Post Crisis: Europe and the World in 2025

7/27/2019 Post Crisis: Europe and the World in 2025

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CONFERENCE PAPERS 2013Rga

Post Crisis: Europe and the World in 2025

Four Foreign Policy Scenarios

THE


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2013 The German Marshall Fund o the United States. All rights reserved.

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The German Marshall Fund of the United States

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This publication can be downloaded or ree at www.gmus.org/publications. Limited print copies are also available. To request acopy, send an e-mail to [email protected].

About GMF

The German Marshall Fund o the United States (GMF) strengthens transatlantic cooperation on regional, national, and globalchallenges and opportunities in the spirit o the Marshall Plan. GMF does this by supporting individuals and institutions workingin the transatlantic sphere, by convening leaders and members o the policy and business communities, by contributing researchand analysis on transatlantic topics, and by providing exchange opportunities to oster renewed commitment to the transatlanticrelationship. In addition, GMF supports a number o initiatives to strengthen democracies. Founded in 1972 as a non-partisan,non-prot organization through a git rom Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strongpresence on both sides o the Atlantic. In addition to its headquarters in Washington, DC, GMF has oces in Berlin, Paris, Brussels,

Belgrade, Ankara, Bucharest, Warsaw, and Tunis. GMF also has smaller representations in Bratislava, Turin, and Stockholm.

About LATO

LATO is a non-governmental organization that was established on March 21, 2000 with the aim o bringing together like-mindedindividuals who will be promoting Latvia`s membership in NATO. LATO inorms the public about NATO and the various aspects oLatvias membership in the Alliance, organizes inormative events about Latvian and Euro-Atlantic security issues including theannual Riga Conerence, promotes partnership with other countries with the objective o inorming their citizens about Latvia as anactive EU and NATO member state, lays oundations or Latvias international role as an active member state o NATO.

About the EuroFuture Project

The German Marshall Fund o the United States understands the twin crises in Europe and the United States to be a dening mo-ment that will shape the transatlantic partnership and its interactions with the wider world or the long term. GMFs EuroFutureProject thereore aims to understand and explore the economic, governance, and geostrategic dimensions o the EuroCrisis rom atransatlantic perspective. The Project addresses the impact, implications, and ripple eects o the crisis in Europe, or the UnitedStates, and the world.GMF does this through a combination o initiatives on both sides o the Atlantic, including large and small convening, regional

seminars, study tours, paper series, polling, briengs, and media interviews. The Project also integrates its work on the EuroCrisisinto several o GMFs existing programs. The group o GMF experts involved in the project consists o several Transatlantic Fellows aswell as program sta on both sides o the Atlantic.


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Post Crisis: Europe and the World in 2025

Four Foreign Policy Scenarios

by Thomas Kleine-Brockho


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Table o Contents

P r o j e c t D e s i g n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ForewardH.E. Edgars Rinkvis, Foreign Minister o Latvia . .. .. .. .. .. .. .. .. .. .. .. . .. . . . .. . . .. . . .. . . .. . . . .. . . 3

I n t r o d u c t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Complete Fragmentation: Divided We Fall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Partial Fragmentation: Europes New Complexity .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Partial Integration: More Europe, Step by Step ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Ful l Integration: A Union Recast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Sum m ary and Concl usions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 3

Appendix I: Some Remarks on MethodologyKarlheinz Steinmueller, Z_punkt The Foresight Company .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Appendix II: List o Riga Process Workshop Participants .. . . .. . . .. . . .. . . . .. . . .. . . .. . . . .. . . .. . . .. . . .. . . . .. . . .52

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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Project Design

No clear outcome of the Eurocrisis is in sight. Dierent pathways for Europe appear to be conceivable.

Dierent pathways may have vastly dierent implications for European foreign policy.

Based on four dierent assumptions about the future of European integration, four scenarios were

developed in order to map the possible oreign policy consequences o the crisis.

The four scenarios are:

(1) Complete Fragmentation: The European Union moves towards disintegration. On the world stage, adivided Europe declines as a global actor.

(2) Partial Fragmentation: Europe moves towards polycentricity. Several competing Europes emerge.The European Union becomes less reliable, predictable, and powerul as a oreign policy actor.

(3) Partial Integration: Incremental progress towards better policy coordination within the Eurozonere-establishes the European Union as a reliable partner or its neighbors. The transatlantic relationshipades, and NATO slowly withers away.

(4) Full Integration: The Economic and Monetary Union is completed in the European Union. It takes severalyears, but eventually Europe becomes a more ambitious oreign policy actor with a global outlook and anincreased military capacity.

A group of 25 experts from multiple European countries as well as the United States developed and

discussed the scenarios during two workshops held in September 2012 and March 2013.

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Foreward

by H.E. Edgars Rinkvis, Foreign Minister o Latvia

Riga is proud to host the 8th consecutive Riga Conerence in September 2013. Over the years, theConerence has become one o the leading oreign and security policy orums in Northern Europe, attractinggovernment ocials, scholars, and intellectuals who engage in vigorous debate on international topics.In parallel to the Riga Conerence, the Riga Processan exercise to track and analyse oreign policyconsequences o the crisis in Europewas launched in close coordination between the Ministry o ForeignAairs o Latvia, the Latvian Transatlantic Organization (LATO), and the German Marshall Fund o the UnitedStates (GMF). The Riga Process involves a group o oreign policy experts and economists rom severalEuropean countries as well as the United States to examine the altered strategic landscape that willinevitably result rom the Eurozone crisis. The group meets twice a year or two-day workshops, on themargins o the annual Riga Conerence in the all and on the margins o GMFs annual Brussels Forum in thespring. It is called the Riga Process in recognition o GMFs Latvian partnerships.

During our discussions at the rst Riga Process Workshop in September 2012, we generated ourdierent abstract scenarios on the possible uture o the European Union as a oreign policy actor, based onour dierent assumptions about the consequences o the Eurozone crisis. Taking the year o 2025 as a pointo departure, we attempted to model the possible developments o our dierent oreign policy dimensions.During the second Riga Process Workshop in Brussels in March 2013, participants ound that Europes role inthe world, as well as its institutional oreign policy, might be dramatically dierent, depending on the levelo European integration that the crisis will produce.

This publication consists o the our scenarios which incorporate the results rom the rst twoRiga Process Workshops. The scenarios portray our possible states o aairs o European oreign policy ina mid-term uture, the positioning o main actors, as well as persistent and new challenges. Together, thescenarios present valuable insight into the uture role o the European Union as a oreign policy actor, andthereore will acilitate the debate, strategic planning, and policymaking processes at national, European,and global levels.

This September, the third Riga Process Workshop oers us the opportunity to reect onthe scenarios, deepen our analysis on the issues we discussed previously, and explore new ideas. Manydevelopments have taken place since we rst met in Riga last year and which, rom my perspective, mighthave an impact on our discussion, namely:

The Eurozone continued to ace challenges, but it remained united and committed to emergingrom the crisis as a stronger entity. The debate over austerity versus growth unolded, but the European gov-ernments equally understood the importance o setting scally responsible policies. Closer steps towards

creating an eectively unctioning banking union were made. The European Union managed to adopt aseven year nancial ramework which will repeatedly provide the opportunity to bridge the prosperity gapbetween dierent parts o the European Union. Great Britain continued to look or ways to nd the best pos-sible integration model within the European Union, which, according to many analysts, however, does not

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imply leaving the EU.Despite Europes recent challenges, membership o the European Union and its institutions

remained aspirations or many across the continent. On July 9, 2013, Latvia received an invitation to join theEurozone, thus becoming the 18th member o the currency union. Latvias success convincingly demon-strates that comprehensive, sometimes unpopular reorms are necessary to achieve growth. In addition,

as o July 1, 2013, Croatia became the 28th member state o the European Union. Other Balkan statescontinued to declare their willingness to become a part o the European Union.The European Union continued to build neighbourhood strategies with its partners in the East

and the South. This year, Lithuania will become the rst Baltic State to hold the EU Presidency, and it willalso host the Eastern Partnership Summit in November 2013. At the Summit in Vilnius, crucial decisionsregarding the deepening relationships with the EUs Eastern Partners will be taken. The Vilnius Summit hasthe potential to provide new perspectives or mutual trade and people-to-people contacts. However, thesummit itsel will not be the end o the process. It is important to create a clear road map and strategy or

what comes ater Vilnius. I hope that panellists o the Riga Conerence will oer suggestions or these nextsteps.Also in July o this year, the negotiations or the Transatlantic Trade and Investment Partnership commencedwith a view o orming the largest global ree trade zone. The European Union and its member states andthe United States remained close partners on every essential oreign policy issue. We closely coordinatedour positions and worked together on issues including Aghanistan, the Middle East Peace Process, the ArabSpring, the Eastern Partnership, and Russia.

