Croatia became the 28th member of the European Union on Monday, a seminal moment for the small, predominantly Catholic country some 20 years after it won independence in the bloody wars of the Balkans.
With Europe roiled by financial crisis, Croatia’s accession offers a rare moment of satisfaction for the union, underlining how a country’s desire to join the world’s biggest trading bloc can push it to make difficult economic and political changes.
Since the end of the cold war, the European Union’s soft power — its ability to press for concessions from countries that want to join the club — has been a powerful foreign policy tool and an alternative to American military might. In the case of Croatia, the incentive of joining the bloc pushed it to revamp a statist post-Communist economy and to arrest more than a dozen Croatian and Bosnian Croat war criminals.
Elsewhere in the region, Serbia and Kosovo recently signed a power-sharing agreement aimed at overcoming ethnic enmities and proving to Brussels that they have the European credentials to join the bloc. On Friday, they were rewarded for their efforts, with Serbia gaining the go-ahead to start entry negotiations in January and Kosovo gaining closer trade, economic and political ties.
Shouldn’t it be making more headlines than it has that the European Union is today insolvent - since its astronomic debt in unpaid bills is nearly twice as large as its annual income? Such is the crisis lately highlighted by its parliament’s budget committee, which finds that the EU now owes 217 billion euros, or £182 billion, as compared with its current year’s income of just £108 billion. Much of this represents “cohesion funding” relating to Eastern Europe, in contracts agreed under the EU’s current budgetary arrangements. But when, at the end of this year, those arrangements come to an end, the rules strictly prohibit the EU from rolling forward its debts from one period to the next. So, in eight months’ time, it will lurch into bankruptcy.
Wherever we now look at the EU, its affairs seem to be in an astonishing mess. There is the ongoing slow-motion train crash of the euro. There is rising panic over the policy of unrestricted immigration, which threatens at the year’s end to flood richer countries such as Britain with millions of Romanians and Bulgarians. As Europe’s economies stagnate or shrink, the EU’s environmental policies fall apart, with the growing refusal of many countries, led by Poland and Germany, to accept curbs on fossil fuels.
What all these signs of breakdown have in common is that the policies giving rise to them all go back to the most widely misunderstood of all the European treaties, the Single European Act, which Margaret Thatcher was ambushed into accepting in 1985. This was the treaty she said was not necessary, because initially she thought all it was about was making the workings of the original Common Market more effective under the existing rules.
What she didn’t realise, because she was not properly briefed by her officials, was that it was always intended to be about very much more than just a “single market”. As its name indicated - and as Richard North and I for the first time set out in detail in our book The Great Deception - the Single European Act was always planned, by Jacques Delors, François Mitterrand, Helmut Kohl and the other European leaders who ganged up against her, to be the first of two treaties that would take the old “Community” a further giant step forwards to being a “Single Europe”. The other, the Treaty on European Union, was to be agreed at Maastricht five years later.
Is Slovenia the next bailout victim after Cyprus? No way, say Slovenian officials.
Slovenian officials have a message for the world: Don’t panic — we won’t be the next to fall.
The tiny European Union member is trying to convince its people and foreign investors that it won’t be the next in line for a banking system collapse and a messy international bailout.
“We are absolutely no Cyprus,” says new Slovenian Prime Minister Alenka Bratusek. “We don’t need help. All we need is time.”
But time is running out for the Balkan state, once considered an East European success story and a model for the rest of the region on how to build a post-communist economy. With few specifics from leaders on a rescue plan, some economists are skeptical they can live up to their promises.
Slovenia desperately needs fundamental reform of its banking and economic system if it is to avoid the same fate as Cyprus, a fellow member of the 17-strong group of European Union countries that use the euro. The island nation was forced to ask for a bailout from its fellow eurozone countries, the European Central Bank and the International Monetary Fund when it could not afford to support its bloated banking sector.
