Beyond the Crisis: Background Briefing from Berlin
Authors:   THE BERGGRUEN INSTITUTE ON GOVERNANCE
Published: January 2013

The future of the European Union has never been more in doubt than at the very moment it has been awarded the Nobel Peace Prize for its historical accomplishments.

When the heads of Europe's weakest institutions—the Commission, the Council and the Parliament—collected the prize in Oslo on December 10, 2012 they spotlighted the nub of the problem. Unless these institutions can garner the legitimacy of European citizens and transform into a real federal union with common fiscal and economic policies to complement the single currency, Europe will remain at the mercy of global financial markets and the fiscally authoritarian dictates of its strongest state, Germany.

Moving beyond this state of affairs was the focus of a recent “town hall” gathering in Berlin sponsored by the Berggruen Institute on Governance. The meeting brought together current power brokers—such as the contending voices of German Finance Minister Wolfgang Schäuble and French Finance Minister Pierre Moscovici, who rarely appear in public together—as well as Europe's top former leaders, key thinkers and young people who will govern in the future.

The peace‐building project of the European Union was born out of the ashes of World War II and the anguish of the Cold War. Yet, as George Soros points out, its current inability to resolve the eurocrisis by forging greater union is dividing Europe once again, this time between creditors and debtors. Former Greek premier George Papandreou has warned that this division is fomenting a new politics of fear that is giving rise to the same kind of xenophobic movements that fueled the extreme politics of the Nazi era.

To avoid a repeat of the last calamitous century, Europe first of all needs a growth strategy both to escape the “debt trap” it is in—and which austerity alone will only deepen—and to create breathing space for the tough structural reforms that can make Europe as a whole competitive again in a globalized world. To sustain reform, it needs a clear path to legitimacy for the institutions that must govern a federal Europe.

The proof that Europe can escape its crisis through a combination of growth, fiscal discipline and structural reform comes from the one country so many want to keep out of the union: Turkey.

Prime Minister Recep Tayyip Erdogan rightfully boasts of Turkey's accomplishments that resulted from the difficult changes carried out after its crisis in 2001—ranging from quickly cleaning up the banks to liberalizing markets to trimming social benefits to make them more affordable in the long run. As a result, Turkey today is the fastest growing economy in the world alongside China with diminished deficit and debt levels that meet the eurozone criteria that many members states themselves cannot today meet. Turkey has even offered a 5 billion euro credit through the IMF for financial aid to Europe.

Germany itself also provides some lessons for the rest of Europe. The obvious reason Germany rules today is because it is the most globally competitive country in the European Union. That is the result of a series of reforms that were implemented starting in 2003 under the leadership of then‐chancellor Gerhard Schröder.

Aimed a bolstering Germany's industrial base and its collateral small and medium enterprises which are the foundation of its middle class society, those reforms introduced more labor flexibility and trimmed benefits to make them sustainably affordable while investing in training, maintaining skills and research and development.

Even if Europe's individual nation states can shrink imbalances by following Turkey and Germany in getting their act together, the only ultimate way to save the euro, and thus Europe itself, is to build the complementary governing institutions at the European level. For those institutions to become effective, they must be empowered and legitimated by European citizens themselves. To this end, Tony Blair has suggested a bold move: the direct election of a European president.

Symbolically, the Oslo ceremonies were a historical turning point for Europe. By recognizing the European Union's peace‐making past, the Nobel Prize challenged Europe to escape once and for all the destructive pull of narrow national interests and passions.