The European Union continued to be the largest development aid provider, actively represented

in every part o the globe. The EU worked towards nding a solution or the crisis in Mali, and continued tospeak increasingly with one voice on the global arena.The above-mentioned developments throughout 2013 helped to alleviate ears that the Euro-

pean project might collapse. On the contrary, the challenges which Europe aces have provided increasedcondence and commitment by European societies and politicians to continue building an integratedEurope. Rather than creating a European super state, we are at the stage o constructing a genuine politicaland economic European Union based on the sovereignty o individual member states.

The European Union, its member states, and its citizens have been working hard to put Europe

on a stable and predictable ooting. While Europe is conronting its internal challenges, the world haswitnessed the emergence o new players in dierent parts o the globe. As a result, the combined GDP oEurope has relatively allen at the expense o other countries and regions. The EU remains committed thatthese new developments ensure that the international political and economic system is based on clear andpredictable rules and the respect o the principles o democracy, human rights, and ree trade. To preservethese ideals, the European Union must act as a single and responsible player in the international arenaby orging partnerships with other likeminded countries. By identiying and examining the oreign policyconsequences o the European crisis, the Riga Process can oer valuable contributions to the debate over the

EUs uture as a global actor.Latvia will hold its rst EU Presidency in the rst hal o 2015, and the Riga Process serves as an

important part o setting the right strategy or the Latvian Presidency. In addition, I am condent that theRiga Process might play an important role as a orum or discussing and identiying dierent elements o4


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uture o EU oreign policy which brings an added value to governments, business people, analysts, andresearchers.

I am looking or urther discussions and deliberations.

Yours sincerely,

Edgars RinkvisForeign Minister o Latvia

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Introduction

Why European Foreign Policy?

Four years into the Eurocrisis, the debate about its consequences takes on more urgency aslonger-term eects start to emerge. What began as a nancial market crash and turned into a sovereigndebt crisis, later emerged as a double or triple dip recession, a crisis o competiveness, o condence, otrust, o democracy, o Europeanism. The list goes on.

Given these ripple eects, it is not surprising that Europes oreign policy has been identied asanother victim o the crisis. Not mincing words, Russian Prime Minister Dimitry Medvedev voices the in-creasingly popular view that Europe is in decline in the 21st century.1 But even inside the European Union,

analysts use the question whether Europe is a spent orce on the global stage2

as a starting pointor a more nuanced discussion.

The answer to this provocative question is complex. It is not trivial to identiy exactly what thetransmission mechanism rom the eld o economics and governance to the realm o power and inuencereally is. Europes recent oreign policy activism even seems to contradict the verdict. However, oneobservation seems indisputable: in the eyes o others, Europes reputation has taken a hit. And what othersthink about Europe and its power is as important as what Europeans themselves think. Perception matters.

For the rst time in hal a century, the idea that Europeans will orm an ever closer union is

being challenged. Dierent European utures or dierent European nation states have begun to emerge; atthe very same time, the crisis is orcing increased integration upon Europe this is a potentially ateul gapthat is opening up. This development has a signicant impact on oreign policy: on the relations betweenEuropean nation states, on their joint oreign and security policy within the European Union, and on theirglobal relationships.

This cleavage might close or it might grow, depending on whether the crisis will eventually leadto ragmentation or urther integration o the EU. The consequences or oreign policy will be signicant.And they will be complex. There is a signicant degree o uncertainty attached to them. Multi-perspective

analysis will be needed to discover and understand these repercussions.Anticipating and mapping possible changes triggered by the crisis are thereore essential or

oreign policy planning. Scenarios can be a valuable tool to this end. Since the advent o the crisis, dierentgroups have conducted scenario exercises about the uture o Europe. They have ocused on the governancestructure, but to our knowledge not on oreign policy. Post Crisis: Europe and the World in 2025endeavors to address this dearth.

1 Andrew Rettman. Russian PM Lectures Barroso on Cyprus. March 21, 2013. EU Observer. http://euobserver.com/economic/119525.

2 Giovanni Grevi and Daniel Keohane, eds. Challenges for European Foreign Policy in 2013: Renewing the EUs Role in the World. January 2013.

http://www.fride.org/publication/1090/challenges-for-european-foreign-policy-in-2013.6


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Why Scenarios?

Scenarios are one o the basic tools o oresight. They are o signicant practical value when aproblem is complex, ill-structured, volatile, and aficted with a considerable degree o uncertainty as isthe case with most mid to long-term political questions.

Scenarios allow or an integrated look at raming conditions as well as actors in a variety othematic spaces. They require a comprehensive mapping o relevant actors and important actorsincluding the actors interests and options. Scenarios are dierent rom static analyses in that they orce usto think about possible uture developments: How could a situation evolve? Which potential course o actioncould the main protagonists pursueand or what reasons? In addition, scenarios demand some degree oimagination about how things could develop and about what strategies the actors could use. Realism andcreative thinking are both necessary or this intellectual exercise.

Seen rom this perspective, scenario processes can be regarded as a collective learning process,

or, more precisely, a collective journey o discovery. They combine the advantages o a thoroughly structuredmulti-stage approach with insights rom expert debate. They:

1. Discourage groupthink

Scenario processes ideally bring together experts with diverse backgrounds: policy makers andresearchers rom dierent disciplines, and, i possible, adherents o dierent schools o thought. Groupthinkis discouraged. Debates about drivers, game changers, and possible outcomes help to establish transparency

about the world-views and hidden assumptions o participants.

2. Celebrate dissent

Whereas political processes are usually aimed at identiying a compromise or building aconsensus, scenario processes celebrate well-argued dissentleading to a more comprehensive picture opossible options and developments. With their open and inormal setting, scenarios are intended to inspireimagination. They encourage out o the box thinking by doing something that might seem paradoxical:they provide boxes (i.e. templates or matrices) to be lled during the generation o the scenario. Blindspotsin other words: actors, circumstances, implications, and perspectives that are usually not consid-eredcan thereore be identied and addressed. Scenarios help participants to athom the contingencyspace o the uture.

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3. Focus on the big picture

Scenario processes provide or a stringent yet exible structure to integrate and assess argumentsand perspectives. They help distinguish game changing and less relevant actors as well as actors. Theypermit us to ocus our attention on what is important, on what can be inuenced, and on what must beaccepted as a given. By deliberately disregarding certain detail, scenarios allow us to generate ocused bigpicture views o possible uture outcomes that are based on present developments.

4. Present more than one future

Scenarios present images o dierent utures, including both desirable ones and less desirableones. They are aimed at promoting thinking about choices in a structured, comprehensive way: What op-tions have to be anticipated? How can preerred outcomes be advanced and undesired ones avoided? Howcan contingencies be prepared or?

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What to Expect?

This publication is the result o a comprehensive scenario process that brought together a diversegroup o experts rom multiple European countries and the United States. Participants came rom variousbackgrounds and included representatives o the academic, think tank, and business communities, aswell as practitioners including ormer and current government ocials and a sitting cabinet member rom aEuropean Union member state. The exercise was part o a larger initiative called The Riga ProcessPathways towards a Euro-Atlantic Future. Inspired by Latvian Foreign Minister Edgars Rinkevics andorganized by the German Marshall Fund o the United States (GMF) as well as the Latvian TransatlanticOrganisation (LATO), this initiative tries to track and analyze oreign policy consequences o the crisis inEurope. The broader line o GMFs analytical work on the euro-Atlantic consequences o the crisis is sup-ported by the Foreign Ministry o Latvia, the Compagnia di San Paolo (Italy), and the GE Foundation (UnitedStates).

