Tear in the fabric: Are we bracing for a European war Union?

Europe has become unrecognisable. Advocates of European unity used to celebrate the European Union as a peace project pitting a splendid cosmopolitanism against nationalism – which, as French President François Mitterr and dramatically put it in 1995, “equals war.” But well before Russia invaded Ukraine, the Europeanist vision of a peaceful road to shared prosperity had begun to frazzle. Russia’s invasion merely accelerated the EU’s mutation into something much uglier.

Josep Borrell, the EU’s foreign affairs chief, gave us a whiff of the shift from cosmopolitanism to ethno-regionalism when he described the EU as a beautiful “garden” threatened by the non-European “jungle” lurking outside its borders. More recently, French President Emmanuel Macron and Charles Michel, the European Council’s president, asked Europeans not only to prepare for war but, crucially, to rely on its arms industry for the EU’s economic growth and technological advancement. Having failed to convince Germany, and the so-called frugal nation-states, of the need for a proper fiscal union, their desperate fallback position is now to argue for a war union.

This is a pivotal moment in the EU’s checkered history. Setting aside a vociferous minority of Euroskeptics, the main difference of opinion between pro-EU political forces concerned whether Europe’s continental consolidation ought to proceed by Hamiltonian means (debt mutualisation precipitating the emergence of a proper federation) or in the original intergovernmental way (gradual market integration). The governments presiding over surplus economies favored the latter, whereas the deficit economies’ representatives, understandably, leaned toward a Hamiltonian solution, which was thus placed permanently on the backburner.

The euro crisis exposed the impossibility of continuing the pretense that debts, banks, and taxes can be national while the currency is transnational and markets are integrated. Alas, the EU chose to do the minimum necessary to save the euro and ended up with the worst of both worlds: a grossly ineffective quasi-fiscal union (lacking a proper sovereign debt instrument, like US Treasuries), and a European Central Bank forced to violate its charter time and again (hiding behind increasingly creative justifications). Perhaps most damagingly, the rickety political process that distributes common monies and joint burdens lacks even an iota of a smidgeon of democratic legitimacy.

For decades, some of us campaigned for a European Green New Deal. With federation infeasible in the near term, we proposed ways to simulate federal debt instruments (such as an ECB-issued eurobond) with which to generate, via the European Investment Bank, a minimum of 500 billion euros ($539 bn) annually for a Green Energy-Tech-Transition investment fund. Instead, EU decision-makers adopted smoke-and-mirrors alternatives, like the designed-to-fail Juncker Plan and, during the pandemic, a Recovery Fund that created common debt for no good common purpose.

This is why the EU’s economy is now broken, with the German business model that used to be its beating heart in a state of rapid decline. By choosing a half-a-loaf strategy (neither a fiscal union nor separate debts and central-bank assets), the EU condemned itself to two decades of minimal investment, thus failing to develop the technologies Europe needs: green tech (which would allow Europe to decouple from Russian President Vladimir Putin’s cheap gas on its terms) and cloud capital. The United States and China, which now monopolise cloud capital, the new instrument for wealth accumulation, also have imposed a new cold war on Europe, with catastrophic repercussions for German industry’s access to Chinese export markets.

Europeans in authority are, regrettably, refusing to recognise how broken the EU’s business model is, or how irrelevant old remedies in new packages will prove. Germany, for example, is back to considering tax-funded energy subsidies and new rounds of wage restraint to aid competitiveness.

This debate is a dangerous distraction from Europe’s real problem: German industrial capital no longer accumulates the surpluses from which to fund energy subsidies for declining industries. In this context, no wage restraint (of the sort that then-Chancellor Gerhard Schroder once pulled off) will boost the competitiveness of a car industry incapable of producing the battery technologies or the algorithms that add substantial new value to manufacturers of modern electric vehicles.

Now what? Michel seems to have retrieved from the dustbin of recent European history our proposals for a eurobond and for invigorating the EIB. But he is not proposing to use the new credits to fund green tech or cloud capital, but for a new arms industry that will, he says, “be a powerful means to strengthen our technological, innovation, and industrial base.”

Can Michel be serious? How will the EIB recoup its loans to the defense industry, which by definition is unproductive? What will happen when our warehouses are full of ammunition and missiles? Either the investment drive Michel envisages will dry up or Europe will need to find ways – in other words, new wars – to deplete the stocks.

Sensible Europeanists should, therefore, pray that Michel’s plan goes the way of the Juncker Plan. The EU’s incompetence suddenly has become the peace-loving Europeanist’s last hope.

I miss the times when pro-Europeans celebrated the EU, however hypocritically, as a project to pull borders down and to sponsor openness, difference, and tolerance. That Europe is finished, broken, in full retreat. A new ideology has taken hold. Instead of a diverse democratic federation that appeals to the peoples beyond its borders, it envisages a white Christian realm ringed by expensive missile launchers and tall electrified fences. This is a Europe that the young cannot feel proud of and that the rest of the world will not take seriously.

Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens