THE BLOG
09/29/2015 02:46 pm ET Updated Sep 29, 2016

The Future of Europe: the Eurozone Takes over - Stronger Integration.

YanniKouts/Flickr

The European Union (EU) and its 28 members face fundamental changes over the coming 5-10 years.

- Britain will vote in 2016 or 2017 on new terms. If the result is to leave a revision of the structure -- institutionally and functionally -- becomes inevitable.

- The Eurozone takes over as the decisive institutional body dividing member states according to status vis-à-vis the single currency.

- A common economic policy among Eurozone member states -- sound financial management -- emanates from the debt crisis.

- Demography (aging) emerges as one of the dominant issues.

- The old European regions anchored in history and tradition bide their time to loosen links with the nation-state.

- The debt crisis, demography and migration, and the pressure from a resurgent Russia coalesce into another interpretation of solidarity corroborating commitment to integration as an ongoing process -- not membership because it is advantageous.

- The global role focuses on value based questions; crises asking for hard security mainly in form of military intervention will be difficult to manage -- possibly with the exception of adjacent regions calling for operations limited in size and power projection.

- The Atlantic Alliance has weakened considerably over the preceding 15 years. Both the US and Europe find it difficult to acknowledge that fundamentally they share the same values, which should push them closer together but in fact pulls them further apart from each other.

Conclusion:

Europe moves towards a political structure reminiscent of the situation in the late Middle Ages with a loose central power, strong regions, small political entities (Europe's original components), anchored in common and shared values -- in those days Catholicism, now an updated version of European values forged under pressure from globalization. Economic internationalization and cultural decentralization will be key words. It will be strong enough to defend itself -- also militarily -- but reflect a European mindset distancing itself from interventions abroad except close to its borders.

Values.

European integration may be the most impressive social and political engineering the world has seen since the end of World War II. It has proved possible because the nation-states shared common values going back almost 2000 years in the form of Christianity or to be more precise Catholicism and Protestantism. These values go further back to the Greco-Roman times influenced by the Semitic world. The main characteristic is diversity. Ideas about politics, economics, culture and other behavioral trends have thrived in competition with each other. Science and technology was welcomed although not always without tergiversation.

The main recalcitrant member states are Britain and Greece. Britain broke with Catholicism in the 1530s when King Henry VIII instituted the Church of England. The door opened for an English mind-set which classified the continent and Catholicism as unfriendly even hostile. It is no coincidence that polls show much stronger sympathy for the EU in Scotland and Ireland -- not in the Church of England. Greece belonged to the Ottoman Empire until the war of independence in the 1820s and its people adhered to the Orthodox Church whose break with Catholicism goes back to 1054 A.D.

The large majority of member states keep in step by a common perception of right or wrong, permissible or not permissible, and ethical versus unethical behavior. Impact of new trends on their societies, forming an opinion of what to do about it and their role in the world is 'synchronized' by common cultural heritage. This explains why the EU can go from crisis to crisis without falling apart. Many economists come continually to the conclusion that the enterprise is not viable, but their approach is too narrow, sidelining the common value base and forgetting the lessons of common history over centuries and for some two millenniums.

Britain -- in or out.

Britain has never felt comfortable in the EU. Membership runs against the grain of British foreign policy crafted over centuries to stay outside squabbles on the continent while occasionally interfering to preempt a credible threat. The English gained control over Wales, Scotland and Ireland not to allow outside powers a foothold on the British Isles.

Britain's European policy has grosso modo been to sit on the fence waiting for the Franco-German axis to forward initiatives and then to shoot them down which invariably failed after which strenuous diplomacy was applied to stop them from going too far.

The Eurozone posed a dilemma. It was more suitable and likely to fulfill the ambitions embedded in the Treaty of Rome so after some vacillation Britain joined (October 1990) its harbinger[1]. That proved unworkable and Pound Sterling exited (September 1992). The Franco-German axis stayed firmly in control of the EU. Gradually a movement to withdraw started to creep onto the agenda primarily inside circles of the Tory party. Conceptually Prime Minister Thatcher opened the door stating in 1979 stated '... what we are asking is for a very large amount of our own money back,...'. This was not the of a genuine member state.

