14 December 2013

Despite the progress that European leaders have made in bring-ing fi nancial stability

to the eurozone, the European Union continues to face a severe economic and political crisis. This crisis has not only threatened the viability of the single currency, but also fostered political tensions that are weakening the founda-tions of the European project. Economic troubles emerged from fi nancial mismanagement, unsus-tainable public debt, and the lack of structural competitiveness in the southern tier. Economic mis-steps developed into political fragmentation, pitting wealthier member states in the north against weaker economies in the south. Economic dislocation has com-bined with political division to awaken widespread public skepti-cism about the merits of European integration.

European leaders have responded to this crisis by com-bining fi scal consolidation with a credible roadmap for banking and fi scal union, a step meant to pro-vide the euro with the collective oversight and enforcement mech-anisms it needs – and should have had when it was fi rst introduced. Meanwhile, periphery countries have made signifi cant strides in reforming their economies and reducing their fi scal defi cits.

But the crisis has left a legacy of vulnerable banks and unsus-tainable levels of government debt in many countries. More rapid progress toward fi scal and banking union is needed in order to establish the conditions for a return to growth that is essential for exiting the crisis.

Accelerating integration, how-ever, will be no easy task. The austerity being doled out to put Europe’s house in order is under-mining the readiness of European publics to accept the deeper union that is needed to redress Europe’s economic woes. The debt crisis has soured European electorates on the project of European inte-gration, renationalizing politics and calling into question whether member states will be prepared to countenance the more extensive union that European leaders are currently striving to bring to frui-tion. The EU is by no means out of the woods; restoring growth and rebuilding public confi dence in European integration will be essential but elusive tasks in the months ahead.

It would be a mistake to assume that the crisis is over; the patient has been moved out of critical care but remains chronically ill, and will remain so until growth returns and debt sustainability is reestablished. The ECB has pro-vided an important bridge until that time, but market pressures could return quickly if coun-tries were seen to be abandoning their commitment to reform and fi nancing gaps were to reemerge.

The problem is that prospects for growth are grim. In their most recent forecast, the IMF projects a decline in euro-area growth of 0.6 percent this year, and growth of around one percent next year. Private forecasters are more pes-simistic. Growth at this level is insuffi cient to make headway in reducing high levels of unemploy-ment that have reached 26 per-cent in Spain and 12 percent for the euro area as a whole. Youth unemployment, which averages 24 percent for the eurozone and exceeds 35 percent in Spain, Por-tugal and Italy, represents a criti-cal threat to Europe’s future. The challenge therefore is to restore growth before markets again lose confi dence in the reform process.

Raising the European Union’s long-term growth potential will require a number of complemen-tary steps. An accelerated move toward economic and fi nancial union is needed to defi nitively draw a line under the crisis. Mac-roeconomic policies should do more to support demand, and periphery countries need their debt reduced to sustainable levels. Such bold moves would provide a powerful boost to market con-fi dence and go a long way to addressing the fragmentation of fi nancial markets.

The EU also needs a successful conclusion to ongoing efforts to forge a transatlantic free trade area. According to the European Commission, the proposed trade

pact could add 0.5 percent to the EU economy and 0.4 percent to the US economy by 2027. At least 400,000 jobs would be created. In light of the fi scal and structural constraints facing EU member states, an economic pact with the United States is one of the few options available for stimulating growth and employment.

Finally, Europe needs to embrace structural reform more ambi-tously. In the periphery, regain-ing competitiveness is essential to restoring growth. In the core, efforts to promote labor force par-ticipation and more open service markets sit high on the agenda. In all countries, improvements in labor markets (including through greater access to labor markets and streamlining employment ben-efi ts and protection) are needed to

strengthen employment prospects, including through lowering the cost of hiring and fi ring workers. Improving regulation and reform-ing taxes, strengthening incentives for innovation and education, and continuing fi nancial sector reforms are also needed.

Restoring growth and redress-ing the EU’s continuing eco-nomic vulnerability through financial union will require building public support for deeper integration. Although EU leaders appreciate that more integration is the antidote to the ongoing crisis, the EU’s publics are unconvinced.

