The Berggruen Institute’s Council for the Future of Europe met in Berlin on October 29 and 30, beginning with private presentations by George Papandreou (who prepared a paper for the occasion) and council members Jean Pisani-Ferry and Jakob Kellenberger. At lunchtime, council member Tony Blair gave a major speech on the future of Europe, including his proposal for a directly elected president of Europe. The speech was very widely covered in the English-language press.

In the afternoon, Mr. Blair, Mr. Papandreou, Peter Sutherland, Gerhard Schroeder and Felipe Gonzales joined in a media roundtable discussion with just over a dozen European editors and reporters, including representatives of Le Monde, El Pais, Bild, Frankfurter Allgemeine Zeitung, Corriere della Sera, Die Zeit, Die Welt, the Financial Times, and the Economist. The discussion ranged from the practical political challenges faced by Chancellor Angela Merkel and President Francois Hollande to the urgency of a European banking union and the need for, as Mr Papandreou put it, a “politics of hope” to replace the “politics of fear” that has been emerging in Europe.

That evening, at a private dinner, former German foreign minister Frank-Walter Steinmeier described a Europe that, lacking a clear sense of direction and purpose, might well be drifting toward disaster. Less prescriptive than analytical, his speech gave a rich sense of Europe’s current predicament.

Europe Beyond the Crisis

The Berggruen Institute’s all-day town hall, “Europe nach der Krise” (Europe beyond the Crisis), began at 9 Tuesday morning. The event was broadcast live at the town hall’s dedicated website, myropa2012.de, an online feed that was embedded also by newspaper sites in Spain, Switzerland and Germany, enabling users of those portals to watch the proceedings there. Portions of the meeting were also uploaded to the myropa site and made available to media outlets for immediate download to their own sites.

http://myropa2012.de

Finally, the town hall was tweeted live and followed on Facebook; by these means, it was possible to watch the entire event online and send comments and questions in real time, which were then relayed to speakers and participants in the meeting room.

http://engage.myropa2012.de

An online community that had grown up at myropa2012 before the town hall – recording hundreds of Wunsche (wishes or desires) for Europe, mostly from younger Germans – participated virtually in the town hall, while more than 300 people, about half of them students, attended the event itself at the Allianz Forum on Pariser Platz. The program was organized as a series of panels moderated by Dunja Hayali and Andreas Korn, along with several speeches.

The town hall began with a speech from Germany’s finance minister, Wolfgang Schauble, followed by a discussion on paths to political union among Schauble, French finance minister Pierre Moscovici, European Parliament president Martin Schulz and World Trade Organisation head Pascal Lamy.

http://myropa2012.de/video/automatisch-gespeicherter-entwurf/

Schauble and Moscovici held a private bilateral meeting after the discussion then held a small press conference on the sidelines of the town hall.

A second panel, on repairing Europe’s democratic deficit, featured George Papandreou, Felipe Gonzalez, Joschka Fischer, Guy Verhofstadt, and German legislator Phillip Missfelder. The morning session was brought to a close by George Soros, who gave his analysis of the tragedy of the euro and announced an initiative to help Greeks and non-Greek refugees in Greece through “solidarity houses.”

Council members heard from Otmar Issing and Jacques Attali at a private luncheon, then joined the town hall audience for an intimate discussion with Helmut Schmidt and Jean-Claude Trichet, moderated by Nicolas Berggruen.

http://myropa2012.de/video/...

This was followed by a vigorous discussion on Europe, jobs and economic growth with German labor minister Ursula von der Leyen, Polish central bank president Marek Belka, and the opposition German Social Democratic Party’s candidate for the chancellery, Peer Steinbruck. Mr Steinbruck gave a speech outlining his vision of Europe following the panel.

After a break, guest moderator Christine Ockrent introduced a discussion on Europe as viewed by investors from outside; the panelists were Pakistan’s former prime minister (and international banker) Shaukat Aziz, Google executive chairman Eric Schmidt, economist Laura Tyson and investor David Bonderman.

http://myropa2012.de/video...

Gerhard Schroeder then gave an address on the necessity of reforms across Europe, similar to the Agenda 2010 reforms that he had pushed as German chancellor and which laid much of the ground for Germany’s relative prosperity.

After some concluding remarks from Nicolas Berggruen and a brief reception, Turkey’s prime minister Recep Tayyip Erdogan arrived and gave a forceful speech on Europe and emerging markets, with special reference to Turkey. He emphasized that Turkey remains eager to shoulder the burden, as he said, of European Union membership. He announced Turkey’s willingness to provide aid for European countries that are suffering in the crisis. He pointed out that the process of integrating Turkey into a European institutional framework had begun nearly fifty years ago and he suggested a final deadline for its completion in 2023.

