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Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
Why the Euro Crises Threatens the European Single Market
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Why the Euro Crises Threatens the European Single Market

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  • 1. MEMOPOLICY WHY THE EURO CRISIS THREATENS THE EUROPEAN SINGLE MARKET Sebastian Dullien Businesses leaders across Europe are anxiously – and rightly – following news of the euro crisis: a break-up of the singleSUMMARYSUMMARY Twenty years after the Single European Act was signed, the European single market is currency would lead to huge macroeconomic disruptions, under threat. Even if a break-up of the single with a large expected drop in economic activity, a strong currency is averted, the euro crisis has already increase in unemployment, and potentially widespread subtly altered the single market and greatly bank failures. The shock waves would definitely not remain changed the prospects for its future. In fact, no limited to the European Monetary Union (EMU) itself, but matter how the euro crisis plays out, the single would also spread to the rest of the European Union, to the market will never be the same as it was during United States and Canada, and to emerging markets from the carefree years of the 2000s. Each of the China to India to Brazil. Countries such as Spain or Italy three likely basic scenarios for how the euro crisis might develop would adversely affect are simply too big to fail. In fact, a full break-up of the euro the single market to a different extent and in might dwarf the failure of Lehman Brothers in 2009. different ways. However, regardless of whether or not such a nightmare A full break-up of the eurozone has the potential scenario becomes a reality, the euro crisis has already subtly to shatter the single market beyond recognition altered the European single market and greatly changed and threaten the Schengen agreement. A the prospects for its future. In fact, no matter how the euro muddling-through scenario in which the crisis plays out, the single market will never be the same current crisis is contained within the single as it was during the carefree years of the 2000s. In any of currency’s existing governance structures and the plausible outcomes of the euro crisis, the single market with its existing instruments and only limited will emerge in a different, diminished shape – completely changes would reduce the depth of the single market. Even a positive scenario in which the shattered, reduced in depth or reduced in size. While it can eurozone solves the crisis by taking a great be argued that the set-up of the single market in the 2000s leap forward in terms of economic, fiscal and and gaps in oversight and regulatory framework helped fuel political integration would likely lead to the the economic imbalances that now haunt Europe, it is also withdrawal of some countries such as the UK clear that the transformation of the single market will entail and thus shrink the single market. serious costs. To understand this proposition, we need to look at the various possible scenarios in more detail. At the moment,
  • 2. there are three likely basic scenarios for how the euro crisis experienced. The odds are that any sensible governmentWHY THE EURO CRISIS THREATENS THE EUROPEAN SINGLE MARKET might develop: first, a full break-up of the eurozone; second, faced with these options would choose to leave the eurozone. a scenario in which the current crisis is contained within the single currency’s existing governance structures and with However, since a reintroduction of the drachma would its existing instruments; and third, a scenario in which the mean a redenomination of deposits in Greek banks into the eurozone solves the crisis by taking a great leap forward in new currency and thus a significant loss in the value of these terms of economic, fiscal and political integration. deposits, a Greek euro exit could send shock waves through the eurozone. As soon as Italian or Spanish households We also need to remember that the single market is far more learn that a euro in the bank can be quickly retransformed than just the legal provisions framing it. The single market into a devalued national currency, a large capital flight has been shaped just as much by the actions of business towards Germany can be expected to set in. This would leaders across the EU. It is their decisions to engage in further increase liquidity pressure on banks in Spain and cross-border activities, cross-border marketing and cross- Italy. If the ECB is not willing to accept liquidity support border production sharing that have brought the single of several trillion euros (or if the Bundesbank is not willing market to life. In the past two decades, the EU has become to accept a further increase in the TARGET2 balances a single market not just on paper but also in the daily lives of this magnitude), other governments might be faced of citizens and managers. The most visible achievement of with a similar choice as the Greek government and might the single market is the ability to make quick, hassle-free ultimately decide to leave the euro as well. trips for business or pleasure; within the Schengen area there are no longer even passport controls. In fact, however, The disintegration in the monetary arena would quickly lead the less visible cross-border production networks that now to disintegration in other areas: the first obvious result of span across western and central Europe are much more a break-up would be the reemergence of strong exchange important. A significant and growing share of trade in most rate fluctuations. As one of the reasons for introducing a EU member states over the past decade has been made up new currency would be to be able to gain competitiveness by of trade in parts and components – a sign of growing cross- devaluation and the countries leaving the eurozone would border production networks. These cross-border networks almost certainly use their regained national power over have been important not only to increase the efficiency and their own central bank to stabilise their banking sectors competitiveness of the European manufacturing sector, but and finance their budget deficits with the printing press, also to spread technological progress and hence increase there could be initial devaluations of up to 50 percent or productivity in economies of Europe that are catching up even more. Thus, such a development would thrust Europe with the most advanced member states. back