THE WARSAW INSTITUTE REVIEW

Date: 1 August 2018    Author: Tomasz Grzegorz Grosse, Ph.D.

Poland in the face of geopolitical changes in Western Europe

The basic thesis of this article is the assumption that Western Europe, the geopolitical center of the European Union, is weakening, devastated by successive crises largely out of its control.

Although the most unfavorable problems mainly concern the western part of the continent, they can also reach Central Europe, which may have a long-term negative impact on European integration, making it a sustainable suboptimal project, either developing below its potential or developing asymmetrically. Besides, these problems make the EU internally incoherent and exposed to a range of social and economic problems. All of this makes Europe susceptible to all sorts of political tensions, the effects of which could even lead to the eventual collapse of the European Union. There have also been several external challenges, most of which have a negative impact on the geopolitical situation of the EU. The aim of this article is, firstly, to diagnose internal and external factors of changing geo-economic conditions in Europe and, secondly, to consider strategic recommendations for the Polish political elite in the face of these challenges.

Internal conditions

The primary challenge for the EU is a dysfunctional eurozone. The Economic and Monetary Union (EMU) project is flawed by design and has had many institutional gaps from the very beginning. These gaps have never been addressed, even when the dysfunction of the monetary union has proven to be visible. The defective design of the EMU resulted in a long-lasting economic crisis that started in 2010, shortly after the global financial crisis. This was particularly harmful to the countries of Southern Europe, which, according to IMF estimates, experienced a loss of up to two decades of development (some have failed to rebuild their pre-crisis growth levels even by 2018)[1].

All of this makes the eurozone a suboptimal system, meaning that it is permanently functioning below its economic potential[2]. At the same time, it is an asymmetric system, beneficial primarily to Germany and problematic for the majority of the other countries involved[3]. The system accumulates surpluses in the North of the EU (mainly in Germany) and debts in the South, and has at the same time a deflationary (and therefore an anti-growth) tendency[4]. Its main disadvantage is the lack of solutions that would stimulate economic growth in weaker parts of the European Union or so-called automatic stabilizers of the economic situation which would react to asymmetric shocks, i.e., a deterioration of economic conditions in one of the EMU countries.

Countries in trouble have immense problems in regaining economic competitiveness, the process of which takes place primarily through internal devaluation rather than through the growth of their economy. It is, therefore, a very socially costly and politically troubling process. The problem concerns the decentralization of fiscal policy in the EMU at the national level, which excludes the communitarization (or mutualization) of debt and the introduction of general taxes at the EMU level that could stimulate investment. Moreover, there are no instruments for reducing macroeconomic imbalances (especially in the current account, i.e., in trade).

Worst of all, the eurozone is difficult to reform[5]. Firstly, the German electorate does not want reforms leading to a transfer union, and therefore prefers to defend their taxes against their transfer to countries of the South. Secondly, Germany does not want to give up its financial and competitive advantages provided by the asymmetry of the monetary union. Moreover, the mechanisms of accumulated debt in this zone make most of the countries of Southern Europe clientage of Berlin, i.e., countries dependent on loans, and are thus geopolitically submissive.

This brings us to the question of Franco-German leadership in the EU, or of a ‘collective’ regional hegemony in the performance of this tandem. There is little doubt that cooperation between the two countries is a fundamental mechanism for progressing integration, especially because, after Brexit, the political position of both countries in the EU is being strengthened[6]. It can also be assumed that both countries have so far been less focused on competing with each other or on balancing forces within the EU, and more focused on balancing external powers, such as with the USA or China. Also, after Brexit, the more protectionist countries of Southern Europe have gained greater importance in the EU Council in relation to the slightly more liberal Germany and the like-minded Nordic, Baltic and Benelux countries[7]. That is why some academics believe that there is no alternative to the Franco-German “motor” in Western Europe as otherwise progress in integration will be blocked[8].

