Realpolitik and the European Union: Chapter 1. Europe and the EU

Europe and the EU

The salient feature of the EU is that it seeks merger by integration, in contrast to the preferred pre-1945 method of merger by hostile takeover. Originally a French creation, designed to provide an answer to “the German question”, its purpose was also to seize the postwar leadership of Europe from the UK, and to be Washington’s prime ally during the cold war. Supra-national institutions were to be grafted on to a European state system, with a view to moderating nationalist rivalry between the European states, creating a continental size economy, and in particular to cementing the peace. Over the past seventy years or so, it can reasonably claim to have contributed to Europe’s longest peace since the Roman Empire; it has succeeded in creating a semi-integrated continental economy; and it has mitigated nationalist rivalry between its states. But it has not ended competition between them. Power politics is alive and well, and the prime beneficiary is Germany.

Paradoxically, Germany is on top of a Europe that is said to be on the “slippery slope” to irrelevance. [1] Europe, yes, is enviably wealthy, peaceful, and now shares a common set of governance norms(constitutional government, the rule of law, free speech) for the first time since the eighteenth century. But, the argument runs,  the EU is obviously in crisis. Extrapolation of Europe’s performance from 1980 to 2010 through to 2050 highlights Europe’s declining share of world wealth. The EU’s flagship policy of monetary union, launched as paving the way to growth and stability, has not yet delivered on its promise. The Euro area has been in depression for seven long years; its population is ageing; it is not so much rich as getting poorer; it is not technically advanced, but lagging further and further behind; it is not resilient, but has failed to bounce back from a very prolonged recession; high rates of un- and underemployment is not because jobs are haemorrhaging to Asia, but because legislation is not jobs friendly; there is no adequate border control on immigration, and the growing presence if Islam in Europe is divisive, to say the least; Europe’s voice is not heard around the world, because it does not, and cannot,  speak with one voice; US and Europe no longer view security in the same way; not least the EU is seen as a dysfunctional, poorly organised, unimaginative and risk averse bureaucracy, facing waning public support. George Soros goes so far as to argue that it is a race against time whether Putin’s Russia or the EU collapse first. [2]

This view does not tell the whole picture. For all its travails, Europe is the world’s prime emporium. Its member states rank regularly in the global rankings: 6 of the top 10 as places to do business; 5 out of 10 in terms of human development; 16 out of 20 in terms of life expectancy; 9 in the top ten of least corrupt countries;  7 out of 10 of the happiest countries in the world. The member states of the EU are home to 224 of the top world 500 universities, compared to the United States’ 155, and China’s 6; they hold over 275 opera houses;  in the 2016 Olympic Games, they recorded a total medal haul of 311, compared to the US impressive haul of 121. The European footprint on the world economy is giant size. It is overwhelmingly the world’s prime recipient of inward investment, and by far the largest source of foreign direct investment in the world. The EU, along with the US, and Asia is one of the three global homes for global corporations The dollar remains the world’s key currency, but the Euro is the world’s second trading and reserve currency. The list goes on.

Four theories of European integration.

How come that such contradictory descriptions of the EU can be advanced, and evidence cited in support? The answer is that we are dealing with a highly complex subject, which has generated much heat and some light. A key question is how to think about the subject. As may be expected, how to think about it has been very controversial. Much discussion has been taken up with various theories about the EU project, which mostly posit federation as a teleological endpoint. Each one of them provide partial explanations of the history, the process, or the present and likely future condition of the EU.

1.The best early work is  that of Ernst Haas. [3] His book, The Uniting of Europe,  was chosen by the US Foreign Affairs magazine as one of the fifty most significant texts on international relations in the twentieth century.  The thesis he drew on is known as functionalism, whereby through a “spill over process”, one   function of government after another accrues to the EU institutions. The thesis has operated sporadically, in the early 1960s and again under Commission President Delors. But it failed to account for de Gaulle’s Non-when France withdrew from the Council of Ministers for a few months in 1965 to demonstrate that policy in Brussels had to chime with French interests- for the deep 1970s recession, and for the post-Maastricht Treaty (1992) reluctance of member states to vote more powers to EU institutions. Haas later repudiated his earlier work.

Haas’ focus on institutional process helped to beget recipes to further the project. The list include a regular drumbeat of affirmations: Europeanism, as understood by the institutions of the EU, is an ordained agent of human progress; the EU, not the other international organisations such as NATO, the OECD, the Council of Europe, or the CSCE, is “Europe”; the EU credits itself with preserving the peace and prosperity enjoyed by Europe since 1945. In reality,  a prime reason for the European peace has been the central role played by the US in helping to revive the western European economies; to create NATO; to provide the western part of the continent with nuclear coverage,  once the Soviet Union acquired comparable nuclear capabilities. The longest European peace in millenia also had much to do with the experience from two world wars, the revulsion felt at so much blood letting, and a near unanimous determination to avoid future wars. The EU’s role in preserving the peace is controversial, to say the least.

