Over the years I have known three grand narratives about the EU: the old federalist version, now presumed dead; another that reduces the EU to a glorified common market; and that of the EU as guarantor of freedom in post-Soviet Europe. This last story has never been more popular than it is today because of the war in Ukraine. But despite its obvious attractions, it is full of holes.
The EU’s fundamental tragedy is that it needs to be a federal state in order to act as a beacon of freedom. The three narratives appear different. But they cannot be easily separated.
For the past ten years the EU has been trying to increase its powers through the back door. It has been using novel legal instruments to make up for the lack of a right to raise taxes and issue debt. My favourite example was a €300bn-plus investment plan, first proposed in 2014 by Jean-Claude Juncker, the former president of the European Commission. It ended up mostly as a reclassification of existing investments, with an EU label stuck on them.
A more recent example of the gulf between lofty ambitions and financial reality was the recovery fund, agreed in 2020 after the start of the pandemic. This time it was real money – again, well over €300bn in grants. I can’t count the number of commentators who rushed to declare that this was the EU’s Hamiltonian moment – the beginnings of an EU fiscal union. But it was not to be.
The EU still relied on its members to guarantee the debt. The financial markets saw right through it. EU debt now trades at a premium interest rate compared with that of its member states. This was not supposed to happen.
You cannot fudge your way into geopolitical leadership in this manner. For that you need real money. It would also require a constitutional treaty to establish a fiscal union – the EU as it is constituted today cannot act as a global power, or even deliver economic stimulus. It can still run a successful single market or customs union. It can regulate markets. But it cannot do what it really wants to do – become a geopolitical actor, a force for freedom, and a leader in green energy.
Or, for that matter, accept Ukraine as a member state.
The EU may well receive Ukraine as a candidate for accession and then leave it to rot in the antechamber, just as happened with Turkey. Right now, the EU is structurally not equipped to deal with Ukraine.
Despite pro-Ukrainian virtue signalling at European summits and on social media, the tone is likely to change once member states are presented with the bill for Ukraine’s EU accession. Germany and the other net contributors to the union’s budget would have to bear the brunt of the cost – at a time when their own economic models are coming under strain. Would Poland and Hungary be happy to give up their current status as net recipients of funds from the EU budget for the sake of Ukraine? Would Italy agree to become an even larger net contributor?
As a country with 43 million inhabitants, Ukraine would displace Poland as the fifth-largest EU member, after Germany, France, Italy and Spain. Ukraine’s accession would dilute existing voting shares in the Council of Ministers, one of the two decision-making bodies of the EU.
I believe there is a solution. The EU could adopt a two-tier membership structure – a fortified eurozone at the centre and an outer group of members. Ukraine could join that second group. The frequently used word “associate member” would be too dismissive for what this would entail. A separation of the EU into inner and outer groupings would include the customs union, the single market, and structural and regional aid for everybody. If the core group assigned itself an autonomous fiscal union, it could raise funds, on the EU’s behalf, to finance Ukraine’s reconstruction. Ukraine, along with other countries in the outer group, would have full voting rights on all issues except the monetary and fiscal union, which would not include them. In turn, they would enjoy a higher degree of national sovereignty in economic policy.
I am not pretending that this would be easy to agree on. As long as people are under the delusion that the recovery fund can act as a blueprint for a common European fiscal policy, there will be no pressure in favour of a formal treaty change. But it is not possible for this delusion to persist forever. The cost of maintaining the status quo will eventually become apparent: it will be an EU that disappoints; an EU with a diminished global role; and an EU that does not include Ukraine.
EU reform would also be a prerequisite for the UK, should it ever want to rejoin. For all their differences, the Ukraine and the UK have a common dilemma in their relationship with the EU. Neither appears to have a viable alternative strategy outside the union. Yet the EU as it is constituted today is not suited to their interests either.
Of the three narratives I mentioned at the start, the UK’s version has depicted the EU as a common market. Ukrainians see the EU as a safe haven from Russian oppression. It is only that apparently long-defunct notion of a formal political union, with a separate fiscal space and a two-tier membership structure, that can deliver for Ukraine – and for the EU itself if it wishes to develop into a global power. It would also open a pathway for the UK to reconnect, if it so wishes.
[See also: Austerity is about to return to Europe]
This article appears in the 12 Jul 2023 issue of the New Statesman, Tabloid Nation