Rethinking Europe's Future
David P. Calleo
FUTURECASTS online magazine
Vol. 8, No. 7, 7/1/06
"With so many contingent uncertainties, even the most knowledgeable predictions must rely heavily on historical imagination and intuition and ultimately on faith."
In "Rethinking Europe's Future," David P. Calleo analyzes a subject that he with commendable candor reminds us is inherently unknowable.
Although the U.S. and the EU will likely remain in alliance for various purposes, they have divergent interests and concerns.
However, today we live in one of those
"watersheds of history," he accurately points out. The future is
currently malleable - dependent on current decisions and the outcomes of current
policies - making a book such as this especially timely.
Historic and philosophical context:
| The history of the EU and the
forces propelling its development are perceptively summarized by Calleo. Most of
the book is an overview of Europe's recent past - a useful reminder of how
Europe got to where it is and what the existing trends and forces are that flow
towards the future.
World War I is wisely identified as a primary wellspring for twentieth century history. The earlier history and character of Europe's national states are briefly reviewed to provide important context for modern conditions. Some of the historic philosophical foundations of modern Europe are included.
Jean-Jacques Rousseau, John Locke, and Johan Gottfried von Herder are identified as important 18th century philosophical influences.
The concept of nationalism was
powerfully reinforced by the French Revolution and was spread throughout Europe
by the Napoleonic Wars. The "nation state" ultimately
proved far superior for modern conditions than the previous dynastic
authoritarian states. The idealist communitarian view of nationalism prevailed among Europe's continental democracies. It views the democratic state
as "a moral partnership of consenting citizens."
James Madison favored the liberal view, but suffered from no such idealistic delusions as Rousseau or Locke. He understood that privileged classes - political, economic or clerical - caused conflicts as they tried to maintain or expand their privileged status. He relied upon diversity and a system of institutions to mitigate the natural factionalism in society by obstructing efforts to monopolize power. He devised a system of checks and balances - with sovereignty divided between a federal government and the governments of the states - designed to make it impossible for any one faction to monopolize power and appropriate it for private purposes.
Of course, national myths have also been invoked to legitimize domination and oppression and the vast conflicts of the 20th century. Interdependence and the need for cooperation on many fronts is widely noted - but all too frequently this cooperation has been shattered by conflicts arising from competing "sovereign" interests. Taming the anarchy of Europe's nation states became a difficult - and essential - task for modern Europe. Nevertheless, there remains a "Europe of states" rather than a "unified Europe."
New applicants - ardently seeking to be included - have been driven to undertake significant reforms politically, economically and even ideologically to prepare themselves for EU membership.
The stick of military force had for many bloody centuries failed to unify Europe. Systems of shifting balance-of-power alliances were repeatedly challenged by the dominant hegemonic powers.
The carrot of EU membership, however, has
proven far more powerful than the stick of military force. It has driven nations to surrender substantial elements of
their sovereign powers. New applicants - ardently seeking to be included - have
been similarly driven to undertake significant reforms politically, economically
and even ideologically to prepare themselves for membership.
Its major continental components - France and Germany - now suffer stagnant economic conditions and intractably high unemployment levels. The crises in the Yugoslav region "mocked European pretensions to diplomatic and military coordination."
Nevertheless, the EU suffers many weaknesses, the
author points out. Its major continental components - France and Germany - now
suffer stagnant economic conditions and intractably high unemployment levels.
The crises in the Yugoslav region "mocked European pretensions to
diplomatic and military coordination." (It also demonstrated a startling
degree of military and diplomatic impotence - which recent EU efforts to deal
with Iran have only served to reemphasize.)
Philosophic foundations of modern Europe:
| Four distinct schools of political and economic
philosophy are identified by Calleo as predominant intellectual influences
on modern European developments.
European communitarian economics relies on the
state to overcome the shortcomings of the market. Communitarian concepts range from Marxist
rejection of capitalism and the nation state, "to various socialist and
social democratic or fascist theories." However, modern European
communitarian systems have many imbedded liberal economic features - and liberal
economic systems like that of the U.S. have increasingly employed communitarian
policies to achieve social and economic aims.
Calleo's explanations of current conditions and future prospects rely to a considerable extent on these philosophical viewpoints.
