The EU project is running into trouble
Thirty years ago after the USSR collapsed, it was running smoothly and one of the richest regions in the world. Fast forward to today and it's rapidly falling behind and asphyxiating on its red tape
The EU project is running into trouble. When the socialist experiment collapsed in 1991, joining the EU was the best thing any Warsaw Pact country could do. It worked brilliantly and those accession countries flourished. Indeed, Poland is still flourishing.
But when the rise of the rest began and tensions began to increase, things started to go wrong. Everything was made worse by the global pandemic, which destroyed the globalisation of the noughties, followed by the start of the Ukraine war that ended cheap Russian gas for Europe and fundamentally broke its model.
In parallel to these corporate and macro problems, the EU as an institution is becoming ossified, drowning in its own red tape. This was described in great detail in the Draghi report . And Brussels has been grappling with its twin €800bn problem: invest €800bn over five years to modernise Europe’s dilapidated armies, and invest €800bn a year to modernise its economies to be able to compete with the US and China. None of this is happening as Europe is bust. The war in Ukraine is too expensive and the changes in the energy market – a doubling of energy costs – have fundamentally changed the business model.
I recommend this article in the Spectator by my old friend Owen Matthews on the nightmare the EU is facing to fund Ukraine next year. The most interesting take out was the fact that it is illegal for bankers to make a loan they know won’t be repaid. The basis of the Reparation Loans is that they assume that the loan will be repaid out of reparations Russia will pay to Ukraine at the end of the war. Not only will that never happen, but reparations have not even been mentioned in any of the rounds of talks this year. Calling this money a “loan” is clearly a fantasy, and an excuse to seize the Russian money.
The other huge danger is the freeze on the Central Bank of Russia (CBR) money has to be unanimously renewed every six months. If Hungary vetoes the next renewal, then Belgium, which will be on the hook, would have to pay Russia some €200bn back the next day.
There are so many holes in this plan that even European Commission President Ursula von der Leyen just floated two more options to keep Ukraine in the game: individual EU countries make bilateral loans, or there is a collective EU debt instrument (that Hungary will immediately veto). Anyhow, the next EU summit is on December 19 when we will get more details. Bottom line: the only plan on the table at the moment that works is for EU taxpayers to fund Ukraine a bit longer – something few can afford, and no one wants to do.
All this was highlighted by a new study by the Vienna Institute for International Economic Studies (wiiw) warns that candidate countries must accelerate deep economic and institutional reforms if they hope to join the EU.
It’s still a good idea for emerging European countries to join as the grants and unfettered access to such a massive and rich consumer market is not to be sniffed at. But increasingly these countries need to take responsibility for their own reforms – and that also means finding new, non-European, partners.
Expanding the blocs was well underway before the war in Ukraine. The general tendency has been to go beyond sovereign countries to mega-blocs like the EU. Europe’s problems today is that it has not gone far enough in this direction. Only trade is supra-national and the monetary union is a half-finished project. But true fiscal and political unification remains a pipedream, although the talk of ending the unanimity rule is a step towards this goal.
In a little noticed story, von der Leyen is proposing a raft of Omnibus legislation that is a subtle attempt to undermine the EU’s requirement for all member states to agree to big changes. Originally a device to fine tune rules, the new scheme will fundamentally alter the procedural architecture through which regulatory change occurs and in effect bypass the vetoes, say scholars, centralising more power in VDL’s hands.
In the meantime, as we have reported, the rest of the world is moving steadily towards building a non-Western mega-bloc in the form of the Global Emerging Markets Institutions (GEMIs).
The Russians are very conscious of this and repeatedly told me they wanted to join the EU in some form as they see themselves as Europeans, not Asian. Putin asked Mario Draghi if Russia could join the EU in his first year in office and was told “no.” So, he set up the Eurasian Economic Union (EUU) which was supposed to be a carbon copy of the EU, and the idea was to do a deal with the EU, uniting them into a single market “from Lisbon to Vladivostok.” That idea has been dropped now. The problem is that by about 2070, the EU will account for some 20% of global GDP, the North Americas another 20%, and the ASEAN bloc about 25%. Russia, if it remained isolated, would be less than 5%, according to a study by S&P Global.
The solution of that problem was forced on Moscow when Putin decided to invade Ukraine and now he is in bed with Beijing. He has taken a big bet on a future with the Global South and at this stage it’s starting to look like a good bet.
It increasingly looks like the war will come to an end soon. Ukrainian President Volodymyr Zelenskiy has fled the Energoatom corruption scandal at home and is on a tour of Europe; the lack of men, money and materiel is becoming acute. He just arrived in Istanbul this morning to try and revive ceasefire talks as he is running out of options. US special envoy to Ukraine retired Lieutenant General Keith Kellogg will be there, but presidential spokesman Dmitry Peskov said no Russians will attend. Still, Istanbul has been the scene of many talks and Turkish President Recep Tayyip Erdogan is keen to mediate.
On the battlefield, the war continues to get more grizzly. Yesterday I did a comment saying the battle for Pokrovsk looks increasingly like a modern-day Stalingrad. Today, I have a nice comment from UBN arguing that the drone war has gone to a new level that has made all traditional tactics irrelevant. The millions of drones in the sky mean heavy armour has become useless and soldiers basically cannot move without being killed. The Russian and Ukrainian forces have had to atomise their units in the hope they will not be spotted, as spotted means death. Drones’ kill-rate is something like 50% -- insanely high. Tellingly, the Ukrainian Defence Ministry reports that about 80% of its casualties are of soldiers on the move, during rotations out of frontline positions.
My take away from this argument is that wars are fast becoming unfightable as all the conventional weapons, defences and tactics are increasingly irrelevant: if you step onto the battlefield a drone will kill you. And the size and power of your adversary is also irrelevant. Tiny, backward Ukraine has managed to hold the Russian behemoth at bay for over three years using nothing more than $500-a-pop drones.
Coming back to the EU’s military modernisation, European Nato is completely unprepared for this kind of war. Like always, generals are fighting the last war and very bad at adapting to innovations. French President Emmanuel Macron’s deal to supply 100 French jet fighters to Ukraine is a prime example.
This was not a contract. It was a “statement of intent.” No planes will be delivered any time soon – a few trainers will arrive sometime in “2026 or 2027” – and even if France ramps up production it will take a decade to fulfil the order. This whole circus was pure PR. But more the point, sophisticated French jet planes will have no impact on a swarm of drones attacking a tank. Even the much-vaunted German-made Leopard tanks couldn’t resist Russian drone swarms. What Macron should have focused on is Ukraine has gone from a standing start in 2022 to producing four million increasingly sophisticated drones in only three years. Ukraine doesn’t need expensive jet fighters. It needs drone factories. The disconnect between EU policy and reality continues to widen.
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