Indeed, with the sole exception of Germans, European electorates are growing increasingly skeptical of the merits of economic integra-tion and of ceding more power to

EU institutions. According to a recent Pew poll, “positive views of the European Union are at or near their low point in most EU nations, even among the young. Only in Germany does at least half the public back giving more power to Brussels to deal with the current economic crisis.” A perilous gap is opening between the project of European unity and the European “street.”

The good news for the EU is that this loss of public confi dence in European integration has yet to produce a national government that is intent on leaving the euro zone or distancing itself from the union – with the exception of Great Britain. Despite successive years of austerity, the mainstream parties in power across the union have remained pro-EU.

But there is also bad news for the EU: Europe’s mainstream parties are rapidly losing market share. The move of the center-right and center-left to the pro-EU center has ceded considerable ground to populist, anti-EU parties hailing from both ends of the political spectrum. It has not happened yet, but electoral trends suggest that one or more of these anti-EU parties could soon fi nd themselves in power.

Despite this clear strengthening of anti-EU political forces, Britain is the only member state whose government is actively seeking to loosen its ties to the union. Prime Minister David Cameron is navi-gating an anti-EU revolt within his own party, one stoked in part by the rising electoral strength of the UK Independence Party, which calls for Britain to quit the EU. Cameron himself favors Brit-ain’s continued membership in the union, but only if the country is able to negotiate a more attenu-ated relationship.

Although Cameron’s moves are meant to provide the British the breathing room they need to stay put in the EU, his course of action could well precipitate the UK’s exit. Of Europe’s 28 members, 12 are outside the euro zone. Most of Britain’s companions in this outer circle, however, plan to even-tually join the eurozone, which would leave Britain as the odd man out — absent from what will become the EU’s main decision-making venue. The British would be unlikely to remain in a union in which their voice would be so marginalized.

Britain’s exit from the EU is a realistic, perhaps even a likely, possibility. That outcome would deal a serious blow to European solidarity, weaken the EU as an economic bloc, deny the EU the valuable role that London contin-ues to play in guiding economic integration and the enlargement of the Union, and shake the foundations of the trans-Atlantic alliance. The EU would surely survive Britain’s exit. But the UK, the EU, and the transatlantic com-munity would all be dealt a sig-nifi cant setback.

Europe’s leaders are well aware of the political frailty of the EU. The stakes go well beyond the political health of the European project. An EU that enjoys eco-nomic growth and political sta-bility is needed to help anchor an international system that is enter-ing a period of historic change. For the fi rst time since World War II, the output of the advanced industrialized democracies rep-resents less than 50 percent of global GDP. The aggregate GDP of China is expected to surpass that of the United States within roughly 15 years. A major change in the global pecking order is afoot.

An EU that is lurching from one fi nancial crisis to the next will be unable to play its part in managing this period of historic change. For now, the EU remains inward looking and preoccupied with its own affairs. Moreover, its individual member states are too small to shoulder global respon-sibilities on their own. Only if the EU recovers from its ongoing economic and political crisis will it have a chance of speaking with a more collective voice and pro-jecting its power and will beyond its own neighborhood.

As the United States focuses on economic renewal at home and scales back its footprint abroad, Washington desperately needs a more capable partner in Europe. The starting point for consolidat-ing that more capable partner is fi nancial stability, economic growth, and the re-legitimation of the project of European inte-gration.

■

Robert Kahn is a senior fellow at the Council on

Foreign Relations. Charles Kupchan is a professor

of international affairs at Georgetown University and

a senior fellow at the Council on Foreign

Relations and the Transat-lantic Academy. This essay draws on their forthcoming

article in Survival.

This is an American view of Europes problems.

Legacy and lessons of the crisis

The EU needs more rapid progress toward fi scal and banking union | By Robert Kahn and Charles Kupchan

Europe under construction: The new premises for the European Central Bank are nearing completion, while plans for a banking supervisory authority grind to a halt.