in time to the period of violent monetary and exchange rate instability of the 1970s – that is, before any of the arrangements that created at least partial exchange rate Euro break-up: a shattered single market stability, such as the European Exchange Rate mechanism, in the 1980s and early 1990s. Moreover, cross-border finance The worst-case scenario, obviously, would be a break-up of would likely come to an almost complete standstill and costs the euro. Such a scenario could begin with the withdrawal for insuring against exchange rate risks would surge. Add to from the single currency of one or more members. this the expected wave of bank failures and one would have Discussion so far has focused on a possible isolated exit to predict a sharp drop in private investment. by Greece, but it is far from clear whether an exit by one country can be contained or, on the other hand, whether Such a development would disrupt the single market on two in the process other countries would also be forced out of levels: the business level and the policy level. At the business the euro. In the course of these events, it is very likely that level, the increased risks and costs of cross-border trade the eurozone would up either completely fragmented or would lead to a reorientation in both production and sales much reduced in size – that is, without Greece, Italy, Spain, activities towards domestic markets. Exchange rate stability Portugal and Ireland. is crucial, especially for cross-border investment and cross- www.ecfr.eu border production networks, as hedging through financial In such a scenario, Greece would at some point fail to service markets usually is not feasible beyond a horizon of two its debts – either because it cannot fulfill the conditions of its years or so. Such a renationalisation of business activities bailouts and the troika stops loan disbursement, or because would lead to less competitive pressure in all countries and new financing needs arise and the troika is unwilling to in a number of markets for different goods and services with October 2012 top up existing credit lines – and would default again. This negative effects for innovation and productivity. would cut off Greek banks (which hold a large amount of their assets in Greek government bonds) from refinancing At the policy level, a sudden burst of competitiveness in at the European Central Bank (ECB). The Greek government countries that devalued their currencies and an increase of would then be faced with a choice: either reintroduce a unemployment in the other countries would quickly cause ECFR/64 national currency and recapitalise its banks through the accusations of unfair competition along the lines of the claims printing press or accept a complete collapse of its banking made by the US against China when it had fixed its exchange system and a much deeper recession than it has so far rate at a low value in the late 2000s. Calls for new non-tariff- 2
  • 3. barriers for trade, capital controls or new subsidies for ailing Muddling through: a shallowerindustries could be expected to follow soon. As the break- single marketup of the eurozone would almost certainly entail balance-of-payments difficulties for at least some member states, a The second-worst outcome of the euro crisis from theleast some of these actions would even be legal under Article perspective of the future of the single market is a muddling-144 of the Treaty on the Functioning of the European Union, through scenario. In this scenario, there would be nowhich stipulates that EU member states may take unilateral strong move towards a fiscal union, but rather only partialaction to protect their balance of payments even if these fixes. Incremental steps towards greater integration andrestrictions damage the single market. the existing rescue mechanisms would be able to stabilise interest rates on government bonds in the crisis countries atNormally, one might hope that, together with the European an elevated but not excessively high level. In such a scenario,Court of Justice (ECJ), the European Commission could economic growth would remain subdued in the eurozoneprotect the single market against these threats. However, in over years and the euro periphery would experience onlythe break-up scenario, this hope will most likely be in vain. a very slow and sluggish recovery from its recession. ThisUnder current EU law, it is not possible to leave the euro. scenario could also include a sub-scenario in which a smallThus in order to leave, a country would have to either leave country such as Greece leaves the euro but the falloutthe EU altogether, violate EU law and hope that no one will is contained and the other euro members remain in thetake action, or seek a change to the European Treaties to monetary union.accommodate economic realities. But each of these optionswould diminish the power of the Commission and the ECJ: In such a scenario, brutal exchange rate movements andthe EU would no longer have jurisdiction over a country that outright attempts at beggar-thy-neighbour policies throughleft the EU altogether; an open and tolerated violation of EU nominal devaluations would be prevented. But there wouldlaw would undermine the legitimacy of the EU institutions; still be dangers for the single market. In particular, the deand a treaty change would create the impression that EU facto disintegration in the markets for banking and otherrules were open to alteration whenever opportune. financial services that we have seen in recent months could be expected to continue. Already, banks across the eurozoneMoreover, the legitimacy and power of the European have renationalised their business and cut back cross-Commission stems to a large extent from the acceptance of border lending significantly. Over the medium term, thisits rulings at the national level. If, in a situation of large- development will lead to a new fragmentation of financingscale exchange rate fluctuations, deep recessions, record conditions and financing costs along national borders.unemployment and a general feeling that member stateswere unfairly taking advantage of each other, national This would have two effects. First, diminished competitivegovernments might be inclined to openly revolt against pressure would lead to less innovation in the quality andEuropean Commission proposals and regulations and ECJ price of financial and payment services for companies andrulings. This would not only tie up resources that could EU citizens. Second, it would drive a permanent wedgeotherwise have been used to push forward the single