While this is likely to be the case, there are, in my view, severe risks to the implementation of such a scenario. Firstly, the construction of the EMU will systematically strengthen Germany and weaken France and its Southern European allies. Paris is unlikely to be able to reform the eurozone in such a way that this asymmetry can be changed. Secondly, France will probably not carry out enough internal reforms to restore its competitiveness towards Germany. Thirdly, the geostrategic superiority of Paris over Berlin, resulting, among other things, from its military potential and its permanent position on the UN Security Council, can be easily outweighed by Berlin through both the progress of EU defense policy and through governance reforms in the Common Foreign and Security Policy (including the introduction of majority voting in this area and the emergence of a joint EU representation in the UN Security Council). Moreover, research has shown that, historically, the most important aspect that determines a country’s geopolitical position is not military, but rather economic potential. A strong economy offers opportunities to build an adequate military capacity in a very short time, e.g., in the case of Germany, nuclear weapons[9]. It is worth noting that the discussion on this subject is becoming increasingly widespread in Germany itself[10]. This means that economic potential, and hence the situation in the eurozone, is crucial for geopolitical relations in Europe.

Something that should, in its assumptions, “bind” (and thus limit) Germany’s power in Europe – European integration and, in particular, a monetary union – has become an instrument for increasing its geopolitical power, or even a means of “binding” and, in some cases, of weakening other European countries. The problem is that, while the EMU provides Germany with the hegemony of Europe, making it the largest economic power and the most important decision maker in EU policy, its system of power is suboptimal and leads to internal political tensions. It is, therefore, a weak hegemony (referred to in the literature as “minimal”[11]) and potentially perishable. Internal disputes with countries dissatisfied with the design of the euro, in particular France and the largest Southern European countries, may be the biggest challenge in this sense[12]. It is not by chance that both world-renowned economists[13] and Italian intellectuals[14] are considering leaving the EMU or introducing a parallel currency. Previously, the Greek finance minister had such a plan, but there was a lack of political will to implement it[15].

In this situation, the discussion taking place in Poland on the deepening “two-speed Europe,” i.e., the potential marginalization of Poland under the influence of deepening integration in the monetary union, should be looked at more closely. The eurozone, even if it is reformed, will probably not change its asymmetrical and dysfunctional character. This means that entry into the EMU is subject to substantial economic risks and the risk of geopolitical dependency on Berlin[16].

Another factor that systematically weakens Western Europe is the migration crisis. In this regard, the problem concerns the growing wave of immigrants from non-European countries, for many years now, who do not always want to integrate into European societies and who often disregard local rights and values[17]. This creates the phenomenon of “parallel societies,” as well as the poverty of immigrants, their illegal employment, the increase in crime and the threat of terrorism. This is causing increasing resistance from local societies to immigrants, who are culturally alien and potentially a threat to public security. In this way, local communities are increasingly denying liberal admission rules, even if this would be justified by labor market needs and growing demographic problems. In many cases, social revolt turns against European integration, which promotes an open attitude towards immigration. This problem cannot be solved quickly, especially in the context of the political correctness currently prevalent across Western Europe and in a situation where universal human rights are at stake. In many cases, the rights of immigrants and refugees are considered superior to those of the citizens of a given democratic community. This has already generated social problems and political tensions within Western Europe which may further destabilize political stability in the EU. An example of how toxic this crisis is for European integration is the deep divide in the EU around the mechanism for relocating refugees (introduced in pilot form in 2015). Another example is the longstanding difficulty of negotiating reform of the Dublin system (concerning the admission of refugees by the Member States). In addition, in almost all EU countries, political parties considered Eurosceptic and populist have gained in significance as a result of the wave of opposition to immigrants.

External circumstances

Western Europe is further weakened by external factors. The most significant of these is probably the deteriorating transatlantic relationship. It is worth noting that these relations were already in crisis, for example, when the US dismantled the Bretton Woods system (in the early 1970s)[18]. However, since the end of the Cold War and the reunification of Germany, the geopolitical situation has changed and is heading towards a permanent division between the US and Western Europe. Donald Trump’s presidency is a period of growing economic and political clashes between the two sides of the Atlantic. Trump himself focuses primarily on economic aspects and much less on geopolitical issues. For this reason, he prefers bilateral agreements to multilateral agreements on trade and investment relations. In bilateral agreements, the US has clear negotiation dominance. That is why Trump has shown reluctance toward the EU, as the latter jointly negotiates economic agreements. This poses a challenge to US negotiators, especially as the interests of several countries – the biggest exporters, in particular, Germany – are hiding under the EU banner. It is precisely the considerable export surplus of this country (over EUR 50 billion in 2017) that most irritates the US administration, which is most likely why Trump has welcomed the announcement of Brexit and has expressed his expectation that further countries will leave the EU in the future. The US administration treats the EU as one of its most dangerous economic competitors (sometimes even more so than China). For this reason, the United States will seek ways to reduce the export power of European companies and balance the benefits of mutual economic exchange.