PIC

TU

RE

ALL

IAN

CE

/DPA

/DA

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L R

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The Council of Economic Experts that advises the German government pre-sented its latest report on Nov. 13 under the heading “Against Backward-looking Policies.” The fi ve leading economists warned that measures under discussion in coalition talks between Chancellor Angela Merkel’s Christian Democrats and the SPD would come at a high cost for future genera-tions. The measures include boosting pension levels for low earners and women who face a pensions gap due to time spent raising children. The economists ar-gue that pension contribu-tions made by current work-ers should be lowered next year as originally agreed. The Council also advised against watering down or even reversing the labor reforms known as Agenda 2010, warning that plans for a national legal mini-mum wage, restrictions on temporary jobs, limits to fi xed-term job contracts and possibly tax hikes would be bad for growth and employ-ment. Merkel thanked the Council for the 500-page document and said she would consider it carefully. She said it was “naturally very important that we are not just well-off today; we have to do well tomorrow and the day after too.”

Dieter Hundt, the president of Germany’s employers as-sociation, the BDA, retired on Nov. 18 after 17 years in the job. He used his fi nal days in offi ce to criticize plans to introduce a mini-mum wage. “Germany has 41 current wage agree-ments with German Con-federation of Trade Unions (DGB) members setting out hourly wages of less than €8.50,” he told the news agency DPA. The rates ap-ply mainly to young people, jobs for the long-term unem-ployed and unskilled work-ers. It would be wrong to invalidate such wage agree-ments “with a stroke of the pen,” said Hundt.

Bernd Osterloh, the head of carmaker Volkswagen’s works council, welcomed a ruling by the European Court of Justice on Oct. 22. “It put an end to the 11-year struggle by VW workers to keep the VW Act.” The 2007 law confi rmed by the Luxembourg judges per-mits a 20 percent minority of shareholders to block im-portant decisions. The nor-mal blocking minority is 25 percent. The German state of Lower Saxony holds a 20 percent share in VW.

Janina Kugel is taking over personnel strategy and executive development at industrial giant Siemens as of Dec. 1. Since 2012, the economist has been senior vice president for Human Resources & Inclusion at lighting manufacturer Os-ram. She will become the most senior woman execu-tive in the Siemens Group, which employs some 370,000 people worldwide.

Michael Müller-Gröhnert, auto expert for the green-leaning German Transpor-tation Club (VCD) says he understands people’s ob-jections to electric cars. A subcompact electric model costs as much as an aver-age mid-market sedan: “Many people think twice about what purchase to make.” But Müller-Grohnert doesn’t accept the com-paratively short range of electric cars as an argu-ment. “Half of all everyday car trips are under fi ve kilo-meters. Any electric car can handle that.”

PeoplePeople

14 December 2013

Despite the progress that European leaders have made in bring-ing fi nancial stability

to the eurozone, the European Union continues to face a severe economic and political crisis. This crisis has not only threatened the viability of the single currency, but also fostered political tensions that are weakening the founda-tions of the European project. Economic troubles emerged from fi nancial mismanagement, unsus-tainable public debt, and the lack of structural competitiveness in the southern tier. Economic mis-steps developed into political fragmentation, pitting wealthier member states in the north against weaker economies in the south. Economic dislocation has com-bined with political division to awaken widespread public skepti-cism about the merits of European integration.

European leaders have responded to this crisis by com-bining fi scal consolidation with a credible roadmap for banking and fi scal union, a step meant to pro-vide the euro with the collective oversight and enforcement mech-anisms it needs – and should have had when it was fi rst introduced. Meanwhile, periphery countries have made signifi cant strides in reforming their economies and reducing their fi scal defi cits.

But the crisis has left a legacy of vulnerable banks and unsus-tainable levels of government debt in many countries. More rapid progress toward fi scal and banking union is needed in order to establish the conditions for a return to growth that is essential for exiting the crisis.