market, between financing costs in Germany, the Netherlands andbut might in the end also force the EU institutions to take a Finland on the one hand and Spain, Italy and Greece onmore cautious approach in enforcing the single market. the other. As the journalist Paul Taylor puts it, “the best- managed Spanish or Italian banks or companies have to payThe Schengen agreement could also quickly come under far more for loans, if they can get them, than their worst-pressure if the euro disintegrates. The deep recession managed German or Dutch peers.”1 For example, Spanishfollowing the disintegration of EMU would cause new flows global firms like Santander whose operations are largelyof migrants from crisis countries to the rest of the EU. As conducted outside Spain (only 13 percent of Santander’sunemployment would rise all over Europe, these migrants profits are earned in Spain) have to face higher borrowingwould not always be welcome in the countries to which they costs than their European counterparts, thus negativelymoved and might trigger a new wave of xenophobia. As affecting their market position. Such a fragmentation ofwe have seen in the past, this might be used by nationalist markets for banking services is not fair because it punishesforces as an occasion to reinterpret, counteract or even pull companies for their location and not efficient because itout of the Schengen agreement and erect new barriers to the cancels the benefits of free markets, which are supposedfree movement of labour within the EU. to reward the best companies and punish poorly managed ones. In addition, such a situation could lead to calls forIn short, a full-blown break-up of the euro has the government subsidies in countries with high financingpotential to shatter the single market beyond recognition. costs to prevent de-industrialisation and potentially alsoFortunately, such a full-blown break-up is not yet the mostlikely scenario – even though one should now attribute anon-trivial probability to such a catastrophic chain of events. 1 aul Taylor, “Signs are growing that Europes economic and monetary union may be P fragmenting faster than policymakers can repair it”, Reuters, 9 July 2012, available at http://www.reuters.com/article/2012/07/09/us-eurozone-banking-policy- idUSBRE86805N20120709 3
  • 4. for protectionist measures by their peers in the north as all constitutional court, such a leap of integration would haveWHY THE EURO CRISIS THREATENS THE EUROPEAN SINGLE MARKET member states compete for market shares in a stagnating or to come with stronger democratic legitimisation at the even shrinking market. European level, either through a strengthened European Parliament or through the introduction of a new chamber Again, the European Commission and the ECJ are usually made up from deputies from the national parliaments of supposed to prevent such policies by member states, but eurozone countries. they would face a number of dilemmas in this scenario. Prohibiting subsidies that clearly distort the single market In economic terms, such a move towards true federalism is one thing, but prohibiting subsidies that are introduced has the potential to end the euro crisis. Financing costs to correct a market failure in other markets (in this case the among countries would converge again once the risk of market for banking and financing services) is another issue spillover from national banking crises to national budgets and would cause conflicts with member states governments. has been mitigated. Once it is clear that market sentiment alone cannot push interest rates to unsustainable levels The renationalisation of banking would also have another, and hence cannot lead to self-fulfilling speculation on a more subtle consequence: as financing would become country’s default any more, risk premiums on government scarcer and more expensive in some countries, cross-border bonds would fall. Lower interest rate payments would allow production sharing or outsourcing might become riskier and for a slower fiscal adjustment path and hence a quicker more expensive. Again, business could to a certain extent be recovery from the current recession in the periphery. expected to focus more on production in their home markets. Returning business confidence would add to this trend. As in the break-up scenario, though to a lesser extent, this With the risk of a euro break-up off the table, cross-border would lower competitive pressure and reduce innovation in financial flows would grow again. Overall, economic growth the single market. in the eurozone would be much stronger in the coming years, improving debt sustainability across Europe. The muddling-through scenario also poses threats to the Schengen agreement, albeit not as acute as the euro break- However, even this positive scenario entails risks for the up scenario. Weak economic growth in Europe would mean single market and European integration. In principle, an increase in unemployment and the long recession in the one could imagine taking many of the integration steps south would create new flows of migrants to the northern described above through enhanced cooperation among the countries. Again, the danger is that this will be exploited eurozone countries – and therefore within the framework by nationalist politicians to push for a rollback of the free of a two-speed Europe. In practice, however, it is unlikely movement of people within the EU. that such a two-speed Europe with a stronger integration of the banking and financial sector in the core will be viable Thus while the muddling-through scenario looks better without at least some of the other member states leaving the than the full-blown break-up, it still entails significant EU altogether. damage to the single market. While the single market might (almost) retain its size and geographical coverage, it would The drive towards more coherent financial sector be significantly shallower. This is especially tragic because, supervision in Europe after the fallout of the US sub- with politicians unwilling or unable to push strongly for a prime crisis 2008/9 has already created conflicts between great leap forward in integration, this muddling-through a number of continental European governments and the scenario has long looked to be the most likely one. British government, which has traditionally had a strong national interest in protecting its financial industry. The compromises made in the legislative process up to the end Fiscal union: a smaller single market of 2011 meant that national supervisory authorities kept significant discretion in the