The task that the group set or itsel was to outline possible pathways or European oreign policyin the atermath o, and inuenced by, the crisis and its repercussions. The experts agreed not to connetheir attention to the common oreign and security policy o the EU, since much o Europes oreign relationsis conducted by nation states. Depending on how much integration is oreseen or Europe, the reach o theUnions common oreign and security policy might increase. In the case o ragmentation, on the other hand,the European Unions tools might be o diminished importance, while oreign policy by European nationstates as well as between them might gain relevance. The group debated the target date o the scenarios

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and, upon suggestion rom one o its members, settled on 2025. This time horizon reects the belie thatthe crisis will have aded as a major inuencer o policy and that the actors will have changed by then. Butthis choice o time horizon also seems to ensure that the ocus can be kept on the repercussions o the crisisitsel.

During two workshops in Riga and Brussels, the experts generated our scenarios around our

baseline assumptions that ocus on the possible uture economic posture and governance structures o the EU:

Complete fragmentation

Partial fragmentation

Partial integration

Full integration

No assessments were made about which o the our assumptions is more realistic, more plausible,

or more convincing. Rather, the assumptions are abstract options that mark potential outcomes o the crisis:the polar extremes just as the intermediate ones.The scenarios describe what kind o oreign policy landscape might emerge in and around Europe.

For the purposes o structured debate, these implications were initially broken down into our dimensions:

Relations between EU member states EU accession and neighborhood policy Transatlantic relations and security

The EU in the global arena.

The experts shared and discussed their insights about these policy areas and mapped possibleoreign policy challenges arising rom the dierent baseline assumptions. They elaborated on possible ac-tions and reactions on the national, European, and global levels; they identied and claried inconsistenciesacross the policy areas; and they brainstormed uture news items in order to imagine what their scenariomight mean in concrete terms.

As the result, the scenarios portray the state o aairs in a mid-term uture, the positioning omain actors, as well as persistent and new challenges specic to the scenario. Some challenges and ele-ments o the strategic environment remain the same in two or even three o the scenarios. On occasion,similar text elements have been used to underline the parallelism. The interpretative part o this paperocuses on the implications: What are the commonalities and the dierences between the scenarios? Whatcan we learn rom them about the uture o oreign policy making in Europe?

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The scenario group owes a debt o gratitude to two organisations: the Friedrich Ebert Foundationand the oresight experts o Z_punkt: The Foresight Company. The Friedrich Ebert Foundation had con-ducted a related scenario exercise throughout 2012 and 2013. This study, titled Mapping Future Scenarios

or the Eurozone, did not ocus on oreign policy, but on possible economic and governance consequenceso the crisis. The time horizon was 2020, and the scenarios ocused on the Eurozone rather than at the wholeo the European Union (published at http://library.es.de/pd-les/id/ipa/09723.pd). Since this scenarioexercise used a similar methodology and asked related questions about the uture o Europe, the GMF-LATOgroup was able to use the results o the Friedrich Ebert Foundation experts to develop its own baseline as-sumptions about the economic and governance uture o Europe. These assumptions were used as a startingpoint or the conversations about oreign policy. Z_punkt, a leading strategy and oresight consultancy,agreed to collaborate with the GMF-LATO team and lend the companys considerable experience with sce-

nario processes to this project. Team leader Karlheinz Steinmueller, the companys co-ounder and scienticdirector, provided strategic and methodological guidance, acilitated the workshops, and co-authored theintroductory chapter o this report.

How to Read Scenarios?

Scenarios are not orecasts. They do not describe the uture as it will be, but they are consistentand plausible images o possible utures, or rather o alternative uture options: This is the way it couldhappen. It is uncertain which option will become reality. It is entirely possible that the uture will combine

elements o dierent scenarios, surely not in any balanced way, and that new, unknown elements willcontribute to the uturetrends and developments that no one oresees, as well as innovations andimpacts o disruptive events.

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However, this acknowledgement o the exercises limitations does not devalue scenarios. They areprimarily aimed at telling stories about the uture. Their narratives and specic messages inspire thinkingabout the uture and encourage participants to conduct mental experiments. Scenarios are intended tocontribute to public or internal debates about guiding strategies, policies, tools, and instruments. They existto inorm and direct action, preerably long-term, robust, uture-proo action.

For this reason, scenarios can be described as wood-cut images that (seemingly) exaggeratepresent developments. They tend to carry present policies to extremes, to something that is barely consid-ered to be inside the realm o the plausible. Scenarios draw conclusions: What i? At rst glance, someassumptions may even seem counteractual, since they contradict tacit hidden convictions we all hold. Oneo the most important advantages o scenario studies is that they make such assumptions visible and opento debate and critique.

Scenarios include strategies, measures, and policies thatrom todays point o viewmayseem rather improbable or even outright undesirable. Even scenarios that describe a uture which is not

seen as desirable may lead to important strategic insights. As a rule, every scenario, even one that is dubbednegative, combines desirable and undesirable aspects. There is always a bargain.Scenarios may be used in dierent ways: to test the robustness o strategies, to design policies,

to initiate debate, or, more generally, to stimulate thinking about the uture. For a rst encounter withscenarios, the reader may ask:

What is intriguing about the scenario?

Which present trends and developments are addressed in the scenario and how does the scenario deviate from

them? Are the lines of action taken by the main actors consistent with their present strategies, or are new strategies

implemented?

What makes the scenario plausible? Which elements of the scenario are implausible or rather far-fetched?

Which aspects of the scenario are desirable? Which ones are not?

What measures or actions could support the desirable aspects, and which ones could help avoid the undesir-

able aspects?

Scenarios are tools that can lead to better decisions. Their main aim is to draw conclusions: Whatdo we wish to achieve and how can we achieve it? Scenarios do not provide guidance on how we shouldact. But they help us to pose the right questions.

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Four Futures or Europes Foreign Policy Post-Crisis

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Complete Fragmentation: Divided We Fall


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Complete Fragmentation: Divided We Fall

Key Assumptions:

Pathway:The European Union moved towards disintegration.Sovereign Deaults:Several disorderly sovereign deaults and exits rom the Eurozone triggered a down-ward spiral.Membership Status:None o the candidate countries joined the Eurozone; several let and only a rumpEurozone remained.Centralization Level:European scal surveillance and coordination weakened urther;EU institutions were continuously weakened. Macroeconomic surveillance was blocked by internaldisagreement.

Debt:Borrowing costs increased in general and eased only over time and only in a ew countries.Decits:Several member states ailed to meet their medium-term objectives or scalconsolidation.Growth:Growth rates declined in all member states. Unemployment numbers increased, and they easedonly over time and only in a ew countries.Europeanism:Economic deterioration lead to increased populism, as well as anti-European and anti-Eurozone sentiments.

1. The uture o the EU was not inseparable rom the uture o Europe

Fragmentation o the European Union was certainly a sea change. As a response to decades owar, European nations had spent hal a century creating what they called an ever closer union, only to ndtheir eorts rustrated in the wake o the European crisis. Increasing ragmentation was a dynamic that two

generations o leaders had never experienced and or which they were not prepared.However, the downall o Brussels did not result in Armageddon, as several ederalists hadpresaged. No Satan was placed in the bottomless pit o the abyss or a millennium; no one was thrown intoa lake o re burning with brimstone. The uture o the European Union, it turned out, was not inseparable

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rom the uture o European nations.While the Eurozone collapsed and shrank to a tiny core o relatively homogeneous countries,

this development did not trigger the return o conict. No one picked up arms, nor did the ultimate battleor Europe occur. NATO did not all apart because o the Eurocrisis. Europe itsel did not turn into a globaltroublemaker. While the European Union and its currency zone largely disaggregated, some o the antici-

pated ripple eects did not take place.

2. Centriugal orces took over

To be sure, the consequences o ragmentation were grave. Disintegration started with GreatBritain and Greece leaving the European Union and the Eurozone, respectively. The eects o these exitswere initially milder than anticipated, largely because all European countries worked hard to compensate orthe dramatic change in regional architecture by preserving as much cooperation as possible. But

when the Brexit and Grexit triggered additional exits, it became increasingly dicult or the weakenedinstitutions o the now smaller union and the rump currency zone to balance the centriugal orces andmaintain cooperative structures. The dynamics o disintegration nally took over and the introduction oprotective measures like borders, taris, and currency controls undermined the single market. This state oaairs created signicant political grievances.