Accelerating integration, how-ever, will be no easy task. The austerity being doled out to put Europe’s house in order is under-mining the readiness of European publics to accept the deeper union that is needed to redress Europe’s economic woes. The debt crisis has soured European electorates on the project of European inte-gration, renationalizing politics and calling into question whether member states will be prepared to countenance the more extensive union that European leaders are currently striving to bring to frui-tion. The EU is by no means out of the woods; restoring growth and rebuilding public confi dence in European integration will be essential but elusive tasks in the months ahead.

It would be a mistake to assume that the crisis is over; the patient has been moved out of critical care but remains chronically ill, and will remain so until growth returns and debt sustainability is reestablished. The ECB has pro-vided an important bridge until that time, but market pressures could return quickly if coun-tries were seen to be abandoning their commitment to reform and fi nancing gaps were to reemerge.

The problem is that prospects for growth are grim. In their most recent forecast, the IMF projects a decline in euro-area growth of 0.6 percent this year, and growth of around one percent next year. Private forecasters are more pes-simistic. Growth at this level is insuffi cient to make headway in reducing high levels of unemploy-ment that have reached 26 per-cent in Spain and 12 percent for the euro area as a whole. Youth unemployment, which averages 24 percent for the eurozone and exceeds 35 percent in Spain, Por-tugal and Italy, represents a criti-cal threat to Europe’s future. The challenge therefore is to restore growth before markets again lose confi dence in the reform process.

Raising the European Union’s long-term growth potential will require a number of complemen-tary steps. An accelerated move toward economic and fi nancial union is needed to defi nitively draw a line under the crisis. Mac-roeconomic policies should do more to support demand, and periphery countries need their debt reduced to sustainable levels. Such bold moves would provide a powerful boost to market con-fi dence and go a long way to addressing the fragmentation of fi nancial markets.

The EU also needs a successful conclusion to ongoing efforts to forge a transatlantic free trade area. According to the European Commission, the proposed trade

pact could add 0.5 percent to the EU economy and 0.4 percent to the US economy by 2027. At least 400,000 jobs would be created. In light of the fi scal and structural constraints facing EU member states, an economic pact with the United States is one of the few options available for stimulating growth and employment.

Finally, Europe needs to embrace structural reform more ambi-tously. In the periphery, regain-ing competitiveness is essential to restoring growth. In the core, efforts to promote labor force par-ticipation and more open service markets sit high on the agenda. In all countries, improvements in labor markets (including through greater access to labor markets and streamlining employment ben-efi ts and protection) are needed to

strengthen employment prospects, including through lowering the cost of hiring and fi ring workers. Improving regulation and reform-ing taxes, strengthening incentives for innovation and education, and continuing fi nancial sector reforms are also needed.

Restoring growth and redress-ing the EU’s continuing eco-nomic vulnerability through financial union will require building public support for deeper integration. Although EU leaders appreciate that more integration is the antidote to the ongoing crisis, the EU’s publics are unconvinced.

Indeed, with the sole exception of Germans, European electorates are growing increasingly skeptical of the merits of economic integra-tion and of ceding more power to

EU institutions. According to a recent Pew poll, “positive views of the European Union are at or near their low point in most EU nations, even among the young. Only in Germany does at least half the public back giving more power to Brussels to deal with the current economic crisis.” A perilous gap is opening between the project of European unity and the European “street.”

The good news for the EU is that this loss of public confi dence in European integration has yet to produce a national government that is intent on leaving the euro zone or distancing itself from the union – with the exception of Great Britain. Despite successive years of austerity, the mainstream parties in power across the union have remained pro-EU.

But there is also bad news for the EU: Europe’s mainstream parties are rapidly losing market share. The move of the center-right and center-left to the pro-EU center has ceded considerable ground to populist, anti-EU parties hailing from both ends of the political spectrum. It has not happened yet, but electoral trends suggest that one or more of these anti-EU parties could soon fi nd themselves in power.

Despite this clear strengthening of anti-EU political forces, Britain is the only member state whose government is actively seeking to loosen its ties to the union. Prime Minister David Cameron is navi-gating an anti-EU revolt within his own party, one stoked in part by the rising electoral strength of the UK Independence Party, which calls for Britain to quit the EU. Cameron himself favors Brit-ain’s continued membership in the union, but only if the country is able to negotiate a more attenu-ated relationship.

