We are in  a  time of war, war not in Europe itself, but close enough to Europe to have led to massive outflows of refugees across borders and into Europe. I heard this described at the EPP Congress in Madrid as the “most serious crisis for the European Union since its creation”.  This is not an exaggeration.
 
This refugee crisis is on a scale unprecedented since the Second World War and the Spanish Civil war, because this is a war, in Syria and Iraq, of a ferocity and intensity not seen since then 300,000 people have been killed in the Syrian War.
 
Most of these people are not coming to Europe for economic reasons, or because they are on a mission of any kind, but because they are in fear of their lives. They are seeking refuge. They are the human embodiment of the price of war.
 
Their plight is a human manifestation of what the voluntary European Union was created to avoid in Europe itself …war.
 
UNITY OF SOME KIND IN EUROPE HAS BEEN THE RULE, NOT THE EXCEPTION OVER THE PAST 2500 YEARS
 
If the EU is facing its most serious crisis ever, it is important that we keep a sense of historical perspective. Only thus can we realise how much is at stake.
 
Over the past 2500 years, Europe has tried various methods to create internal security on this continent. The idea of European political unity of some kind is not something new.
 
It was achieved, initially by force, in the form of the original Roman Empire. Because it was created by force, its unity also had to be maintained, from time to time, by force.
 
When it came to an end there was a dramatic collapse in living conditions, because Roman money, as a continent wide means of exchange,  and access to silver to make it, was lost. Living standards in Britain, for example, fell dramatically in the 5th Century AD. There are lessons in this story for the 21st century.
 
Later, from the Middle Ages up to the Reformation, there was a form of unity in Europe when, apart from his religious role, the Pope exercised, without the use of military sanctions, a role of arbiter between European states, analogous to that of the European Court of Justice, combined with elements of that of  the United Nations. 
 
Even after the Reformation and the Thirty Years War, a form of unity in part of central Europe persisted in the continuance of the Holy Roman Empire, until, after 100 years,  that was dissolved by Napoleon, who attempted to impose his own form of secular European unity by force of arms. 
 
THE SHORT,  AND BLOODY,  ERA OF NATIONAL SOVEREIGNTY
 
When Napoleon failed at Waterloo in 1815, Europe entered the era on nation states, supposedly based on absolute national sovereignty, and the balance of power. That era ended, after a mere 150 years, in the holocaust of two world wars, the last of which was preceded by an economic crash and the collapse of democracy across the continent.
 
THE RETURN TO UNITY AS THE GOAL
 
In response to that failure, something entirely new was attempted, a union of European states held together not by military force, or even by  religious sanction, but by a free and voluntary pooling of sovereignty, based on freely agreed rules. That in the European Union of today.
 
There is much to criticise about the EU, and I will voice some myself this morning, but we should not lose sight of the bigger picture.
 
The Union has attracted a stream of new member states, starting with 6, it is now has 28.  Other  Federal Unions and Confederations, in other parts of the world, have not had that experience.
 
It has created  a single market of 500 million consumers, although some barriers still remain. 
 
ANOTHER ECONOMIC CRISIS…BUT NO RETURN TO PROTECTIONISM, DICTATORSHIP OR WAR AS IN THE 1930’S
 
The EU has come through an economic collapse in Europe, similar to the one that occurred in the 1930’s, but , in contrast to the 1930’s democracy has been preserved in Europe, protectionism and competitive devaluation have been avoided, and, most importantly, European states are still at peace with one another. 
 
AN UNPRECEDENTED, AND UNEXPECTED, REFUGEE CRISIS
 
Now, just as it has begun to put in place a banking union to underpin its currency, and  fiscal rules to ensure that this generation does not rob the next by excess borrowing, it now faces a challenge for which it seems quite unprepared, a flood of refugees fleeing war in their own countries– Syria, Iraq, Afghanistan and Eritrea— and impossible living conditions in the countries in which they originally sought refuge—-Lebanon, Jordan and Turkey—-who have so many refugees they cannot cope with them. 70% of Turks say the 20 million Syrians in their midst should go home
 
In an ideal world, one would say that this refugee crisis is a global one and all the countries of the world should come together to receive them on a shared basis.  But this is not going to happen. They are heading for Europe.
 
Controls on the movement of people across Europe’s external borders, notably between Greece and Turkey, have broken down. As a result of that failure, barriers are now being re erected between countries within the EU, undermining one of the freedoms on which the EU is based, freedom of movement of people.
 
If this persists, one could see it leading to interference with the freedom to move goods across Europe too.  This is an existential challenge.
 
But a pooling of sovereignty can only work if states are able and willing to exercise the sovereign powers they have, one of which is controlling their portion of the EU,’s external border. So the next step will be a major EU border force, and EU reception centres where those who qualify as refugees can be separated from those who do not and the latter sent home.
 
Those who are refugees will need to be shared among all 28 EU states, which will not be easy as living standards vary within the EU and refugees themselves will  all want to go to the more prosperous states. That said, I believe a majority of them will want to go home to their own countries if peace can be restored.
 
TOO SLOW APPLYING THE LESSONS OF THE FINANCIAL CRISIS
 
Meanwhile the EU is moving too slowly in applying the lessons of the financial crisis. Most money in use is not coins or notes, but bank credit of one kind or another. So a currency union without a banking union never made sense.
 
We have some elements of a banking union now, a single supervisor for most European Bank and a common EU rule for winding up banks. But these have not been tested yet. That test will come when the EU has to close down a bank in a member state, imposing losses on shareholders bond holders and even customers. Will the EU authorities have the political capital to do that?
 
It will be particularly hard to do because Germany has resisted the idea of a common euro are wide deposit insurance system which would spread the losses. The burden will fall solely on the country in which the bank is being closed down. That is not politically viable….an EU institution closing down a bank, which it had supervised,  in a state and that state alone bearing the depositor insurance costs. 
 
There also may be problems with the Fiscal Rules designed to reduce the debt levels of EU states. These debts are just about bearable now, but if interest rates returned to normal levels, what would happen. For example, the proposed Italian budget for next year, which should be reducing the deficit, is actually increasing it. That may make sense in the context of Italian politics, but it undermines the rules, in the same way that France and Germany undermined the rules 10 years ago.
 
Europe does not need to create a complete political or economic union to solve these problems. That is politically impossible. But the European Union does needs to come to a shared pragmatic understanding on all of these problems, and think out a long term plan that serves the interests  of a very diverse group of countries in a fair and speedy way.
 
MEANWHILE THE EU MUST DEAL WITH THE UK PROBLEM
 
At a time when the EU is grappling with its own existential issues, it has the deal with one member state which wants to reconsider whether it should be in the EU at all or not.  I will not say much about the details of the UK case, and will just make a few brief points.
 
At a time when Polish and Baltic state populations are being asked to accept refugees to relieve the pressure on Italy, Greece and Germany, it will not be easy to persuade them that their citizens should have less  in work social benefits in Britain, when Britain is exempt from taking any refugees
 
If Britain wants to be exempt from paying any of the costs of future EU banking failures, it is hard to grant it a veto over rules that might be designed to prevent such failures.
 
On the other hand, British demands for a speedy conclusion of the TTIP agreement with the US, and for a completion of, the  long delayed,  EU single Digital and Services markets, are a big opportunity for Europe. They should be grasped with both hands.
 
 
 
 
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