3. Disintegration became the starting point or lower level re-integration

As the European architecture continued to crumble, European nations began to doubt thatcontinued disintegration would be desirable and sustainable. As they had done rom the moment o theannouncement o a British exit, European nations looked or compensatory mechanisms. Somewhatparadoxically, disintegration became the starting point or lower level re-integration.

During the Golden Age o the European Union, inner-European relations had largely beenhandled within the ramework o the EU or as part o the common European aspiration. In a ragmentedEurope, these relations became part o each nations sovereign oreign policy. This was one o the mostdramatic changes that the crisis created. Not only did common decision-making largely cease to exist, so did

transparency o decision-making and even transparency o intentions. Nations ound that out in the cold, itwas, well, cold. It was at this point that several nations started to question whether they could aord to livein a de-institutionalized Europe. They started to search or an alternative architecture to deal with sharedinterests and shared problems.

Once countries had let the Eurozone and/or the European Union and these institutions increas-ingly unpleasant enorcement mechanisms, new relationships between nations emerged. Yes, trust was anissue. Disintegration had been, among other actors, a result o a breakdown o trust. And trust was initiallyhard to regain on the European stage in the absence o many o the cooperative structures that the Euro-

pean Union had provided during the previous decades. But eventually the interest in cooperative relationsprevailed, at least in some instances.

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4. New groupings emerged

New inormal and temporary groupings emerged to protect regional or group interests. Germanybecame the actional leader o the rump Eurozone which consisted o a ew likeminded and economicallysimilar countries. A continental industrial ederation emerged. So did regional clusters based on historical

ties. The Nordic countries were the prime example. The Benelux countries rediscovered their traditional ties.The Visegrad countries revived their cooperation. There was some overlap between the groupings aroundthe German-led rump Eurozone. The overarching characteristic o these groupings was their inormality.

In Great Britain, those who had predicted isolation upon exit were proven wrong. With exits romthe EU and the Eurozone becoming a mass movement, isolation was no longer a concern or Great Britain.However, growth and decline remained pressing issues. Ater all, the transitional costs o the pan-Europeandivorce were high. So were the spillover eects on Great Britain. It was small comort to the Brits that, inrelative terms, they ared no worse than the continental Europeans. At least they could utilize their tradi-

tional global strengths. London developed as a global services center even as the City lost its position as Eu-ropes banking center. Militarily, Great Britain built on traditional strengths as well. It ocused on its militaryrelationship with the United States even as it became as less relevant partner to the U.S. And it continued itsbilateral deense cooperation with France. However, Britains military reach was much diminished overall.There was no denying that urther decline was the price to pay or disintegration.

There was a countervailing tendency as well. One o the benets o European integration hadbeen regional reconciliation in the name o a higher goal. Now, the European Union could no longer absorbthe historical conicts. In some regions, these rictions reappeared. The Balkan countries were notable in

this regard.Also, sot counterbalancing appeared in Europe. Beore the crisis, the European Union hadmediated competition or power to some degree. In a world o inormal groupings and de-institutionalizedcompetition between nations, it became a goal to rustrate the ambitions o those who aspired to a specialrole. Several neighbors thereore tried to check Germanys ambition to lead the rump Eurozone.

Well aware o these dangers, European leaders turned to the one institution that seemed tohave survived the crisis: NATO. It became an unlikely beneciary o the crisis, and expanded its politicalrole because it oered structures or cooperation while not interering with national sovereignty. With the

ragmentation o the European Union, NATO became the only institution that included all major westernand central European nations.

5. The transatlantic trade deal ailed

Although it had helped to draw and redraw the geographic as well as the institutional map oEurope or a century, the United States increasingly disengaged rom Europe at the outset o the crisis.Consumed with domestic and international terrorism, the Middle East, and the rise o China, the United

States had determined that Europe could solve the crisis alone and did not need America as its oshorebalancer. Initially, the U.S. saw the crisis less as a geopolitical challenge and a threat to the oundation o thewestern institutional order, but rather as a threat to domestic recovery rom the Great Recession. Advice and

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policy towards Europe reected this priority or several years. By the time the U.S. changed course, it was toolate to halt the centriugal orces. Negotiating a Transatlantic Trade and Investment Partnership(TTIP) became a last-ditch eort to incentivize the Europeansand especially the Britsto consider theadvantages o a larger integrated (trade) order. But the eort ailed. By the time the negotiations wereundertaken midway through the second decade o the twenty-rst century, European nations were so

ocused on their national interests that they were unable to strike the necessary compromises in the nameo a larger goal. The ailed TTIP negotiations became the signal re o a crumbling post-World War II order.

6. NATO was reborn

As a consequence, NATO became the institution o last resort. All partners (including the UnitedStates) recognized it as such and put renewed eort into maintaining NATOs structures. Signicantly, it wasa political ramework or cooperation as much as a military alliance. The Europeans saw NATO as the only

way to keep the U.S. engaged in Europe and the best way to maintain cooperation among themselves. Butnone o the problems that stymied progress in the alliance prior to the crisis were solved during the crisis. Inact, the crisis exacerbated some o the key challenges, namely the lack o vision (or an enemy) and unds.The United States was supportive but did not want to play a role in the political and economic issues o theEuropean nations. Consequently, a two-tier NATO emerged with the U.S. opting out o issues that were orEurope alone. It was a less than ideal construct, but the only one available at a period that was dominatedby dynamics o disintegration.

Yet NATO was at least somewhat successul in deterring Russia, which had become more assertive

in the Eastern Neighborhood as Europes magnetism aded. The idea o a global NATO was a aint memoryrom the heyday o the alliance in the late 20th century. Europe was unable to engage in any o the globalhot spots that the United States cared about. Given the scale o its internal problems, Europe looked inward.The economic problems created by a Eurocrisis-turned-disintegration crisis made it inevitable or mostcountries to continue to cut deense budgets. With military technology evolving at a seemingly exponentialrate and emerging economies increasing their deense budgets, Europe ell ever urther behind, creating anew sense o vulnerability. For the next ew years, Europe was unable to overcome its plight. But the pan-European divorce had at least eroded the post-modern consensus that Europe was sae. In eect, Europes

disintegration accelerated the trend towards demilitarization but simultaneously altered the alse sense osecurity o politicians and populations, thereby creating the conditions or a turnaround.

The splintering o the EU resulted in a multipolar Europe where large states and external powerscompeted with each other or inuence over smaller states. States looked or alternative arrangements oa sub-regional or unctional nature, and Europes institutional order became a complex spaghetti-bowl ocooperative arrangements in which the rump EU was only one option amongst many.

7. A splintering EU created a splintering neighborhood

Enlargement as such became less and less relevant as the main prizes that it could bring(visa-ree travel, ree movement o workers, trade, common currency, nancial transers, agricultural policy)

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were less attractive or had disappeared altogether. Oten, ormer candidate countries no longer shared aborder with the EU. Membership in the rump EU was no longer an aspiration. Consequently, these states didnot see a need or meaningul political reorm. As a result, they continued to underperorm economically.Internally, they tended to destabilize. They suered rom a democracy decit as well as ethnic and otherconicts.

Because the European neighborhood was perceived as the locus o instability, an inward-lookingEurope tried to isolate itsel rom these external threats. Rather than trying to transorm its environment,the rump EU as well as its ormer members ocused on protecting themselves. Some eared that severalormer EU members would themselves be transormed by their outlying neighbors and become more likethem.

Russia and other external players started to get involved in the internal rivalries within the or-mer EU space. While the ragmenting EU became increasingly irrelevant to the partner countries, individualEuropean nations or groups o nations took on more ocused, country-by-country roles. Germanys strong

bilateral relations with Russia were a relie to some in Europe, but a cause o concern or others.

8. Worldwide, EU-style integration was seen as a ailed experiment

Even during its heyday, the European Union had struggled to convince its regional and globalpartners that it would one day become a single actor with a unied common oreign and security policy.Europes sovereignty-sharing arrangements had always been a mystery to many o its partners urther aeldeven as the European Union was seen as a model or regional integration. With renationalization, other

global regions ceased to emulate this model. EU-style integration was now viewed as a ailed experiment.The ripple eects in Asia, Arica, and South America were substantial. The negative costs o integration werenow seen as outweighing the benets. Only in this unattering sense did Europe continue to be a globalagenda setter.