Although Cameron’s moves are meant to provide the British the breathing room they need to stay put in the EU, his course of action could well precipitate the UK’s exit. Of Europe’s 28 members, 12 are outside the euro zone. Most of Britain’s companions in this outer circle, however, plan to even-tually join the eurozone, which would leave Britain as the odd man out — absent from what will become the EU’s main decision-making venue. The British would be unlikely to remain in a union in which their voice would be so marginalized.

Britain’s exit from the EU is a realistic, perhaps even a likely, possibility. That outcome would deal a serious blow to European solidarity, weaken the EU as an economic bloc, deny the EU the valuable role that London contin-ues to play in guiding economic integration and the enlargement of the Union, and shake the foundations of the trans-Atlantic alliance. The EU would surely survive Britain’s exit. But the UK, the EU, and the transatlantic com-munity would all be dealt a sig-nifi cant setback.

Europe’s leaders are well aware of the political frailty of the EU. The stakes go well beyond the political health of the European project. An EU that enjoys eco-nomic growth and political sta-bility is needed to help anchor an international system that is enter-ing a period of historic change. For the fi rst time since World War II, the output of the advanced industrialized democracies rep-resents less than 50 percent of global GDP. The aggregate GDP of China is expected to surpass that of the United States within roughly 15 years. A major change in the global pecking order is afoot.

An EU that is lurching from one fi nancial crisis to the next will be unable to play its part in managing this period of historic change. For now, the EU remains inward looking and preoccupied with its own affairs. Moreover, its individual member states are too small to shoulder global respon-sibilities on their own. Only if the EU recovers from its ongoing economic and political crisis will it have a chance of speaking with a more collective voice and pro-jecting its power and will beyond its own neighborhood.

As the United States focuses on economic renewal at home and scales back its footprint abroad, Washington desperately needs a more capable partner in Europe. The starting point for consolidat-ing that more capable partner is fi nancial stability, economic growth, and the re-legitimation of the project of European inte-gration.

■

Robert Kahn is a senior fellow at the Council on

Foreign Relations. Charles Kupchan is a professor

of international affairs at Georgetown University and

a senior fellow at the Council on Foreign

Relations and the Transat-lantic Academy. This essay draws on their forthcoming

article in Survival.

This is an American view of Europes problems.

Legacy and lessons of the crisis

The EU needs more rapid progress toward fi scal and banking union | By Robert Kahn and Charles Kupchan

Europe under construction: The new premises for the European Central Bank are nearing completion, while plans for a banking supervisory authority grind to a halt.

PIC

TU

RE

ALL

IAN

CE

/DPA

/DA

NIE

L R

EIN

HA

RD

T

The Council of Economic Experts that advises the German government pre-sented its latest report on Nov. 13 under the heading “Against Backward-looking Policies.” The fi ve leading economists warned that measures under discussion in coalition talks between Chancellor Angela Merkel’s Christian Democrats and the SPD would come at a high cost for future genera-tions. The measures include boosting pension levels for low earners and women who face a pensions gap due to time spent raising children. The economists ar-gue that pension contribu-tions made by current work-ers should be lowered next year as originally agreed. The Council also advised against watering down or even reversing the labor reforms known as Agenda 2010, warning that plans for a national legal mini-mum wage, restrictions on temporary jobs, limits to fi xed-term job contracts and possibly tax hikes would be bad for growth and employ-ment. Merkel thanked the Council for the 500-page document and said she would consider it carefully. She said it was “naturally very important that we are not just well-off today; we have to do well tomorrow and the day after too.”

Dieter Hundt, the president of Germany’s employers as-sociation, the BDA, retired on Nov. 18 after 17 years in the job. He used his fi nal days in offi ce to criticize plans to introduce a mini-mum wage. “Germany has 41 current wage agree-ments with German Con-federation of Trade Unions (DGB) members setting out hourly wages of less than €8.50,” he told the news agency DPA. The rates ap-ply mainly to young people, jobs for the long-term unem-ployed and unskilled work-ers. It would be wrong to invalidate such wage agree-ments “with a stroke of the pen,” said Hundt.

