rency zone would risk trig­ger­ing a mas­sive struc­tural over­haul. By the same to­ken, the two coun­tries' con­tin­ued buy-in could be enough to keep the Euro­pean Union – or some ver­sion of it – to­gether. But France and Ger­many face a para­dox­i­cal prob­lem: For strate­gic rea­sons they need to main­tain a united front, but their na­tional in­ter­ests con­tinue to pull them apart.

France, as both a Mediter­ranean and North­ern Euro­pean na­tion, has found it­self torn be­tween a de­sire to pro­tect its econ­omy and the need to pre­serve its al­liance with Ger­many. Paris tends to sup­port pro­tec­tion­ist and risk-shar­ing mea­sures, and it has a high tol­er­ance for in­fla­tion. Berlin, how­ever, prefers to avoid poli­cies that threaten its wealth and share the risk cre­ated by South­ern Europe's weak economies. Ger­many would only agree to France's ap­proach if Berlin were given more con­trol over the fis­cal poli­cies of its neigh­bors — some­thing many coun­tries would find unac­cept­able. Of the two, France is more likely to act first in de­mand­ing the Euro­pean Union's re­or­ga­ni­za­tion be­cause of its ris­ing na­tion­al­ism and slug­gish eco­nomic growth. But Ger­many, ham­strung by its own na­tional in­ter­ests, would find it tough to com­pro­mise with its long­time part­ner.

At this point, reach­ing a con­sen­sus on a path for­ward has be­come all but im­pos­si­ble for the Euro­pean Union's mem­bers. To knit them­selves even closer to­gether, EU states would have to com­pro­mise on is­sues that are too im­por­tant to budge on. The al­ter­na­tive op­tion – re­vers­ing Euro­pean in­te­gra­tion – is gain­ing ground, but it comes with the very real pos­si­bil­ity of lead­ing to the bloc's com­plete dis­man­tling. Mem­bers could take a mid­dle road of sorts by choos­ing to keep things as they are, but even in­ac­tion would come at a price, promis­ing even greater prob­lems for the trou­bled bloc down the line. Adri­ano Bosoni is Strat­for's Se­nior Europe An­a­lyst. He fo­cuses on po­lit­i­cal, so­cial and eco­nomic is­sues per­tain­ing to the Euro­pean Union and the eu­ro­zone. “Who Will Exit the EU Next?” is re­pub­lished with the per­mis­sion of Strat­for and un­der con­tent con­fed­er­a­tion be­tween Fi­nan­cial Nige­ria and Strat­for.

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