That evening, some council members gathered for a private closing dinner, where the events of the past two days were discussed and several issues debated, in particular the place of France in the evolution of Europe’s political institutions and its economy.

Themes and Conclusions

Several themes and perceptions dominated the two days of debate. First was a widespread recognition that Europe had to extend its own unity if it were to retain a strong international role. None of its constituent states, on current economic and demographic trends, could hope to play a large global role as an individual nation; therefore unity was a precondition for Europeans to continue carrying international weight.

Second, participants all seemed to accept that Europe’s crisis response had led to the dominance of a few strong economies, above all Germany’s, in terms of shaping Europe’s present and near-term future. This “intergovernmental process” was borne of circumstance rather than intention or democratic policy-making. Some participants believed it nonetheless represented the basis for an evolving European governance, with Germany required to take the lead. Others felt that Europe was drifting away from democracy and toward de facto rule by economic great powers. All agreed that rule by intergovernmental process had become a fact of current European governance and could not be ignored as merely circumstantial.

There was a strong consensus among council members and most panelists that recent measures by the European Central Bank – assurances that it would do whatever was necessary to preserve the euro, and promises of Outright Monetary Transactions as needed to demonstrate to markets the permanence of the euro – were not definitive, but rather gave policymakers a limited amount of time in which to restore the credibility of eurozone and EU decision making. Participants over the two days argued strongly that this respite should not be wasted.

At the same time, most participants argued that structural changes should also be pursued in the relatively near term: the period from now through the 2014 Europarliament elections. There were strong calls – from Schauble, Blair, Papandreou and others – for an elected European executive.

The role of France and the changing balance of Franco-German relations were a constant thread through both days.

Finally, and relatedly, there was continuous discussion of whether the process of European unity was to be shaped principally by economic forces, with politics reacting, or by political decision-making that, through government, could decisively shape the landscape in ways that reflected the democratic will of Europe’s citizens as well as the preferences of markets.

Visit Berlin meeting page

At a private meeting in Rome of the Nicolas Berggruen Institute’s Council on the Future of Europe, the dominant note was of nervousness at the state of Spain’s financial system – combined with resolve to rally German opinion behind greater fiscal coordination, debt mutualization and moves toward reviving the political structures of united Europe.

The group was initially addressed by Mario Monti, Italy’s prime minister (and a Council member), followed by substantial interventions from Gerhard Schroeder, Doris Leuthard, Nouriel Roubini, http://www.roubini.com/

Peter Sutherland, Niall Ferguson, Guy Verhofstadt, Jean Pisani-Ferry, Nicolas Berggruen, Alain Minc, Juan Luis Cebrian, and Robert Mundell. The meeting took place on May 28.

Most of the discussion focused on the current financial difficulties and possible solutions for them. There was general agreement that the European crisis had entered a new stage. The possibility of a Greek exit, while clearly real, was not seen as decisive, economically or politically. The main concern was with Spain and, to a much lesser degree, Italy. Spain (like Italy) had undertaken significant reforms and cut government spending. Yet markets continued to price in very significant misgivings about Spain’s ability to service its debt without decisive foreign intervention – in effect, foreign economic management, which Prime Minister Mariano Rajoy was sworn to oppose. Spain appeared to be running out of time. The Council’s general view was that this would force the more prosperous members of the Eurozone, in particular Germany, into some sort of political reckoning.

“Waiting for Weidmann”

One participant described Spain as “just waiting for Weidmann,” in reference to the head of the German central bank.

This gave urgency to the discussions of Eurobonds, debt redemption funds, fiscal consolidation and structural EU reforms.

The Council’s consensus opinion was that a debt redemption fund, along the lines of that proposed by Germany’s Council of Economic Experts, was probably the best option for stabilizing sovereign debts across the Eurozone. It is an imperfect solution, and would have to be designed with care to avoid creating classes of senior and junior debt that could lead to unintended negative results. Many members preferred other methods, such as a “red/blue” bonds proposal. But the GCEE’s debt redemption fund was seen as most likely to get German assent, without which no Eurozone-wide debt stabilization would be possible.