Other methods promoted by the EU institutions include the idea of integration as inevitable; l’aquis communautaire as signifying no turning back on competences, policies or rules that have become embedded in the EU policy process; the process is regularly re-affirmed as heading to a federal endpoint; if European economies do well, the EU institutions claim credit, while if European economies under-perform, the fault lies with the member states. The member states, of course, retaliate in kind. Such methods, though, contain their own penalties: there is no apparent upper limit to the powers claimed by Brussels;[4] the slanging match between “Brussels” and the capitals contributes to the rise of “populisms”, so-called because their denizens question the whole project.

2. Another theory is liberal inter-governmentalism, exemplified by Andrew Moravcsik’s work.[5] His book, The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, explains the EU’s emergence through a series of inter-state bargains, following intense diplomatic exchanges, and followed by periods of incrementalist activities by institutions and member states. The theory helps explain how big deals come about, notably the Maastricht Treaty of 1992. The thesis has come in for a lot of flack from supra-nationalists, but I consider it as an important explanation, and absolutely correct in placing member states centre stage. Furthermore, the thesis helps explain the partial nature of these big deals: fundamental disagreement over the future structure of economic governance in the EU between Germany and France left the single currency with an incomplete design; the multiple ambiguities in the Lisbon Treaty of 2009 may also be explained by reference to significant policy differences between the member states.

The theory dubbed liberal inter-governmentalism places the state at the centre of what goes on in the EU. The focus is on the national leaders, the ideas that drive them, the domestic political conditions in which they operate, and the coalitions that they are able to build to put through their preferences. The major moments when initiatives have been bedded down may be summarised as 1950, and the launch of the supra-national project; 1970, when the UK decided to join the EU; 1990, the year of German re-unification; and 2010, when Chancellor Merkel dropped the pretence of dealing with her French counterpart as an equal. Throughout the whole period from 1950 to the present, the project has revolved around the German question, and how to find a solution to the central problem of war and peace in Europe. Throughout the period, too, German diplomacy has been to re-establish the country as a sovereign body, represented on a footing of equality in all European and international institutions.

Although this was not the focus of the theory, it does highlight in retrospect that the prime story has been the emergence of Germany as Europe’s leading power; the inability of France to keep the pace needed to hold its rank as co-equal; and the failure of successive UK governments to sell the supra-national narrative to the British people. This is paradoxical, as the opportunity was there for Germany and the UK to make a pact, and settle for a model of a Europe of the states in a semi-federal EU. The opportunity was opened up by the German Constitutional Court’s judgement on Lisbon. But it was not taken up by the UK, which continued under Prime Minister Cameron officially to be more supra-national than the Pope, as defined in Section 2 of 1972 ECA, while also dragging feet when the continentals resumed their talk about heading towards a federal endpoint. The result was to convince no-one.

Where liberal inter-governmentalism fails is not, as integrationists like to argue, in under-estimating the role of the complex of EU institutions. Nor does it under-estimate the clash of national interests. What it assumes is that big deals can be made between the member states: they can be, but the last twenty-five years provides abundant evidence that Germany is the one that prevails most, most of the time. That is why the Chinese government’s holding of a Council of Ministers in Berlin in 2011 with the German Council of Ministers is so significant: China looks at what is, not what some Europeans would like Europe to be. What China sees is Germany as Europe’s hegemon; in Beijing, the Siemens office is right next to the Prime Minister’s office. In other words, Siemens is representative of what marxist-leninists call the “infrastructure”, whose “superstructure” is the German state. The Chinese party-state emphatically does not think that the age of nation states is past.

3. Alan Milward, a UK economic historian, has argued that the EU system, and its ancestors salvaged the welfare state following the second world war. Two key books of Milward’s are The Reconstruction of Western Europe, 1945-51, Berkeley, University of California Press, 1984, and The European Rescue of the Nation-State, Berkeley, University of California Press, 1992. [6] The thesis’ point of departure is the centrality of welfare provisions for modern industrial societies. Welfare states are highly complex, specific in the multiple ways that their functions may be applied, and can only be run by élites. Co-operation between modern states being indispensable, and the EU becoming ever more involved in the politics of welfare, Milward considers that the EU will develop as an elitist project. What sustains this idea, is a deep faith that the integration process will result in a USE, a social democratic United States of Europe. But Milward’s thesis leaves unexplored the crucial point that if élites do run policy for the benefit of the broader public, they would do best to be permanently successful. Since 2008, the EU has failed to deliver on its commitment to make life better for EU citizens, and its reputation has suffered accordingly. I expand on this below, in particular in the development of the Euro-quangocracy, under the section, “the EU regulatory state”.

