Germany, France Struggle to Hold EU Center Amid Brexit Storm

Within hours of Britains vote to leave the European Union, nationalist parties across the bloc were clamoring for their own exit referendums, including in France, one half of the two-nation engine that has driven the EU project since its beginnings as a lowly coal and steel union in 1951.

That laid bare the challenge facing German Chancellor Angela Merkel and French President Francois Hollande as they try to hold the rest of the 27 nations of the EU together, as for the first time a full member has decided it would be better off alone.

Calling the vote a watershed for Europe, Merkel said the bloc is strong enough to find the right answers. Hollande described Brexit as a severe test that would force Europes leaders to take a clear look at the ineffectiveness of the EU and peoples loss of confidence in the European project.

For more on the U.K. vote to leave the EU, click here.

Merkel didnt spell out the answers she has in mind. The unions six founding members — Belgium, France, Germany, Italy, Luxembourg and the Netherlands — are meeting Saturday in Berlin to plan a response, and Merkel invited the French and Italian leaders to Berlin for further talks early next week. The actual process of extricating the U.K. from the bloc is expected to take two years or more.

If history is a guide, resetting the EU so it responds more directly to its citizens will be a struggle.

Beset even before Fridays result with internal tensions over the debt problems of weaker members and the flood of refugees reaching its shores, the EUs core members have little political capital left to craft a compelling vision to inspire the remaining EU countries. Hollandes political support is weakening and Merkel, still the blocs dominant leader, faces difficult elections next year.

Friends Funeral

Even if the U.K. in the end is the only nation to exit, the EU it leaves will be diminished, less ambitious and restricted as hopes of transforming centuries of fractious European history fade.

I felt as though I was at a friends funeral, Latvian former President Vaira Vike-Freiberga said in an interview after the vote. This is no longer the European Union that we joined.

The lesson of the Brexit vote is that EU policy makers should focus on the crises for which people want answers, such as Europes flood of refugees, youth unemployment in southern Europe and national security, German Foreign Minister Frank-Walter Steinmeier said Saturday.

We dont have a full set of answers on the table, Steinmeier told reporters before meeting his five colleagues in Berlin. We have to listen to each other and test the amount of expectations and leeway that the various member states have.

Populist Danger

For now at least, the EU will probably survive in its current form minus the U.K., said Charles Grant, director of the Center for European Reform in London and a veteran EU analyst. He noted that while opinion polls suggest hostility to the EU is rising across the bloc, they also indicate that in no other country would a majority currently vote to leave.

But EU unity will be more vulnerable to political or economic shocks, which could trigger pressure to leave in those countries that have the strongest protest parties on the left or right, such as Italy, he said.

The danger of populism and extremism is huge, Hollande said Friday.

Chart
Chart showing poll of 8 EU nations on whether they too want an exit referendum, and what proportion would vote to leave the EU if they could.

If the alarm that wiped several hundred billion dollars off the value of assets in the U.K. and the rest of Europe Friday spreads into economies around the region, the political challenge for the EU could deepen. Already weak governments would be forced to focus on domestic issues, including fighting off challenges from populist and anti-EU parties, according to Jan Techau, director of the European center of the Carnegie Endowment for International Peace in Brussels.

The pound lost 8.3 percent of its value against the dollar Friday, falling to the lowest levels since 1985. Europes Stoxx 600 index dropped 7 percent, while the S&P 500 index in the U.S. closed 3.6 percent lower.

Hopes for even-closer political and economic ties, as well as expansion to new members in the east, looked ambitious even before the British vote and are now probably unrealistic.

Integration will be off the agenda, thats for the birds, Grant said, not least because securing unanimity for any treaty change looks impossible for the foreseeable future. Already in the lead-up to the British vote, European Council President Donald Tusk had been saying the EU had to abandon its utopian dreams.

Battered Brussels

Moreover, said Grant, power is now likely to slip away from the blocs centralized bureaucracy in Brussels, as national governments assert more control. I think the Commissions glory days are over.

Merkel and Hollande will need to be particularly careful in balancing the negotiations with the U.K. over its departure, according to Grant. Make the British exit too painless, and countries such as Sweden will be tempted to follow; too punishing and it will damage the EU economy further, as well as Britains.

Most important, though, will be to counter increasingly negative public views of the EU by demonstrating that it can, as Merkel put it Friday, make a contribution to citizens lives.

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The most viable way of doing that would be to secure a decisive package of proposals to deal with the flow of refugees, who will be demanding entry to the EU for years to come, according to Techau. 

This is the thing that fueled and emotionalized the Brexit debate in an almost unspeakable way, Techau said, adding that the issues involved — stronger borders, better security cooperation, a common procedure for managing applications for asylum and cutting deals with the source countries — dont require treaty changes that could trigger more referendums. Its item number one on the list.

Source: http://www.bloomberg.com/

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