1 INTRODUCTION In recent years, the European Union has faced multiple crises. The 2008 financial collapse led to massive unemployment in several EU countries, most notably among young people. The euro crisis has exacerbated these strains, creating a division between the more prosperous economies of northern Europe and the less prosperous ones in the south. The refugee and migration crisis sparked by the turmoil in Syria has rapidly turned immigration into a politically charged issue, undermining commitment to unrestricted travel within the EU and fueling the rise of anti-immigration political parties. Most recently, Europe has come under the renewed threat of terrorism, with major attacks being seen in Paris and Brussels. These developments have raised the question of whether the EU can survive in its current form. While further integration of decision-making may be agreed upon in order to increase the effectiveness of the EU s efforts, it is also possible that the nations of Europe will seek to repatriate powers and act in a more limited, national interest. Recently, Wikistrat considered this possibility by running a crowdsourced simulation on a breakup of the European Union s political structures. While discussion of the challenges facing the EU has been pronounced in recent years, the prospect of institutional rupture is usually discussed in terms of prevention rather than drivers, scenarios and consequences, which remain taboo in European political, policy and academic circles. Accordingly, analysts were tasked with identifying stresses that may lead to a partial or complete dissolution of the Union, developments that would increasingly provoke breakup, and the consequences breakup would carry. In doing so, they were asked to consider lowprobability/high-impact and high-probability/moderate-impact developments. During this 10 days long simulation 48 participants analyzed 26 drivers of EU s disunity, projected 13 breakup scenarios and outlined 17 consequences of a potential breakup for both EU and its individual member states. Commercial in Confidence Copyright 2016, Wikistrat Inc. All Rights Reserved. Patent Pending.
2 DRIVERS OF DISUNION Analysts focused on three main strains of drivers: the regional, national and sub-national levels. At a regional level, economic turmoil and in particular fiscal issues take supremacy. Continent-wide economic stagnation was perceived as undermining the willingness of EU countries to maintain longstanding policies that favor integration. High unemployment has reduced optimism about the future, and in turn the continued benefits which the European project should yield. The most recent data claims that unemployment in EU member states ranges between 7.1 percent in Germany up to 48 percent in Greece, with Spain (45 percent), Croatia (44.1 percent) and Italy (39.3 percent) contributing significantly to the gloom. As of January 2016, 4.4 million people under 25 were unemployed in the EU, with three million in the eurozone alone. Compounding these difficulties is the fact that economic malaise is seen by many in Europe as an inherent product of design flaws in the euro. In an optimal currency area, the labor market is flexible, capital is mobile, fiscal transfers offset the disparities that result from monetary union, and economies are broadly homogenous in nature. Yet none of these characteristics exists fully within the eurozone. This explains why some countries (such as Germany) benefited greatly from integration, whereas others (such as Greece) suffered tremendously. Analysts saw the inability of Europe to fully resolve the crisis as opposed to mitigating its impact through piecemeal measures as the key driver of continental fragmentation. The Euro At the national level, the effect of economic challenges is matched by the ongoing effects of the refugee and migratory crisis that has escalated over the last 18 months. The dramatic increase of non-eu citizens 1 seeking to enter the EU is undermining support for political structures in two ways: 1. It enables the rise of political parties that stress anti-immigration measures as necessary to protect national prosperity on the basis that high levels of immigration expand the labor pool and thus reduce wages. 2. The immediate steps which states will likely take (and in some cases already implement) necessitate the discontinuation of long-established cooperation. 2 While sub-state factors were deemed less important, increasing localism as a political force is indicative of a loss of faith in supranationalism. High levels of support for independence in the Spanish region of Catalonia exemplifies a turn against comprehensive, multinational solutions in favor of a more decentralized approach that 1 According to the EU s border agency, Frontex, the number of illegal border crossings into the EU rose from 283,500 in 2014 to 1.83 million in 2015. 2 For instance, a number of EU countries have suspended borderless travel in an effort to prevent movement within the EU by non-eu citizens. This practically does away with a longstanding tenet of European integration.