Bernd Osterloh, the head of carmaker Volkswagen’s works council, welcomed a ruling by the European Court of Justice on Oct. 22. “It put an end to the 11-year struggle by VW workers to keep the VW Act.” The 2007 law confi rmed by the Luxembourg judges per-mits a 20 percent minority of shareholders to block im-portant decisions. The nor-mal blocking minority is 25 percent. The German state of Lower Saxony holds a 20 percent share in VW.

Janina Kugel is taking over personnel strategy and executive development at industrial giant Siemens as of Dec. 1. Since 2012, the economist has been senior vice president for Human Resources & Inclusion at lighting manufacturer Os-ram. She will become the most senior woman execu-tive in the Siemens Group, which employs some 370,000 people worldwide.

Michael Müller-Gröhnert, auto expert for the green-leaning German Transpor-tation Club (VCD) says he understands people’s ob-jections to electric cars. A subcompact electric model costs as much as an aver-age mid-market sedan: “Many people think twice about what purchase to make.” But Müller-Grohnert doesn’t accept the com-paratively short range of electric cars as an argu-ment. “Half of all everyday car trips are under fi ve kilo-meters. Any electric car can handle that.”

PeoplePeople

14 December 2013

Despite the progress that European leaders have made in bring-ing fi nancial stability

to the eurozone, the European Union continues to face a severe economic and political crisis. This crisis has not only threatened the viability of the single currency, but also fostered political tensions that are weakening the founda-tions of the European project. Economic troubles emerged from fi nancial mismanagement, unsus-tainable public debt, and the lack of structural competitiveness in the southern tier. Economic mis-steps developed into political fragmentation, pitting wealthier member states in the north against weaker economies in the south. Economic dislocation has com-bined with political division to awaken widespread public skepti-cism about the merits of European integration.

European leaders have responded to this crisis by com-bining fi scal consolidation with a credible roadmap for banking and fi scal union, a step meant to pro-vide the euro with the collective oversight and enforcement mech-anisms it needs – and should have had when it was fi rst introduced. Meanwhile, periphery countries have made signifi cant strides in reforming their economies and reducing their fi scal defi cits.

But the crisis has left a legacy of vulnerable banks and unsus-tainable levels of government debt in many countries. More rapid progress toward fi scal and banking union is needed in order to establish the conditions for a return to growth that is essential for exiting the crisis.

Accelerating integration, how-ever, will be no easy task. The austerity being doled out to put Europe’s house in order is under-mining the readiness of European publics to accept the deeper union that is needed to redress Europe’s economic woes. The debt crisis has soured European electorates on the project of European inte-gration, renationalizing politics and calling into question whether member states will be prepared to countenance the more extensive union that European leaders are currently striving to bring to frui-tion. The EU is by no means out of the woods; restoring growth and rebuilding public confi dence in European integration will be essential but elusive tasks in the months ahead.

It would be a mistake to assume that the crisis is over; the patient has been moved out of critical care but remains chronically ill, and will remain so until growth returns and debt sustainability is reestablished. The ECB has pro-vided an important bridge until that time, but market pressures could return quickly if coun-tries were seen to be abandoning their commitment to reform and fi nancing gaps were to reemerge.

The problem is that prospects for growth are grim. In their most recent forecast, the IMF projects a decline in euro-area growth of 0.6 percent this year, and growth of around one percent next year. Private forecasters are more pes-simistic. Growth at this level is insuffi cient to make headway in reducing high levels of unemploy-ment that have reached 26 per-cent in Spain and 12 percent for the euro area as a whole. Youth unemployment, which averages 24 percent for the eurozone and exceeds 35 percent in Spain, Por-tugal and Italy, represents a criti-cal threat to Europe’s future. The challenge therefore is to restore growth before markets again lose confi dence in the reform process.

