A quick speaking tour to Brussels and Berlin underscores both the similarities and differences between these two very contrasting European “worlds.” Both the worlds of Brussels and Berlin have elements of a siege mentality to them. Long gone is the confidence in Brussels that the European Union could act as a driver and new model of economic (and social) activity — a confidence that was reinforced by the faults found in the American (and the UK — another world completely) light regulatory/market oriented model in 2008. Instead, as highlighted by the G20 at Los Cabos, Europe has now been placed on the defensive. Amid all the many differences of opinion that non-Europeans have on other issues, the common dynamic from beyond Brussels is a frustration and impatience. The sentiment from the US, Canada, the BRICS, and middle states in the G20, such as Korea, Mexico and Australia, is that the EU needs to act decisively and to do it quickly.
This shift in psychological and policy positioning has been unsettling. At Los Cabos we saw EU Commission President Jose Manuel Barroso suffer the equivalent of a diplomatic meltdown when asked why non-Europeans should bailout Europe through a reinforcement of the IMF second line of defence.
Yet, to the credit of the Brussels EU world it has adapted, to some extent, substantively if not stylistically. The EU moved to include its economic and financial reform agenda in the G20’s action plan. And if grudgingly, the EU did consult other countries around the G20 “high table” on its plan for moving forward with greater integration.
Moreover, as witnessed by the decision of the EU Commission and European Central Bank to move forward with initiatives on Banking Union (including suggestions for European wide deposit insurance), Europe demonstrates that, notwithstanding a siege mentality, it can also come up with innovative ideas.
The complication is that the world of Berlin is also under siege. In part, this is a function of the Brussels world’s counter-offensive that includes options such as jointly-guaranteed Eurozone bonds or a debt redemption fund that Chancellor Angela Merkel — and indeed most of the German political establishment — find unacceptable. But it is a function of the German constitution and German public opinion that make it very difficult or even impossible for a government to take the immediate measures that would calm markets.
This is not to suggest that the Berlin world has run out of its own ideas to move the EU generally and the Eurozone more specifically forward. The German attraction to Banking Union has not been made on the basis of more joint liability (whether through Eurobonds or forms of mutualization of liability), but because such an initiative has the potential to advance new forms of central controls with deeper rules of enforcement when rules are broken.
The two different types of siege may be taking the worlds of Brussels and Berlin — eventually — to the same destination. However, the journey is a perilous one. Brussels will continually be under short-term pressure, to help what Berlin sentiment refers to as the Club Med countries. Berlin, alternatively, may be so fixated on the long-term that the EU or the Eurozone as we know it will be hollowed out. Carving out a middle constructive path demonstrates the vital importance of creative statecraft under intense (and often public) forms of stress. Having proved itself so effective in the early days of the G20 as a model of diplomatic robustness when looking outwards, the EU must do the same when engaged in the complex “devils in the details” inward looking projection. One thing is clear though: only by some form of sustained reconciliation between the two worlds of Brussels and Berlin is there any chance that this test will be passed.