List was neither rabidly nationalistic nor mercantilist. Protectionist policies were a temporary expedient. (Good Luck!) He recognized the essential interdependence of the many nation states of Europe and their ultimate need to coalesce into broader economic markets. He recognized that free trade and international economic competition provided essential economic discipline and assured open and liberal societies. According to Calleo, the modern EU embodies List's views. (But the EU's import restraints and agricultural subsidies are permanent - and are based on political influence, not the economic interests of the people.)
Calleo blandly accepts the absurd notion that savings were just too great to permit full use of productive facilities - and thus were the primary cause of economic instability in the 1920s and 1930s.
Keynes became the darling of the governing political class - and undoubtedly the most influential economist of the 20th century as Calleo asserts. The author readily notes the rock upon which Keynesian demand management policies must eventually crash - their noxious impact on a nation's international accounts. Nevertheless, he incredibly attributes the collapse of Keynesian demand management efforts in the 1970s to a weakness in international financial institutions rather than a weakness inherent in Keynesian policies.
With the collapse of Keynesian demand management efforts in the 1970s, it was time for the ascendancy of a fourth economic theory.
Legacies of the Cold War:
| The realities of Cold War
Europe and the legacies that remain after the collapse of the Soviet Empire
are examined by Calleo with commendable humility and appreciation for
complexities. His approach to providing some understanding of this complexity is
to divide the subject into three broad "systems" plus relations
with Russia and other East European states.
The Atlantic Alliance, the Common Market, and globalization are three dominant factors that powerfully influence conditions in modern Europe.
The author explains how the Soviet threat drove the various
Western European states into deepening collaboration with each other and with
the U.S. - forcing a harmonization of a variety of often disparate national
objectives. There was also the need for the other European states to feel secure
living in proximity to a rapidly reviving Germany. He readily (stupidly) credits
Cold War government spending for overcoming the mythical insufficient demand of
the capitalist systems and for enabling the post WW-II successes of capitalist
systems. More cogently, he summarizes the political and international
developments that ultimately led to the current EU and its relations to
America, Russia and East European states, and the global economy.
Prospects for Russia remain grim, Calleo notes, due to its communist heritage of a dysfunctional economic system - the lack of a legally, economically and politically empowered civil society - and the corruption and demoralization of its elites.
The Soviet Union demonstrated all the economic and political weaknesses and instabilities that Marx envisioned for capitalist systems.
The financial strains of the Cold War led to overspending, deficits and inflation in the West. (So how could Calleo believe this was the foundation for capitalist economic success?) However, they led to economic collapse in the rigid Soviet system. Calleo perceptively notes that the Soviet Union demonstrated all the economic and political weaknesses and instabilities that Marx envisioned for capitalist systems.
With the passing of the WW-II Soviet leadership
generation, Soviet elites became increasingly disillusioned as
their economic system failed to fulfill Marxist expectations other than as a
means of total repression and control. The Soviet economy was even failing to maintain military
And, there was no brake on corruption - which just grew
inexorably. As all pretense to higher purposes dissolved, party and economic
elites increasingly concentrated on padding their own nests. Detent opened
opportunities for elites to acquire Western consumer goods, and undermined
Soviet fears of Western military intentions. The Soviet system became
increasingly dependent on imports of Western goods and technology.
Prospects for Europe:
The 1990s posed many questions for Europe:
"The very existence of an Atlantic Alliance helped to calm those Europeans whose natural inclination was to fear continental integration."
"Atlantic Europe" remains tied to the U.S. economically, culturally, and still in many ways militarily. Mutual interests still predominate in the diplomatic sphere as well. Despite some strong conflicts of interest between the U.S. and the EU, the U.S. remains a strong - indeed an essential - supporter of a successful and expanding EU.
By entering a consensual confederacy, European states become actors in determining policies that affect all the interdependent states of Europe. They gain freedom within the confederation. They are no longer just objects reacting to the policies of others.
However, powerful divergent forces continue to
strongly influence prospects for Europe. Federalists vie with confederalists
over the evolution of EU governance.
Of course, the whole exercise could fall apart - in part
or in whole - at any time. The ties that bind are not military. However, the
economic and diplomatic advantages are very real and remain very powerful
incentives. The political miracle of the EU remains in place.
"Not surprisingly, the European Union has been more successful in the economic sphere than in the diplomatic or military spheres, both of which often require rapid and decisive action to be effective."
