How Europe Can Save Itself After Brexit

Thousands of people gather in Trafalgar square in central London, on June 28 to protest against Britain leaving the EU. Jay Shaw Baker/Nur/Sipa/AP

On the morning after the Brexit vote, a dazed Donald Tusk, president of the European Council, a body consisting of the heads of government of the 28 countries in the European Union, was asked to react to the historic vote. Ironically, he quoted Friedrich Nietzsche, the 19th-century philosopher whose work influenced the rise of German militarism that led to two world wars—the conflagrations that the EU was designed to prevent from happening again. "What doesn't kill you," Tusk proclaimed, "makes you stronger."

We are going to see about that now, aren't we? The European project has faced setbacks in the years since Jean Monnet, the father of unified Europe, started the six-country coal and steel common market in 1951 that eventually evolved into the supranational body that is today's EU. But never has it faced anything like this.

On multiple levels, Europe today appears to be a disaster. Most of its economies are seeing slow or no growth; unemployment rates in what Europeans call "the periphery"—Spain, Portugal and Greece—are scandalously high; youth unemployment in Greece and Spain is more than 40 percent; and, in the eurozone overall, more than 10 percent of the working-age population is out of work. The European Central Bank is running a negative interest rate policy in a desperate effort to ward off a debilitating bout of deflation. And Europe's immigration policy—arguably the major reason for the stunning Brexit vote—remains calamitous. Just ask outgoing U.K. Prime Minister David Cameron. On June 29, at a farewell meeting with fellow heads of state in Brussels, he publicly blamed the Brexit outcome on the EU's unwillingness to give him "an emergency brake" with which to control migration.

Having been jilted in a humiliating fashion, Cameron's counterparts didn't want to hear it and responded huffily. In a statement issued the next day, the European Council said, "Access to the single market requires acceptance of all four freedoms," a reference to the EU principle on the free movement of capital, labor, services and goods. "That," said an EU diplomat, "was our response to Cameron."

And that response—doubling down on a policy that led the fifth-largest economy in the world to say cheerio to the European project—spoke volumes. Now more than at any time in its history, the EU's leaders need to assess where they are, how they got there and, most important, what now needs to be done to salvage Europe. Doubling down on policies jammed down the throats of citizens who had no say in their formulation—like immigration—should not be high on the list.

The urgency to change course in the EU is critical for a reason that gets lost in all the legitimate hand-wringing over its mistakes, and the very real possibility of further disintegration: The EU is very much worth saving. For all the problems Europe now confronts, the central aim of the union—Monnet's big idea—has been achieved. Dalibor Rohac, a research fellow at the Legatum Institute, a London think tank, has been a frequent and smart critic of many EU policy missteps. But as he recently wrote, what is undeniable is that "for 70 years, Europe's great powers have been at peace."

And that, after a century of war in Europe, was Monnet's goal. Beyond that, as Rohac wrote, "by historical standards, the era of European integration is the closest that European nations have come to limited, constitutional, democratic government. For all of its 'socialist' excesses, the degree of economic openness in the EU is without precedent.''

This is now all at risk. Even before the Brexit vote, anti-EU sentiment in France and the Netherlands has been surging. Parties opposed to the EU in both countries have been electrified by the U.K. result and will now push for their own referendums. And it is by no means certain that they won't get a vote. And if they exit—at this point an unlikely prospect, but who would have predicted Brexit three years ago?—then the European project will be over. The disintegration will likely not be contained. Populist anti-Brussels movements are gaining support in countries as diverse as Italy in the south and Hungary in the east (where this fall a referendum will take place on a proposal to reject EU fixed quotas for settling refugees—an almost sure winner in the current climate).

Britain leaving the EU is a moment of crisis for Europe, in part because of its own mythology. The language of the European project alone speaks to this: In what it called a "solemn declaration," signed in 1983 in Stuttgart, Germany, the EU pledged to strive for "an ever closer union." The European project should never end, the logic implies, and many EU leaders came to believe in the so-called bicycle analogy: that if the EU wasn't constantly moving forward, it would tip over. As if on cue, as the Brexit vote approached, some European leaders insisted, as Spanish Foreign Minister José Manuel García-Margallo said, that "whatever happens, more Europe."

