The EU’s widening north-south divide

By Stephanie Haffner

Since the start of Europe’s sovereign debt crisis, tension has risen in the eurozone as a result of the growing economic divide between the group’s northern and southern members. The response to the debt crisis was an ugly trade: Northern countries financed southern debts, but in turn imposed harsh austerity and economic reforms. The policies, however, have triggered ongoing protests that could morph into rising resentment from populations in southern EU member states, and extremism.

The belief in Berlin, Helsinki, and other northern European capitals is that austerity will eventually lead to competitiveness, fiscal sustainability, and growth for southern economies as well as the EU as a whole. So far these hopes remain unfulfilled. In fact, continued austerity will spur increasing resentment and a growing divide that could boost the popularity of extremist parties and threaten the European project. This dynamic will be helped along by a looming identity crisis for mainstream political parties in Europe’s southern states, where distinctions between the left and right have begun to blur as sovereignty is further undermined and spending cuts drive domestic policies.

Assuming responsibility for southern debt has allowed Europe’s northern countries to essentially take control of fiscal policy throughout the EU. This result has eroded the sovereignty of southern European countries, and that process will be further exacerbated by increased policy centralization at the EU level and the move toward fiscal mutualization. As the eurozone’s monetary union is strengthened, fiscal instruments (such as Eurobonds/bills) that rely on pooling fiscal risk with greater burden-sharing could end up being exchanged for even more centralized control of economic policy. And new EU legislation, such as the so called two-pack and six-pack, which give national budgetary oversight power to the European Commission, will permanently lock in austerity

Centralized policymaking at the EU level will further exacerbate the political imbalances between the EU’s northern and southern members. The northern states’ growing role as the policymakers of the EU means that the south will lose the ability to significantly influence EU-level policies. The traditional democratic deficit that exists between the European Parliament and European citizens is thereby transformed into a deficit between southern European citizens and northern European governments, which is arguably a far more critical divide.

But there is a way to avoid such a mess. Economic integration is clearly necessary to resolve the crisis, but politicians are lagging in their efforts to present a long-term vision for Europe’s political and economic future as a union. Policymakers should consider shifting their narrative from one that emphasizes oppressive austerity to one that highlights the importance of solidarity and political integration. This goal may require a new treaty to address the lack of political representation and democratic accountability that has come to characterize much of the current response to the crisis. But the failure to address these important issues will not only diminish the voice of southern Europe and its citizens, but could also heighten the risk of a breakdown in the European experiment.

Stephanie Haffner is a researcher with Eurasia Group’s Europe practice.