France and Germany have been the major actors in the formation of the EU. Calleo provides considerable insight into this essential EU relationship. He sums up:
The problems of enlargement during and after the Cold War
are also covered. To a large extent, these problems remain unresolved.
The role of the U.S. in Europe after the end of the Cold War has been the subject of much speculation.
Nevertheless, as Calleo notes, Russia remains a possible
threat, Europe remains frightened of living with a suddenly enlarged Germany,
Germany doesn't want to be an object of fear for Europe, and other potential
European quarrels - such as those that broke out in Yugoslavia - provide ample
reason for a continued if much reduced U.S. military presence.
The EU thus remains "a confederacy of sovereign nations" that finds their sovereign powers reinforced rather than weakened by membership.
Incentives for the additional surrender of sovereign powers to the EU have been considerably reduced by the end of the Cold War. The EU thus remains "a confederacy of sovereign nations" that finds their sovereign powers reinforced rather than weakened by membership.
Expansion further into
Central and Eastern Europe increases the difficulties of policy
integration. It thus undermines prospects for the development of unified diplomatic and defense
that are essential if Europe is to play a leading role in some future
pan-European system of balanced powers. See, "Pan-European
Communitarian instincts remain strong in France and Germany and several other EU states, and many mercantilist policies remain in force. Internal political pressures favoring communitarian policies that benefit the politically influential at the expense of the nation as a whole remain a feature of democratic politics.
The communitarian capitalist systems of Europe were shocked by
the collapse of the Soviet Union, Calleo notes. (Again, he fails to note the
wide variety of other communist and socialist systems all around the world that
collapsed at the same time.) These EU states responded - some more grudgingly
than others - with various deregulation and privatization reforms.
The European Monetary Union:
| The establishment of the European
Monetary Union on time in 1998 was a significant political accomplishment -
especially considering all these difficulties. Calleo accurately summarizes the
benefits of Europe's new common currency - and the reasons why the results have
The euro eliminates transaction and hedging costs, facilitates
competition, encourages cross-border investment, and eliminates national
incentives to inflate currency. However, Europe lacks flexible cross-border
markets for labor, goods or services - and considerable market rigidities exist
within many of the member states.
Many European states are prevented from responding to changing conditions by welfare systems, unions, rigid markets that are politically untouchable, and the vested interests of those with political influence.
By itself, the euro cannot make up for all the various economic policy weaknesses that afflict the various EU states.
Many of the European states are blocked societies. Calleo notes that they are prevented from responding to changing conditions by welfare systems, unions, rigid markets that are politically untouchable, and the vested interests of those with political influence. He acknowledges that Europe's experience during the 1970s led it to reject national policies of monetary manipulation, thus paving the way for acceptance of the euro as the single European currency.
However, he correctly recognizes the substantial protection from
outside financial shocks bestowed on euro states by the strength of the euro. He
accurately notes that the euro could - indeed, is - slowly joining the dollar as
one of the world's primary
reserve currencies, with all of the numerous advantages that
accompany that status.
| Europe reacted badly to globalization.
Communitarian policies reduce economic competitiveness and flexibility. The ability to adjust is greatly reduced. In EU communitarian nations, unemployment soared to double digit levels in the 1990s and remained chronic at or near 10% - concentrated in the young.
Despite recognition of the limitations and abuses of communitarian economic policies, Calleo accepts much of the current intellectual criticism of globalization. The movement of production to more efficient sources is called "free riding" for failing to support conditions in higher-cost nations. He accepts the nonsense about the "withering away" of the political power of states within their own borders.
Globalization, however, is not without some important real problems,
as Calleo notes. Most important, production workers are less mobile than capital
- especially the least skilled workers.
EU nations have responded in various ways to different aspects
of globalization. The author examines responses to financial globalization,
international markets in goods and services, direct corporate investment, and
labor market impacts.
Europe responded by implementing the European Monetary Unit - ending
volatility in European currencies and establishing the euro as a rival to the
dollar as the world's most reliable currency.
Many European nations remain hostile to foreign mergers and acquisitions of national firms - even when the acquiring firms are from other EU nations.
In international trade, government mercantilist policies have
always played a role. Calleo sketches some of the recent characteristics of
European and U.S. diplomatic, protectionist, subsidy and other efforts on behalf
of politically influential domestic producers. Here, too, a global market still
powerfully influenced by mercantilist policies has provided powerful incentives
for the development of unified European policies through the EU system.
