Europe Divided: Poland’s legal reforms are a harbinger of deepening crisis for the European Union

In June, the President of the European Commission Jean-Claude Juncker rejected a proposal from Germany to link EU funding for member states to the respect of democratic principles and human rights. The main targets of the proposed bill were Poland and Hungary, whose domestic politics have both been the subject of recent criticism from Western European states. While EU institutions and the Hungarian government have bickered for two years, it is the more recent standoff with Poland that has brought regional tensions – and the threat of conditionality – back to the fore. Yet making EU funding conditional on human rights principles would merely widen this political rift between Eastern and Western European member-states.

Domestic and foreign policy differences between Western and Eastern member states have been on the rise. In foreign policy, a key area of contention is attitudes towards Russia. On the one hand, in the upcoming German elections, both sides of the political spectrum argue for the need to engage in dialogue with Moscow. The SPD, the German centre-left party, goes furthest, arguing for de-escalation in order to improve European security. On the other hand, Riflemen’s Associations in Poland, supported by the government, are training new recruits for underground resistance should Russia attempt to occupy Poland. In the Baltic states, similar concerns have fed the revival of the Forest Brothers.

The gap between Eastern and Western Europe is also felt in domestic policy. Eastern Europe is increasingly turning towards social conservatism, which appears incompatible with how Western member states perceive the rule of law and individual rights. The recent Polish legal reforms, which would increase political control over the judiciary, have provoked threats from Brussels to trigger the Article 7 procedure against Poland, stripping the country of its voting rights within the EU. Such a development is highly unlikely in practice because Hungary would certainly veto such a move, but the threat underlines the severity of Brussels’ concerns about Eastern Europe’s conservative turn.

The present crisis has deep roots in the aftermath of the Cold War, when joining the EU was the best option on the table post-Communist Eastern Europe. The EU could, it was hoped, provide newly independent countries protection from Russia, which most elites in the region feared and continue to do. Eastern European political elites also hoped that EU membership, in particular development funds, would boost economic growth. Political elites in Eastern Europe transformed their governing institutions in order to comply to EU accession rules. These rules included regular democratic elections, guarantees for minority rights, and a free market economy. Over the less than two decades between the fall of Communism and the EU accession of Eastern European members, institutional change was achieved. Yet it was based mostly on pragmatic calculation by political elites, rather than on a shift in norms.

One of the main reasons why a rift exists today between Eastern and Western member states, then, is that Eastern Europe’s transition to fit the Western institutional framework was superficial. Because the adoption of institutional reform was based mainly on pragmatism, it remained vulnerable to changes in the political elite’s perceived interests. In Poland and Hungary, as the economic and political dividends that can be reaped from EU membership come into question, elites are moving to retreat from the superficial changes of the past two decades.

One areas of contention which subtly shifted elite’s calculations in both states is Brussels’ demand to spread the burden of refugees across the EU. Opposition to accepting refugees stems for a variety of reasons: from concerns with terrorism and job loss to a perceived cultural and religious threat. Moreover, the EU’s current identity crisis and uncertain political future has pushed Poland and the Baltic states to look increasingly towards the United States as their main supporter against Russia. In this context, motivation for Eastern European political elites to support Western-style institutions, which already have little normative support in the region, is decreasing.

Cuts in the existing funding budget are unlikely, and any attempted sanctions on Eastern European states for refusing to meet refugee quotas or for domestic policies like the Polish legal reforms would likely fail to gain unanimity. The real danger lies in the forthcoming negotiations for the EU’s 2021-2027 budget. In these talks, Brexit will play a key role.

First, Britain’s departure from the EU will create a massive contribution gap of about 10 billion euros. Some of this will be initially compensated for by Britain’s divorce bill. In the longer-term, however, compensating for this budget gap by simply raising contributions will be politically unfeasible: compared to 2014-2015, Germany, for example, would have to raise its contributions by more than 14%, approximately by 3.8 billion euros per year, according to a Jacques Delors Institute forecast. Although contributions may certainly be raised to some extent, the EU budget will have to be cut.

Brexit also raises the probability that there is no budget agreement by 2021 because the Brexit negotiations will preoccupy EU institutions. In June 2017, EU Budget Commissioner Günther Oettinger called for a delay in EU budget negotiations until a Brexit deal has been outlined. 2019, when Britain is set to leave the EU, will be a challenging political year in Brussels, with parliamentary elections in May, and changes of EU Commissioners in the autumn. Any deal outlined before 2019 is likely to be placed on hold for most of that year, and to subsequently require considerable revision to accommodate the views of new government figures. A ‘no deal’ situation is thus likely.