The trajectory of 'in or out' has over the years given rise to the question of what economic and societal model Britain wants and the answer is a different one from what is found on the continent. When the Treaty about the European Union (The Maastricht Treaty) was negotiated (1989-1991) the stumbling block quickly became social provisions in particular rules and regulations applicable to the labor market. Britain under a Conservative government would have none of it and signed the treaty with an opt-out clause for the social chapter. The opt-out was subsequently lifted in two steps (1997 and 2000) by the labor government highlighting that it was more a question of British domestic policy than European policy. The Tory party views the EU as constraining its effort to demolish parts of legislation turning Britain into a social welfare state; the labor party supports the EU precisely for this reason.

The core demand for new terms tabled by the incumbent conservative government is to roll back the situation to 1992 and get guarantees that EU social provisions (broadly speaking) do not apply to Britain.

Opinion polls may not be the best guidance to how this thriller will end as negotiations have barely started, but polls indicate that it can go either way. Talk about red tape holding Britain back exercises a strong leverage on business groups and the general public. Expectations of a much higher export to countries like China and India outside membership are constantly floated. The fact that Germany and France who are fully committed to the social chapter export much more to these countries does not dent this argument. Psychologically the British people may be uneasy companions of former enemies like Germany, France, Spain, and Italy. Links with the Commonwealth fade which probably is regretted by many Britons. The Anglo-American partnership that has for decades given Britain a privileged role is judged by some politicians and part of the public to be closer outside the EU than inside despite American statements to the contrary.

The sinister combination of a hard rock Tory group voting against whatever the Prime Minister will come up with, a tepid Labor party under the leadership of Jeremy Corbyn at best hesitatingly and unconvincingly campaigning for staying inside, and the uncertain card of the Scottish National Party (SNP) might well lead to a majority of votes to take the country out of the EU.

It is assumed that after a no vote a free trade agreement like the one Switzerland and Norway enjoy would be negotiated quickly and easily. This cannot, however, be taken for granted.

According to article 50 of the treaty a country wishing to secede enters into contact with the EU to negotiate a withdrawal agreement. The tricky part is that the treaty provisions cease to apply to the member in question when such agreement is reached or in case of failing to agree within two years from the decision to secede. Everybody will try to rescue what can be rescued from this shipwreck, but obviously the 27 remaining member states will take the view that Britain has decided to leave so leave you do. The agreement will be eschewed in favor of the EU for two reasons. Access to the market of the 27 member states weighs heavier for Britain than access to the British market for the rest of the EU. The two year clause strengthens their hand as they better than Britain can live without free movement of goods, services, capital and labor.

The main argument apparently falling on a lot of deaf ears in Britain is that inside or outside the EU, economic transactions require compliance with EU norms, standards, and various rules. Those rules are shaped by the member countries promoting own interests. Britain outside will not participate in this sometimes laborious process resulting in British interests not being fed into the legislative process. An example is the Swedish carmaker Volvo that felt the consequence of having to adapt to EU rules tailored to EU car producers' interests.

It is difficult to estimate how strong the negative impact will be. As seen in many cases it is the long term effect that matters and continuous lower growth will in the long run add up to a substantial loss.

Politically the consequences are much more severe and next to impossible to foresee. The fact that the EU's politics will be devoted to tackle this self-created problem sideling other pressing matters are an appalling thought.

A fundamental question is whether Brexit would strengthen the integration among the remaining 27 members or throw the EU into a kind of paralysis wondering what has gone wrong and motivated Britain to leave. Judging by history a stronger integration seems much more likely than the alternative after the initial shock and the political tremors.

Some observers predict a more inward looking, introvert, and less free trade (market economy) EU, but this is far from certain. Looking at political postures over the past decade or two there are not many signs that Britain has swung the direction of the EU in this direction.

The story does not end here. Scotland no longer sees itself as England's acolyte; especially not if, what is likely, a majority of voters in England forces Scotland with deeper historical and cultural links to the continent out of the EU. A second referendum on independence will be unavoidable and this time the vote to leave Britain will prevail. After some turmoil and chaotic probing Scotland will join the EU in its own right -- it will have to go through normal procedure for accession negotiation -- and England try to find some closer relationship with a reluctant, baffled, and perplexed US not really knowing how to handle England's knock on the door.

The European Union or the Eurozone?

It is inconceivable that England cutting the cable will leave the EU without major changes in the structure -- institutional and substance wise. The contours of fundamental changes in a system set up more than sixty years ago has been visible for some time. Some of them would have happened anyway; others will be a consequence of this political upheaval.

The Eurozone crowds out the EU -- it is as simple as that. Those having decided to substitute their domestic currency with the single and common currency -- the Euro -- have dared this step expecting stronger influence on decisions and economic benefits.

As of now 19 countries out of 28 EU member states have joined the Euro. While many economists -- primarily American and British economists -- watching the Greek crisis, in fact an appendix to the global debt crisis, were busy writing the Euro's obituary Slovakia joined in 2009, Estonia in2 011, Latvia in 2014 and Lithuania in 2015 bringing membership from 15 in 2008 to 19 in 2015.

The treaties prescribe formal criteria for membership to the Euro, but the core is sufficient congruity among member states' economic structure to ensure an analogous impact on domestic economies of outside shocks (e.g. fluctuations in the oil price, debt crises). This explains why Greece ran into problems, while Spain plus Italy plus Portugal and Ireland were caught in the slipstream, but not fundamentally wounded. Germany, France, and the Benelux countries plus a couple of other weathered the debt crisis much better for this reason. Britain as a petrol economy with a large financial sector, a small manufacturing base, and a tiny agricultural sector differs from the Eurozone members -- a difference that will deepen with the drive for keeping it out of the social chapter.

The Eurozone countries will tend to share views and interests to a much larger degree keeping EU member states not inside the Euro with a different economic structure on the sidelines. Inevitably that will generate a stronger mechanism for Eurozone countries to agree after which the larger caucus of EU member states will endorse it. No written texts will ever put it like this, but in reality that will be how the Eurozone/ EU work in the future. Britain inside the EU would have done its best to limit such a degradation of the EU playing its traditional role of drawing lines for how far the more integration arduous countries can go.

The EU moves towards a solar system with Germany and France driving a stronger integration. As was seen in the Ukrainian crisis they will act either alone or drag the EU along. The first circle will be members of the Eurozone either not strong enough or not wishing to be too close to the core two countries. The second circle will be EU members outside the Euro enjoying benefits from the integration and participating in decision making, but with limited influence. Viewing the situation around EUs borders a third circle is possible: Countries wishing to join, but not fully qualified. A kind of special status ('candidate membership') might be envisaged. One model could be membership with rights to participate in decision making, but without right to vote.

It seems like a fairly loose conglomeration of nation-states all wishing to work together and joining forces, but harboring different views on how fast and how deep the integration should go. The two extremes in form of a United States of Europe and collapse of the EU can be ruled out. Something in between will emerge. Judging by history the Europeans have been good at inventing political systems and models suitable to tackle challenges and this will continue to be the case.

The indispensable partnership is the Franco-German axis that will control and drive the integration. It is not impossible to discern some kind of confederation. Both know that without each other and without the EU they will count for very little in geopolitics and geo-economics. This common interest keeps them together despite tergiversations and occasional quarrels.

Few people fancy historical parallels, but this is how the German Empire was created in 1871 and how the Habsburg Empire functioned over centuries. There was a core with a loose knit ring of countries, regions, and peoples around it. The Holy Roman Empire -- not a well-known or popular political construction -- was exactly like this and lasted from the Middle Ages to its dissolution in 1806. The emperor was the formal head of state, but had continually to negotiate his powers vis-a-vis local rulers, but it actually worked constituting a framework for millions of people living in Central Europe.

Economic policies.

The global financial crisis hit the Eurozone hard. It exposed weaknesses in the construction of the single currency most of which were well-known, but regarded as calculable risks from its inception. Greece able to borrow almost at the same interest rate as Germany because bonds were denominated in Euros would have been regarded as piffle. The expectation was full awareness among financial institutions that although in the Eurozone a loan to Greece was not guaranteed by the other Eurozone countries.

In reality there were two groups of Euro members: Strong countries mainly in Northern Europe and weak countries primarily in Southern Europe. The EU common policies introduced since 1958 had done marvel to the EU in many respects, but divergent economic structures and different economic policies remained. The Northern European countries ran an economic policy aiming at sound financial management, low inflation and cut the coat according to the cloth. Over decades they had moved toward a competitive economy weeding out distortions and privileges. The Southern European countries stuck with an old fashioned economy allowing privileges, patronage, and borrowing to rule the agenda. Until the introduction of the Euro the gap between these two groups was bridged by perennial devaluations of the weaker countries' currencies. It helped for a while, but preserved a non-defensible economic structure. The effect became a gradual decline in national income per capita compared to Northern Europe. The model was workable provided this was politically acceptable and so it was for some time.

The weaker countries might have preferred to go on, but it turned out not to be the case for the stronger countries. The depreciations exercised pressure on their economies forcing them to neutralize the negative effects for their competitiveness through even more stringent domestic economic policies. In particular German industry came to fear that the highly successful 'Stabilitaetspolitik[2]' would not be sustainable forcing Germany to consider a weaker Deutsch Mark to forestall loss of market shares. The real driving force behind the long road to the Euro via fixed but adjustable exchange rates was for many years German industry seeing two alternatives: Either a gradual undermining of the 'Stabilitaetspolitik' raising the specter of abandoning low inflation or force the other EU member states to adopt their own version of 'Stabilitaetspolitik'. Germany opted for the second option. Or in other words the German refusal to contemplate higher inflation made the single currency inevitable.

As the debt crisis demonstrated, two effects followed.

The first one was to force the weaker countries into structural changes long overdue. What they should have done several decades earlier they now had to do quite simply because Euro membership ruled out depreciation. Greece, Italy, Spain, and Portugal all started this agonizing and painful process. The medicine worked. Their economies turned around and after some years in the grip of recession all of them are back on the growth pattern in 2015.

The second one was the gradual adoption of a common economic policy. The one chosen or imposed itself as unavoidable was the one applied by the Northern European countries anchored in sound financial management. Some people call it the German model, but there is nothing German about it as this model has been used by many countries around the globe with success.

As of 2015 the Eurozone morphs itself into a genuine Economic and Monetary Union with a common economic structure and a common economic policy underpinned by a fiscal union and a banking union. This was bound to happen and it can only be regretted that it had to be done as a response to a debt crisis making the process laborious and burdensome.

The Eurozone is the only place in the world trying to combine social welfare with a competitive economic structure. It is not a foregone conclusion that the endeavors will be successful. Major political developments in the Eurozone countries in the course of 2015 indicate that political forces at the beginning of the year judged to be strong enough to challenge have had to give ground.

Europe's biggest problem -- demography.

Japan, Russia, and Europe are caught in an analogous demographic trend: Falling labor force both in absolute terms and as share of total population plus more people above 65 years of age in numbers as well as share of population. For the EU people above 65 years compared to people in the working age bracket go up from 22 percent in 2005 to 29 percent in 2020 and 48 percent in 2050[3]. The inescapable conclusion is that there are fewer people in the working age bracket to produce goods and services.