In this sense, Trump often refers to geopolitical arguments. He expects the gratitude of Europeans for US military protection over Western Europe. Moreover, he believes that Berlin owes particular credit to the USA for its care and for Washington’s prior consent to the unification of Germany[19]. Without a recalibration of economic relations with Germany, the US president finds NATO to be an obsolete organization[20]. He does not want to protect those allies (and thus incur expenses) which at the same time benefit excessively from trade with the USA. Washington is therefore clearly linking geopolitical and economic issues, which makes its approach close to the concept of geo-economy[21]. According to the US, the Alliance should cover both geopolitical and economic issues. Under the same conditions, the US president has criticized Germany, which, on the one hand, imposes economic sanctions on Russia and, on the other, signs an agreement extending the northern gas pipeline with Gazprom[22]. What is crucial here is that the geopolitical alliance with the US should, in the opinion of the US, be of particular benefit to them. It is worth noting that this approach is not unique to Trump, but has been practiced by many previous US leaders. Taking advantage of Japan’s geopolitical dependence on the USA, Ronald Regan forced the appreciation of the yen and limited the export surplus of this country with the United States[23].

The problem is that Europe no longer feels dependent on US protection, as both the Germans and the French do not feel threatened by Russia. On the contrary, they have been striving for strategic autonomy for many years, both from the US and from NATO[24]. This trend is reflected in the development of the Common Security and Defense Policy (CSDP). So far, progress on this policy has been blocked by the UK. However, as a result of Brexit, CSDP’s development has accelerated. One of its the recent successes has been the establishment of the Military Planning and Conduct Capability (an embryo of CSDP’s headquarters), the launch of the Permanent Structured Cooperation (PESCO), as well as the announcement of the launch of a European Intervention Initiative.

At the same time, the largest EU countries do not intend to give way to the US in terms of economy and trade. This will lead to growing tensions in economic relations, which will result in a geopolitical crack between the US and Western Europe. These tensions could result in a division of NATO or even its eventual disintegration. This could also mean that the influence of Washington would be pushed out of continental Europe. At the same time, Western Europe may feel hostility from the US. This means that the US would stop fighting disintegration trends in the EU, as they have done before. Instead, they may even start to actively support them (as Trump has in fact been doing since the beginning of his presidency[25]).

Another geopolitical challenge for Western Europe is Brexit. Here, the fundamental uncertainty concerns whether the EU will be able to negotiate a ‘soft’ exit with the United Kingdom, as dictated by Brussels, or whether it will be a ‘hard’ exit, i.e., initially without a negotiated agreement. The question of whether the UK will leave the EU ‘hard’ or ‘soft’ is of increasing geo-economic importance. Firstly, the future strategic relationship between London and Washington will be determined by this. The question is whether it will become increasingly significant (which is what ‘hard Brexit’ guarantees) or whether the UK will remain in the strategic orbit of Berlin and Paris. Secondly, the fate of the status of the UK after Brexit is at stake. Will it be marginalized to the level of Norway, which benefits from economic exchanges with the EU (within the European Economic Area) but has no ambition to become a regional power? For London, it is not only economic benefits that matter, but its international presence and aspirations to play a more autonomous role in the future. Thirdly, the question is whether Brexit will strengthen the EU and the Franco-German leadership of Europe, or whether it will undermine it. “Soft Brexit” under the conditions proposed by Brussels will pave the way for the European side to prevail.

Two further conditions of the changing geopolitical situation in Europe are worth noting. One challenge is, above all, China’s growing power and influence in Europe, especially in the Central and Eastern Balkans. This trend is reflected in growing Chinese investments in the region, as well as in the developing political cooperation, organized, among other things, around the “One Belt, One Road” initiative and cyclical meetings in the “16+1”[26] format. The largest Western European countries perceive these actions as clear interference in their area of geo-economic influence. Undoubtedly, China is taking advantage of the EU’s weakness to exacerbate its influence on the borders of Western Europe.

Another geopolitical condition is the eventual rapprochement between Western Europe and Russia. More and more influential politicians in the EU expect the lifting of the sanctions imposed on Russia in 2014 for its interference in Ukraine and the annexation of Crimea. This would probably be beneficial for Western Europe, above all in economic terms. At the same time, it would violate the strategic interests of some Central European countries and could also be a destabilizing factor for NATO. The intensification of relations with Moscow may also lead in the future to a division of the geo-economic zone of influence between Western Europe (mainly Germany) and Russia in Central and Eastern Europe.

