Time for the EU to go big or go home

Why is it so difficult to get Europe to aim high?

Cosmopolitan Globalists Alexander Hurst, in Paris, and Benjamin Wolf, in Vienna, have kindly shared this conversation with us.

Alexander: The last time we had a chat, I was complaining that the French government was just reacting to Covid instead of anticipating the obvious with pre-emptive shutdowns. Now we’re back in exactly the same situation.

This brings me to a larger frustration that’s been bubbling in me all year long as I’ve observed—and lived though—Europe’s response to the pandemic. Europe’s not learning fast enough, and it keeps making the same mistakes. It’s not audacious enough. Even though its cautious approach is meant to be risk-averse, it doesn’t see the enormous amount of risk it’s taking by attempting to avoid risk. 

Take France. It would have been cheaper and far more pleasant for everyone here if a year ago Macron had announced a €5 billion moonshot project to fund vaccine development at the the Institut Pasteur, Sanofi, and Valneva, and if they’d succeeded in putting at least one French vaccine on the market. His government has been willing to spend hundreds of billions to support the economy through lockdowns, but not two percent of that to shoot for the only real solution to the crisis. Why not?

The same problem is always on display at the European level—an inexplicable aversion to spending enough money to just do things right the first time, which ends up costing far more in the long run. We saw this over the summer when the Commission’s philosophy was to get a good deal on vaccines, not “whatever it takes, whatever it costs.” Absolute folly, considering that the purely economic costs of the pandemic are in the tens of billions of dollars per day

The US approach is a stark contrast. It opened the taps and spent whatever was needed, who cares if someone made money in the process; the goal was solving the crisis as fast as possible.

Of course, there’s a component of this that I find unconscionable and I’m proud of Europe for not reflexively copying it: the banning exports. The US is sitting on tens of millions of doses of AstraZeneca’s vaccine, which can’t even be administered in the US because it hasn’t been authorized. It could have allowed AstraZeneca and others to tap US-based production to meet global obligations. By instituting an America First policy, Trump put a heavier burden on the rest of the world’s producers to meet global demand. I’m profoundly disappointed the Biden Administration is continuing it.1

Now I can see a repeat of this self-defeating philosophy in insufficient economic response. Europe learned from the 2008-9 financial crisis, in the sense that the totally arbitrary three-percent debt rule has been suspended; there’s been some coordinated fiscal response, and nobody is calling for austerity—yet. But it hasn’t really learned, because the response is inadequate. Europe refuses to invest in itself at a level sufficient to succeed. The philosophy is still, “What’s the minimum we can do?” The same philosophy that produced the produced the vaccine fiasco is now on schedule to produce an economic fiasco.


Benjamin: Euro crisis 2012, anyone? 

I couldn't agree more with your points about vaccines, stimulus, and the way Europe learns too slowly even as it remains dangerously risk-averse.

There are a set of structural reasons for the sluggish vaccine rollout:

  • There was a mismatch between what the EU (or rather, the European Commission) was asked to do and what it could do, both legally and budgetarily;

  • EU member states have shifted responsibility to Brussels while keeping decision-making authority and money at home, resulting in worse outcomes for both;

  • The US and UK made the dismal decision to not export any vaccines, despite having spent the past year of warning of vaccine nationalism. The EU, of course, remained faithful and trusting; 

  • The EU put its trust in open markets and the market’s participants to an astonishing degree and only saw, very late in the game, the need for more state intervention.

Above all this—and there the vaccine debate intersects with the stimulus and all the other issues you mentioned—the Europe lacks ambition.

For some reason (I’ve got quite a few ideas), European countries have convinced themselves they’re perennially outrun, outcompeted, and outwitted by the diligent workers of East Asia and the whiz kids of Silicon Valley. This worldview permeates the media, analysis, politics. It is all about threats and how “small, slow, old-fashioned” Europe can’t keep up with the loud drums of Chinese state capitalism or the wizardry of American Big Tech. 

Yet it could. It’s still the world’s biggest trade bloc; it pioneered the modern welfare state. Living standards and work-life balance here are the best in the world. But Europe has talked itself into profound defeatism and miserabilism tinged with nostalgia about the golden years of the welfare state in the 70s and 80s, even though there are plenty of opportunities for an investment spree today, too, if Europe only wanted it.