Now the fear is Slovenia could face the same fate. While its overall public debt load is well below the EU average, the country of 2 million is facing difficulties refinancing its debt. That has fueled fears that Slovenia — which accounts for 0.4 percent of the eurozone’s overall economy — could become the sixth eurozone nation to require assistance.
At the core of Slovenia’s problems are its state-run banks, which control about 60 percent of the country’s banking sector.
Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called “The Rotten Heart of Europe,” he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true. And he takes no comfort in the view, prevalent in many quarters, that the EU has passed through the worst of its crisis and is on the cusp of revival.
As far as Mr. Connolly is concerned, Europe’s heart is still rotting away.
The European political class, he says, believes that the crisis “hit its high point” last summer, “because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear.” But from the perspective “of real live people, and families and firms and economies,” he says, the situation “is just getting worse and worse.” Last week, the EU reported that the euro-zone economy shrank by 0.9% in the fourth quarter of 2012. For the full year, gross domestic product fell 0.5% in the euro zone.
Two immediate solutions present themselves, Mr. Connolly says, neither appetizing. Either Germany pays “something like 10% of German GDP a year, every year, forever” to the crisis-hit countries to keep them in the euro. Or the economy gets so bad in Greece or Spain or elsewhere that voters finally say, ” ‘Well, we’ll chuck the whole lot of you out.’ Now, that’s not a very pleasant prospect.” He’s thinking specifically, in the chuck-‘em-out scenario, about the rise of neo-fascists like the Golden Dawn faction in Greece.
This should give the EU reason enough to finally declare Hezbollah a terrorist organization.
LIMASSOL, Cyprus — A Hezbollah operative who worked as a courier for the group in Europe said at his trial Thursday that he had instructions to record the arrival times of passenger flights from Israel to Cyprus, prompting Israel to press the European Union to formally declare the militant group a terrorist organization.
During a cross-examination, Hossam Taleb Yaacoub described himself as “an active member of Hezbollah” with the code name “Wael,” and that he had received a salary of $600 a month since 2010. Asked why he had a code name, he answered through an interpreter, “In general, the party is based on secrecy between members. We don’t know the real names of our fellow members.”
Mr. Yaacoub said that his handler, a shadowy figure known only as Ayman, told him to track the landing times for an Arkia Israel Airlines flight between Tel Aviv and Larnaca, Cyprus. Ayman also asked him to look into the rental prices of warehouses, he said.
Mr. Yaacoub, 24, who holds Lebanese and Swedish passports, described himself as a pawn, following orders but not involved — or at least not knowingly involved — in planning an attack. But prosecutors say that is exactly what he was doing. Intelligence experts in the United States and Israel say that Mr. Yaacoub was one small player in the covert war that has pitted Israel against Iran and the militant group.
Mr. Yaacoub’s testimony, which began here on Wednesday, has provided an unusual look inside the operations of the secretive group. Mr. Yaacoub on Thursday described the weapons training he had received as a member of the group.
Everyone knows the Lebanese Shiite group is a terrorist organization, especially the French. But even Bulgaria’s indictment may not change what one US legislator calls an ‘indefensible’ EU policy
Now that a Bulgarian investigation has confirmed that Hezbollah is responsible for the bus bombing last July in Burgas that killed six civilians, more and more voices are demanding that the European Union place the Shiite group on its list of terror organizations. EU officials said Wednesday they would reassess their stance, but experts remain doubtful that anything will change.
The West didn’t need a Bulgarian police report to know Hezbollah is a terrorist organization. Even Turkey includes Hassan Nasrallah’s militia in its official list of terrorist groups. So why is it that the EU refuses to state the obvious, and thereby help prevent terrorism and save lives?
Officially labeling Hezbollah a terrorist entity would significantly hamper its ability to operate. But doing so requires unanimity among the EU’s 27 member states.
A failed plan to tax the rich at 75 percent. A glaring lack of global competitiveness. Famous actors trading in their French citizenship for Russian to avoid paying high tax rates. The news from Paris as of late has been a bit sensational, but also dire. Could France be the first northern country in the European Union to confront potential economic demise in 2013? Perhaps that assessment is not unlike Gerard Depardieu’s highly publicized Moscow defection—a bit dramatic. But according to recent economic figures, there is some cause for concern.