Organized labor is threatened by globalization and engages in widespread obstruction to it. Calleo sums up his views on this contentious issue.
Global commerce is certainly not laissez faire commerce. Calleo notes the widespread activities required of governments to facilitate global commerce.
Thus, the different national markets remain largely distinct, with the various national firms cooperating by means of strategic partnerships for particular purposes rather than combining in a formal way.
Consolidation has nevertheless proceeded in response to competitive
pressures. European integration and direct investment between EU states is
widely - but hardly universally - viewed as supporting European integration.
However, England is the only major EU nation to broadly accept foreign takeovers
of major national firms.
Labor market impacts of technological developments by themselves and
with globalization are perceptively explained by Calleo. As the pace of change
accelerates, both benefits and costs of adjustments increase sharply. Many
European states have reacted to the human and social costs with resistance to
the adjustment process - and have been afflicted with sclerotic economies and
chronically high unemployment levels. Market pressures for change increase
But then, Calleo reveals his Malthusian tendencies. He believes that
the huge low-wage and high-skilled labor pools of China and India will produce
too great a shock for Western and Westernizing nation labor markets to absorb.
Adjustments cannot possibly occur rapidly enough to adequately employ the displaced
workers, he confidently states.
The author candidly notes previous failed Malthusian expectations, but concludes that Asia's billions of workers will be too big a pig for world capitalism to conveniently swallow.
Calleo repeatedly describes liberal economics as a type of religious faith - rather than as a collection of oft proven concepts.
The need for the EU to accommodate cheap labor from Eastern Europe, Turkey and North Africa is also thrown into this mix. Calleo feels thus impelled to consider protectionism as a proper response for Europe. Repeatedly, he describes liberal economics as a type of religious faith - rather than as a collection of oft proven concepts. He recognizes the liberal arguments against protectionism - but in a casual manner. He accuses liberals of too tolerant an attitude towards the growth of inequality and the adverse impacts that globalization has on important segments of Western labor. Reactions against globalization are thus viewed as justified.
He expects a "general drift toward neomercantilism and protectionism." While he recognizes that these policies might fail, he believes they can be rationally designed to promote sufficient competitiveness to succeed.
Friedrich List provides the philosophical basis for such policies. They are an appropriate melding of liberal and national communitarian policies. List favored international trade - but believed it should be managed to meet national purposes.
The EU "more or less" conforms to List's vision of a European confederation that balances national competition with "a shared sense of social justice, humane values, mutual respect, and common geopolitical interests." Calleo asserts that List would support neomercantilist and protectionist policies as part of the remedies for Europe's structural unemployment - certainly not for individual states, but for the EU market as a whole. The author accurately notes that this was what the U.S. was like in the 19th century - liberal and diverse internally but autarkic externally.
Calleo casually assumes the possibility of a global commercial market sensibly "managed" by its major components - especially the EU, the U.S., and the major states of Asia.
The EU constitution:
| EU constitutional development and problems are set forth by Calleo - accurately reflecting the difficulties that
arose subsequent to publication of the book. He views the European Parliament as
the best available institution for mitigating these difficulties, but realizes
the difficulties of establishing sufficient cohesion for effective action with a
parliamentary membership drawn from different nations.
EU constitutional developments as of the Nice summit at the end of 2000 are summarized by Calleo. It's a mixed and complex bag of compromises and accommodations. Some progress was made, but the result did little to enhance the unity and influence of the EU.
| Through the various EU institutions, the EU nations negotiate,
compromise with and accommodate each other. Generally - although lacking in
efficiency or dispatch - they manage to get things done surprisingly well.
Calleo notes that the prospects for any cohesive diplomatic or military initiatives under such governance is not promising. The new EU members are burdened with relative poverty and many have a political heritage of communist governance that may, the author fears, render them unable to constructively participate in this complex system.
The concept of "variable geometry" has arisen in
response to such problems. Groups of EU nations - each still sovereign - can
agree among themselves to move forward on various aspects of federalist
integration - always open to adherence by other member states.
Much more problematic has been the experience with the Common Foreign
and Security Policy. Calleo's skepticism here seems amply justified by
subsequent developments. The EU members are unlikely to surrender national
control over foreign policy and defense.
| A host of new - poor - states clamoring for entry
raises difficulties. Their admission will be expensive and require long
Popular support for further broadening dropped precipitously as the beneficiaries of existing subsidies and grants sought to hang on to their benefits - and Germany tired of being the EU's cash cow.