EU funding to Eastern Europe may pay the price for these budget difficulties for two reasons. First, it is currently not the main investment priority for net contributors, who wield a considerable influence over funding allocations. The 2018 budget proposals are already addressing ‘new’ areas in defence spending, in particular border security, and support funds in light of the refugee crisis, to encourage compliance with the Dublin accords. These areas of spending are likely to remain a priority for net contributors. Contributor countries, especially Germany and France, face a considerable flow of migrants as well as domestic security challenges related to terrorism. Furthermore, European elites question the reliability of the Trump Administration in the US as a security partner, and therefore will push for the development of the EU’s common security framework as a funding priority.

Second, net contributors are mostly Western European states that are critical of recent Eastern European countries’ ‘illiberal’ reforms and their refusal to share the burden of refugees. Cutting funding for these states will provide leverage against the region’s political elite. Mr. Oettinger hinted in May that conditionality, such as compliance to the rule of law, may be imposed on development funds. Austria’s chancellor Christian Kern pointed out in March that countries which are not addressing migration issues should not receive the funding from the EU that they do today. EU net contributors may see an advantage in cutting Eastern European funding in order to retaliate against recent political developments in the region which are considered by many in the Western member states to contradict fundamental European principles.

In most cases, 25 years have not been sufficient for Western social and political values to permeate Eastern European political culture. The economic and political incentives to comply to Western-style institutions and government are now eroding as well. The reemergence of conservative and interventionist governments in Eastern Europe is highly likely to accelerate with EU funding cuts, deepening the rift between Eastern and Western member-states. In the context of the current existential crisis within the EU, such a development will only accelerate the disintegrative tendencies at work within the Union.

Originally published with In The Long Run, University of Cambridge:


Eastern Europe is heating up

Berlin’s current frustration with Warsaw is a symptom of Eastern Europe’s growing geopolitical importance. The region is attracting attention from two key global players: the United States and China. Germany is mainly concerned with Poland’s rapprochement with the United States and hostility towards Berlin.

Warsaw’s ambitions – a detriment to Berlin

With Brexit on the table, Poland has views to replace Britain as Washington’s main EU ally.

The Polish political elite relies on American military support against Russia, in particular through NATO, and seeks to use a closer partnership with the United States to diversify its energy sources; the first shipment of Liquefied Natural Gas from the United States arrived in June 2017. Poland had been a leader in the campaign against the Nord Stream 2 project, which is set to supply Germany with natural gas directly from Russia. Nord Stream 2 would undermine American efforts to tease Gazprom out of its European market. Furthermore, Poland’s elite is currently probing American support for its project to engineer greater energy and defence cooperation in Eastern and Central Europe, for example though the Three Seas Summit initiative.

The Polish political elite has assiduously been courting the Trump administration: his visit to Warsaw before the G20 Summit in Hamburg earlier this summer was widely seen as a sign of support for the Polish administration. Polish Defence minister Antoni Macierewicz hailed the American President’s visit as a demonstration that Poland’s geopolitical position has greatly improved. Certain American and German news outlets subsequently interpreted President Trump’s visit to Warsaw as a move against Germany and the EU.

Polish demonstrations of hostility towards Berlin play at least two roles. First, they are a backlash against what is perceived to be unwarranted EU interference in Poland’s domestic affairs: following Polish attempts to increase political power over the judiciary, Brussels launched an unprecedented enquiry in 2016, and recently threatened to trigger Article 7 of the Lisbon Treaty. These moves, supported by Germany, were met with hostility by Poland’s ruling party. Second, hostility towards Berlin is an additional way to demonstrate Poland’s alignment with the Trump administration. Possible demands of German war reparations, for example, may be interpreted in at least these two ways. First, they may be seen as a backlash against Germany’s criticism of Polish legal reform attempts. Second, if the demands were to be implemented, these reparations would contribute to Germany’s economic weakening – in lines with Trump’s foreign policy.

The Polish anti-German vector is moreover bothersome for Berlin because on Germany’s other flank, President Emmanuel Macron is reaching out towards Washington to develop a cordial relationship. Earlier this summer, Macron invited President Trump on a personal visit to France for Bastille Day. Germany, which is experiencing tensions with the United States, finds itself caught between two neighbours looking increasingly towards Washington and in one case more obviously than in the other, away from Berlin.

Warsaw’s legal reforms provide a window of opportunity for Berlin to lash at its neighbour, without overtly addressing its geopolitical concerns.

Berlin vs Warsaw: a two-speed Europe on the move?

A number of European elites are critical of 2004 expansion to Eastern Europe. Indeed, Eastern European member states constitute a considerable investment from net contributors to the EU budget: between 2014 and 2020, Poland alone will receive around 100 billion euros from Brussels. Earlier this year, Germany proposed a bill to link EU funding to the respect of democratic principles and human rights. The proposal, which could potentially affect funding for Poland and Hungary, was blocked by the president of the European Commission Jean-Claude Juncker. Though it has been placed on hold for now, the legal project may well be taken up anew when Juncker retires from his position in 2019.