The French economy—Europe’s second largest—grew at just 0.1 percent in 2012, and unemployment remains at a 14-year high of nearly 11 percent. High labor and production costs have all but crushed competitiveness with European and Asian exporters in the global market, and the French continue to resist making the kinds of deep economic reforms that helped countries like Germany get back on track in the 1980s.
[See a collection of political cartoons on the European debt crisis.]
Walking the streets of Paris during the recent holiday season, few French nationals were to be found along the boulevards of les grands magasins. Rather, Chinese, Russians and Brazilians filled the streets admiring the holiday windows, which in many ways were a reflection of their own images.
“France has essentially become a luxury economy catering primarily to foreigners,” one Parisian told me. “We don’t create anything outside of fashion, foods and touristic experiences.”
[Read the U.S. News Debate: Who Is Handling Its Debt Crisis Better: United States or Europe?]
But observers note that this model is unsustainable for the country of 65 million. As Fortune’s Shawn Tully writes this week, “La crise est arrive.” Even The New York Times ran an editorial Sunday decrying the sad state of the French economy and offered up a number of potential remedies.
The European: The negotiation for the long-term budget 2014-2020 has been abandoned without any outcome. What is your position regarding that matter?
Straw: I think the Labour Party is right to go for a cutback. The circumstances are very different now from what they were in 2005. The Commission is demanding serious cuts in many member states as a condition of bailout and all member states are practicing severe effort of restraint. You can’t have the EU expanding its budget. It’s simply unacceptable. It implies an institutional arrogance which is unacceptable.
The European: Some people would argue that the increase of the budget is a kind of solidarity with poorer regions.
Straw: I know, they always argue that. There needs to be a lot of changes: in the common agricultural policy, for example.
The European: Britain has always been more Euro-skeptic than other countries. These days there seems to be a new wave of Euro-skepticism?
Straw: There is some considerable skepticism about the European project. Now that’s not a sentiment exclusively felt here, by the way.
The European: Where is this Euro-skeptisism coming from?
Straw: It has two causes. One is the chronic problem of unnecessary interference by the institutions of the European Union in domestic affairs of the member states. There’s a real frustration with these European institutions and the culture inside them. Frustration at the failure of these institutions to do what was promised, which was to implement a proper program of subsidiarity. First you look at the Laeken Declaration, which the European Council agreed to in December 2001, that talked in terms about how to reduce the interference by Brussels to ensure that much more power went back to individual member states and democratic governments. Then you compare that to what has happened in the last eleven years. The reverse has taken place. The other cause is the crisis of the Eurozone. It has been exposed that the introduction of the Euro was a political decision, which defied all known economic laws. You don’t need to be a skeptic or an enthusiast for the EU to understand that it is almost impossible to run a single currency outside a single country. Unless some of those outside the single currency are willing to see their sovereignty go. If you want to keep the Euro together, you now have got to have not only a monetary union but also a fiscal union.
The European: You talked about the lack of confidence in the EU institutions. How can that be restored?
Straw: I think it’s by doing less and by doing better. It goes back to the issues of subsidiarity and interference.
The European: You suggested a reform of the European Parliament.
Straw: Yes. First of all, if you want to save money, have the parliament in one place, not in two. It’s just ridiculous. I think the most sensible place to have it would be Brussels, but if they want to have it in Strasbourg: okay. There are other federal states which have parts of their institutions in different places. In South Africa the parliament is in Cape Town and the federal government is in Pretoria. Germany has its constitutional court in Karlsruhe. I also think the European Parliament would work better if it were composed of representatives of the national parliaments, which is what it was originally, until the late seventies, early eighties. There isn’t a European polity and there won’t be.
Before the summer break, the European Court of Justice ruled that workers who get sick on vacation were entitled to compensatory time off with pay equal to the length of their illness. The European Union’s highest court also found in favor of a Chinese firm challenging EU anti-dumping penalties in the export to Europe of a basic herbicide chemical called glyphosate, widely used by farmers; and it told a Swiss company (Lindt) that its chocolate bunny wrapped in gold foil was not sufficiently different from other chocolate bunnies to qualify as an exclusive registered trademark. Furthermore, the court agreed to the American IT giant Microsoft Corporation’s request for a reduction from 899 million euros ($1.3 billion) to 860 million euros ($1.05 billion) of a fine imposed earlier by a lower court in a complicated 2007 anti-trust case.
After years in the shadows, the Luxembourg-based, two-tier European court system—the Court of Justice (ECJ) and the General Court (previously called the Court of First Instance), as distinct from the European Courts of Human Rights in Strasbourg—has emerged as what Lord Mance, a leading British judge, calls “a central achievement of the European Union, a court with unparalleled transnational power.”
That power has grown even as the European Union has increased in size to twenty-seven member states and more then five hundred million citizens for whom the court’s rulings are not only legally binding but have precedence over national laws where the two are in conflict. Because the EU is a body based on the rule of law, the courts are a necessary judicial oversight to ensure that the member states and the institutions concerned—for example, the European Commission, the EU’s executive arm in Brussels—act in accordance with the signed treaties, most recently the 2007 Lisbon Treaty, in effect the EU constitution.
That the courts play a significant role in the European Union is reflected in their sizable caseload. Last year, the ECJ completed six hundred and thirty-eight cases, its largest number to date and twelve percent more than in 2007; but it has a backlog of eight hundred and forty-nine cases pending, or fifteen percent more than four years earlier.
All my life I’ve been a Europhile. My dad worked for a Belgian company. I was a high school exchange student to Switzerland in 1958. My first posting as a Foreign Service officer was as vice consul to Rotterdam. I lived in Brussels for five years in the 1970s as head of Scott Paper Company’s European marketing operations. I take my family to Europe frequently and maintain a wide range of work and other activities there.
Through all the vicissitudes of mid-night negotiations, I admired the dedication and vision of the negotiators who were building the European Union. I believed in the vision of a united Europe and welcomed the advent of the Euro as a major step along the way. When the recent crisis first broke three years ago, I welcomed it, thinking that surely it would be a catalyst for Europe to move to full financial integration and to greater political integration on the way toward realizing the vision of a truly united Europe.
I was wrong, and I have come to realize that my dream of a united Europe a la the United States, is not the European dream. Indeed, with great disappointment I have at last concluded that there is no European dream because a las those whom we on the outside call Europeans are not and don’t want to be Europeans.
I spent part of last weekend with a group of leading intellectuals from various European countries. The Germans were firm in their conviction that the primary cause of the EU crisis is the laziness, profligacy, free rider attitude, and mendacity of the so called Peripheral Countries ( Spain, Portugal, Ireland, Italy, Greece, and even maybe France), especially Greece, Portugal, and Spain. They emphasized that Germans believe in paying their way, in spending prudently, saving, investing, producing, and maintaining sound money and strong currencies. They attributed Germany’s economic success of the past decade wholly to the dedicated pursuit of these virtues. Conversely the problems of the others were blamed largely on their failure adequately to observe the German virtues. Did they realize that Spain’s government budget deficit and debt as a percent of GDP had been less than Germany’s? Yes, in some cerebral way in their heads they did, but not in their gut. Did they realize that the German banks had been major lenders to and facilitators of the peripheral real estate bubbles whose collapse precipitated the crisis? Again, yes, but only in a kind of theoretical way. There was clearly no conviction that that was a primary cause of the problem or that keeping the German banks whole might have been an on-going drag on the recovery of the peripheral countries. Was there any understanding that for Germany the Euro is actually undervalued (compared to what a free standing Deutsch Mark would be valued at) and that much of Germany’s export success is due to that? Absolutely not. No, Germany’s success was seen as entirely due to hard work and financial virtue.