9. Europe declined on the global stage

Europes loss o inuence in the international nancial institutions accelerated with diminishing

economic weight and lost cohesion. One round o quota renegotiation was ollowed by another. Europeannation states competed to be heard.

In one sense, Europes disintegration simplied international relations. The world no longerneeded to ask whom to call in Europe. Once again, government ocials turned to their peers in the capitalso European nations, rather than Brussels-based Eurocrats.

10. Europes big three retained limited global inuence

Some European countries emerged quicker than others rom the inward-looking phaseollowing the disintegration crisis. This was especially true or France and Great Britain. In the new Europe,these countries played central roles because they had the capability and ambition to have an international

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presence. With Europe diminished and disintegrating, both countries looked or alternative alignmentsurther aeld, using their old global networks, the vestiges o their colonial periods, to do so. Germany wasthe third power on the continent to emerge as a global player, though not in the ull spectrum. Its restraintin military aairs remained unchanged, butdevoid o its role as a guarantor o Europes integrated systemo governanceGermany seized the opportunity and moved towards becoming a geo-economic power

committed to little else than trade and exports. Its small band o allies in the industrial ederation-stylerump EU beneted greatly rom Germanys commercial ambitions. Because o its lack o investment innational deense, Germany remained a NATO member. As its major global trade partners were no longertantamount to its major strategic partners, Germany struggled to balance its global interests with itsEuropean interests.

11. Cooperation was still needed in Europe

In the nal analysis, European disintegration did not exactly rock the world as many had eared.The gospel that European leaders had preached or decades (that proximity and the interconnectedness othe modern world would put a premium on cooperation) was true even under the conditions o institutionaldisengagement. Not even the sight o the crumbling edice called the European Union could convince themthat they did not need some system o cooperation in Europe. On the other hand, complete ragmentationwas not just the emergence o another modus vivendi in Europe. Fragmentation accelerated the existingtrend o the changing o the guard to the emerging powers. It represented a signicant downgrade oEurope in the new world order.

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Partial Fragmentation: Europes New Complexity

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1. Several competing Europes emerged

Once the British people had voted to leave the European Union and Greece as well as Cyprus hadlet the Eurozone (vowing to return ater recovery and reorm), the EU stood at the crossroads. The remain-ing Eurozone countries ound it too costly to succumb to a dynamic o disintegration. Instead, they moved

to double down on integration. A slightly more homogeneous makeup o the Eurozone aided them. Veryew countries had decided to join the Eurozone. The remaining candidate countries still considered joiningthe Eurozone as an option. British opt-outs or veto threats no longer bedeviled the Union and, with it, theEurozone. A sense o increased clarity developed, even though several Europes emerged: a core Eurozone;candidate countries to the Eurozone; countries that had let the Eurozone; the larger European Union; and,nally, a detached Great Britain.

A complex web o relationships developed in the polycentric world o this new Europe. As the EUweakened, the Euro core strengthened, and exit countries went their own merry ways, rivalries

and groupings emerged. Foreign policy increasingly became an inner-European aair. Due to someconverging interests, a more homogeneous Eurozone ound it somewhat easier to build trust among itsmembers. The countries that had exited the Eurozone ound themselves on the margins o Europe. Mostcandidate countries chose to remain in a waiting zone. Great Britain went o on its own.

2. In polycentric Europe, complexity was king

There were other ways o accounting or the lasting and sometimes overlapping new groupings

o countries within Europe. The most obvious distinction was between the Euro-ins and the Euro-outs.As Eurozone countries integrated urther, the threshold or entry increased, and the number o countriesstriving or entry decreased. Another dividing line distinguished Europes north rom its south. The Eurozonestraddled this divide. It meant that the north-south riction was apparent even inside the governanceapparatus o the Eurozone, thereby limiting urther convergence o interests. Progress was made, includingeorts to overcome the north-south divide in the remaining Eurozone, but unity this was not. None o theexits rom the Eurozone had produced the type o cohesion usually observed in ederal structures.

In this polycentric Europe, nations were just as dependent on each other as beore. The

necessity or trust-based relationships was in no way diminished. But the rules o engagement were evenmore complicated than in the past. And sometimes, there were no rules.

3. Britain went global alone

Britain went global alone. No argument based on economics or security could convince thenationalists to stay inside the Union. They tried to cultivate Britains historic relationships to become a globalservices hub even as the City lost its position as Europes banking center. Militarily, Great Britain built on

traditional strengths as well. It ocused on its military relationship with the United States even as it becameas less relevant partner to the U.S. And it continued its bilateral deense cooperation with France. How-ever, Britains military reach was much diminished overall. Being a medium sized nation state alongside a

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unctioning European Union with a unctioning Eurozone, reduced Britains global inuence since the globalpowers did not see London, but Brussels (and sometimes Berlin or Paris) as the key interlocutors in Europe.

When it suited Britain, it entered into issue-based coalitions with an ever-changing cast o ellowEuropean nations. The relationship with the Eurozone suered rom what the Brits saw as a mediocre tradedeal to which the European Union was willing to agree ater the British departure. (The Europeans elt they

had simply stopped granting the special treatment into which Britain had blackmailed the Union during itsdecades o membership.) Londons nancial center suered rom the act that, given Britains exit rom theUnion, the Eurozone was no longer willing to accept London as its oshore banking center and introducedregulation designed to rustrate the City.

4. Germany became the actional leader o the Eurozone

Germany became the actional leader o this marginally more homogenous Eurozone as well

as the northern group o member states o the European Union. Germanys smaller (northern and Baltic)neighbors tended to agree with German policy and strategy or Europe. Through German leadership theyhoped to increase their own leverage and could also hide behind larger Germany when conicts with otherpartners arose. Still, Germanys leadership remained uneasy, complicated, and contested. The countriesthat had let the Eurozone clearly resisted German leadership. In act, they blamed Germanys inept crisisresponse or their own exit rom the currency zone. An outright anti-German sentiment consequentlydeveloped in these countries. Britain, now on the outside, competed with Germany or global markets andglobal inuence while cooperating with Germany on topics like trade norms, development, and, insoar as

Germany was willing, security. The southern European countries inside the Eurozone were ambivalent aboutGerman leadership. They credited German leadership or keeping a core Eurozone together, but criticizedGermany or its alleged lack o European solidarity. They resisted being led by Berlin rather than byBrussels. They tended to check Germanys power and sometimes worked to rustrate it.

5. France stabilized polycentric Europe

The pivotal power that allowed polycentric Europe to remain at a steady state rather than

descend into ull ragmentation was France. The Eurocrisis had unearthed an uneasy truth: that France andGermany were no longer equals. France had three choices, the rst o which was to become a ollower oGermany. This option was seen as untenable, as President Sarkozys second ddle role in the Merkozycouple had shown early in the Eurocrisis. The second possibility was to build a southern alliance to counter-balance Germany. This option would have ultimately led to a rebellion in Germany and an eventual breakupo the Eurozone.

The third choice available to the French was to accept the challenge that the new and enhancedGermany posed and to nd a resh French-German equilibrium. This analysis held that a Eurozone break up

was too costly or France; that France needed to improve its international competiveness, regardless o its ri-valry with other EU countries; that German dominance was unlikely to last given the countrys demographyand limited long term growth potential; and that France, in a polycentric Europe, would be the dominant

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to overcome the crisis; it no longer needed America as its oshore balancer. Initially, the U.S. saw the crisisless as a geopolitical challenge and a threat to the oundation o the Western institutional order, but ratheras a threat to domestic recovery rom the Great Recession. Advice and policy towards Europe reected thispriority or years.

The debate about British membership in the European Union and Britains eventual vote

about exit made the United States increasingly concerned about European disintegration. The questionin Washington was: would the British exit rom the EU, as well as the Greek and Cypriot exits rom theEurozone, create a ripple eect that would eventually lead to complete disintegration? Or would these exitslead to a stable state o the remaining European core? And what could the United States do to bring aboutthe latter outcome, thereby stabilizing its own alliance system?

To this end, stabilizing a ading NATO and negotiating a Transatlantic Trade and Investment Part-nership (TTIP) became the tools o choice or Washington. Together, they seemed to oer an opportunity toreengage with Europe, rebalance the transatlantic relationship, and incentivize the Europeansincluding

the Britsto consider the advantages o a larger integrated order.