regulation and oversight of their The third scenario is economically the most promising national financial institutions and the European authorities for Europe. In this scenario, the leaders of the euro area had limited power when it came to ordering national www.ecfr.eu actually take a great leap forward in terms of fiscal and supervisors what to do. economic policy integration. This would entail a full- fledged banking union with a restructuring/recapitalisation The real banking union that eurozone leaders are now mechanism at the European level, centralised banking discussing would mean a much stronger centralisation of and financial supervision and oversight, at least some oversight – at least within the eurozone itself. However, October 2012 partial mutualisation of debt, a significant increase in the a bank’s risk can only be fully controlled if either of the rescue capacities, for example by the ECB stepping up counterparties’ risk is also controlled or if exposure to to its promises to intervene on a large scale in secondary a counterparty is limited. Thus, over time, there would bonds markets or granting a banking licence to the ESM, be pressure by eurozone authorities to impose similar some transfer of revenue sources to the European level and standards for non-euro EU banks as they do for eurozone ECFR/64 the introduction of some inter-regional transfers to the banks. In fact, the recent proposals by the European European level to counter macroeconomic imbalances. To Commission on the single supervisory mechanism (SSM) fulfill demands of the German constitution and the German for financial institutions implicitly assume that EU member 4
  • 5. states outside the eurozone will follow the rules set by began, the single market is still envied. But with cracks inthe ECB. If member states such as the UK do not accept the single market appearing, it too could lose some of itsthis, eurozone legislators might try to limit business with shine.counterparties outside the eurozone. Unless the UK acceptsthe eurozone regulator’s decisions, the markets for financial This will have important consequences for the EU’sservices would break up along currency lines. Both options influence in global trade negotiations and internationalwould seriously alter the British cost-benefit calculation economic policy coordination. First, emerging markets willof its EU membership: accepting eurozone regulators’ be less willing to accept advice from Europe if the generalrulings would mean a loss of sovereignty in an important perception is that the old continent is unable to solve its ownpolicy area; a fragmentation of the financial market at the economic problems sufficiently. This will make it harder foreurozone’s border would be against the British financial Europe to pursue its interests in international institutionssector’s business interests and make EU membership less like the G20 or the International Monetary Fund (IMF).attractive. Second, it will be harder for the EU to negotiate preferential trade agreements and free trade agreements. If the singleAnother possible point of conflict is the plan by continental market is diminished in any of the three ways describedEurope to impose a financial transaction tax (FTT) and other above, getting access to it will become less attractive. Otherbank levies to pay for the bank rescues now underway in the countries around the world could therefore be less willingeurozone. If countries such as the UK did not participate, it to make concessions in return for a trade agreement withwould lead to losses in revenue, which could create political the EU.pressure for either compensatory payments or capitalcontrols to prevent tax evasion. All this has the potential to It is above all policymakers who can limit this fallout. Aturn public opinion in some non-euro countries even further leap towards more integration at the core seems to be theagainst the EU and increase the risk of an exit from the EU. least bad option for the single market, even if it risks beingBut even if such Euroscepticism can be contained, measures reduced in size and there is some disintegration at the fringe.by eurozone countries would lead to a further fragmentation Of course, safeguarding the single market is not the onlyof financial markets between euro-ins and euro-outs. objective for policymakers. They have to weigh the cost and benefits of different policy paths. But it is important thatThus even in the best-case scenario the single market they do not deceive themselves and believe that the singlewould suffer. Although it would not be shattered or market can be separated from the current euro issues. Thebecome shallower, the likelihood of a withdrawal of one euro has been a catalyst for many elements of the deep deor several countries from the EU would increase and there facto economic integration of Europe that now exists. Butwill almost certainly a certain degree of disintegration in conversely, the euro crisis has also hit the single market.the financial and banking market along currency lines. Inother words, deeper integration in the core would come The potential cost of a shattered single market needs to bewith disintegration in the EU’s periphery and shrink the taken into account when deciding what to give up to save thesingle market. In other words, it might be the least bad – euro – not only in terms of monetary costs but also in termsrather than best – scenario. The UK might try to negotiate of national sovereignty. But this lesson is also important fora relationship to the EU similar to that of Norway or the non-euro EU member states such as the UK: beyond theSwitzerland in order to remain part of the single market for adverse short-term impact of the recession in the eurozonegoods. Moreover, one might even argue that the benefits of on the rest of the EU, there are potential long term costsa more deeply integrated core single market compensate to of the current euro crisis for them. When deciding whethera large degree for the costs of a geographically downsized and how much they will contribute to eurozone bailouts,single market. But this least bad scenario is not the most and how much of a two-speed Europe they are prepared toprobable of the three. accept, they should take these costs into account. Business leaders also have a role to play. They need toThe impact on the EU’s standing become more aware of the benefits the single market hasin the world brought them and of the risk the euro crisis entails for them. They need to clearly define their interests and then lobbyThus, 20 years after its inception, the