In a fractured Europe, two celebrations could make or break the Union

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Detail of a 1 euro coin. [Paolo Margari / Flickr]

The celebration of the Euro anniversary in March will be an opportunity to counter anti-euro parties, writes Paul Wallace. But European leaders may also want to reflect on the anniversary of the Reformation, which undermined the Holy Roman Empire, seen by some historians as an early version of the EU.

Paul Wallace is a London-based writer. A former European economics editor of The Economist, he is author of The Euro Experiment, published by Cambridge University Press. The opinions expressed are his own.

When business leaders meet at the World Economic Forum in Davos, Switzerland this week, they will be looking ahead to some crunch days for Europe in 2017. Crucial elections will be held in the Netherlands, France and Germany. Italians may go to the polls too.

Any one of these ballots could bring a populist upset and further destabilise an already crisis-stricken European Union. But in a year of great political risks, investors should also pay attention to two momentous anniversaries and their implications for the EU’s future.

The first will occur on 25 March, when the EU will celebrate the 60th birthday of the Treaty of Rome, which founded the common market. Little could the six original signatories – France, West Germany, Italy and the Benelux countries of Belgium, the Netherlands and Luxembourg – have foreseen the subsequent widening of membership to 28 states encompassing Eastern as well as Western Europe. Nor could they have envisaged the extraordinary deepening through the creation of a monetary union in 1999 that has since expanded from 11 to 19 member countries.

The anniversary will be politically charged because it coincides with the first reversal of post-war European integration. British Prime Minister Theresa May is due to invoke Article 50 of the Lisbon treaty by the end of March, formally triggering the UK’s departure from the EU two years later. That will make the EU all the more determined to pull out all the stops to turn the anniversary into a rallying-point for the remaining members.

The main messages will be the indispensable role of the EU in preventing a return to the catastrophic conflicts of the 20th century and the Union’s continuing relevance in dealing with current problems. That bodes ill for May’s hopes for an amicable deal on Britain’s future relationship with the EU because the surest (though unwise) way to show the club’s value is to charge a high price for leaving it. That is already looming in an exit bill mooted at up to €60 billion – a demand bound to sour negotiations – and an unyielding stance over future trade arrangements.

Forming a common front against the UK is one way to paper over even deeper fissures in the EU, especially within the ill-designed and poorly performing euro area. That is one reason why the staging of the anniversary in Rome will matter.

The EU may be able to cope with Brexit, but it would struggle to deal with a populist government in Italy. Yet that could be the outcome if, as seems increasingly likely, an election is held this year. Italians’ rebuff of Matteo Renzi in the referendum on constitutional change reflected despair – especially among the young who have borne the brunt of Italy’s lamentable economic performance in the monetary union.

The celebration of the anniversary in March will be an opportunity to counter the anti-euro parties that feed off such disaffection by reminding voters young and old of the continuing value to Italy of its long-standing participation in the European project.

The resurgence in nationalism within Europe should come as no surprise. Viewed in a longer perspective the drive towards integration was always likely to stumble on the stubborn divisions of European history. The second big anniversary of 2017, stretching back five centuries to a provincial town in Germany, will be another telling reminder of the previous potency of Europe’s centrifugal forces.

At the end of October 1517, theologian Martin Luther attached his 95 theses to the door of the Castle Church in Wittenberg. His attack on the trade in indulgences – selling pardons for sins to raise money for the Papacy – heralded the religious and political fracturing of Europe between Protestant and Catholic states. The Reformation undermined the Holy Roman Empire, which some historians have characterised, unflatteringly, as an early version of the EU.

Religious rifts within Christianity no longer divide Europeans, but the legacy of that earlier rupture remains salient. Britain’s decision to leave the EU is in part a misguided attempt to revive a global destiny that originated in a heady brew of “Protestantism, patriotism and the lure of plunder,” as historian David Scott argued in Leviathan: the Rise of Britain as a World Power.

The divide within the euro area between the institutions and cultures of northern states such as the Netherlands and those of southern Europe largely mirrors the earlier religious fault line caused by the Reformation. For the monetary union to work it requires fiscal sharing which in turn requires a mutual trust – something the cultural schism has left in short supply.

Despite the horrors of wars that have peppered its past, Europe’s diversity has allowed it to prosper. In a new book, A Culture of Growth: The Origins of the Modern Economy, economic historian Joel Mokyr emphasises the role of subversive ideas and innovations in spurring the industrial revolution pioneered in Britain in the late 18th century. These could take root and spread in fragmented Europe in contrast with China where the “competitive pluralism and diversity that were the hallmark of Europe were absent”.

A prime source of the “great divergence” between the advancing economies of the West and the stagnant Asian world was thus the very political fracturing of Europe that followed the Reformation.

After a year in which the unthinkable repeatedly occurred, investors need to reappraise the way they gauge political risks. Traditional methods relying on opinion polls have failed because the voting landscape is shifting so fundamentally on both sides of the Atlantic. In Europe’s year of elections historians may be better guides than pollsters.

The overall lesson of the two anniversaries is sobering. The tenacity of European integration is formidable, as the UK will painfully learn. Yet even if the populist insurgency is contained at the polls in 2017, the existing model of the EU needs to become more flexible if it is to survive.

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