10. A transatlantic trade deal was negotiated

In the end, a deal was struck on trade and investment. The remaining Euro cores tradeauthority was broad enough to strike such a deal and to negotiate the inner-European compromises thatwere necessary in order to get there. But the deal itsel was ar less universal than the Americans had aimedor. The British exit weakened the northern European alliance o ree traders within the European Union. As

expected, agricultural and cultural exceptions were demanded by the French. Eventually, Paris got what ithad demanded because Brussels, Berlin, and Washington needed to strike this deal at all costs. The down-side risk o ailure (urther disintegration!) was just too high.

11. Deense budgets were slashed, but NATO survived

NATO was the second pillar o Washingtons eort to stabilize Europe. This required somerethinking in the United States. For years, the currency o NATO had allen in Washington. During this period,

it was all about capabilities and what the Europeans could bring to the table. Ever less was the answer,and as a result NATO became less relevant in the mind o Americas strategic community. The Eurocrisis andthe subsequent partial ragmentation o the continent required Washington to reevaluate NATO. Now, it wasunderstood as much as a political ramework or cooperation as a military alliance.

However, none o the problems that stymied progress in the alliance prior to the crisis weresolved during or ater the crisis. In act, the crisis exacerbated some o the key challenges, namely the lack oa vision (or an enemy) and unds. NATO did ulll the role o helping the EU to deter Russia rom meddling inthe neighborhood countries. The idea o a global NATO was a aint memory rom the heyday o the alliance

in the last century. Rarely was Europe able to engage in the global hot spots that the United States caredabout. Deense budgets in nearly all member states o the EU had been slashed during the years o the crisis.The emergence o a multi-direction Europe added another level o complication or European deense.

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12. The new Euro-outs were unable to invest in their militaries

Britain, now outside the EU, had changed its deense posture, giving priority to interoperabilitywith the U.S. armed orces rather than EU deense collaboration. But it had not been able to reverse thedownward trajectory o its military spending. The new Euro-outs, ater having depreciated their currencies,

were unable to invest in their militaries. Even recovery in the Euro core did not lead to substantial increasesin the deense budgets o these countries.

13. The Euro core became the worlds go-to entity in Europe

Europes partial ragmentation conused the world. Europes global partners struggled to come toterms with competing power centers in Europe as well as increasingly irrelevant peripheral Euro-outs.The Euro core established itsel as the go-to entity or Europes global partners and thus retained some

agenda-setting power.From the perspective o emerging nations, polycentric Europe was too complicated to deal with.

Taking their own trade ows as a yardstick, they simplied things and treated the Eurozone as a Germanyplus region and all o Europe as a Eurozone plus Great Britain continent. Europes global partners saw apolycentric Europe as an instable construction even as the remaining Eurozone stabilized. They perceived thetrajectory o the continents power, inuence, and economic weight as pointing downward.

Europe itsel, ater having settled into its new multi-direction construction, had begun to lookoutwards again, though with a somewhat limited bandwidth. Great Britain was globally oriented, but too

small to make a dierence. The new Euro-outs remained sel-consumed and had no global ambitions. TheEuro cores ability to inuence global norms aded, but was still considerable. The EUs weak oreign policyinstitutions continued to exist. Their reach was urther limited in polycentric Europe, hampered by GreatBritains exit rom the EU and the exit o two Eurozone members.

Fiscal integration o the Euro core allowed or consolidated representation in IFOs. But becausethe core no longer consisted o all o the major players in Europe, it was not able to increase its global clout.The Euro-outs were marginalized in the IFOs.

14. The model o EU-style integration was re-evaluated

Outside o Europe, the model o EU-style integration was reevaluated. It was not seen as a ullyailed experiment, but the crisis highlighted the preconditions or and costs o integration. Partial ragmen-tation was seen as a powerul reminder that homogeneity within a currency union was a prerequisite, notan inevitable outcome, o monetary unication. The exit o peripheral Eurozone members was interpretedas underscoring these requirements.

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Partial Integration: More Europe, Step by Step

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Partial Integration: More Europe, Step by Step

Key Assumptions:

Pathway:With its piecemeal management o the crisis, the EU made incremental progress towards betterpolicy coordination and better surveillance o rules within the Eurozone.Sovereign Deaults:There was no disorderly deault or exit rom the Eurozone, but the risk remained.Membership Status:Only a ew o the candidate countries joined the Eurozone.Centralization Level:European scal surveillance and coordination were incrementally strengthened, butwere only marginally centralized. The European Central Bank continued to interveneas a crisis manager. Banking union was completed, but central oversight was limited to the very largestbanks, and the resolution scheme consisted o a network o national institutions rather than a centralized

authority.Debt:While borrowing costs or some member countries stayed moderate, spreads remained. There was noissuance o common bonds.Decits:The medium term trajectory or scal consolidation diverged between countries.Growth:Growth rates diverged but generally stayed low to moderate, while the averageunemployment rate remained high.Europeanism:Anti-European and anti-Eurozone sentiments based on lack o economicopportunity and social insecurity remained. Anti-integration movements continued to be popular.


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1. Nation states reigned in the European Union

Slowly but surely, Europe overcame the immediate crisis. Conronted with the clear and presentdanger o seeing Europe tumble towards ragmentation, thereby ruining the multigenerational project oEuropean unication, the continents leaders moved towards incremental integration. But they only moved

on the brink, only when the markets did not leave them a choice, and only or as ar as they thought theyhad to. The battle cry o more Europe! was redubbed early in the crisis as a little more Europe!, and nallyinto as little more Europe as possible! Everything else was just too hard. In act, it got ever harder as thecrisis wore on and popular resistance to more Europe grew. It was the European Central Bank that, or along time, remained to be a key crisis manager.

The continuing attachment o seemingly postmodern Europeans to national sovereignty was theultimate barrier to urther integration. Some countries in the south were concerned about their role in theprocess and did not want to be told by Brussels, or worse, by Berlin, how to reorm their labor markets or

their tax systems. Berlin, on the other hand, resisted anything that ocially smelled like continent-wideredistribution, out o ears that it would be the paymaster.In the end, a compromise was struck. Policy coordination beat centralization, and intergovern-

mentalism was preerred over supranationalism. The network approach to banking union was a perectillustration. This was the road on which Europeans were accustomed to travelling, and they could do so stepby step. Progress was slow, but it was progress nonetheless. And, over time, the combination o incremen-tal reorm and ECB intervention was enough to regain the condence o the nancial markets. Structuralreorms in many countries started to show eects and imbalances were reduced in most cases, though there

were also sharp demand declines in the decit countries. The debtor/creditor ault line receded as increasedscal responsibility plus moderate growth helped the southern European countries to control their owndestiny. A mutually acceptable way to organize explicit transers was achieved, though the extent o thetransers remained strictly limited.

The act that integration was gradual and minimal helped to retain an institutional balance be-tween Eurozone members and those who chose to stay outside the currency zone. A revolution o Euro-outsagainst exclusion rom the decision-making process never happened because it was not necessary in thisage o integrationist minimalism.

The mere act that the wave o crises had been beaten back instilled some condence in leadersand populations. Inner-European cooperation had shown itsel to be worthwhile and had proven to work.Trust in each other and the European system gradually returned, though the level o criticism, openopposition, and outright obstruction remained relatively high. The populist backlash against the elitistEuropean project reverberated or years. It limited the political space in which politicians were able tomaneuver.

2. Limited integration produced new rictions

It was impossible to overlook that even limited integration had the potential or producing newrictions among EU member states. Such sot costs o continued system maintenance turned out to be sig-

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nicant. In order to reduce these costs, all kinds o exible mechanisms and coalitions o the willing neededto be accepted as a part o the European toolkit, including the instruments or oreign policy. None o thesedevelopments were new, but the requency o these instruments usage increased.

3. Germany was rst among equals

In this new European Union in which nation states remained the driving orce, Germany was rstamong equals. Yes, size and competitiveness o its economy played a role. Another actor was the leadershipvacuum at the outset o the crisis which Germany had reluctantly lled and was equally reluctant to giveup once it became accustomed to its new status. The lack o an alternative contributed to the elevated roleo Germany. Continued European commitment by Germany somehow made German leadership inevi-table, and those who opposed it had a harder time arguing their case. Yet, the decisive actor was Europespreerred pathway o (limited) integration. In this partially integrated Europe with its ew and weak central

institutions, states mattered, and big states mattered more.