The EU's corporatist economic
policies put social and political values ahead of market efficiency and increase
the difficulties of EU expansion. These
policies include various subsidies and grants to encourage convergence upwards,
and a wide array of regulations that inevitably slow it down. East
Germany epitomizes the difficulties of this approach.
| Through association agreements with
neighboring states in Eastern Europe and North Africa, and with old colonial
dependencies, the EU has offered many benefits and extended its influence beyond
its borders. The evolution of further pan-European arrangements - to include
such important states as Russia and Turkey - will depend on EU cohesion that
Calleo fears could be undermined by too rapid an effort at expansion.
NATO has expanded further than the EU. NATO enlargement is
covered at some length and viewed critically by Calleo. He perceptively noted
that the extension of NATO so far east into the Baltic region would infuriate
Russia, would be difficult to actually defend, and depended on the dubious view
that Russia was finished as a great power.
The author frets that Russian hostility to NATO enlargement undermines
any likelihood of Russian assistance if containment of China is ever required.
Without this hostility, it would seem that Russia's long vulnerable lightly
populated border with China would induce it to seek good relations with the U.S.
Instead, it has been thrown into China's arms and increasingly cooperates with
The U.S. is constitutionally not organized to employ hegemonic - let alone imperial - international power. The U.S. is thus inherently a benign - if not always wise - super power.
The author looks forward to a multipolar world balanced between U.S., EU, Chinese and perhaps Russian spheres of influence - all induced by interdependence to somehow cooperate in a pan-European effort to maintain the peace.
He correctly notes that the U.S. is constitutionally not organized to employ hegemonic - let alone imperial - international power. The U.S. is thus inherently a benign - if not always wise - super power.
However, as Calleo candidly and repeatedly notes, the U.S. conduct of its leadership role after WW-II was both wise and successful.
He correctly notes that America's multiple financial deficits will inevitably bring about economic decline in the not too distant future. This will undoubtedly enhance the role of the euro (as long as the ECB continues its disciplined monetary policy).
"Close Russian cooperation is needed to manage" many of the EU's security problems as well as the economic interdependent relationship with Russia itself. U.S. challenges to Russian influence in Russia's "near abroad" undermine EU efforts to conciliate Russia and gain its cooperation.
Russia remains a threat. Thus, maintenance of the Atlantic alliance between the U.S. and EU is realistically viewed as essential.
He warns that extending the EU and NATO too far will overstretch both
America and Europe. He draws the line to exclude Ukraine. Russia's influence in
the trans Caucuses and in Central Asia, too, should not be challenged. He warns
perceptively that the EU and the U.S. "have neither the means nor the
vocation to master" the "swarms of demons" that afflict those
Calleo's dream of a peaceful,
prosperous pan-European system is dependent on a successfully conciliated,
satisfied, "well-intentioned" Russia. With that, the EU, Russia and
the U.S. might be constrained to operate "within a cooperative pan-European
framework with a structured bias toward collective rather than unilateral
Policies leading to an interdependent but "tripolar"
pan-European world are thus favored by the author. They should be designed to
achieve a more "balanced" Atlantic Alliance and "cooperative
coexistence" with Russia.
The EU would remain Western European. However, it would extend economic
cooperation eastwards to ultimately include Russia as the EU's
"privileged" long-term supplier of energy and raw materials. (He
offers no hint of what the characteristics of that "privileged" status
For the EU to play a meaningful role with the U.S. in providing a multilateral alternative to U.S. unilateral leadership, the EU must first "strengthen its own structures."
Calleo recognizes the multiple difficulties of this vision. There are, as always, all the old internal EU demons from Europe's bloody past. There is the need for "resolute reasonableness from Russians," as well as from Europeans and Americans.
Calleo expects "great turmoil" in the "new Asia." This will occupy all of America's energies. A strong EU with a unified diplomatic and defense force capable of managing affairs in its own space and engaging cooperatively with Russia is in the most profound interests of the U.S. For the EU to play a meaningful role with the U.S. in providing a multilateral alternative to U.S. unilateral leadership, the EU must first "strengthen its own structures."
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Copyright © 2006 Dan Blatt