Economics Is Europe’s Tool for Everything

Belgium does not often find itself in a position to resist European legislation, whatever the issue. But that’s exactly what you’re doing now.

Last week, at an EU summit, Belgium fought a plan backed by a majority of member states to use €140 billion of frozen Russian assets – held at Euroclear in Brussels – as the basis for a compensation loan to Ukraine. To the frustration of many, Belgium has held out on the basis that as the host country for the funds it faces legal uncertainty and financial liability. This forced European heads of state and government to postpone decision-making until at least December.

Some other countries and the European Central Bank are sympathetic to these arguments. Belgium does not stand entirely alone. However, this appears to be a losing battle. European officials are committed to formulating a compromise proposal. Many diplomats and officials believe that sooner rather than later, an agreement will be reached on this sensitive issue. Why? Because Europe urgently needs money for Ukraine. Most importantly, this is Europe’s only tried-and-true way to achieve major goals. In all the challenges and crises it has experienced since World War II, it has always given priority to finding an economic path to achieve political progress.

The economy is the one area in which EU member states are more willing to pool their sovereignty. They will not consider further political integration unless they have exhausted all economic avenues. The war Russia is waging in Ukraine, the outcome of which is of existential importance for Europe, is no different. As always, for Europe, it’s about the economy, stupid.

The fact that the EU will continue to work on finding a way to make the most of Russian assets (the interest on these assets has already been used to benefit Ukraine) was not the only evidence of this last week. At the summit in Brussels, national leaders also adopted the 19th package of economic sanctions against Russia. The package targets “22 individuals and 42 entities responsible for actions that undermine or threaten Ukraine’s territorial integrity, sovereignty and independence,” including the rector of a Moscow university offering a two-year master’s program on how to circumvent Western sanctions. Moreover, the leaders agreed on measures to target Russia’s shadow fleet in the Baltic Sea, in the hope that increased EU cooperation with the flag states that fly those ships (such as the Comoros) will force them to finally comply with European environmental and maritime safety standards – something they do not do today.

For Europe, the war in Ukraine is about security, its own security. For many years, most Europeans did not fear Russian President Vladimir Putin because they felt protected by the United States through NATO. They felt sorry for the Chechens, Georgians and Ukrainians who suffered from Putin’s murderous attacks, but they never felt their security was at risk. They assumed that Putin would not target a European country because that would risk a clash with NATO, the world’s most powerful military alliance. But that certainty was shattered when Donald Trump became US president again in January.

Trump is ambiguous at best about US security guarantees for Europe. Therefore, the Europeans are now afraid of Putin. They realize that if Ukraine falls, Russia will be on their doorstep. Millions of Ukrainians could then be deployed to invade the Baltic states, which Putin also views as Russian, just as Russia today forces Ukrainians in the occupied Donbas region to fight against their own people.

So, if Europe wants to keep Putin and the war at bay, it must ensure that Ukraine does not lose. For eighty years, the United States has been Europe’s security guarantor. And now it’s Ukraine. This is a fundamental shift that poses fundamental challenges to a continent that has neglected to defend itself for decades and is not prepared to confront war.

When priorities change, choices change too. Some now say Europe will have to build its own European army. Others hope – or fear – that a European defense union will soon see the light, combined with a European Security Council and a strong European foreign and security policy without the strict consensus requirement that is currently weakening Europe’s resolve on the international stage. If there was ever a time to take these steps, they say, it’s now. However, this is unlikely to happen soon. Since the Russian invasion of Ukraine, and especially under Trump’s second presidency, the main steps taken by European countries have been economic in nature, not political.