Raising the European Union’s long-term growth potential will require a number of complemen-tary steps. An accelerated move toward economic and fi nancial union is needed to defi nitively draw a line under the crisis. Mac-roeconomic policies should do more to support demand, and periphery countries need their debt reduced to sustainable levels. Such bold moves would provide a powerful boost to market con-fi dence and go a long way to addressing the fragmentation of fi nancial markets.

The EU also needs a successful conclusion to ongoing efforts to forge a transatlantic free trade area. According to the European Commission, the proposed trade

pact could add 0.5 percent to the EU economy and 0.4 percent to the US economy by 2027. At least 400,000 jobs would be created. In light of the fi scal and structural constraints facing EU member states, an economic pact with the United States is one of the few options available for stimulating growth and employment.

Finally, Europe needs to embrace structural reform more ambi-tously. In the periphery, regain-ing competitiveness is essential to restoring growth. In the core, efforts to promote labor force par-ticipation and more open service markets sit high on the agenda. In all countries, improvements in labor markets (including through greater access to labor markets and streamlining employment ben-efi ts and protection) are needed to

strengthen employment prospects, including through lowering the cost of hiring and fi ring workers. Improving regulation and reform-ing taxes, strengthening incentives for innovation and education, and continuing fi nancial sector reforms are also needed.

Restoring growth and redress-ing the EU’s continuing eco-nomic vulnerability through financial union will require building public support for deeper integration. Although EU leaders appreciate that more integration is the antidote to the ongoing crisis, the EU’s publics are unconvinced.

Indeed, with the sole exception of Germans, European electorates are growing increasingly skeptical of the merits of economic integra-tion and of ceding more power to

EU institutions. According to a recent Pew poll, “positive views of the European Union are at or near their low point in most EU nations, even among the young. Only in Germany does at least half the public back giving more power to Brussels to deal with the current economic crisis.” A perilous gap is opening between the project of European unity and the European “street.”

The good news for the EU is that this loss of public confi dence in European integration has yet to produce a national government that is intent on leaving the euro zone or distancing itself from the union – with the exception of Great Britain. Despite successive years of austerity, the mainstream parties in power across the union have remained pro-EU.

But there is also bad news for the EU: Europe’s mainstream parties are rapidly losing market share. The move of the center-right and center-left to the pro-EU center has ceded considerable ground to populist, anti-EU parties hailing from both ends of the political spectrum. It has not happened yet, but electoral trends suggest that one or more of these anti-EU parties could soon fi nd themselves in power.

Despite this clear strengthening of anti-EU political forces, Britain is the only member state whose government is actively seeking to loosen its ties to the union. Prime Minister David Cameron is navi-gating an anti-EU revolt within his own party, one stoked in part by the rising electoral strength of the UK Independence Party, which calls for Britain to quit the EU. Cameron himself favors Brit-ain’s continued membership in the union, but only if the country is able to negotiate a more attenu-ated relationship.

Although Cameron’s moves are meant to provide the British the breathing room they need to stay put in the EU, his course of action could well precipitate the UK’s exit. Of Europe’s 28 members, 12 are outside the euro zone. Most of Britain’s companions in this outer circle, however, plan to even-tually join the eurozone, which would leave Britain as the odd man out — absent from what will become the EU’s main decision-making venue. The British would be unlikely to remain in a union in which their voice would be so marginalized.

Britain’s exit from the EU is a realistic, perhaps even a likely, possibility. That outcome would deal a serious blow to European solidarity, weaken the EU as an economic bloc, deny the EU the valuable role that London contin-ues to play in guiding economic integration and the enlargement of the Union, and shake the foundations of the trans-Atlantic alliance. The EU would surely survive Britain’s exit. But the UK, the EU, and the transatlantic com-munity would all be dealt a sig-nifi cant setback.

Europe’s leaders are well aware of the political frailty of the EU. The stakes go well beyond the political health of the European project. An EU that enjoys eco-nomic growth and political sta-bility is needed to help anchor an international system that is enter-ing a period of historic change. For the fi rst time since World War II, the output of the advanced industrialized democracies rep-resents less than 50 percent of global GDP. The aggregate GDP of China is expected to surpass that of the United States within roughly 15 years. A major change in the global pecking order is afoot.