The existence of such a legal project is directly related to structural economic difficulties in the EU, which are unlikely to be solved. With economic resources running low, stripping Poland of its voting rights by triggering the Article 7 process may be another path to achieve a similar end: a two-speed Europe with reduced, conditional economic support for its periphery. If successful, such methods could be expanded to other member states, for example Hungary.

Eastern Europe on the margin: drawing in the Chinese

Numerous infrastructural and other economic projects in Eastern Europe depend on EU funding. Were the latter to decrease, the region would likely suffer an economic downturn with considerable risks of social unrest and political instability. Such a development is in the interest neither of Germany nor of Russia.

Eastern Europe’s pivot towards Washington is hardly palatable not only from the perspective of Berlin, but also from that of Moscow. Growing US involvement in the region would most likely translate into increased NATO deployments along Russia’s border. Additionally, American liquefied gas providers are looking into Eastern Europe as a new market which would welcome diversification from Russian gas. European funding cuts would stimulate Eastern Europe’s pivot toward the US, a move at odds with Russian interests.

Despite these concerns, Russia is unlikely to compensate for a share of Eastern Europe’s losses, were cuts to be implemented. Moscow is cautious to limit the amount of resources it dedicates to the region, as shown by the stalemate in the Ukraine. Burdened by sanctions, Russia has neither the economic capacity nor the political will to finance Eastern European economies. To avoid a severe degradation in the stability of Eastern Europe, which would be against the interests of both Berlin and Moscow, Germany and Russia, along with net EU contributors such as France, would most certainly like to pass the burden of funding Eastern Europe elsewhere.

The Chinese have been eyeing Eastern Europe in the context of their One Belt One Road project. In order to be a reliable transit route for Chinese goods to comparatively rich Western European markets, the region must remain politically stable. Otherwise, the Chinese would face considerable difficulties in implementing their continental Silk Road. A failure of this initiative would not only be a blow on the international level, but also on the domestic level for Xi Jingping. The Chinese may therefore be interested in compensating for EU funding cuts if these cuts were severe enough to create a high risk of political degradation in Eastern Europe.

Where does this leave us?

Eastern Europe’s geopolitical importance is on the rise. The Germans are wary of Poland’s geopolitical aspirations and rapprochement with the United States. For net contributors to the EU, plans for a two-speed Europe are on the table. The Chinese are eyeing deeper involvement in the region to guarantee a stable transit zone for their goods. Current lashes against Poland over legal reforms are but the first gusts of a coming storm.

Originally published with the Russian International Affairs Council:

Brexit and the conceptual crisis of modern capitalism

Conference: Cambridge & Brexit: Mapping an Uncertain Future, Cambridge, 24 February 2017

Author: Nora Kalinskij

Abstract: This section of the The Cambridge Brexit Report discusses two political economic challenges that Britain faces today. First, it diagnoses a conceptual crisis of the contemporary economic system. Second, it addresses the strategic choice that Britain faces in the aftermath of Brexit between two economic models: a trading and industrial power or a financial power. The full report can be found at:
Brexit and the conceptual crisis of modern capitalism (PDF Download Available). Available from: 

Mr. Macron – a pyrrhic victory for the EU?

Mr. Macron is likely to push for the revival of the German-French axis inside the EU. One of the central aims of this dual leadership will be European security integration. Security is at least in this case a two-headed entity. On the one hand the challenge of uncontrolled refugee flows will be central to Mr. Macron’s agenda because of the high risk of terrorism in France. On the other hand, under his leadership, Russia will continue to be pointed to as a major threat for Europe. Sanctions will be maintained as a demonstration of political will, but also as a convenient policy for bringing EU states together against a common challenge. With the departure of Britain from the EU, France will remain the only state capable of building a basis for further military and intelligence integration. Yet success is far from guaranteed, as it requires deeper integration moving towards political union, which in itself is problematic, as explained below. 