But in the current, ornery continentwide environment, "more Europe" is exactly what is not needed. Fortunately for pro-Europeans, important people seem to get this. In a speech prior to the vote, European Council President Tusk, the former prime minister of Poland, acknowledged reality: "The specter of a breakup is haunting Europe," he said, "and a vision of a [closer] federation doesn't seem to be the best answer to it." Wolfgang Schäuble, Angela Merkel's finance minister and one of the most capable civil servants in Europe, said the EU could not return to "business as usual."

Indeed, the likely answer to the question 'What must the EU do to salvage itself?' is: less. The vision of a United States of Europe—with Brussels as Washington, overseeing a federal budget and defense policy and issuing regulations about pretty much everything, from the important (which new drugs get approved) to the preposterous (the maximum size of containers in which olive oil can be sold)—is likely dead.

An irony lost in the post-Brexit hysteria is that doing less had, in fact, become part of the EU's agenda. A Dutch diplomat, Frans Timmerman, had been empowered by European Commission President Jean-Claude Juncker to slash the EU's legendary red tape. And he has been making progress: Last year, he forced Eurocrats and members of the European Parliament to withdraw 80 proposals from the EU's "work program" for the year. In December, after six months of negotiations, the EU's institutions formalized Timmerman's "better regulation" agenda, which included things like a "regulatory scrutiny board" that will do cost-benefit analysis on any regulation or planned legislation in the European Parliament.

In the wake of Brexit, the EU needs to make sure Timmerman's agenda doesn't get bogged down in what he has called "Brussels logic," in which "more Europe" has been defined as more regulation and more legislation. Breaking this mindset and making decisions that enable European businesses to hire more workers should already have been the EU's No. 1 priority—on June 17, Benoît Coeuré, a board member at the European Central Bank, said Europe risks creating a "lost generation" to unemployment. But after Brexit—and with the brewing anti-EU revolts elsewhere on the continent—doing so might well affect the jobs that Eurocrats and EU parliamentarians care about most: their own.

Migrants walk past graffiti reading "London my dream" written on a tent, at the "Jungle" camp for migrants and refugees in Calais on June 24, after Britain voted to leave the EU. Britons voted 52 percent to 48 percent to quit the bloc, a margin of more than one million votes, according to final results from Thursday's referendum. PHILIPPE HUGUEN/AFP/Getty

The EU also needs to address its well-justified reputation as a "transfer union"—one that funnels massive amounts of money from wealthy northern countries to the basket cases in the south and the east. Between 2014 and 2020, the EU is planning to spend 350 billion euros to help narrow economic disparities between member states. That kind of spending inevitably breeds waste, and when stories emerge of a new 12-mile highway in Bulgaria that cost 16 million euros per mile to build, the good citizens of Germany, France and the Netherlands tend to get a little steamed.

Deregulation and more efficient spending, alas, are only going to be of limited value in restoring the EU's tattered reputation. A fundamental disconnect of the European project remains: In the eurozone, a common currency without a common federal budget has led to fiscal disasters and banking crises in such countries as Greece and Italy. Logic dictates that if there is to be a common currency among the 19 members of the eurozone, there also needs to be a common budget—something that Italy's finance minister, Carlo Padoan, has pushed for.

Even before the Brexit vote, that was a heavy lift politically. Now it is all but unthinkable. Dutch Finance Minister Jeroen Dijsselbloem has admitted as much, saying in a recent speech, "To me it is obvious: We need to strengthen what we have and finish it, not build more extensions to the European house while it is so unstable." Unfinished and less grandiose projects include codifying a continentwide capital markets union as well as a banking union (even though the latter is viewed with great suspicion by the Germans, who already can't believe they gave up their beloved deutsche mark for the euro).

Playing effective small ball while the anti-EU furies on the continent burn may well be the only realistic choice pro-Europeans have at the moment. But one big idea does have some merit and could be achievable: The EU desperately needs to enhance both its transparency and its accountability. It needs, in sum, to become more democratic.

Simon Hix, a political scientist at the London School of Economics, has written a book with detailed proposals on how this could be achieved. Among his recommendations: National political party leaders should nominate candidates for the presidency of the European Commission; those nominees should then lay out a platform as to what the EU's agenda would be during their term; and they should hold televised debates before the European Parliament, whose members would then cast votes for their preferred candidate. (As of now, none of this takes place: The commission president is appointed after closed-door horse trading among the most powerful EU member countries.)

The whole process, says Hix, "would be more transparent. There would be a clearer connection between citizens, their governments and the commission." At a time of its deepest crisis, the EU could do worse than try to connect more directly and openly with the people it is supposed to serve. It won't kill them, and it could make them stronger.