3 seeks to provide shelter from the negative forces of globalization. In Catalonia alone, the support for independence doubled over the past six years, rising to 46 percent in 2013 from 15 percent in 2006 3. Notably, the majority of stresses upon the EU are internal, stemming either from endogenous weaknesses or from the inability to address external trends at a supranational level. External issues are far less likely to result in an EU breakup. Indeed, even on matters of security, the primary challenge to the EU is the need to establish circumstances conducive to integration and de-radicalization of potential terrorist recruits, rather than the deterrence of external state aggressors. A notable exception would be a major change in U.S. economic policy greatly worsening the EU s own economic position e.g., a dramatic drop in Federal Reserve interest rates. In addition, Russia is an external actor capable of loosening European cooperation for its own strategic gain. Moscow has moved to finance anti-eu political parties, and opened lines of dialogue with economically vulnerable EU states such as Greece and Cyprus. Collaboration in which Russia lends to such states on more favorable terms than EU institutions in exchange for efforts to sabotage pan-european agreement in certain areas (e.g., the maintenance of EU sanctions against Russia) cannot be ruled out. 3 Scotland and Catalonia: Fraternal But Not Twins, Huffington Post, 2014 Commercial in Confidence Copyright 2016, Wikistrat Inc. All Rights Reserved. Patent Pending.
4 INDICATORS OF RUPTURE Multiple drivers are acting in harmony, which means that any breakup would be a result of historic circumstances rather than inherent weaknesses within the EU. Any breakup would emanate from members lack of will to override conventions and rigidity to produce a more flexible response to the challenges Europe faces, as well as a mismatch between the normative thinking of elites who have historically pushed unification and the harsh reality of voters inclined to retreat to national approaches when threatened by major challenges. In short, any breakup is possible, but is by no means preordained. It was telling that the only breakup scenario to be assessed as being reasonably likely was one derived from a eurozone crisis that triggered withdrawals of membership. The potential trigger for such a development was assessed to be the manifestation of resentments and frustrations in anti-eu political activity. This moment was characterized as the point at which notions of interest were reconceptualized away from a broader common good toward a limited national focus. Some analysts foresaw countries struggling with economic prosperity as being likely to produce governments willing to seek trade agreements with parties outside the EU trade policy framework. Others saw the euro crisis as driving a rise in anti-german sentiment that could ultimately lessen support for continued European integration on the part of Berlin. Still more focus was put on the rise of nationalist political parties, such as France s Front National whose leader Marine Le Pen is not only opposed to liberal immigration, but whose immigration policy could presage an exit from the EU. Her performance in next year s presidential election is a likely bellwether of anti-eu sentiment. Likewise, the U.K. s June 23 referendum on EU membership could prove to be a major turning point, especially if it results in the first-ever withdrawal of a member state from the Union. An additional threat is the potential for an anti-eu political party to capture control in Athens in response to Greece s ongoing economic crisis and the harsh economic austerity imposed as a condition for EU bailouts.
POTENTIAL CONSEQUENCES 5 A key takeaway from the simulation was that a partial or complete breakdown of the EU would hardly slow the forces driving disintegration. Instead, many of the drivers of disintegration would remain and in some cases would be exacerbated. For instance, a Brexit as a result of the June referendum or a French exit following the election of Marine Le Pen as President would economically isolate both countries. Nevertheless, their ability to compete and prosper outside the EU would greatly exceed the capacity of smaller nations which would suffer much more. Furthermore, a broader fracture with a number of national withdrawals would likely result in high inflation in southern and peripheral states, or cause debt defaults with subsequent severe budgetary restraint. Four further consequences were projected: 1. Instability would spread to both Ukraine and the Balkans, where efforts at internal reform as a prerequisite to EU membership would stall. 2. A smaller, more sustainable supranational group would emerge in some form. Germany, the Benelux countries and some Scandinavian states would likely remain unified irrespective of the turmoil, mainly due to the expectation that Berlin would seek to maintain its participation in a currency union even if eurozone membership were to shrink. 3. Russian foreign policy would grow more active across Europe. With a less unified continent, Moscow would enjoy greater access to the region and exert leverage accordingly. 4. In response to the above, analysts predicted much closer security and defense cooperation among countries on Europe s eastern frontier. Very little attention was devoted to the role of Poland in averting an EU breakup, largely because many believe it lacked the influence to affect such a development. However, Poland was seen to be an instrumental actor in a post-breakup phase. It was expected that Poland, fearing the loss of the protection afforded by its participation in a common European political structure, would seek to forge alternative forms of cooperation in alliance with the Baltic states and some central European nations. Commercial in Confidence Copyright 2016, Wikistrat Inc. All Rights Reserved. Patent Pending.