4. Germany aced sot counterbalancing

However, the German role was anything but uncontested. It was the subject o an endless streamo commentary and popular as well as populist scorn outside o Germany. Governments had to prove to theirown voters that, rom time to time, they were willing and able to stand up to what were perceived to beunreasonable demands by Berlin. Germanys smaller (northern and Baltic) neighbors tended to agree with

German policy and strategy or Europe. Through German leadership they hoped to increase their ownleverage and could also hide behind larger Germany when conicts with other partners arose. Overall,

smaller and medium sized countries elt an increased need to challenge or sotly counterbalance the inor-mal EU leaders, especially Germany (and, to a lesser degree, France). They applied several methods,including close cooperation in order to be involved in decision-making and to advance a single-issueagenda. Alternatively, they pursued hedging strategies and developed a network o relationships aroundGermany in order to counterbalance the emerging hub-and-spokes system with Germany at the center.

5. European integration ollowed a French game plan

France was in the most dicult position o all. In the course o the Eurocrisis, it becameincreasingly evident that the country had to make a strategic choice regarding its relationship with Germanyand, or that matter, Europe. For decades, France had wanted to see Germany integrated into the structureso Europe in order to manage Germanys superior size and weight. To no small part, France agreed tothe introduction o the Euro currency or this very reason, especially ater German reunication. But theEurocrisis had shown that the European Union was becoming a vehicle through which Germany could lever-age its power rather than one through which France could handle German power.

At this point, France had three choices, the rst o which was to become a ollower o Germany.This course o action was seen as untenable, as President Sarkozys second ddle role in the Merkozy

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couple had shown early in the Eurocrisis. The second option was to build a southern alliance tocounterbalance Germany. However, such an eort would have led to a rebellion in Germany and an eventualbreakup o the Eurozone. Finally, the French could accept the challenge that the new and enhanced Ger-many posed and strive to nd a resh French-German equilibrium. This analysis held that a Euro break upwas too costly or France; that France needed to improve its international competiveness or its own good;that German dominance was unlikely to last, given the countrys demography and limited long term growthpotential; and that Francetogether with Britainwould be the dominant hard power in the EuropeanUnion, thereby balancing Germanys economic preponderance. In act, as Europes oreign and securitypolicy core, France and Britain could eectively sideline the uninterested Germans. That was easier thantrying to get the Germans bought into joint endeavors.

Most importantly, the pathway towards a partially integrated Europe increasingly olloweda more French than German game plan. In the early days o the crisis, the Germans had taken their oldidea o a more ederal Europe o the shel and presented it as a solution. But as the crisis continued and

ragmentation emerged as a real possibility, keeping everybody on board became an overriding interest.That could only be done through policy coordination rather than bureaucratic centralization. For the French,the latter had been the preerred route all along. The Germans abandoned larger designs or Europe inthe ace o the looming threat o a British exit. Conronted with the choice between (a) a more ambitiousintegration agenda and (b) a dynamic o ragmentation plus the loss o a German ally on vital policies, theGermans opted or a less ambitious, but more inclusive, Europe. German calls or more ederalism had longbecome meaningless rhetoric as Europe, supported by Germany, had been progressing along the lines othe conederate model that the French had long avored. France, in turn, got more o a Germany that it was

uncomortable with, but within a European structure that it was willing to accept even though it providedor less two-tier and two-speed structures than France would have preerred. This new conguration oEurope also allowed France on occasion to assemble ad hoc and issue-based alliances against Germany.

6. European minimalism allowed Britain to stay within the EU

The minimalist agenda contributed to allowing Great Britain to stay in European Union. When itbecame clear that no Brussels super state was in the making, British votersater years o debate

rejected the ashionable double proposition o exit plus go-it-alone internationalism. The majority o theelectorate realized the economic and strategic downsides o exit and acknowledged the attempt o theEurozone countries to combine rescuing their currency rom a crisis with including non-Eurozone countriesinto the decision-making process. In British parlance, this privilege was called air treatment. This dealamounted to a bargain about long-term British membership in the EU. Thereore, Great Britain continued toplay a strong role in Europes common security and deense policy.

7. A slow-moving EU was seen as a reliable partner

Partial integration and a minimalist agenda also allowed or a business as usual approachto those European countries that remained outside the EU, as well as to countries within the European

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neighborhood. Candidate countries responded with relie that the structure which they intended to joinremained intact and kept moving orward, albeit at a slow pace and with a considerable level o riction anddebate. Countries in the near abroad elt reassured that the EU did not pull up the draw bridge, but ratherremained open to its immediate neighbors. Since the EU did not integrate in leaps and bounds, the hardborder eect did not visibly increase. In act, incremental integration allowed the EU to introducesome measures to alleviate the existing hard-border eect, such as border zones mobility agreements,deeper trade, and partial visa liberalization, making good relations with Brussels and the member statessomewhat attractive or neighbors, even though Europes power to incentivize transormative reorms inthe neighborhood had clearly taken a hit. A slow-moving EU that laboriously crated consensus was seenas a reliable and non-threatening partner, but also an ineective one, in particular or handling short-termpolitical crises. The continued existence o several levels o EU integration made it easier to accommodatenew member states. The threshold or membership neither increased nor decreased. Enlargement precededgradually and according to the rulebook developed early in the century, most successully in the Western

Balkans countries.

8. On oreign policy, the EU lacked vision and ambition

Only the general outlines o a oreign policy vision or each neighborhood (Eastern Europe, theCaucasus, the Middle East and North Arica, Russia, and Turkey) were agreed upon. Considerable ambiguityremained. A more ragmented approach to oreign policy set in. Coalitions o the willing were needed to getthings done.

On the issue o Turkish membership o the European Union, no consensus was reached. The post-crisis EU was not stable enough or ambitious enough to take this leap. Over time, Turkey itsel had reori-ented its oreign policy. In light o these realities, the idea o Turkish membership was abandoned. Instead,a special relationship with certain elements o integration with the EU was created. Given the spat overmembership, this relationship was not very special or quite a while.

Tensions between those advocating the need to counterbalance Russia in the EU neighborhoodand those who preerred to build a partnership with Moscow remained, resulting in a hesitant policy. Thishesitancy allowed Moscow to exploit the dierences inside the EU to its own advantage.

9. The transatlantic relationship aded

Europes business as usual approach to oreign policy in the post-crisis period applied totransatlantic relations as well. This approach guaranteed that the partnership between Europe and theUnited States continued on its slightly downward trajectory. At the outset o the crisis, the United States haddisengaged rom Europe or a ew years. Consumed with terrorism, the Middle East, and the rise o China,the United States had determined that Europe could solve the crisis alone and did not need America as its

oshore balancer. The U.S saw the crisis less as a geopolitical challenge and a threat to the oundation o theWestern institutional order, but rather as a threat to domestic recovery rom the Great Recession. Advice andpolicy towards Europe reected this priority or years.

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recognized that, under dicult conditions, Europe had pulled o something remarkable. But the continu-ing diculty o nding common ground, as well as the piecemeal nature o the crisis resolution, also letlingering doubts about Europe. The protracted nature o the crisis was seen as a warning by others. Europesattractiveness was diminished even as the crisis aded.

For as long as the crisis lasted, the model o EU integration was questioned around the world.Once Europe overcame the crisis, other countries continued to assess the torturous and dangerous process bywhich success was achieved. The price o integration and the limits o the model o sovereignty sharing hadbecome evident to others. This experience began to inorm regional integration eorts around the world.

13. Europes voice in the world weakened

Europes voice in international organizations continued to weaken. Even though political andinstitutional incrementalism combined with decided monetary policy had succeeded in overcoming the

worst o the crisis, pressure rom emerging economies continued to reduce Europes representation andvoting shares in the IFOs. Internal disagreements prevented Europeans rom consolidating their vote in theInternational Monetary Fund and other IFOs.

Europes long road to partial integration had tested the patience o its global partners. The ever-changing components o European governance continued to conuse (and eventually bore) third countries.Their conclusion rom the European crisis was that nation states still called the shots in Europe, and that aunied European oreign policy was less attainable than ever beore. Consequently, other countries placedhigher emphasis on their relations with Berlin, London, and Paris than on their relations with Brussels.