Doing nothing currently the preferred way is a cul-de-sac. The shortage of people who are at the disposal of the labor market embodies several dimensions. First, even if, as seems unlikely, fertility goes up, jobs in the care service sector of the economy are not attracting job seekers. Many of these jobs are filled by migrants instead of national citizens. Second, the demographic repercussion on the EU is geographically uneven. The crunch will be acute in the Eastern part of Germany, Northwestern parts of Spain and Italy, and some regions in Central France and South of Poland while large parts of Britain, regions in the Southern part of Spain + Southern part of France + Southern part of Germany and Northern part of Poland can expect a much more favorable demographic development. Third, uncertainty of whether students graduating from European universities may have the right skills to enter the labor force raises the ugly prospect of well-educated people, but well-educated to perform in functions that no longer weigh on the labor market and in the economy.

An obvious way ahead is immigration. Europe has gone through several waves of immigration since 1945 with reasonable success. After the end of World War II millions of people entered Western Europe from the east; they were integrated. The immigration/refugees from Central- and Eastern Europe -- in particular the German Democratic Republic (DDR) and in 1956 from Hungary -- were also managed well enough. It was characteristic that migrants shared the basic culture with people in their new nation-state.

Since 1960s another wave took off bringing millions of guest workers to Europe. Many of those stayed on changing their citizenship and succeeded in bringing their family to their new home. The classic example is Germany[4]. These people came to work and work was available facilitating the integration.

The core problem is that Europe can solve its demographic problem number wise by opening for immigration, but the people wanting and ready to enter Europe -- actually more than ready as they are banging on the door -- do not share cultural identity with the Europeans. They are mostly Muslims and their educational standard may not offer promise of entering the European labor force. In a best case scenario a strong and determined effort to integrate the migrants are called for without any guarantee of success. In a worst case scenario migrants arriving with high expectations to be disappointed realizing that this is not the promised land may turn into a social and political problem -- feeling like outcasts -- with some of them joining extremist forces turning against their new home country.

The combination of demographics and migration constitutes a high mountain to climb. Demographics instigate a coalition among voters outside productive life powerful enough to determine economic policy constraining those inside productive life who generate wealth. The result is a growing dichotomy between 'welfare citizens' and 'competitive citizens' undermining nationwide solidarity. Ageing turns it into a generational conflict about distribution of national income with the elderly insisting that the young generation support them and the young generation resisting by drawing lines for how big a burden can be passed on their shoulders.

Migration enhances the problem. A large number of Europeans fear for their own future if immigrants arrive putting a strain on welfare benefits already under pressure. There is no common cultural heritage between immigrants from Syria, Libya or Africa and Europe adding an uneasiness of welcoming people who are strangers and may disrupt daily life in local communities. These fears and anxieties are legitimate and cannot be brushed away. Unless solutions can be found, Europe and the refugees face an uncertain maybe even an agonizing future. Solidarity looks fine on paper and in declarations, but is much tougher to deal with in practice.

Three policies should be implemented. Stronger external border controls. A policy determining how many migrants/refugees can/will get in is indispensable. A better mix of welfare and competitive economies ensuring that welfare does not impede flexibility plus adjustment and welcoming immigrants under the explicit condition that they adapt to host nations and contribute to their economies. Add to this stronger commitment to economic growth in Europe's adjacent geographical areas.

Europe faces an existential problem brought to the front pages by migration/refugees in late summer and early autumn 2015. This is, however, only the tip of the iceberg. Below lurks the challenge of living up to its fundamental values[5] confronted with the combination of demography, migrants/refugees, search for an economic and social model, Britain questioning membership on current terms, lower economic growth and an unstable group of countries around its borders -- Russia, Ukraine, Turkey, the Middle East, and North Africa. Many observers will ask the blunt question: What's the legitimacy of the European Union if it is used to dilute everything Europe stands for?

The key invention of pooling sovereignty has weathered the test of time, but most of the remaining principles need retooling or to be replaced by new principles intercepting changes and new trends.