6 STRATEGIC TAKEAWAYS Europe-wide economic stagnation undermines the willingness of EU countries to maintain longstanding policies that favor integration. Economic malaise is seen by many as an inherent product of design flaws in the euro, and the inability of Europe to resolve the euro crisis is the key driver of European fragmentation. The dramatic increase of non-eu citizens seeking entry into the EU is undermining support for EU political structures by enabling the rise of political parties that aim to protect national prosperity via anti-immigration policies. Moreover, the immediate resultant steps which states take necessitate the discontinuation of long-established cooperation. Increasing localism as a political force indicates a loss of faith in supranationalism. Notably, the majority of stresses upon the EU are internal, stemming either from endogenous weaknesses or from the inability to address external trends at a supranational level. External issues are far less likely to result in an EU breakup. Two notable exceptions include the prospect of a major change in U.S. economic policy and Russian efforts to dissolve European cooperation for its own strategic gain. Multiple drivers are acting in harmony, which means that any breakup would be a result of historic circumstances rather than inherent weaknesses within the EU. Any breakup would emanate from members lack of will to override conventions and rigidity to produce a more flexible response to the challenges Europe faces, as well as a mismatch between the normative thinking of elites who have historically pushed unification and the harsh reality of voters inclined to retreat to national approaches when threatened by major challenges. In short, any breakup is possible, but is by no means preordained. Nonetheless, a partial or complete breakup of the EU would likely not slow the forces driving disintegration. The key outcomes of EU breakup would be: 1. Destabilization of Ukraine and the Balkans, where internal reforms as a condition of EU membership would slow 2. Germany, the Benelux countries and some Scandinavian states likely remaining in union 3. More aggressive Russian policy across Europe triggering closer security and defense cooperation among the countries on the continent s eastern frontier
7 ABOUT US Wikistrat is the world s first crowdsourced consultancy. It leverages a global network of subject-matter experts via a patent-pending Collaborative Competition methodology to provide a variety of analytic services. Scenario generation, policy planning, risk assessment and red-teaming exercises are conducted by Wikistrat on a real-time, interactive online platform. DISCLAIMER This report is for informational purposes only and does not constitute financial, investment, economic, financial planning, trading or any other advice. You should consult with a competent independent financial advisor before making any investment or other decisions and should independently verify information on which you rely. The report is provided without any express or implied warranty of any kind including warranties of accuracy, completeness, or fitness for any particular purpose. Without limitation, although we have prepared this report based on sources we believe to be reliable, legally derived, and unbiased, we can provide no assurance with respect to the objectivity or any other aspect of its content. In addition and without limitation, this report may contain predictions, estimates or other information that might be considered forward-looking or predictive. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update the report or any part thereof or to correct any inaccurate or outdated information and reserve the right to remove or modify the report, in each case without notice to you or any other party. Without limitation, this report is subject to the Terms of Service posted on our internet website at www.wikistrat.com. Commercial in Confidence Copyright 2016, Wikistrat Inc. All Rights Reserved. Patent Pending.
THE EU BREAKUP For more information on Wikistrat s crowdsourced solutions and systems, contact: info@wikistrat.com www.wikistrat.com