The geopolitical costs of Europe’s stagnation

As a tenuous ceasefire crumbles in Ukraine, there have been expectations that the region’s most serious security crisis since the Cold War would inspire political solidarity across Europe.

Yet these hopes not only remain unfulfilled, but are being inverted by reality. The impact of recent sanctions skirmishes with Russia has revealed the deep fissures in the region’s international outlook, deepened by the political and economic wounds suffered during the eurozone crisis. The costs of this disunity will be borne, not only by regional states, but by the global partners that have traditionally relied on Europe as a source of strategic and economic stability.

Efforts over the last two decades to accelerate the integration of Europe through monetary union have had a dual face. Peripheral states saw adoption of the euro as a way of bootstrapping themselves to the financial credit afforded to the Western European core. Germany and France, the region’s dominant economies, saw the incorporation of the periphery into the eurozone as a means of advancing the political cause of a united Europe.

The GFC challenged both rationales. When financial largesse collapsed, the periphery found itself in an straitjacket, constrained to the monetary preferences of the core, lacking the ability to use currency devaluation to bridge productivity gaps, and thus forced into a combination of fiscal austerity, mass unemployment, and achingly slow wage equilibration. While German unemployment hovers under 5%, Greece and Spain suffer at 25% and 10% respectively.

What of the political aspirations of the European project? It has been argued that the economic costs were the price European leaders chose to pay to protect the political prize of the eurozone. Indeed, what little risk there was of euro-defection has faded rapidly in recent years. Yet it is also increasingly clear that the …read more

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