outlook for the vigorously for a solution to the crisis that will be conducivesingle market is not bright. This may have consequences for their business activities. At times, they will need tofor Europe’s standing in the world. For years, people all step up and publicly support potentially unpopular stepsaround the world have admired the peaceful integration of towards closer integration. The single market has been aEurope. In fact, a host of regional groups of countries from great project that has brought a large number of benefits toAsia over Africa to South America have actually tried to copy Europe, from better consumer choices to easier productionEuropean integration when drawing up their own regional sharing to a vast market for European firms to develop andinstitutions and rules. Even if the latest step in European test their products. Twenty years after the Single Europeanintegration, the single currency, is now viewed with more Act that established this single market was signed, it nowscepticism around the world than it was before the crisis needs all the support Europe can collectively muster. 5
  • 6. About the author AcknowledgementsWHY THE EURO CRISIS THREATENS THE EUROPEAN SINGLE MARKET Sebastian Dullien is a Senior Policy Fellow at the European This memo has benefited from ongoing discussions within Council on Foreign Relations and a professor of International the ECFR and with politicians, bankers and observers. Economics at HTW Berlin, the University of Applied Among the many with which the topic has been discussed, Sciences. From 2000 to 2007 he worked as a journalist for comments by Sony Kapoor, Mark Schieritz and Daniela the Financial Times Deutschland, first as a leader writer and Schwarzer proved especially useful. Inside the ECFR, then on the economics desk. He writes a monthly column in comments and suggestions by Marco de Andreis, Olaf the German magazine Capital and is a regular contributor Boehnke, Ulrike Guérot, Mark Leonard, Thomas Klau and to Spiegel Online. His publications for ECFR include The José Ignacio Torreblanca provided valuable insights and long shadow of ordoliberalism: Germanys approach to helped structure the argument. The ECFR team in London, the euro crisis (with Ulrike Guérot, 2012). in particular Alba Lamberti, Nicholas Walton and Alexia Gouttebroze, made the internal publication process swift and smooth. Hans Kundnani did a great job editing the piece and suggesting important additional angles otherwise underexposed in the original draft. www.ecfr.eu October 2012 ECFR/64 6
  • 7. Among members of the EuropeanCouncil on Foreign Relations are John Bruton (Ireland) Hanzade Dogan Boyner ˘ Hans Hækkerup (Denmark)former prime ministers, presidents, Former European Commission (Turkey) Former Chairman, DefenceEuropean commissioners, current Ambassador to the USA; former Prime Chair, Dog Gazetecilik and Dog ˘an ˘an Commission; former Defence Ministerand former parliamentarians and Minister (Taoiseach) On-lineministers, public intellectuals, Heidi Hautala (Finland)business leaders, activists and Ian Buruma Andrew Duff Minister for International Developmentcultural figures from the EU member (The Netherlands) (United Kingdom) Sasha Havlicekstates and candidate countries. Writer and academic Member of the European Parliament (United Kingdom) Erhard Busek (Austria) Mikuláš Dzurinda (Slovakia) Executive Director, Institute for StrategicAsger Aamund (Denmark) Chairman of the Institute for the Former Foreign Minister Dialogue (ISD)President and CEO, A. J. Aamund A/S Danube and Central Europeand Chairman of Bavarian Nordic A/S Hans Eichel (Germany) Connie Hedegaard (Denmark) Jerzy Buzek (Poland) Former Finance Minister Commissioner for Climate ActionUrban Ahlin (Sweden) Member of the European Parliament;Deputy Chairman of the Foreign former President of the European Rolf Ekeus (Sweden) Steven Heinz (Austria) Parliament; former Prime Minister Former Executive Chairman, United Co-Founder Co-Chairman,Affairs Committee and foreign Lansdowne Partners Ltdpolicy spokesperson for the Social Nations Special Commission on Iraq;Democratic Party Gunilla Carlsson (Sweden) former OSCE High Commissioner on Minister for International Development National Minorities; former Chairman Annette Heuser (Germany) Cooperation Executive Director, BertelsmannMartti Ahtisaari (Finland) Stockholm International Peace Foundation Washington DCChairman of the Board, Crisis Research Institute, SIPRIManagement Initiative; former Maria Livanos Cattaui (Switzerland) Uffe Ellemann-Jensen Diego Hidalgo (Spain)President Co-founder of Spanish newspaper El Former Secretary General of the (Denmark) País; Founder and Honorary President,Giuliano Amato (Italy) International Chamber of Commerce Chairman, Baltic Development Forum; FRIDEFormer Prime Minister; Chairman, former Foreign MinisterScuola Superiore Sant’Anna; Ipek Cem Taha (Turkey) Jaap de Hoop SchefferChairman, Istituto della Enciclopedia Director of Melak Investments/ Steven EvertsItaliana Treccani; Chairman, Centro Journalist (The Netherlands) (The Netherlands) Former NATO Secretary GeneralStudi Americani Adviser to the Vice President of the Carmen Chacón (Spain)Gustavo de Aristegui (Spain) Former Minister of Defence European Commission and EU High Danuta Hübner (Poland)Diplomat; former Member of Representative for Foreign and Security Member of the European Parliament;Parliament Charles Clarke Policy former European Commissioner (United Kingdom) Tanja Fajon (Slovenia) Anna Ibrisagic (Sweden)Viveca Ax:son Johnson Visiting Professor of Politics, University Member of the European Parliament Member of the European Parliament(Sweden) of East Anglia; former Home SecretaryChairman of Nordstjernan AB Nicola Clase (Sweden) Gianfranco Fini (Italy) Jaakko Iloniemi (Finland) President, Chamber of Deputies; Former Ambassador; former ExecutiveGordon Bajnai (Hungary) Ambassador to the United Kingdom; former Foreign Minister Director, Crisis Management InitiativeFormer Prime Minister former State Secretary Daniel Cohn-Bendit (Germany) Joschka Fischer (Germany) Toomas Ilves (Estonia)Dora Bakoyannis (Greece) Former Foreign Minister and vice- PresidentMember of Parliament; former Foreign Member of the European Parliament ChancellorMinister Robert Cooper Wolfgang Ischinger (Germany) Karin Forseke (Sweden/USA) Chairman, Munich SecurityLeszek Balcerowicz (Poland) (United Kingdom) Chairman, Alliance Trust Plc Conference; Global Head ofProfessor of Economics at the Warsaw Counsellor of the European External Government Affairs Allianz SESchool of Economics; former Deputy Action Service Lykke