14. Europes crisis response was seen to be insucient

Overall, Europes crisis resolution was not suciently decisive, nor was its economic reboundstrong enough, to convince the rising nations o Asia that Europe had turned a corner and was back on theworld stage as an axis in a G-3 world. But then again, these nations had always been convinced that theywould soon live in a world which they dominated.

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Full Integration: A Union Recast

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Full Integration: A Union Recast

Key Assumptions:

Pathway:The Economic and Monetary Union was completed in the EU, keeping membership open to all EU

member states that wanted to join.Sovereign Deaults:There were no disorderly sovereign deaults, nor any exits rom the Eurozone.Membership Status:The current Eurozone members completed the EMU. 8 o the 10 non-Eurozone mem-bers remained on path to join or had done so already (Poland, Latvia, Lithuania, et. al.). Outliers remained(Great Britain, et. al.).Centralization Level:European scal authority was strengthened through the completion o bankingunion, Eurobond issuance, and partial common debt management.Debt:Borrowing costs in the Eurozone converged downwards, as did sovereign debt ratings.Decits:The medium-term trajectory or scal consolidation converged downwards.Growth:Growth returned, and unemployment numbers decreased.Europeanism:Economic improvement reduced anti-European populism. At the same time, urther integra-tion sparked sovereignist sentiments.

1. Reormed Europe became the tide that lited many boats

The crisis became a distant memory. During its worst period, Europe seemed to be tumblingtowards ragmentation, thereby abandoning the multigenerational project o European unication. Inretrospect, it seemed that nancial markets pushed Europe towards the brink several times. And everytime, European leaders responded. They averted catastrophe by doing something that seemed too hard


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to do beore each mini-climax o the crisis. National leaders paid a high price or the reorms they pushedthrough. Their governments were catapulted out o oce by the orce o public discontent. For a while,they were replaced by governments that were equally committed to scal prudence, structural reorm, andEuropean integration. At the same time, nationalism, populism, and anti-Europeanism increased in mostEuropean countries. The integrationists saw their legitimacy in doubt.

But beore these increasingly potent political orces could start seriously inuencing nationalpublics in key countries, the eects o reorm set in, thereby stabilizing the political and economic environ-ment. Growth returned, though with an uneven distribution throughout member states. Unemploymenttrended downward, though not to the degree that ull employment was in sight in most countries. Someregions were let behind, but a mechanism was in place to engineer transers. Reormed Europe became thetide that lited many, i not all, boats.

The key o the political eort was a cluster o reorms which, taken together, amounted to thecompletion o the European Monetary Union (EMU). At their heart was a ull banking union, a partial debt

mutualization regime, elements o a joint budget, and extensive labor market reorms. In the course othese reorms, sovereignty was transerred to Brussels. Some said the transer o powers was substantial,others said it was just enough to create a minimal ederalist core. While incrementalism on the road topartial integration would have strengthened intergovernmentalism and thereby the European Council, ullintegration meant more supranational governance. The European Commission was thereore strengthened.

2. Fiscal integration did not necessarily trigger a more ambitious oreign policy

As it became clear that Europe, under the threat o ragmentation, had gotten its act togetherand had completed what it had started in Maastricht, the question became: would a more integratedEuropean Union simply be a more ecient and better governed market with a complete monetary union?Or would economic and scal integration transorm European nations, as well as their Union, into moreambitious and powerul entities on the international stage? Would a set o more cohesive oreign policyactors be created?

When the crisis was overcome around 2015, experts envisioned three possible pathways: Europewould become a larger Switzerland, a larger Japan, or a larger Canada.

The larger Switzerland scenario assumed that Europe was simply exhausted. Integration wasto be pursued at the price o renouncing broader joint ambitions in the international arena. Foreign policywould be the last redoubt o sovereignty in Europe. Ater having completed the EMU, European populationswanted no urther integration, especially since markets were indierent to the question o oreign policy.Thereore, Europe would regain its ooting economically while not displaying any larger ambitions in theinternational sphere. It would be on course to become rich and inward looking. Economic progress andoreign policy ambition would be delinked.

The larger Japan model assumed that Europe would engage in selective globalism. Essentially, this

was the German model o oreign policy: interested in some areas o international relations, not in others; a bigplayer on economics and trade, but not on security. And i Europe engaged in security, it would conne itsel tothe immediate neighborhood. Europe would not be ready to underwrite global security wholesale.

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The larger Canada vision oresaw a muscular globalism or Europe. Strongly committed to globalgovernance and especially the UN system, Europe would become a key underwriter o the international or-der that included military missions to keep or enorce the peace abroad, not only in the European neighbor-hood, but globally. France and Britain would be Europes leaders. They would pull the EU along and, in turn,benet rom the role that the European Union played.

3. It took years or Europe to develop a robust oreign policy posture

The debate between these three schools o thought waged or a ew years. Eventually, it turnedout that these pathways or Europe were not mutually exclusive. They only represented dierent phases oEuropes strategic posture, and thereore became part o a sequence. During and immediately ollowing thecrisis, Europe was simply exhausted rom the hard work o overcoming it. The continent looked inward and wasunwilling to engage in new joint endeavors. Over time it became clear that delinking economic progress and

oreign policy posture was not a long-term proposition. Fiscal integration created path-dependency.The success o integration improved Europes reputation globally. Europe ound itsel conrontedwith expectations rom global partners. Slowly but surely, the continent moved rom larger Switzerland tosomewhere between larger Japan and larger Canada.

4. Europe became a tougher negotiator

Another debate was about the type o oreign policy actor Europe would become ater the crisis:

would internal cohesion turn Europe in to a more hardnosed and aggressive power, a more realist and moreassertive actor? Would it thereore be seen by others as a more problematic partner, a troublemaker ratherthan a problem-solver? A tit-or-tat player with a zero-sum mentality? Or would Europe simply display thesame qualities and behavioral patterns to which the world had gotten accustomed? Would it remain a nego-tiating and mediating power, a consensus builder, and a multilateral-rst actor? Here, too, reality turnedout to position Europe somewhere in the middle: Europe did not transorm itsel into an easier partneror others. Yes, it did become a tougher negotiator, especially on issues that mattered to it, like Russia andtrade. On the other hand, the continent did not change its posture completely. In essence, it remained the

sot colossus that prided itsel to be: a negotiator and bridge builder with global reach.

5. Europes ability to set global norms was enhanced

Europes use o economic reorm and urther institutional integration as tools to successullyovercome the crisis became a signal to the world. The depth o reorm demonstrated to others that Europehad the will and capability to act decisively and largely in unison. It became harder to doubt the stayingpower o Europes seemingly postmodern structure and its sovereignty sharing model. Europe had createdcohesion through collaboration, however painul the process might have been. This very act had globalrelevance. Europes power post-crisis was the power o example. Clearly, Europes ability to set global normswas enhanced. Its agenda-setting power, imperiled throughout the crisis, was restored.

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However, the eort to overcome the crisis served as a powerul reminder o the high price,dedication, and sacrices necessary to pursue deep regional integration. Pre-crisis European integration hadbeen the gold standard or integrationists worldwide. This was no longer the case in the post-crisis era.

The integrative mode o overcoming the crisis made it easier or others to interact with Europe.Multiple non-European nation states had been somewhat skeptical o the complex power-sharing arrange-

ments in Europe. They had expected Europe to move towards some version o ederalism or break apart.Now they elt vindicatedand believed urther integration was yet to come. The renewed belie in theuture o European integration helped others to reocus on Europe. The continents ability to act in unisonwas no longer in question.

6. Europe consolidated its representation in institutions

Completion o the EMU created pressure on the Eurozone to consolidate its representation in the

international nancial institutions (IFOs). Ater all, why should multiple representatives rom thesame integrated economic unit sit around the table, claiming outsized voting rights? The somewhatparadoxical outcome o the crisis was that Europe regained its ooting on the international stage, but thisvery act was used to push Europe to accordingly adjust its international ootprint. Eventually, Europesuccumbed to the pressure and moved towards a Eurozone representation in the IFOs. As it became clearthat joint repr

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Post Crisis: Europe and the World in 2025