An EU that is lurching from one fi nancial crisis to the next will be unable to play its part in managing this period of historic change. For now, the EU remains inward looking and preoccupied with its own affairs. Moreover, its individual member states are too small to shoulder global respon-sibilities on their own. Only if the EU recovers from its ongoing economic and political crisis will it have a chance of speaking with a more collective voice and pro-jecting its power and will beyond its own neighborhood.

As the United States focuses on economic renewal at home and scales back its footprint abroad, Washington desperately needs a more capable partner in Europe. The starting point for consolidat-ing that more capable partner is fi nancial stability, economic growth, and the re-legitimation of the project of European inte-gration.

■

Robert Kahn is a senior fellow at the Council on

Foreign Relations. Charles Kupchan is a professor

of international affairs at Georgetown University and

a senior fellow at the Council on Foreign

Relations and the Transat-lantic Academy. This essay draws on their forthcoming

article in Survival.

This is an American view of Europes problems.

Legacy and lessons of the crisis

The EU needs more rapid progress toward fi scal and banking union | By Robert Kahn and Charles Kupchan

Europe under construction: The new premises for the European Central Bank are nearing completion, while plans for a banking supervisory authority grind to a halt.

PIC

TU

RE

ALL

IAN

CE

/DPA

/DA

NIE

L R

EIN

HA

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The Council of Economic Experts that advises the German government pre-sented its latest report on Nov. 13 under the heading “Against Backward-looking Policies.” The fi ve leading economists warned that measures under discussion in coalition talks between Chancellor Angela Merkel’s Christian Democrats and the SPD would come at a high cost for future genera-tions. The measures include boosting pension levels for low earners and women who face a pensions gap due to time spent raising children. The economists ar-gue that pension contribu-tions made by current work-ers should be lowered next year as originally agreed. The Council also advised against watering down or even reversing the labor reforms known as Agenda 2010, warning that plans for a national legal mini-mum wage, restrictions on temporary jobs, limits to fi xed-term job contracts and possibly tax hikes would be bad for growth and employ-ment. Merkel thanked the Council for the 500-page document and said she would consider it carefully. She said it was “naturally very important that we are not just well-off today; we have to do well tomorrow and the day after too.”

Dieter Hundt, the president of Germany’s employers as-sociation, the BDA, retired on Nov. 18 after 17 years in the job. He used his fi nal days in offi ce to criticize plans to introduce a mini-mum wage. “Germany has 41 current wage agree-ments with German Con-federation of Trade Unions (DGB) members setting out hourly wages of less than €8.50,” he told the news agency DPA. The rates ap-ply mainly to young people, jobs for the long-term unem-ployed and unskilled work-ers. It would be wrong to invalidate such wage agree-ments “with a stroke of the pen,” said Hundt.

Bernd Osterloh, the head of carmaker Volkswagen’s works council, welcomed a ruling by the European Court of Justice on Oct. 22. “It put an end to the 11-year struggle by VW workers to keep the VW Act.” The 2007 law confi rmed by the Luxembourg judges per-mits a 20 percent minority of shareholders to block im-portant decisions. The nor-mal blocking minority is 25 percent. The German state of Lower Saxony holds a 20 percent share in VW.

Janina Kugel is taking over personnel strategy and executive development at industrial giant Siemens as of Dec. 1. Since 2012, the economist has been senior vice president for Human Resources & Inclusion at lighting manufacturer Os-ram. She will become the most senior woman execu-tive in the Siemens Group, which employs some 370,000 people worldwide.

Michael Müller-Gröhnert, auto expert for the green-leaning German Transpor-tation Club (VCD) says he understands people’s ob-jections to electric cars. A subcompact electric model costs as much as an aver-age mid-market sedan: “Many people think twice about what purchase to make.” But Müller-Grohnert doesn’t accept the com-paratively short range of electric cars as an argu-ment. “Half of all everyday car trips are under fi ve kilo-meters. Any electric car can handle that.”

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