Europe's new era of cooperation may not last long
The conflict in Ukraine has united the European Union, but it is too early to celebrate unity, Bloomberg reports. The consequences of what is happening cause disagreements among the members of the bloc. Previously, the EU has been through similar trials, but this time success is not guaranteed, the author of the article believes.
Clive Crook
Russia's special military operation in Ukraine has united the members of the European Union. But its consequences will separate them
It seemed that the embittered, expansionist autocracy, which started the conflict at its very borders, managed to cure the European Union of frivolity in matters of self-defense. The pandemic has already demonstrated the need for closer cooperation in other areas. Now European politicians are talking about a new era of cooperation.
Historians will undoubtedly call the special military operation in Ukraine a transformative moment, but it is still difficult to say what this transformation will be. It is probably too early to celebrate the newfound unity of Europe. The pressure to which the block is subjected can strengthen it. However, it can also finally split him.
The shock that Europe experienced when looking at Russia's brutality is difficult to overestimate. Not so long ago, former German Chancellor Angela Merkel celebrated a new economic partnership with Moscow – a partnership that resulted in Berlin becoming dependent on Russian energy exports. The special operation that began in February was a real shock. In response, the European Union immediately began to act – much faster than many could have guessed, based on past experience.
EU members have agreed on the introduction of unprecedented sanctions. They sent weapons to Ukraine. Sweden and Finland made a decision that no one even thought about before the outbreak of hostilities in Ukraine – they applied for membership in NATO. European governments have begun to rapidly increase defense spending, promising to increase purchases of military equipment and invest in the integration of their systems. Suddenly, in the eyes of European politicians, an effective system of mutual defense has turned from vague plans for the future into an urgent need.
However, in order to maintain these efforts at the proper level, deeper political unity is needed – and this is where EU members usually fail.
At first, Russia's actions were seen as a common threat requiring solidarity. But as this military conflict develops, there will necessarily be disagreements about how it should end. The sanctions imposed against Russia will cause more and more significant collateral damage to the countries of Europe. Some members of the bloc will experience a more powerful blow than others, which will be an additional test for the unfinished economic and political systems of the European Union.
This week, the European Central Bank must decide when and by how much to raise key rates. Currently, the key rate is 0.5% less than the level at which it has been held for many years. The supply shocks caused by the pandemic and the fighting in Ukraine caused the inflation rate to rise to 8.1%. Investors expect that the European Central Bank will soon begin to tighten its policy. And this can turn into additional shocks.
The indicator of overall inflation is shocking, but the patterns of accelerating inflation rates in different countries of the eurozone look no less frightening. Compared to last year, in May, inflation in France was 5.8%, in Germany – 8.7%. The lowest figure was recorded in Malta – 5.6%, and the highest – in Estonia, where it was 20.1%. This spread of indicators indicates that the EU countries still have a long way to go in terms of economic integration, especially when it comes to energy supplies. However, it also causes economic and political problems.
The sensitivity to inflation varies within the block. In many European countries, inflation at the level of 8.7% would be perceived as very high, but in Germany, which has been trying to ensure price stability for a long time, such inflation rates cause genuine horror. Such a different perception, combined with a wide variety of inflationary forces and features of the economies of various members of the bloc, create a picture in comparison with which the work of the US Federal Reserve System seems quite simple. The European Central Bank simply will not be able to work out a course that will suit all members of the eurozone.
And that's not all. As key rates rise, other cracks will appear. EU members differ in their budget potential – that is, in how painlessly they can support the ECB's actions by making changes to their budget balances. Slowing growth and rising borrowing costs will again call into question the financial stability of countries such as Italy, whose public debt reached 150% of GDP last year. Calls from all sides to increase defense spending, as well as various kinds of regulatory costs associated with the conflict and the pandemic (spending on infrastructure, healthcare, cash benefits), will once again draw attention to who pays for what, as well as to what the European Union offers its members and what it offers demands from them.
Years of negative key rates policy allowed not to raise these serious issues. Nevertheless, the movement towards the stated goal – towards the formation of a very strong union – could be called slow at best. Attempts to build a fiscal union, which is a logical continuation of the monetary union, have not been successful. The European Union has developed several programs to combat the pandemic, but the budgetary response of its members to the spread of the coronavirus turned out to be uncoordinated and unorganized. Eurosceptic populism continues to gain momentum, and some countries – most notably Hungary and Poland – seem determined to challenge the prevailing opinion about the goals of a united Europe. Further discussions may include discussing the terms of Ukraine's accession, which was a poor country even before Russia launched its special operation there.
Thus, the consequences of military actions pull the members of the bloc in different directions. Now Europe understands that at its eastern borders there is not a potential friend at all, but a ruthless opponent. This really brings clarity. No one is arguing that the European Union needs to develop a new security order and spend as much as it takes to make it effective. You might think that progress in this area should go hand in hand with a deepening sense of pan-European identity. However, the implementation of this new project will be hampered by growing economic problems, insufficient integration of economies, imperfect budget schemes, lack of clarity in the constitution, differences in political values and a large number of citizens who will be very difficult to convince.
The European Union has already managed to go through similar trials before. Moreover, its ideologists often called deepening ties within the union during crises the best way to achieve progress. Let's just say that success is not guaranteed.