Recommendations for Poland

The primary geo-economic priority for Poland should be to foster economic development, i.e., the potential of fundamental geopolitical significance in Europe. The aim should not only be to direct the development path towards innovation and the development of new technologies, but also to maintain access to the EU’s internal market and increase its presence on the Eastern markets, especially in Russia and China. For economic development, geopolitical stability is essential, both in relations with Western Europe and with Eastern powers. It is possible that this may be put to the test in the coming years.

Poland, like all other EU countries, should focus on defending its interests in the EU, in particular with regards its economy. This means, for example, supporting increasingly threatened freedoms on the internal market, defending Polish interests within the EU multiannual financial framework, including the cohesion policy, the common agricultural policy as well as the EU innovation policy. A major challenge for Poland is the concentration of EU power in the largest countries, including the increasingly visible “minimum” German hegemony. Another challenge is the growing power of technocratic and judicial institutions in the EU. Poland should strive to limit the excessive power of both the European Commission and the EU Court of Justice under EU treaties and reduce the possibilities for the most powerful countries to dictate political solutions through majority voting. The possibility of one country (or group of countries) outvoting another in the EU should be possible only if the losing countries could have an official opt-out from implementing the law thus adopted. Experts mention this as the only democratic form of majority decision making in the EU[27]. Besides, Poland should distance itself from risky projects that may reduce its strategic autonomy (or increase its geopolitical dependence on the largest EU countries) and may have severe repercussions for development, security or political stability. Such projects include the EMU as well as ideas about a common immigration and asylum policy and the strengthening of the CSDP.

It is also necessary to prepare for adverse scenarios in European politics. It is possible that further crises and increased disintegration tendencies will occur. Poland should protect itself in particular against further problems in the eurozone, as well as against the intensification of the migration crisis. This should imply, among other things, a concern for the stability of the national banking system and public finances, as well as close monitoring of borders and a well-planned migration policy.

The Polish government is not in a position to reverse geopolitical trends; meanwhile, these trends may expose Poland to difficult choices. This would be the case with the increasing rupture in transatlantic relations or the possible rapprochement between Western Europe and Russia. Warsaw should adapt to some changes and try to prepare for others. The alliance with the USA will probably remain the fundamental geopolitical choice for Poland. Nevertheless, it is equally important to continue cooperation with Germany, especially as its hegemonic position may prove to be unsustainable, and the weakening of Western Europe may lead to more significant concessions to Polish demands. Poland should also engage in cautious cooperation with China and, once again, as in recent years, try to normalize relations with Russia.

References

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Bossone B., Cattaneo M., Costa M., Sylos Labini S., A Parallel Currency for Italy is Possible, Politico, https://www.politico.eu/ [accessed: 29 June 2018].

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Cohen B.J., Subacchi P., Is the Euro Ready for Prime Time? Chatham House Briefing Paper, 2008.

Cohen B.J., The International Monetary System: Diffusion And Ambiguity, International Affairs, 2008, 84(3), pp. 455–470.

Europe Braces Itself for Twin Trump Summits, Financial Times, July 6, 2018, https://www.ft.com/ [accessed: 27 April 2018].

Galbraith J.K., Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe, New Haven, Yale University Press, 2016.

Germany Slams ‘Intimidating’ £300bn White House Bill, The Sunday Times, 26 March, 2017, https://www.thetimes.co.uk/ [accessed: 27 April 2018].

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Grosse T.G., Donald Trump rozbija Unię Europejską [Donald Trump breaks the EU], Rzeczpospolita, February 3, 2017, p. A11.

Grosse T.G., Eurozone: Crises, Exit Strategies, Risks, Analysis, The New Confederation, Warsaw, April 2018, https://nowakonfederacja.pl/wp-content/uploads/2018/04/TGGrosse-Strefa_euro-ANG.pdf [accessed: 27 April 2018].

Grosse T.G., Polska a przyjęcie euro [Poland and the adoption of euro], Polski Przegląd Dyplomatyczny, Vol. 73, No. 2, April-June 2018, pp. 84–93.

Grosse T.G., W poszukiwaniu geoekonomii w Europie [In serach of geoeconomics in Europe], Instytut Studiów Politycznych PAN, Warsaw, 2014.

 

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