Break-up or “Business as usual“? Six possible future developments for the EU

May 04, 2017

In the first round of the presidential elections in France the right-wing extremist and anti-European candidate Le Pen has made it to the second ballot against the pro-European social liberal Macron. The result of the election is therefore a strong signal for the future of the European Union. But what could this future look like? The study “EU break-up?“ which has now been published by Fraunhofer ISI deals with this question and presents six potential developments on the future of the EU.

After the Brexit decision of the British the presidential election in France is another important event on the agenda. If the right-wing extremist presidential candidate Le Pen wins the second ballot against the social liberal Emmanuel Macron on 7 May this would have immediate consequences: In case she wins the election Le Pen promises no less than that France leaves the EU, the country‘s separation by sealing off its external borders and the re-introduction of the Franc. According to common opinion the withdrawal of another large EU member state could spell the beginning of the end of the European Union.

In order to be prepared for all possible future developments it is appropriate to simulate all of them with scientific methods. The study “EU break-up“ of Fraunhofer ISI has chosen exactly this approach. Using a comprehensive analysis of political and economic literature six potential developments have been elaborated. These are based on two guiding questions which deal with the struggle against the negative consequences of globalization on the one hand and with the competition between political ideas and in particular between democrats and populists on the other.

“EU reforms“ or “Business as usual“?

The consequence in the case of a development towards radical “EU reforms“ could either be deeper integration or an ordered disintegration of the EU. In particular in economic research the consensus has evolved that a disintegration of the EU would be necessary in case a deeper integration – for example in the area of fiscal politics – is not possible. For political reasons reforms, of any kind, are currently highly unlikely. Neither supporters nor opponents will currently want to get involved in lengthy treaty amendment procedures, which are essential for profound reforms.

Therefore a second development under the motto “business as usual“ is far more likely. Here everything would stay as before. Political decisions would continue to take place by the majority principle and on the basis of the “smallest common denominator“. As a result, social inequality through globalization could get worse and the influence of populists could increase. Possibly a “two-speed Europe could evolve in this context. However, in order to overcome social injustice and macroeconomic imbalances this approach is not suitable. Empirical research sees the increasing inequality as a reason for the emergence of populist movements, which could profit from this and force withdrawals from the EU if they participate in governments. For this reason this development has to be seen as a pit-stop from which further development paths can split off.  

Are there going to be withdrawals from the European Monetary Union?

“Withdrawals from the European Monetary Union“ are another parallel developmental possibility. Without reforms which are an economic necessity but cannot be realized politically, macroeconomic inequalities between export-oriented and domestic consumption-oriented economies could lead to a destabilization of the euro zone in the medium term. Especially highly-indebted governments such as Greece, Italy, Portugal or Spain do not have any chance of economic growth within the euro zone. As a result of increased election victories of populist parties, who are against the EU austerity programs and for a reintroduction of national currencies, a withdrawal from the euro zone of these countries would be possible. The remaining euro countries could conform to the German export-oriented economic model which would stabilize the Monetary Union temporarily. The protectionism, driven by the populists, as well as more possible economic and financial crises could, however, also threaten a reduced Monetary Union in the medium to long term.

If the economic recession in some countries affected by crises and the associated inequality and increasing rejection of globalization worsen, “withdrawals from the EU“ and a “break-up of the EU“ will be more likely. However, this assumes sweeping election victories of populists as well as holding EU referendums on possible withdrawals from the EU of member states and strong popular support. However, referendums are not possible in all member states for constitutional reasons, also the Europe-wide support for populist parties is still under 20 per cent. Nevertheless, the example “Brexit“ has shown that such withdrawal scenarios are no longer completely inconceivable.

Dr. Niclas Meyer, author of the study “EU break-up“, draws the following conclusion, “European politics are completely at helpless both as far as the fight against the negative consequences of globalization is concerned as well as the competition between political ideas.” The problems of inequality and macroeconomic imbalances cannot be solved without some form of fiscal transfers. However, the EU does not have any competences in this domain. Moreover, the EU seems to be lacking the intellectual leaders and visibility required to contain the rise of populism on the ideological front

Therefore, the EU is at the mercy of the member states. To protect the EU the member states should take precautionary measures on a constitutional basis to make it more difficult in future to withdraw from the EU. In particular this should only be possible on the basis of broad political majorities – and under no circumstances just by referendums. Populist parties would therefore have to form strong governments – and currently they are miles from that. 

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.