On Dec. 9, 1991, in a small picturesque Dutch town, the 12 leaders of the European Communities gathered to make final negotiations for the largest step in European integration taken so far: The Treaty on the European Union.
The most significant decision of what is known today as the Maastricht Treaty was undoubtedly to lay the foundations of a monetary union. At conception, the core methodology set out to achieve this was fiscal conservatism: Countries were required to keep public debt below 60% and the public deficit below 3%, while remaining between 1.5% and 2% of the three best-performing countries’ average inflation and nominal interest rates.
The rationale of these so-called “convergence criteria” was clear. In taking on the common currency, the nine countries were, to some degree, tying their economic performance to one another, as well as losing the much-utilized emergency tool of currency devaluation. It was, therefore, crucial that rules were in place to maintain currency stability. This notion of stability, however, unraveled very quickly — and hasn’t improved much 30 years on. Furthermore, the EU has been trying to create a foreign policy but due to the bloc’s inability to act as a cohesive unit, such attempts have consistently failed. Thirty years on, it seems the EU has been unable to achieve the Maastricht Treaty’s main goals.
THE INSTABILITY OF THE MAASTRICHT RULES
In 1991, Germany raised its interest rates to almost 10% to combat rising inflation. Constrained by the Maastricht requirements, other member states were compelled to raise their own interest rates, triggering a recession. The situation worsened on Sept. 16, 1992 — a day known as “Black Wednesday” — when multiple European currencies were hit with a deluge of selling, triggering further weakening. It was the first major indicator that the inflexibility of the convergence criteria could trigger significant issues.
The architects of the EU hoped that the crises of the early ‘90s would not happen again, but 30 years later that hope seems more an illusion. The 2009 European debt crisis was initially triggered by a balance-of-payments crisis, in which reduced confidence in the Euro significantly reduced capital inflows, with countries reliant on these inflows subsequently seeing economic contractions. While this was not the fault of the Maastricht rules, these rules essentially meant that countries already experiencing severe downturns had to take on contractionary policies, undoubtedly worsening the situation. Today, the average debt to GDP ratios range between Estonia’s 20% and Greece’s 207% — making the phrase “convergence criteria” sound like a sarcastic remark.
Despite the many positive results the EU has achieved, outdated fiscal stringency and disorganized foreign policy mean that the bloc is far from converging its economies and reinforcing “European identity.”
Some adaptations have since been made, but the Maastricht rules remain largely unchanged. The crises they have exacerbated have led many to conclude, like former European Commission President Romano Prodi, that they are a “stupid” tool for ensuring Euro stability. This controversy rages on today. One promising suggestion is that of reinterpreting the treaty’s numbers as reference values, rather than hard limits, thereby allowing for some variation in different countries’ requirements while still maintaining fiscal stability. There is good reason to consider such reform because the European debt crisis has led many to forget the benefits that the monetary union had initially delivered, including significant increases in trade. Reforming the requirements and making benchmarks more flexible could help bring back those glory days.
While discussions of monetary policy dominated the 1991 headlines, there was another, less trumpeted but significant agreement: The Common Foreign and Security Policy (CFSP). The CFSP allowed for the 12 member states to conduct foreign policy as a single entity, giving them an unprecedented level of influence on the global stage. When the CFSP was conceived, the European Communities were all too aware of the need for greater coordination, not only in economic matters but also in the realm of foreign policy. In 1990, then-President Saddam Hussein of Iraq invaded Kuwait, in what became known as the Gulf Crisis. While the EU initially agreed to impose sanctions on Iraq in response to the invasion, this united front ended in tatters, with Germany and France both pursuing clandestine bilateral deals. Less than a year later, the EU suffered a second humiliation in Yugoslavia. The EU attempted, and ultimately failed, to settle the brewing tensions in Yugoslavia by offering the country aid packages to stay united, but then six months later, did a u-turn and backed the US policy of disintegration, resulting in Yugoslavia breaking apart.
The EU’s initial planners will probably be disappointed with the organization’s foreign policy and diplomatic ventures today. The EU only developed a formal relations strategy on Iraq in 2018, which aimed to support Iraqi efforts to establish a democratic system of government, combat terrorism, and control migration. The excess focus on security has meant that this strategy has brought about minimal benefits outside these areas. Furthermore, the Yugoslavia failure has translated into multiple failures in the Western Balkans. The incessant delay of accession into the EU due to various internal political deadlocks — a tale that feels all too familiar — is diminishing EU credibility in the region, making space for other, less democratic global powers to swoop in. While the political backsliding we are seeing in Bosnia and Herzegovina cannot entirely be attributed to Brussels’ foreign policy inefficacy, it certainly has a “made in EU label on it,” as Kurt Bassuener, Senior Associate of the Democratization Policy Council, said.
STILL REACHING FOR THE STARS
Much like its monetary policy, when EU foreign policy works, it works well — as shown by the EU-Iran nuclear deal, in which the EU’s successful negotiating ensured limits were placed on Iran’s nuclear activities, as well as in the recent de-escalation of tension between Serbia and Kosovo, in which the EU facilitated a successful agreement between the two countries after a clash over license plates. These successes, however, are often regarded as exceptions to the otherwise dismal rule.
Despite the many positive results the EU has achieved, outdated fiscal stringency and disorganized foreign policy mean that the bloc is far from converging its economies and reinforcing “European identity.” On this thirtieth anniversary of the treaty’s final negotiations, the EU needs to take a hard look at itself and figure out how it can achieve its original goals in today’s world.
Laurence Dynes is currently an intern at Brussels-based think tank Carnegie Europe, as well as a Masters student of European Public Policy at Johns Hopkins School of Advanced International Studies.