The lack of confidence hurts ambition, too. Most European politicians operate, most of the time, under the slogan “No, we can’t!” Even though they actually could.


Alexander: There are really two issues here. One is institutional structure, the other is culture and philosophy; specifically, institutional and political culture.

The institutional structure is easier to deal with. Part of the problem with Europe’s response is that the EU never had any authority in health matters, and it’s not a federal institution with a national government’s power to respond to a crisis has. Ad hoc negotiations among 27 member states is no recipe swift and decisive action in a crisis. 

This is a fairly clear and uncontroversial area in which to beef up the EU’s authority. What if the Commission—the executive branch—could declare a European state of emergency, which would unlock a pot of money (say €100 billion) that could be spent without the need to run to the European Parliament or the member states for approval? It could be pre-budgeted. Or perhaps, a declaration of emergency could allow the EU to float emergency bonds much as the IMF taps its Special Drawing Rights. 

The philosophical approach is the tougher one and I have a tough time getting it. I read endless laments: Why doesn’t Europe have tech giants? Why is it behind in space research, and AI? But it’s just a question of money! SpaceX exists because of NASA contracts. NASA’s budget was USD$22.6 billion in 2020; the European Space Agency’s was USD$7.7 billion and some change doled out to national space agencies, mainly France’s CNES. So if you want a European SpaceX, well, quadruple funding to the ESA and say, we’re going to put someone on Mars by 2030, whatever it costs!

Instead, Europe’s obsession with overspending left those subjected to austerity with an output gap that was never closed after the 2008-9 financial crisis.

Now, again, there’s a gap on the horizon between Europe’s and the United States’ fiscal stimulus and investment. It threatens to result in a real economic divergence between the two. 

There are more nice charts in the Financial Times. The point is, the first € 750 billion wasn’t enough. What Europe needs is a second, €2 trillion package that combines direct payments to citizens with investments in basic R&D, space, green infrastructure, health, and education. Why not even throw in a €20 billion for “Big Ass Moonshots” (BAM!), a ton of different contests, with really significant prize money, for startups, universities, research teams that compete—with the idea of leveraging far more than €20 billion in private investment toward solving those problems.


Benjamin: Absolutely! I’m grateful that many people, including economists and even some politicians, are starting to push back against the myth that what Europe has now is all we can achieve, and that’s it. 

The institutional details and politics are of course a bit complex and tricky, but they’re nothing that couldn’t be worked out. With a European stimulus, the rising tide really would lift all boats, from boosting growth and incomes to climate-friendly tech to building the euro as a reserve currency and giving European tech a chance to grow some giants. 

I truly believe we’ve come to a point where it’s not politics, or even distrust between countries, or toward the EU, that’s holding us back. Yes, those are formidable challenges—we saw that during the negotiations for the Recovery Fund—but they can be tackled easily if there’s a real sense of urgency, and a belief that it makes sense to get together and get something big rolling.

Most of the time, though, that belief is absent.

Unless pushed or prodded by a massive external crisis, European politics—but also European debates, in the media, among many academics and so on—revert back to a cautious, risk-averse and even fearful approach to almost everything.

Going to Mars? You wish! That’s something only the Chinese or the Americans can do, most Europeans would tell you. Or it doesn’t matter (right now), which in the case of Mars may even be true. Unfortunately, this mindset is applied to almost every big issue these days. 

Why is France, why is Macron not more energetic? And why aren’t the governments of Spain, Italy, or yes, even Poland? Because let me say one thing about Brexit: While it was and is swashbuckling hogwash, informed by lies about the EU, one thought underpinning it was that Britain can be great, can be big, ambitious, leading. We could go into the psychology of Empire and the war, and we know why Germany, for example, is struggling so much with the idea of ambition. Perhaps that’s also why small countries like the Netherlands, Denmark, or Austria prefer a comfortable niche to a grand plan. 

But France? Italy? Spain? Poland? Why don’t they do far more to shape the form and ambitions of the EU, to exploit its strengths and refresh the debate? 

Southern Europeans, we need you! 