4. The fourth thesis is that of John Gillingham, and presented in three books, and numerous scholarly articles. [7] His theme is that the EU is an epiphenomenon of international drivers of change, which are the prime movers of the integration process. These drivers were the cold war in the 1950s; the dollar politics of the 1970s and 1980s; and globalization, with the ascendance of China on the world scene since 1992, the year of the Maastricht Treaty. Globalisation, best understood as the acceleration of technological changes, writes Gillingham, constitutes an ongoing threat to bureaucratic EU system builders.

This thesis is elaborated in his liberal market interpretation of European Integration from 1950 to 2003. Which, he asks, will win out?  the French ambition to create what de Gaulle called a European “super-state” or the policy associated with Prime Minister Thatcher of promoting a new European market economy? His preference goes for Thatcher. In The EU: An Obituary, he lambasts the post-Lisbon EU as ambitious far beyond its means, arrogant, undemocratic, blundering, and the prime feature holding the European polity back from adapting to the fast changing global economy. His preference is clearly for rooting the EU in the consent of the peoples of the member states, and in allowing them to experiment their ways forward, through the ongoing technological and market driven revolution.

What Europe needs, he argues is to have its member states explore their own way into the global economy. By prescribing a one-size-fits-all format to every policy area, present and future, what is good for Fritz, may not be the best formula for Isabel; what Giovanni appreciates may not be to the taste of Helena. Not only is policy likely to be tailored in favour of the big lobbyists in Brussels who have the ear of the Commission, and solid support from the member states where they have their operations. Such a structure favours the large corporations: privileges their access to policy-making; wins their support for orderly market conditions which benefit incumbents, rather than their smaller corporate challengers; and facilitates access to the large internal market in addition to the centralizing regulatory system. The Internal Market in fact is a Single Regulatory Space. Big Business is in on the feast.

My argument is that it is time for some introspection as to why things have gone wrong. Doing so is the first step to taking corrective action. The simple point is that government without the consent of the governed cannot be effective. As the great Anglo-Irish statesman, Edmund Burke reminded us, in his life devoted to the repeal of the Test Act in Ireland; in support of the American revolutionaries; against the rapacity of the East India company, and in his reflections on the Jacobin war making machine that was the French revolution, you govern by political consent. [8] This is, and will be, the key to creating a sustainable European polity.

President Mitterrand, a man who lived, breathed and dreamt politics day in day out for over half a century, once said that the worst thing for a politician is to run out of options. The value of this aphorism seems now to have been acknowledged by none other than Jean-Claude Juncker, President of the European Commission, who presented the European Parliament with five options for the EU after Brexit. [9] The options range from business-as-usual; focusing solely on the market; through building “coalitions of the willing”, who want to do more;  or doing less more efficiently, through to a full blown federal union, which would allow “Europe” to punch its weight in world affairs. Mr Juncker’s preference clearly goes to the latter. Warning that Europe’s place in the world was ‘shrinking’ relative to a rising Asia, Mr Juncker said that being a soft power was no longer sufficient in a world when “force can prevail over rules”, urging Europe to “act with the collective weight of its individual parts”.

In what follows, the story of the EU’s evolution is told around four dates, when events took a crucial turning to shape the contours of the coming decades: 1950, the year of the Schuman Declaration; 1970, when Edward Heath became Prime Minister of the UK; 1990, the year of German unification; and 2010, when Germany dropped the pretense, and asserted its primacy in Europe. In the final part, I discuss the likely direction of events, and the keys to creating a sustainable polity in Europe as it is, and not how some of its denizens fantasize.

[1] Giles Merritt,  Slippery Slope: Europe’s Troubled Future, Oxford University Press, 2016.

[2]  George Soros, Putin is no ally against ISIS, Project Syndicate, February 10, 2016.

[3] Ernest Haas, The Uniting of Europe, Stanford, University Press, 1958.

[4]  Laurent Cohen Tanugi, La metamorphose de l’democratie française, De l’État Jacobin à l’État de Droit, Paris, Gallimard, 1993

[5]  Andrew Moravcsik, The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, Ithaca, Cornell University Press, 1998

[6]  Alan Milward, The Reconstruction of Western Europe, 1945-51, Berkeley, University of California Press, 1984, and The European Rescue of the Nation-State, Berkeley, University of California Press, 1992.

[7]  John Gillingham, European Integration: 1950-2003: Superstate or New Market Economy? Cambridge, Cambridge University Press, 2003; Design for a New Europe, Cambridge University Press, 2006;  also his The EU: An Obituary, London, New York, Verso 2016.

[8]  Connor Cruise O’Brien,  The Great Melody, Minerva, London, 1992 ; more recently, Jesse Norman, Edmund Burke : Philosopher, Politican, Prophet, William Collins, London, 2013 .

[9] White Paper on the Future of Europe: Reflections and Scenarios for the EU27 by 2025. European Commission. COM (2017) 2025 of 1 March 2017

About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) ( His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
This entry was posted in Europe, France and Germany, United Kingdom, World politics, business and economics and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.