Friis (Denmark)Prime Minister Member of Parliament; former Minister Minna Järvenpää Gerhard Cromme (Germany) for Climate, Energy and Gender (Finland/US)Lluís Bassets (Spain) Chairman of the Supervisory Board, Equality International Advocacy Director, OpenDeputy Director, El País ThyssenKrupp Society Foundation Jaime Gama (Portugal)Marek Belka (Poland) Maria Cuffaro (Italy) Former Speaker of the Parliament; Mary Kaldor (United Kingdom)Governor, National Bank of Poland; Maria Cuffaro, Anchorwoman, TG3, former Foreign Ministerformer Prime Minister Professor, London School of Economics RAI Timothy Garton Ash Ibrahim Kalin (Turkey)Roland Berger (Germany) Daniel Daianu (Romania) (United Kingdom) Senior Advisor to the Prime MinisterFounder and Honorary Chairman, Professor of Economics, NationalRoland Berger Strategy Consultants Professor of European Studies, Oxford of Turkey on foreign policy and public School of Political and AdministrativeGmbH University diplomacy Studies (SNSPA); former Finance Minister Carlos Gaspar (Portugal) Sylvie Kauffmann (France)Erik Berglöf (Sweden) Chairman of the Portuguese Institute of Editorial Director, Le MondeChief Economist, European Bank for Massimo D’Alema (Italy) International Relations (IPRI)Reconstruction and Development President, Italianieuropei Foundation; Olli Kivinen (Finland) President, Foundation for European Teresa Patricio Gouveia Writer and columnistJan Krzysztof Bielecki (Poland) Progressive Studies; former PrimeChairman, Prime Minister’s Economic Minister and Foreign Minister (Portugal) Ben KnapenCouncil; former Prime Minister Trustee to the Board of the Calouste Marta Dassù (Italy) Gulbenkian Foundation; former (The Netherlands)Carl Bildt (Sweden) Under Secretary of State for Foreign Foreign Minister Minister for European Affairs andForeign Minister Affairs International Cooperation Heather GrabbeHenryka Bochniarz (Poland) Ahmet Davutoglu (Turkey) (United Kingdom) Gerald Knaus (Austria)President, Polish Confederation of Foreign Minister Chairman, European Stability Initiative; Executive Director, Open SocietyPrivate Employers – Lewiatan Carr Center Fellow Institute – Brussels Aleš Debeljak (Slovenia)Svetoslav Bojilov (Bulgaria) Charles Grant Caio Koch-Weser (Germany)Founder, Communitas Foundation and Poet and Cultural Critic Vice Chairman, Deutsche Bank Group;President of Venture Equity Bulgaria (United Kingdom) former State SecretaryLtd. Jean-Luc Dehaene (Belgium) Director, Centre for European Reform Member of the European Parliament; Bassma Kodmani (France)Ingrid Bonde (Sweden) former Prime Minister Jean-Marie Guéhenno (France) Executive Director, Arab ReformCFO Deputy CEO, Vattenfall AB Deputy Joint Special Envoy of the Initiative Gianfranco Dell’Alba (Italy) United Nations and the League ofEmma Bonino (Italy) Director, Confindustria Delegation Arab States on Syria. Rem KoolhaasVice President of the Senate; former EU to Brussels; former Member of the (The Netherlands)Commissioner European Parliament Elisabeth Guigou (France) Architect and urbanist; Professor at the Member of Parliament and President Pavol Demeš (Slovakia) Graduate School of Design, HarvardStine Bosse (Denmark) of the Foreign Affairs Committee Senior Transatlantic Fellow, German UniversityChairman and Non-Executive BoardMember Marshall Fund of the United States Fernando Andresen Guimarães David Koranyi (Hungary) (Bratislava) (Portugal) Deputy Director, Dinu Patriciu EurasiaFranziska Brantner (Germany) Head of the US and Canada Division, Center of the Atlantic Council of theMember of the European Parliament Kemal Dervis (Turkey) European External Action Service Vice-President and Director of United StatesHan ten Broeke Global Economy and Development, Karl-Theodor zu Guttenberg Bernard Kouchner (France)(The Netherlands) Brookings. (Germany) Former Minister of Foreign AffairsMember of Parliament and Tibor Dessewffy (Hungary) Former Defence Ministerspokesperson for foreign affairs Ivan Krastev (Bulgaria) President, DEMOS Hungary István Gyarmati (Hungary) Chair of Board, Centre for Liberaland defence President and CEO, International Strategies Centre for Democratic Transition 7
  • 8. Aleksander Kwas ´niewski Daithi O’Ceallaigh (Ireland) Stefano Sannino (Italy) Vaira Vike-Freiberga (Latvia)WHY THE EURO CRISIS THREATENS THE EUROPEAN SINGLE MARKET (Poland) Director-General, Institute of Director General for Enlargement, Former President Former President International and European Affairs European Commission Antonio Vitorino (Portugal) Mart Laar (Estonia) Christine Ockrent (Belgium) Javier Santiso (Spain) Lawyer; former EU Commissioner Minister of Defence; former Prime Editorialist Director, Office of the CEO of Telefónica Minister Europe Andre Wilkens (Germany) Andrzej Olechowski (Poland) Director Mercator Centre Berlin and Miroslav Lajc (Slovakia) ˇák Former Foreign Minister Marietje Schaake Director Strategy, Mercator Haus Deputy Prime Minister and Foreign Dick Oosting (The Netherlands) (The Netherlands) Carlos Alonso Zaldívar (Spain) Minister Member of the European Parliament CEO, European Council on Foreign Former Ambassador to Brazil Alexander Graf Lambsdorff Relations; former Europe Director, Klaus Scharioth (Germany) Amnesty International Dean of the Mercator Fellowship Stelios Zavvos (Greece) (Germany) CEO, Zeus Capital Managers Ltd Member of the European Parliament on International Affairs; former Mabel van Oranje Ambassador of the Federal Republic of (The Netherlands) Samuel Žbogar (Slovenia) Pascal Lamy (France) Germany to the US EU Representative to Kosovo; former Honorary President, Notre Europe and Senior Adviser, The Elders Foreign Director-General of WTO; former EU Pierre Schori (Sweden) Commissioner Marcelino Oreja Aguirre (Spain) Chair, Olof Palme Memorial Fund; Member of the Board, Fomento de former Director General, FRIDE; former Bruno Le Maire (France) Construcciones y Contratas; former EU SRSG to Cote d’Ivoire Member of Parliament; Former Minister Commissioner for Food, Agriculture Fishing Wolfgang Schüssel (Austria) Monica Oriol (Spain) Member of Parliament; former Mark Leonard CEO, Seguriber Chancellor (United Kingdom) Cem Özdemir (Germany) Karel Schwarzenberg Director, European Council on Foreign Leader, Bündnis90/Die Grünen Relations (Green Party) (Czech Republic) Foreign Minister Jean-David Lévitte (France) Ana Palacio (Spain) Former Sherpa to the President of the Former Foreign Minister; former Senior Giuseppe Scognamiglio (Italy) French Republic; former Ambassador to President and General Counsel of the Executive Vice President, Head of Public the United States Affairs