Where is Europe heading?

As President Juncker remarked in his State of the Union speech of September 13th, the European Union finally has the wind in its sails again. The key question now is: Where will this wind take us?

A first matter to resolve is whether the future Union will be one based on variable geometry, or one in which all member states participate in all activities of the Union. This issue has largely been settled by Brexit. 

Even before the Brexit referendum, the UK had become a progressively more marginal member. Over the last decade, the key issues have been the survival of the euro area and, more recently, the survival of the borderless Schengen area. Having opted out of these two crucial achievements of the EU from the very beginning, the UK has thus only been a spectator on these fronts in which the EU has been forced to advance further. The existing set-up had simply proved to be inadequate to deal with a deep financial crisis and an unprecedented influx of refugees.

The departure of the UK now opens the door for a future in which essentially all member states share one currency and their citizens are free to move across borders without controls. This is why President Juncker rightly insisted that the euro is the currency of the Union. Of course, this vision can be realised only if the remaining non-euro member states change their mind on euro area membership.

This cannot be achieved by reminding Poland, Sweden and other countries that they had signed a political commitment to adopt the euro some time ago. Nor will offering them a few billion euro in the form of adjustment finance be decisive.

The only way to draw in these remaining member states is to make membership in the euro area so attractive that they see it in their national interest to join.

Fortunately, the economy (and the external perception) of the euro area is improving and after the German elections there is a good chance that the governance of the euro will be reformed. Moreover, the number of refugees trying to enter the EU from the South has considerably diminished, thus reducing the tensions facing the Schengen area. In short, the environment seems more favourably disposed for moving towards a more cohesive and integrated Union than it has been for a long time.

Unfortunately, however, a new threat to Europe’s future has reared its ugly head. This time, it concerns the nations’ commitment to the democratic values of the Union, notably the principle of the rule of law, the independence of the judiciary and the importance of a free press. This is a fundamental conflict (basically between the old member states, on one side, and Poland and Hungary, on the other), which cannot be papered over with financial concessions or some other compromise. Nevertheless, it must be resolved before the EU can make further progress down the road mapped out by President Juncker.