An example is the imposition of sanctions against Russia, which hit Moscow harder than US sanctions because Europe trades more with Russia; Europe slowly weaned off Russian oil and gas; Joint purchase of arms and ammunition for Ukraine; For NATO countries, investing 5% of GDP in defense and security in Europe, in exchange for some good political will from the United States; Gradually, sector by sector, Ukraine is integrated into the EU internal market (including the electricity market and the roaming system, to name a few); Using interest on Euroclear’s frozen Russian assets for the benefit of Ukraine; And investment in the European arms industry, which is being coordinated and perhaps soon financed by the European Commission to the tune of 800 billion euros (about 841 billion dollars). In short, the main problem in Europe is security, but these are all economic solutions.

Does this seem strange? Well, it’s always been that way. Since the creation of the European Coal and Steel Community in 1952—when Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands agreed to place their war industries under a higher authority so that they could not wage war against each other—efforts to achieve peace and security have been achieved through economic means. French Foreign Minister Robert Schuman, who proposed the creation of the European Coal and Steel Community in 1950, recognized that European governments were less resistant to economic solutions than to solutions of a political nature, which lay at the heart of national sovereignty.

In an article in Frankfurter Allgemeine Zeitung In April, Kiran Klaus Patel, professor of European history at LMU in Munich, noted that this “Schumann method” worked well in 1952. It worked again after the fall of the Berlin Wall, when the EU single market was completed. Today, it’s working again.

Sometimes, it happens against all odds. For example, the European Coal and Coal Community quickly became dysfunctional due to the coal crisis. But the institution is not dead. It moved into partnership with the European Atomic Energy Community and the European Economic Community, and later found a role in industrial policy and agriculture. More top-down political integration has often been less successful. In 1954, the French National Assembly rejected the European Defense Community (which included a real European army). The Council of Europe, which focuses on human rights, has remained weak over the years. After the fall of the Berlin Wall in 1989, something similar happened: political integration under the Maastricht Treaty got off to a slow start because some governments did not want a strong “social Europe” or a strong Schengen area. By contrast, Patel noted, the euro and the single market have flourished. They became “the ventricles of the system: the stable currency made trade easier, and the euro and the single market created new prosperity.”

The Schuman Method has also worked well during the COVID-19 pandemic. This was a major crisis that affected the whole of Europe, and threatened to destroy the single market through border closures and national export restrictions. However, public health in Europe is a purely national competence. EU member states were unwilling to “Europeanize” this. So they dealt with the crisis by economic means: joint vaccine purchases and a temporary joint debt issuance plan to support the economies of affected countries. I succeeded again. Health policy remains as national as it was before the pandemic.

Today, once again, Europe appears to be reviving the Schuman Plan. As the war in Ukraine turns into Europe’s war, national governments are forced to find a common solution. It is true that these parties are not opting for long-term political integration: there is no move towards majority voting on foreign and security policy matters, sending troops to Ukraine, or the institutional reforms needed to enable the EU to accommodate new member states. No, they’re throwing money at him. European Council President Antonio Costa alluded to this last Thursday, saying: “Defending Europe is not just about spending more. It is about spending smarter, working together and delivering for our citizens. This is how we build Europe’s sovereignty.”

Of course, through collective spending, European countries bind themselves politically – by linking their destinies to each other and sharing responsibility. This, in part, is the point Belgium is trying to emphasize in the battle over Russian assets in Euroclear. Belgian Prime Minister Bart De Wever sees legal and financial risks if the assets of a sovereign state, which should be safe under the EU rule of law, could simply be seized. Confidence in Europe’s legal and financial systems could be undermined. Will investors start avoiding Europe, and Belgium in particular, because something similar might happen to others? If something goes wrong, will Belgian taxpayers have to foot the bill? That would be “absolutely crazy,” he said.

However, at the moment, the discussion is mostly about spending, and once again European countries are using the economy as a driver of integration. In his article, Patel believes that if Europe is balanced and realistic in this regard, things may go well. The political approach will only face resistance from European Union capitals. In his view, a gradualist economic approach has always worked best. “In the past, many political systems have faltered because they raised expectations too high, and then everyone was disappointed,” Patel wrote. It is better for the European Union to avoid this danger.”