Department, UniCredit S.p.A World Bank Group Sonia Licht (Serbia) Simon Panek (Czech Republic) Narcís Serra (Spain) President, Belgrade Fund for Political Chairman, People in Need Foundation Chair of CIDOB Foundation; former Vice Excellence President of the Spanish Government Chris Patten (United Kingdom) Radosław Sikorski (Poland) Juan Fernando López Aguilar Chancellor of Oxford University and co- Foreign Minister (Spain) chair of the International Crisis Group; Member of the European Parliament; former EU Commissioner Aleksander Smolar (Poland) former Minister of Justice Chairman of the Board, Stefan Batory Diana Pinto (France) Foundation Adam Lury (United Kingdom) Historian and author CEO, Menemsha Ltd Javier Solana (Spain) Jean Pisani-Ferry (France) Former EU High Representative for the Monica Macovei (Romania) Director, Bruegel; Professor, Université Common Foreign and Security Policy Member of the European Parliament Paris-Dauphine Secretary-General of the Council of the Emma Marcegaglia (Italy) Ruprecht Polenz (Germany) EU; former Secretary General of NATO CEO of Marcegalia S.p.A; former Member of Parliament; Chairman of the Bundestag Foreign Affairs Committee George Soros President, Confindustria (Hungary/USA) Katharina Mathernova (Slovakia) Lydie Polfer (Luxembourg) Founder and Chairman, Open Society Senior Advisor, World Bank Member of Parliament; former Foreign Foundations Minister I´ñigo Méndez de Vigo (Spain) Teresa de Sousa (Portugal) Secretary of State for the European Charles Powell Journalist Union (Spain/United Kingdom) Goran Stefanovski (Macedonia) Director, Real Instituto Elcano David Miliband Playwright and Academic (United Kingdom) Andrew Puddephatt Rory Stewart Member of Parliament; Former (United Kingdom) (United Kingdom) Secretary of State for Foreign and Director, Global Partners Associated Member of Parliament Commonwealth Affairs Ltd. Vesna Pusic (Croatia) ´ Alexander Stubb (Finland) Alain Minc (France) Minister for Foreign Trade and President of AM Conseil; former Foreign Minister European Affairs; former Foreign chairman, Le Monde Minister Robert Reibestein Nickolay Mladenov (Bulgaria) (The Netherlands) Michael Stürmer (Germany) Foreign Minister; former Defence Director, McKinsey Company Chief Correspondent, Die Welt Minister; former Member of the European Parliament George Robertson Ion Sturza (Romania) Dominique Moïsi (France) (United Kingdom) President, GreenLight Invest; former Former Secretary General of NATO Prime Minister of the Republic of Senior Adviser, IFRI Moldova Pierre Moscovici (France) Albert Rohan (Austria) ´ Paweł Swieboda (Poland) www.ecfr.eu Former Secretary General for Foreign Finance Minister; former Minister for President, Demos EUROPA - Centre for Affairs European Affairs European Strategy Nils Muiznieks (Latvia) Adam D. Rotfeld (Poland) Former Minister of Foreign Affairs; Vessela Tcherneva (Bulgaria) Council of Europe Commissioner for Spokesperson and advisor, Ministry of Co-Chairman of Polish-Russian Group Human Rights Foreign Affairs on Difficult Matters, Commissioner of Hildegard Müller (Germany) Euro-Atlantic Security Initiative Teija Tiilikainen (Finland) Chairwoman, BDEW Bundesverband der Energie- und Wasserwirtschaft Norbert Röttgen (Germany) Director, Finnish Institute for Minister for the Environment, International Relations October 2012 Wolfgang Münchau (Germany) Conservation and Nuclear Safety Luisa Todini (Italy) President, Eurointelligence ASBL Olivier Roy (France) Chair, Todini Finanziaria S.p.A Alina Mungiu-Pippidi (Romania) Professor, European University Institute, Florence Loukas Tsoukalis (Greece) Professor of Democracy Studies, Hertie Professor, University of Athens and School of Governance Daniel Sachs (Sweden) President, ELIAMEP Kalypso Nicolaïdis CEO, Proventus Erkki Tuomioja (Finland) ECFR/64 (Greece/France) Pasquale Salzano (Italy) Foreign Minister Professor of International Relations, Vice President for International University of Oxford Governmental Affairs, ENI Daniel Valtchev, (Bulgaria) Former Deputy PM and Minister of Education 8
  • 9. Also available A Global China Policy Europe and the Arab Revolutions: A Power Audit of EU-North Africafrom ECFR François Godement, June 2010 A New Vision for Democracy and Relations (ECFR/22) Human Rights Nick Witney and Anthony Dworkin,New World Order: The Balance Susi Dennison and Anthony Dworkin, September 2012 (ECFR/62)of Soft Power and the Rise of Towards an EU Human Rights November 2011 (ECFR/41)Herbivorous Powers Strategy for a Post-Western World Transnistria: A Bottom-up SolutionIvan Krastev and Mark Leonard, Susi Dennison and Anthony Dworkin, Spain after the Elections: the Nicu Popescu and Leonid Litra,October 2007 (ECFR/01) September 2010 (ECFR/23) “Germany of the South”? September 2012 (ECFR/63) José Ignacio Torreblanca and MarkA Power Audit of EU-Russia The EU and Human Rights at the Leonard, November 2011 (ECFR/42)Relations UN: 2010 ReviewMark Leonard and Nicu Popescu, Richard Gowan and Franziska Four Scenarios for the ReinventionNovember 2007 (ECFR/02) Brantner, September 2010 (ECFR/24) of Europe Mark Leonard, November 2011Poland’s second return to Europe? The Spectre of a Multipolar Europe (ECFR/43)Paweł Swieboda, December 2007 Ivan Krastev Mark Leonard with(ECFR/03) Dimitar Bechev, Jana Kobzova Dealing with a Post-Bric Russia Andrew Wilson, October 2010 Ben Judah, Jana Kobzova and NicuAfghanistan: Europe’s (ECFR/25) Popescu, November 2011 (ECFR/44)forgotten warDaniel Korski, January 2008 (ECFR/04) Beyond Maastricht: a New Deal for Rescuing the euro: what is China’s the Eurozone price?Meeting Medvedev: The Politics of Thomas Klau and François François Godement, November 2011the Putin Succession Godement, December 2010 (ECFR/26) (ECFR/45)Andrew Wilson, February 2008(ECFR/05) The EU and Belarus after the A “Reset” with Algeria: the Russia Election to the EU’s SouthRe-energising Europe’s Security and Balázs Jarábik, Jana Kobzova Hakim Darbouche and SusiDefence Policy and Andrew Wilson, January 2011 Dennison, December 2011 (ECFR/46)Nick Witney, July 2008 (ECFR/06) (ECFR/27) Ukraine after the TymoshenkoCan the EU win the Peace in After the Revolution: Europe and verdictGeorgia? the Transition in Tunisia Andrew Wilson, December 2011Nicu Popescu, Mark Leonard and Susi Dennison, Anthony Dworkin, (ECFR/47)Andrew Wilson, August 2008 (ECFR/07) Nicu Popescu and Nick Witney, March 2011 (ECFR/28) European Foreign Policy ScorecardA Global Force for Human Rights? 