A debt redemption fund might seem to lead, rationally, to actual Eurobonds. But as one participant emphasized, with some irony, the time for rationalism in large-scale European policy making had probably passed; political and emotional factors had become too strong for any Olympian view to have a chance of prevailing.  And as another participant pointed out, the euro had itself been born from an act of political calculation -- by Helmut Kohl, who believed that an elusive political unity would follow in the train of an achievable currency union.

So Council members agreed that some form of debt mutualization was necessary for Eurozone revival, and that whatever means to that end was most likely is the one that should be chosen.

Debt mutualization would almost certainly lead to a type of fiscal consolidation. States would have to provide confidence-inspiring explanations of where the revenue would come from to service their shares of the mutualized debts. They would, perhaps, have to dedicate specific sources of revenue. These would constitute small but significant steps toward Eurozone fiscal consolidation. Several participants noted that if the choice for a government was between giving some of its sovereignty “upward” into Europe, or accepting a far greater loss of sovereignty by submitting to the economic management of the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility (the Troika), then the government was likely to pick the first option. In other words, in the current political and economic situation, to cede some sovereign fiscal authority upward into Europe was seen as the most likely way to preserve national autonomy.

Finally, there was general agreement that some sort of collective European capitalization of banks, and possibly collective deposit guarantees, was needed to keep Europe’s weaker banking systems from collapsing. The analogy was to the American Troubled Asset Relief Program (TARP) of 2008, which forced systemically significant banks to join it. The Council’s emphasis was on additional capital rather than loans, which would worsen national balance sheets; and on a Europe-wide response rather than one focused on some immediate source of alarm such as Spain. From the Council, Nouriel Roubini and Niall Ferguson undertook to write an essay bringing together these key policy recommendations.  

German Questions

Niall Ferguson also spoke of how he believed Europe was at a “1931 moment” – equivalent to when, in that year, the Austrian bank Credit-Anstalt was allowed to fail, which quickly led to other failures and the beginning of a new phase in the Great Depression. He further believed that Germans were unaware of how dire the historical moment really is.

German opinion, public and elite, was a topic of much discussion by the Council and the source of some puzzlement. On one hand, members with close knowledge of the German elite believed that awareness of the crisis’s severity was very strong – that Germany’s political and business leaders were very alive to the immediate and long-term dangers and the need for German action – and that the broad German elite view was indeed one of closer fiscal and monetary union, including through the much-anathematized (in Germany) Eurobonds. On the other hand, German elites did not exert themselves very much to advocate these views or explain them to the public – while much of the German media likewise was failing to educate the public.

The centrality of Germany to any progress in Europe was a notable feature of the Council’s discussion. With the Netherlands in some turmoil, and with a new French president keeping his distance from the Franco-German condominium of “Merkozy,” Germany appeared at once more dominant than ever and more isolated. If progress was to be made, policy choices must be expressed, as one participant said, “in German conceptual categories.”

Council members agreed that reaching out to German public and elite opinion should be the group’s top short-term priority in advocating policies to ease the current crisis.

The Structural Challenge

“Maybe the crisis will force a political union,” said one participant. “But if not, I don’t see how Europe can survive.”

Mention was made of one study that showed growing European support for Europe-wide solutions. This did not necessarily contradict the surge of populist, anti-austerity, and seemingly anti-European political groups, in both poorer and prosperous countries. As several participants pointed out, the anti-European vote was in many places the only anti-establishment vote available, since by now all the status-quo parties were pro-Europe. “It is not true,” one Council member said, “that the public is anti-federalist.”

Members also emphasized that progress has been made in many European economies – a Lisbon Council study was cited in support.

The Council on the Future of Europe was generally for federalist solutions, including an elected executive. Switzerland was cited both as an example of a state that was rigorous in analyzing and sharing out governmental competencies, and as a political federation that encouraged real competition among its member cantons rather than seeking to harmonize everything.

Much tighter fiscal coordination within the Eurozone, including on taxes and other revenue streams, was widely accepted by members as inevitable.

The way forward clearly involved engagement with the political realities of major European member states in a gradually federalizing movement that might prove to be as much de facto as de jure, and would eventually require a strong but rigorously limited central government.  If increased sharing of fiscal sovereignty was inevitable, it necessarily implied greater political union. For that to advance, Europe needed more democracy, probably through parliamentary elections that would nominate a single leader for Europe, who would put together a cabinet. The European Council would become something more like a Senate: more deliberative and legislative than executive. NBI Council on the Future of Europe members generally (though not uniformly) believed that the existing European governance architecture needed to be significantly overhauled for European unity to be preserved, European values to be advanced, and European democracy to be reinvigorated.