A new model -- the regions; how Europe looked until the industrial revolution.

Industrialization required access to a market of a certain size and an institutional framework to provide and guarantee that. The answer was nation-state born in Europe as the twin of the industrial. Cultural minorities were enrolled under the tutelage of the prevailing majority ending the splitting up of Europe in a large number of small states: England versus Scotland, Wales and for some time Ireland, France with regions like Brittany, Provence, and Aquitaine, Germany born in 1871 when German Kingdoms joined Prussia, Italy created by initiatives from the King of Piedmont-Sardinia.

The nation-state delivered tangible economic benefits legitimizing its creation. People outside the majority raked in a sufficiently strong increase in living standards to compensate for loss of cultural identity. Logically it is not difficult to grasp that as industrialization fades away and globalization crowds out the nation- state, the political engineering to frame industrialization loses its luster. Nowadays the nation-state is squeezed between on the one hand globalization and on the other hand people's wish to be closer to the decision-making of relevance of their daily life such as the environment, education, health.

The old and well-established European regions stage a resurrection. Scotland in Britain and Catalonia in Spain illustrates this by continually requesting to vote on secession or at least to get another 'deal' inside the nation-state. The same is seen in Germany with the federal government under pressure to transfer powers to the laender[6]. France has also moved in that direction over the last 20-30 years.

Adjusting to this new trend will take time and much porcelain can be cracked, but the EU will sidle towards creating a new model. As was seen when the German Empire was crafted in 1871 it does not necessarily imply the disappearance of nation-states only their status and influence will be curbed and power transferred either 'upwards' to a changed EU or 'downwards' to regions or other local communities. A multilayered political system will emerge.

Europe's main strength has always been diversity and diversity inside a European framework will strengthen removing much of the criticism directed at the current templet accused of favoring centralization and concentration of powers and decision-making.

A new model -- commitment to the goal of 'an ever closer union among the peoples of Europe'.

The Treaty of Rome (1958) prescribes 'an ever closer union among the peoples of Europe'. It reflects the ambitions of the six founding member states. Two recent events have brought it into play.

The first one is Britain's request to rewrite the terms governing its membership asking the other member states to acknowledge that this objective does not apply to Britain. The other one is the behavior of the Greek government over the first six months of 2015 with acrimonious negotiations for a bail out deal where Greece broke with solidarity in words (policy declarations) as well as specific actions.

The conclusion to draw is a sentiment among the majority of member states and in particular the original six ones that either you are member of the EU, committed to solidarity, coherence, common decision-making, and common policies or you are not.

Both in the British and the Greek case the message has been conveyed -- albeit in different ways -- that if you do not feel committed to a common course you should consider withdrawal.

Solidarity, benevolence, and cohesion are still there. And the EU still works as a problem grinder when a member state tables a problem asking for help. But with one proviso: The member state must feel that it is joining forces with other members, sharing benefits and burdens and not just scraping a lot of money together irrespective of repercussions on the EU or other member states. The conceptual break came with the Lisbon Treaty entering into force in 2009 introducing a procedure in case a member state wants to leave.

Analogously a hardening of procedures for joining the Euro and similar enterprises can be envisaged. Hitherto the hopper has been objective criteria which opened the door for Greece to join the Euro. In the future those having started such fora will reserve the right to reject newcomers if not assured and convinced that the newcomers will continue to fulfill the criteria.

A new model -- rebooting the economy[7].

The EU has set five ambitious objectives on employment, innovation, education, social inclusion and climate/energy to be reached by 2020. Each member state has adopted its own national targets. The basic idea is to link innovation, qualitative growth and less use of resources to make the EU more competitive by tapping into the vast global market for new industries in these sectors, reaping the benefit of spinoffs, and delivering a better environment for citizens.

