Sluggish growth, an ageing population and a refugee crisis - will the union survive?by Niall Ferguson / October 15, 2015 / Leave a comment
Published in November 2015 issue of Prospect Magazine
There is a paradox at the heart of the new “Völkerwanderung,” the mass movement into Europe of people from all over North Africa, the Middle East and South Asia. From the outside Europe looks alluringly beautiful. But from the inside it is ugly, like one of those grand old Prussian or Polish manor houses that were turned into shabby workers’ sanitoriums under the communists.
The great migration of 2015 makes it clear that the European Union (EU) is an attractive destination for hundreds of thousands, and probably millions of people. It is so attractive that since January this year, 2,600 people have died crossing the Mediterranean trying to enter the EU. Yet, viewed from the inside, Europe looks a mess. The European economy seems much closer to “secular stagnation”—in Larry Summers’s phrase—than the United States economy. European politics is also in disarray. In almost every member state there is at least one populist party, and nearly all of them are deeply hostile to immigration.
No doubt, many forms of euroscepticism are unpleasant. But that is not to say that euroscepticism is all unwarranted.
Institutionally, European integration is an incomplete project, and perhaps one that will never now be completed. There is a confederation, the EU, which has a monetary union at its core, but not all the members of the EU are members of the eurozone, just as not all EU members have signed up for the supposedly borderless Schengen Area. The UK is now preparing to hold a referendum on whether or not to leave the EU altogether. When one of the biggest economies in the EU is at least contemplating exit, it is fair to say that the project of European unity is not merely incomplete but in jeopardy.
The near death of the euro between 2011 and 2013 has revealed something very important: the critics of the original design of the European Economic and Monetary Union (EMU) were right about the fundamental mismatch between countries sharing a single currency yet running separate fiscal policies; taxing, spending and borrowing with only a figleaf of restraint (the 1998 Stability and Growth Pact, largely honoured in the breach). In 2000, Laurence Kotlikoff and I predicted that Europe’s
monetary union would degenerate and that this would happen because there was a fundamental incompatibility between creating a monetary union and leaving the member states to do their own thing in fiscal policy.