2012An Audit of European Power at European Foreign Policy Scorecard February 2012 (ECFR/48)the UN 2010Richard Gowan and Franziska March 2011 (ECFR/29) The Long Shadow ofBrantner, September 2008 (ECFR/08) Ordoliberalism: Germany’s The New German Question: How Approach to the Euro CrisisBeyond Dependence: How to deal Europe can get the Germany it Sebastian Dullien and Ulrike Guérot,with Russian Gas needs February 2012 (ECFR/49)Pierre Noel, November 2008 (ECFR/09) Ulrike Guérot and Mark Leonard, April 2011 (ECFR/30) The End of the Putin ConsensusRe-wiring the US-EU relationship Ben Judah and Andrew Wilson,Daniel Korski, Ulrike Guerot and Mark Turning Presence into Power: March 2012 (ECFR/50)Leonard, December 2008 (ECFR/10) Lessons from the Eastern Neighbourhood Syria: Towards a Political SolutionShaping Europe’s Afghan Surge Nicu Popescu and Andrew Wilson, Julien Barnes-Dacey, March 2012Daniel Korski, March 2009 (ECFR/11) May 2011 (ECFR/31) (ECFR/51)A Power Audit of EU-China Relations Egypt’s Hybrid Revolution: a Bolder How the EU Can Support ReformJohn Fox and Francois Godement, EU Approach in BurmaApril 2009 (ECFR/12) Anthony Dworkin, Daniel Korski and Jonas Parello-Plesner, March 2012 Nick Witney, May 2011 (ECFR/32) (ECFR/52)Beyond the “War on Terror”:Towards a New Transatlantic A Chance to Reform: How the EU China at the crossroadsFramework for Counterterrorism can support Democratic Evolution François Godement, April 2012Anthony Dworkin, May 2009 (ECFR/13) in Morocco (ECFR/53) Susi Dennison, Nicu Popescu andThe Limits of Enlargement-lite: José Ignacio Torreblanca, Europe and Jordan: Reform beforeEuropean and Russian Power in the May 2011 (ECFR/33) it’s too lateTroubled Neighbourhood Julien Barnes-Dacey, April 2012Nicu Popescu and Andrew Wilson, China’s Janus-faced Response to (ECFR/54)June 2009 (ECFR/14) the Arab Revolutions Jonas Parello-Plesner and Raffaello China and Germany: Why theThe EU and human rights at the UN: Pantucci, June 2011 (ECFR/34) Emerging Special Relationship2009 annual review Matters for EuropeRichard Gowan and Franziska What does Turkey think? Hans Kundnani and Jonas Parello-Brantner, September 2009 (ECFR/15) Edited by Dimitar Bechev, June 2011 Plesner, May 2012 (ECFR/55) (ECFR/35)What does Russia think? After Merkozy: How France andedited by Ivan Krastev, Mark Leonard What does Germany think about Germany Can Make Europe Workand Andrew Wilson, September 2009 Europe? Ulrike Guérot and Thomas Klau,(ECFR/16) Edited by Ulrike Guérot and May 2012 (ECFR/56) Jacqueline Hénard, June 2011Supporting Moldova’s Democratic (ECFR/36) The EU and Azerbaijan: Beyond OilTransition Jana Kobzova and Leila Alieva,Nicu Popescu, October 2009 (ECFR/17) The Scramble for Europe May 2012 (ECFR/57) François Godement and JonasCan the EU rebuild failing states? A Parello-Plesner with Alice Richard, A Europe of Incentives: How toreview of Europe’s Civilian Capacities July 2011 (ECFR/37) Regain the Trust of Citizens andDaniel Korski and Richard Gowan, MarketsOctober 2009 (ECFR/18) Palestinian Statehood at the UN: Mark Leonard and Jan Zielonka, Why Europeans Should Vote “Yes” June 2012 (ECFR/58)Towards a Post-American Europe: Daniel Levy and Nick Witney,A Power Audit of EU-US Relations September 2011 (ECFR/38) The Case for Co-operation inJeremy Shapiro and Nick Witney, Crisis ManagementOctober 2009 (ECFR/19) The EU and Human Rights at the Richard Gowan, June 2012 (ECFR/59) UN: 2011 ReviewDealing with Yanukovych’s Ukraine Richard Gowan and Franziska The Periphery of the Periphery: TheAndrew Wilson, March 2010 Brantner, September 2011 (ECFR/39) Western Balkans and the Euro Crisis(ECFR/20) Dimitar Bechev, August 2012 (ECFR/60) How to Stop the DemilitarisationBeyond Wait-and-See: The Way of Europe Lebanon: Containing SpilloverForward for EU Balkan Policy Nick Witney, November 2011 from SyriaHeather Grabbe, Gerald Knaus and (ECFR/40) Julien Barnes-Dacey, September 2012Daniel Korski, May 2010 (ECFR/21) (ECFR/61) 9
  • 10. ABOUT ECFRThe European Council on Foreign Relations (ECFR) is thefirst pan-European think-tank. Launched in October 2007, itsobjective is to conduct research and promote informed debateacross Europe on the development of coherent, effective andvalues-based European foreign policy.ECFR has developed a strategy with three distinctive elementsthat define its activities:• pan-European Council. ECFR has brought together a A distinguished Council of over one hundred Members - politicians, decision makers, thinkers and business people from the EU’s member states and candidate countries - which meets once a year as a full body. Through geographical and thematic task forces, members provide ECFR staff with advice and feedback on policy ideas and help with ECFR’s activities within their own countries. The Council is chaired by Martti Ahtisaari, Joschka Fischer and Mabel van Oranje.• physical presence in the main EU member states. A ECFR, uniquely among European think-tanks, has offices in Berlin, London, Madrid, Paris, Rome, Sofia and Warsaw. In the future ECFR plans to open an office in Brussels. Our offices are platforms for research, debate, advocacy and communications.• distinctive research and policy development process. A ECFR has brought together a team of distinguished researchers and practitioners from all over Europe to advance its objectives through innovative projects with a pan-European focus. ECFR’s activities include primary research, publication of policy reports, private meetings and public debates, ‘friends of ECFR’ gatherings in EU capitals and outreach to strategic media outlets.ECFR is backed by the Soros Foundations Network, theSpanish foundation FRIDE (La Fundación para las RelacionesInternacionales y el Diálogo Exterior), the BulgarianCommunitas Foundation, the Italian UniCredit group, theStiftung Mercator and Steven Heinz. ECFR works in partnershipwith other organisations but does not make grants toindividuals or institutions.www.ecfr.eu The European Council on Foreign Relations does not take collective positions. This paper, like all publications of the European Council on Foreign Relations, represents only the views of its authors. Copyright of this publication is held by the European Council on Foreign Relations. You may not copy, reproduce, Design by David Carroll Co davidcarrollandco.com republish or circulate in any way the content from this publication except for your own personal and non-commercial use. Any other use requires the prior written permission of the European Council on Foreign Relations © ECFR October 2012. ISBN: 978-1-906538-64-4 Published by the European Council on Foreign Relations (ECFR), 35 Old Queen Street, London, SW1H 9JA, United Kingdom london@ecfr.eu

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