For this strategy, protection of the environment and resource efficiency play crucial roles. Undoubtedly, these policies will attract criticism, some perhaps warranted. But unlike other major economies, Europe has economic and social goals that encompass more than economic growth and employment. These goals may not be equally shared. Most support is in Northern Europe while Southern Europe and most new member states from Central and Eastern Europe are more reluctant. The ability to reach a consensus despite conflicting views confirms the EU's resilience.

Resource efficiency, a flagship of the Europe 2020 strategy, cuts across many sectors. The basic idea is to decouple economic growth from resource use, by pushing the economy toward creating more with less, delivering greater value with less input, using resources in a sustainable way, while minimizing waste and environmental impact. Specific policies are increased recycling and reduced energy as well as synenergy in the use of raw materials. One instrument brought into play at an early stage is tradable permits to reduce greenhouse emissions through the market mechanism and polluter-pays principle.

Analysis suggests that a determined and systematic effort will enhance EU competitiveness and contribute to a sustainable, reindustrialized European economy reaping benefits. Requirements include reducing total material requirements by 17 percent to 24 percent, boosting GDP and creating at least 1.4 million jobs. This is not loose talk. The recycling industry has already created 500,000 jobs in the EU.

EU core industries in environmental actions in a broad sense have revenues of more than €300 billion, contributing to more than 2 percent of the Union's GDP in 2011. These industries provide nearly 3.5 million jobs and global market share of up to 40 percent. The sector grows more than 8 percent every year.

The response to the debt crisis and determination to reconfigure the economic model reveals a determination to reform the Eurozone economies and a deeper understanding of the character of the crises. New ideas are in short supply, but the European soul-searching over welfare, competitiveness and resource efficiency is yielding new approaches.

Europe in the world.

After enjoying the peace dividend after the end of the Cold War Europe discovers that the world is not as peaceful as expected. Russia is becoming an unpredictable and destabilizing power next door. Its military arsenal may not threaten Europe proper, but it is strong enough to raise the specter of limited military interventions in what is called its near abroad which includes EU -- and NATO -- members such as the Baltic states. The 'invention' of hybrid warfare poses a new threat asking for counter policies different from conventional military forces.

Ukraine is turning into a battle for societal models that neither Europe -- the West -- nor Russia can afford to lose. Russia and President Putin is defending the Russian political system in Ukraine determined to prove that none of the Soviet Union's states -- except the three Baltic States -- can apply the Western model successfully. If they were, the pressure on reform would escalate to intolerable and uncontrollable heights in Russia undermining President Putin's potion. Europe cannot and will not allow the attractiveness of the Western model to succumb especially not under Russian pressure.

Turkey flirted with membership over a couple of decades and is still on the list of candidate countries. The fact that it has reaped most of the economic advantages through the association agreement turns membership into a political questionable enterprise from Turkey's point of view while the prospect of seeing EU external border extended to Syria and Iran produces nervousness among Europeans.

North Africa poses a potential problem with its high population combined with low growth per capita and behind the curtain millions of people from countries south of Sahara look to Europe as the savior.

These are surmountable challenges. They call for adept policymaking, but ideas to find solutions are not out of reach. They call for money, but although the debt crisis and semi-stagnation still haunts Europe the amount required is manageable especially keeping in mind the wind fall reaped through the peace dividend after the end of the Cold War.

The disturbing factor is the absence of confronting the issues among European politicians and Europeans buying into populism and still looking to the US as the main partner in the Atlantic Alliance expected to form a rescue party if or when needed.

The US has told Europe in no uncertain terms that things are no longer what they used to be. The partnership albeit still existing at least on paper has slipped down the list of priorities. Europe did not respond to the call of the US for the second Iraq war -- right or wrong -- and it left its mark on the alliance. The US is talking about the pivot or rebalancing to Asia. On top of that NATO was a military alliance to defend a societal system against the Soviet Union propagating an alternative -- a situation now confined to history thus removing the core raison d' être for NATO.

