Stress tests of 2015 show EU will endure

Opinion Sunday 03/January/2016 13:53 PM
By: Times News Service
Stress tests of 2015 show EU will endure

In recent years, there hasn't been much to like about the European Union, with its low growth, high unemployment, political squabbles, xenophobia, stifling bureaucracy and constant threats of a breakup. But 2015 may have been the year the EU pulled through the worst of its troubles: It has now been sufficiently stress-tested to survive anything.
There were three types of trials: the viability of the euro zone, the survival of Schengen borderless travel area and the tension between member countries' domestic politics and the union's values. In each case, the edifice creaked but remained standing. Despite the shocks, the European economy is more or less back to pre-crisis levels, with employment rising and growth returning.
The Euro: This year, the Euro Break-Up Index, calculated by Sentix, a German company that measures investor sentiment, rose to the highest levels since its 2012 inception:
The probability of the currency union's break-up looked very real in the spring and summer as Greece resisted attempts by northern European countries to force it into a managed bailout. Luminaries including the Nobel laureate Paul Krugman and Hans Werner Sinn, a German government adviser, favoured a Greek exit from the euro. The Greeks, however, didn't want to leave, and their firebrand government was forced to back down.
Greece experienced a 0.9 per cent contraction in the third quarter of 2015 because of the upheavals that almost tore apart the euro zone, and economists expect its output to shrink 0.7 per cent for the year. The country, however, is adopting economic reform legislation and getting support to recapitalise its banks. Although Greeks have the least positive opinion of any EU citizens -- just 22 per cent say they like it, according to a November Eurobarometer poll -- they have accepted EU aid and are more or less gamely taking their bitter medicine.
The third Greek bailout is ugly, contentious and even outrageous to some both inside and outside Greece, but it reflects Greeks' preference for keeping the common currency.
That's easy to understand: The euro lost just 10 per cent of its value against the dollar, and its share in global foreign exchange reserves only dropped to 20.3 per cent in the first three quarters of 2015, from 22 per cent, according to IMF data. The Danish and Norwegian krones, the Australian, Canadian and New Zealand dollars all retreated more this year.
At the same time, economists polled by Bloomberg predicted 1.5 per cent economic growth for the euro zone this year -- the best result since 2011, and only slightly less than the 1.8 per cent expected for the EU as a whole. It even holds up pretty well compared with the U.S., which is expected to post growth of 2.5 percent this year.
Schengen: As refugees from Syria, Iraq, Afghanistan and other Middle Eastern war areas flooded into Europe, one of the united continent's achievements, borderless travel, seemed in jeopardy. The United Nations estimates that about 1 million refugees arrived in 2015, and Germany alone took in almost that many. For January through November, the number of asylum applications in Germany increased 132 per cent from a year earlier. And yet the Schengen agreement, which allows travelers to avoid passport checks between European countries, has not been suspended.
Despite the political uproar -- 58 per cent of all Europeans and 76 per cent of Danes, Czechs and Germans believe immigration is the biggest problem facing the EU -- 1 million is a fraction of the bloc's population of 506 million. Even 2 or 3 million migrants wouldn't overstrain the union, which added 1.3 million residents last year. Even in countries that accept most of the newcomers, no major hardship is expected. According to Peter Praet, a member of the European Central Bank executive board, Germany will need to spend an additional 0.3 to 0.4 per cent of economic output in 2016 and 2017 to accommodate and integrate the refugees. But the spending also will boost output.
Mild border controls were introduced in some parts of Europe this year, but that was mainly a response to the bureaucratic overload that the refugee influx created and to appease fears fueled by the media. Europeans, according to the Eurobarometer survey, are highly unwilling to give up their freedom of travel: 78 per cent support "the free movement of EU citizens who can live, work, study and do business anywhere in the EU."
Europe has been groping for solutions. It has promised Turkey 3 billion euros to make a better effort to keep refugees in their camps, and it has decided to invest more in common border protection. It's not clear how well that will work, but stepped-up efforts to prevent more migrant deaths at sea appear to be paying off. For January through September, 2,980 people drowned in the Mediterranean, according to the UN. In the two and a half months that followed, there were 645 casualties -- a rate of 8 deaths a day, compared with 11 earlier this year.
No crisis response can be perfect, but Europe is dealing with the emergency well enough to make the dismantling of fundamental EU institutions such as Schengen unnecessary. This year, the handling of further refugee flows -- which will subside, anyway, if the peace process in Syria shows progress -- will be much more orderly.
Values vs. Politics: The refugee influx, however, has been a huge political test for the EU. So far, its older and stronger members have passed it with good grades. Eastern Europe has buckled, showing it was ready to accept the union's economic benefits, such as billions of euros in farm subsidies, but not the humanitarian principles membership imposes.
Xenophobic parties were dealt heavy blows. In Western Europe. UKIP won just one seat in the UK general election in May. France's National Front failed to win a single region in regional elections. Germany didn't have a big election, but despite all the worry about the refugees, the Alternative fuer Deutschland party, which would like to keep them out, consistently polls below 10 per cent, enough to get it into parliament but too little for real influence.
In Spain, the hard-left Podemos, which at times seemed poised to win the December national election, got into parliament but won too few seats to do anything useful. In Portugal, extreme leftists have become junior partners in a ruling Socialist coalition.
The only EU country where radicals -- in this case, xenophobic ones -- won big this year is Poland.
Russian President Vladimir Putin may dream of undermining the EU by befriending radical politicians such as Hungary's Viktor Orban, National Front leader Marine Le Pen or Greek Prime Minister Alexis Tsipras, but he has failed with all three this year, and the Polish nationalists hate him. There is no chance that any European nation will bolt to lift Ukraine-related sanctions against Russia next year.
2015 was a tough year, but Europe has endured. According to the November Eurobarometer, 53 per cent of Europeans are optimistic about the EU's future and only 41 per cent are pessimistic. At the lowest point in the bloc's history, in 2011, 48 per cent were optimists and 46 per cent didn't believe in the union. And Europeans still trust the EU more than they do their national governments, though trust in politicians is at its lowest level in years:
The EU and its most important institutions have enough support, and enough common sense built into them, to outlive their critics. Now is a moment for retrenchment, not expansion or major progress in unification -- but Europe is a long-term project. -Bloomberg View