Why We Need a Compelling Vision of Europe

There is a growing chorus of disenchantment with Europe and populist parties are preaching anti-European slogans across the member states. Today’s British referendum on European Union (EU) membership is only the most extreme manifestation of that disaffection. Whatever the outcome, the turmoil surrounding popular attitudes toward Europe is not going to end. The reason is a lack of vision.

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The Relevance of U.S. Experience for Europe’s Capital Markets Union

This is a talk I gave on 21 June at the European Political Strategy Center, which is the in-house think tank of the European Commission.  The audience was very generous in listening to my presentation.  The point I tried to make is that the capital markets union is an important project, but we should be careful to ensure that policymakers supplement the efforts to make capital markets more efficient with efforts to make them more resilient.  This is an argument that I have made before and yet it is probably worth repeating.  Given the dynamics behind Europe’s economic and financial crisis, there is simply too much at stake.


Thank you for giving me the opportunity to share some thoughts about the relevance of U.S. experience for Europe’s capital markets union. My argument is that U.S. experience is relevant both in terms of its successes and in terms of its mistakes. The most important lesson I draw from the United States is about the importance of managing or channeling the flight to quality when financial markets come under duress. In jargon, my specific concern is when a sudden increase in liquidity preference translates into a spontaneous return of home bias. In plainer language, what interests me is how we handle situations where investors decide to place priority on protecting the value of their assets.

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The Implications of Opting Out

The referendum campaign on whether Great Britain should remain a member state of the European Union (EU) or leave is in full swing. Campaigners for Britain to ‘remain’, including Prime Minister David Cameron, insist that the British government has successfully renegotiated its relationship with the EU. Those who want Britain to ‘leave’ insist that the opt-outs Cameron won are insignificant and untrustworthy; whatever the British government may say, the bureaucrats in Brussels are plotting a ‘super state’ that will usurp British sovereignty.

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The UK Referendum is a Bad Idea; Voting to Leave Would Make It Worse

The British referendum is based on (at least) two bad ideas. The first is that the popular legitimacy of a referendum can restore the sovereignty of the British parliament. The Leave campaign believes they can take power from Brussels and give it back to Westminster. That is a fantasy. The British parliament will be more constrained and less effective if the UK leaves. The second bad idea is that referendums are more democratic than acts of parliament (which is the kind of decision that brought Great Britain this far in its relationship with Europe). By giving the people the chance to speak their mind on a yes-or-no (in-or-out, remain-or-leave) question, we can discover what they really want. That is not how people work. Real people prefer trial and error. Real people also like to delegate responsibility for making complicated decisions. This matters because the two bad ideas combine to make the worst of all possible worlds. Britons who vote to Leave will discover that they have made a terrible mistake only to learn that there is no easy way to fix it.

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The Decline of the West?

Some countries fall from greatness. For them, decline is absolute. Others face increasing competition from rising powers. Their decline is relative. However there is a third kind of decline that has more to do with degeneration than with failure, and less to do with competition than diminishing potential. This is a kind of morbid decline. It echoes the ‘decadence’ of the late 19th Century but without the implied culture of excess. The countries of the West might be accused of falling prey to this morbidity, so Benjamin Rowland and his contributors argue. Hence it is worth asking why that should be happening and what is to be done about it.

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The United States Needs Europe

‘In an interconnected world, there are no global problems that can be solved without the United States, and few that can be solved by the United States alone.’ United States National Security Strategy, 2015, p. 3.

‘A strong Europe is our indispensable partner, including for tacking global security challenges, promoting prosperity, and upholding international norms.’ United States National Security Strategy, 2015, p. 25.


The United States needs strong allies in Europe. The United States also needs European unity. This is has been a recurrent theme in Barack Obama’s foreign policy since the start of his campaign for the presidency in 2007. It is a theme he borrowed from the second administration of George W. Bush. It is also one of Obama’s greatest disappointments in shaping U.S. relations with the outside world. From the outset, both Obama and his predecessors have been explicit that the United States needs Europe’s strength to promote world order and uphold democratic values. U.S. foreign policy is most effective when it works in concert with Europe. It is least effective when coordination across the Atlantic falters or when Europe is divided or distracted. Future U.S. Presidents will struggle to adapt if European division and distraction becomes the norm. In fact, that may be happening already. Despite the strong language of his 2015 National Security Strategy, President Obama seems to be moving in a direction that relies less on trans-Atlantic cooperation.

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Europe’s Strategic Priority

The European Union needs to make economic performance its number one strategic priority. The reason is not to trade off butter for guns and neither is it to abdicate global responsibility. Europe is too important for world order to withdraw into splendid isolationism. To be a global actor, Europe must be strong economically. In that sense, Europe is much like the United States.

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National Ownership is Moral Hazard

The grassroots politics that policymakers accept as necessary for success in the domestic context is viewed as a top-down failure in any other country. The question is whether these two views of reform politics are reconcilable. The answer depends upon two things. One is how much you see politics as a process of give and take between policy advisors, politicians and voters. The other is how much you trust politicians in other countries. Unfortunately, the debate in Europe right now is much more about trust than about process.

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Has Cameron Delivered for the City of London?

The deal reached between British Prime Minister David Cameron and his colleagues on the European Council last week was supposed to transform the relationship between the United Kingdom and the European Union on four dimensions – economic governance, competitiveness, sovereignty and immigration. Three of these issues are largely symbolic. No declaration or agreement is going to ensure ‘better regulation’ either in Brussels or in Westminster; British sovereignty was never seriously under threat from the vague aspiration to achieve an ‘ever closer union’; and while immigration is a vital issue, few experts on cross-border labour imagine it turns on access to ‘in-work benefits’ or can be deterred by the indexation of child support. By contrast, economic governance is a vital national interest both for the British people and for the City of London. The question is whether Cameron has managed to improve that aspect of Britain’s relationship with the rest of Europe.

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Britain’s New Relationship with Europe

The European Council has delivered an agreement on Britain’s new relationship with the European Union. The agreement acknowledges that the British government has no obligation to engage in further political integration, it recognizes that not every country will adopt the euro as a common currency, it strikes a balance between the need for common rules and the desire for national autonomy in the area of financial market supervision, it stresses the importance of effective regulation for competitiveness, and it introduces a mechanism to phase in the benefits that accrue to workers who move from one member state to the next. These concessions become effective once the British government informs the European Council of the United Kingdom’s commitment ‘to remain a member of the European Union’. The challenge now is for British Prime Minister David Cameron to win the ‘yes’ campaign. At least, that is what it says in the post-summit script. The agreement may just be enough for the British people to play along.

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