This is perplexing because both sides overlook sharing analogous values. They are in fact the only 'partner' the other side can count on if it finds itself in a genuine crisis. The appearance of Emerging Markets and Developing Economies (EMDE) makes this highly relevant. Unless the US and Europe can find common ground the prospect of chaos and infighting is too high for comfort as no other country or group of countries are waiting in the wings with ideas and economic power to lead. Much has been said about the rise of China and India, and it is certainly remarkable, but even some decades down the road the US and Europe will still account for more than 1/3 of global Gross Domestic Product -- maybe more.

The job is to shape a new geopolitical and geo-economic system reflecting the rules serving the world well since 1945, but adapted to welcome EMDEs and amended to take EMDEs interests into account in decision-.making. Unless done the risk that the system cracks are high indeed and the responsibility for letting this happen rests with Europe and the US.

Europe putting much emphasis on soft power -- environment, global warming, and human rights -- might play a prime role convincing the US about this course despite the short term loss of absolute power for the world's only superpower. Sharing power in the short run opens the door for strong influence in the long run. Maybe the hurdle is that the US find it difficult to distinguish power from influence.

Global governance sounds good, but out of reach. If not tried, however, the world faces a gloomy future indeed. The Europeans pooled sovereignty in 1951 and 1958 -- an idea that in those days was regarded as fantasy. Maybe Europe will display the same boldness, temerity and inspiration bringing the US and the rest of the world round to some kind of global governance however feeble and tentative the first efforts may be.

The digital age implies that a global opinion exists. The game is about shaping perceptions. The Europeans took a while to discover that killing each other and pursuing imperialistic and colonial policies are not in accordance with European values. Atrocities and crimes were committed, but a remarkable political maturity of consensus, cooperation, and compromises now appear on the scene.

Conclusion.

Europe is adapting to new challenges by reforming its political system and economic model. It strives hard to remain faithful to all that Europe stands for purified by the purgatory over centuries. Getting to where it is now Europe has not followed a straight line. Extremism has penetrated mindset and policies and can still be detected. The many ordeals suffered have every time led to a step in the 'right' direction as the unification process after World War II bears witness to.

Neither will a new model to be crafted follow a straight line. Confusion, non-transparency, peculiarity even queer ways obscured by meetings and personalities may rule the headlines.

Recalling European history this is how Europe has worked and maintained its mixture of centralization, concentration, diversity and competition. The Europeans share basic values. They may not fully trust each other, but mutual trust is stronger and deeper than in any other political conglomerate around the world. A European citizen approaching the authorities feel that if the roles were reversed the decision would be the same.

This core element is questioned with the influx of migrants not sharing the same cultural identity. This is why migration/refugees are an existential challenge. The solution can only be to allow migrants/refugees getting into Europe, but with two provisos: Not disrupting the existing societal structure and asking them to adapt to European norms and values. Europe is not multicultural, but the world is.

A new political system with another balance between centralized power and decision-making closer to the citizen spearheaded by Europe will be a revelation. Rebooting Europe's economic model to combine welfare and competition and introduce a much higher awareness of resource scarcities will be no mean achievement.

Europe will not turn its back to the world but concentrate foreign- and security policy on projection of soft powers -- values. In that respect Europe may intercept better than other powers what social networking means for global power and the answer is the ability to shape perceptions by tuning into the mood of global citizens.

There will certainly be many hick-ups along the way and many columnists will make a living by telling that Europe is now out of the game, but the outcome sketched above is by far the most likely outcome.

Notes:


[1] ERM (European Exchange Rate Mechanism).

[2] Economic policy aimed at stability.

[3] Japan fares worse with corresponding figures being: 30 percent, 47 percent, and 74 percent. The us is doing better with 18 percent, 24 percent, and 34 percent.

[4] 7.4 percent of population in Germany is born outside the EU.

[5] Treaty Article 1 a:The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.'

[6] German states.

[7] A longer version appeared in YaleGlobal online 27 January 2015.