Alexander: I do think Macron’s initial intentions were to be ambitious on a big, EU scale, until his presidency got sidetracked with his own blunders and the soul-crushing burden of French domestic politics (for another time, maybe). Although I would love to see France spearhead a coalition-of-the-willing joint bond issue among any countries that want to join to fund a €1 trillion stimulus package (and maybe it really will happen!), even if that’s probably just half of what the whole EU really needs. 

I see three more issues at hand: a narrative issue, a first-mover issue, and a perspective issue. Stories matters: If the narrative is always that the EU is bumbling, bureaucratic, slow, and hamstrung by the need for consensus, then people will pretty much expect that and the bureaucracy will meet them where their expectations are.

That leads to a first-mover issue: People need a reason to think the EU can be bold and ambitious on their behalf; but unless they push for it, EU politicians will be too afraid to do it. Someone with a truly ambitious vision needs to step up and make people dream again.

On the issue of perspective, well, you come from a small country, so maybe you can tell me how accurate you think this is: Humans aren’t good at relating to big numbers. Sometimes I get the impression that people find it easier to talk about millions than billions, because the former seems conceivable and the second is so big it’s abstract. I grew up in the US, so European budget numbers just don’t seem big to me. I have the impression they seem really big to Europeans. 

€10 billion is a lot for Austria’s budget, so to an Austrian voter, it might sound outrageous to hear that the EU is spending €10 billion. To me, €10 billion is the minimum worth contemplating for anything; less than that is throw-away money, so insignificant on a Continental scale we might as well not care.

Maybe EU stimulus checks could tackle this? If European policy makers understood the psychological impact of seeing US$1,400 drop into your bank account, labeled “IRS,” maybe they’d be inclined to do the same thing. That way every European would see a €1,000 deposit with “European Union” as the depositor. 


Benjamin: I’m sure Macron had—and still has—ambitions. Yet I’m surprised how willing he is to “wait for the Germans” or others to come around. Sometimes you have to move fast and break things.

But southern Europe is bigger (and France is only part of it, anyway). Why don’t Italy and Spain present their own vision of the EU’s future? Why don’t they blow out their deficits like the US does? It’s now or never, given the unprecedented support of the ECB and the temporary suspension of all fiscal rules. They hold back out of fear of being chastened later on—or maybe because they’ve lost the belief they can change their trajectory by thinking big—and we are all the poorer for it. 

This ties into the issues you identified: The narrative in southern Europe, perhaps even more in the north, is that they’re slow and lagging behind anyway, so no point in being bold. Draghi is perhaps changing that a little for Italy. But national clichés reinforce these notions. 

Finally, about perspective, I come from a small country. This is tied to the narrative, too, very much so. Modern Austria’s national story begins with a radical transformation, from the center of a huge multi-ethnic empire to a small, Alpine country that literally saw itself as “not viable.” We know what that led to in the interwar years and the Second World War. 

But for our purposes, the more interesting part comes afterward. Suddenly, after the war, little Austria believed in itself and its viability. It grew rapidly and became one of the richest countries in the world. Perhaps even more important, it developed a strong national identity. Austria’s national pride is up there with the US and Canada.

During that time, big things were possible for a small country, from building dams like the Kaprun hydropower plant to creating world-beating businesses. 

But the EU doesn’t have these moments yet. It doesn’t have trans-national myths, or the experience of achieving something big, together. Don’t get me wrong. Keeping the peace and building the EU, with all its ancillary effects—open borders, Erasmus, the single market, the euro—is amazing. But there’s a reason the bridges and buildings on euro banknotes are fictional. It is hard to be proud of bridges that don’t actually exist.

Europe can draw from an extraordinary shared history, achievements, people, stories, highs, lows, memories, lessons, strengths, and hope. But so long as European politicians are afraid of tapping this, the EU will keep us waiting for those €1,000 checks of helicopter money.2

And the €10 billion, €100 billion, €1 trillion—not a big deal if you think and feel big. Very much a big deal if your bridges lead to nowhere. 

If you enjoyed this, read more of Alexander and Benjamin’s conversations at The Other Continent.

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1

Claire—It’s worse. Trump signed contracts with the manufacturers that explicitly barred the US from sharing its surplus doses with the rest of the world. This is why the Biden Administration can’t reverse the policy.

2

Claire—Guys, I liked this a lot, and think you’re onto something, but have you considered that there are things only the United States can do because only the dollar is the global reserve currency?