Considering Mr. Macron’s pro-European positions, he will likely attempt to salvage the euro. This, however, is likely to prove a failed battle for the following reasons: 

  1. The current eurozone incrementally faces structural problems due to the diverging economic models of Northern economies, based on the export of high-added-value products and Southern economies, based on low-added-value products and tourism from the north. Southern economies, before their integration into the eurozone, were dependent on domestic demand stimulation through expansive welfare and subsidy programs. Since their accession to the eurozone, they have become increasingly dependent on cheap credit from Northern states to stimulate domestic demand, in a situation where devaluation was no longer an option. It is difficult to envisage how Southern countries in the eurozone such as Spain or Italy may move beyond this credit-based economic stimulation model, considering the type of goods and services that drive their economies. Though the the bulk of their debt was accumulated in the period between the collapse of Bretton Woods and the advent of the euro, today’s precarious sovereign debt situation in Southern countries and their dependence on Northern credit to keep their economy running, endanger the stability of the entire eurozone. These issues are unlikely to disappear in the foreseeable future. To them must be added Eastern members’ considerable dependency on EU structural funds. The structural divergences between states in the current eurozone architecture render the common currency unstable and unreliable to deal with economic crisis, as was demonstrated in 2008.  
  2. The structural problems of the eurozone crisis may be addressed through full economic union, which includes a fiscal union. This step would increase coherence of economic policies within the eurozone but is unlikely to be attained without a full political union. This, in turn, is highly unlikely considering that it would entail the de facto demise of most national elites in Europe, who cannot all simultaneously be integrated into a federal elite. In case of a full political union in the EU, most national elites will therefore lose power. Since full political union would dependent on the agency and willingness of these same elites, such an outcome is highly unlikely.

In the light of this analysis it is difficult to envisage any policies that Mr. Macron would adopt that would, indeed salvage the euro without running into unsurmountable challenges. 

Mr. Macron’s attempts at greater integration of the EU, and those to revive the German-French axis will only kindle support for anti-integrationist parties at home, even more so considering 1) the unlikely tangible improvement in the French economy over the next five years in relation to the eurozone crisis, 2) the feeble concrete success his European integration policies may achieve in the period of 5 years and 3) the continued inflow of refuges and economic migrants into France with little restriction. 

The election of Mme le Pen may actually have been a better outcome for supporters of EU integration, in the long-term perspective because 1) she would face a cordon républicain in the parliament which would considerably hamper her projects. 2) In order to implement policies, she would therefore have to water them down and compromise with the political establishment. 3) If she would refuse to do so, the government would face a deadlock. 4) In both cases, her voters would be gravely disappointed by her performance. 5) Support for a mainstream perceived as more ‘competent’ would actually be galvanised at the next election. 

As it now stands, support for Mme le Pen and Mr. Mélenchon is only likely to increase over the next five years as Mr. Macron struggles in a move towards European integration. 

The uncertainty of Mr. Macron’s position is further heightened by the possibility that he may not obtain a working majority in the parliamentary elections next month. If so, he will have to face challenges not only from the Mr. Mélenchon’s and Mme. le Pen’s parties, but also, importantly, from the Républicains. In order to retain voter support and win votes back from the National Front, the Républicains will have an electoral strategic interest in being a vocal opposition party in the next five year. Mr. Macron is in a difficult situation to negotiate the forming coalitions with his political rivals due to the apparent malleability of his program, which his benefited him electorally, but will probably be a challenge to gain the trust of other political factions. Because of the flexibility of his program, the latter are likely to doubt how closely he is likely to keep coalition commitments

Considering these challenges, it is highly uncertain whether the revival of the French-German axis will be lasting. With results slow to come, personal relations between the French President and the German Chancellor may well deteriorate. In addition, Mr. Macron is likely to advance the interest of French business, which are not necessarily aligned with those of German counterparts. 

Solving incoherence within EU integration by creating a multi-speed Europe is advanced by some as a solution but will unlikely be greeted well by states which will be cast out of the ‘core’. States classified in the ‘slower-speed’ categories are likely to be perceive this system as a challenge to the EU’s principle of equal cooperation. A multi-speed solution may also reinforce the idea of the EU as an empire, widespread among populists. In this line of thinking, the ‘fast lane’ states will be portrayed as a metropolis and the ‘slower-speed’ states as colonies. Though this comparison is unlikely to be adopted by the mainstream, it will certainly shape the political debate in numerous member states against the proposal of a multi-speed Europe. 

The victory of Mr. Macron in the French presidential elections is seen by many pro-Europeans as a sign of hope. Yet whether this hope will transform itself into concrete achievements is highly questionable. There appears to be a strong chance that the presidency of Mr. Macron will further empower forces of disintegration within the EU. 

Some thoughts: Where does this leave Britain?

A worsening situation in the EU may actually bring certain advantages to Britain. For example: 

  1. At home, it will dampen enthusiasm for the EU, and contribute to keeping at bay the looming threat of a successful Scottish referendum.
  2. Were the EU to break apart this will cause geopolitical chaos for a while on the continent. Yet it might be an opportunity to seize for divide et impera. For a political economy standpoint, though this may mean more treaties to negotiate in the absolute, Britain may achieve more advantageous free trade deals with closer political partners in northern Europe and with states in Eastern Europe, in particular with the Baltics, that strongly depend on British military support, than with the EU as a whole during the Brexit process.

Published with the International Analytical Centre Rethinking Russia: