photo: Images Money
Key takeaway – Europe is in decline. To avoid decay, it needs to bridge the gap between aspirations and reality. As practiced, democracy is failing citizens and needs rethinking. Below-replacement fertility rates put the welfare state at risk. Rigid social structures induce risk-aversion and stifle innovation. Immigration-without-integration erodes social cohesion. Without fresh thinking at the macro and micro level, growth will stagnate. Going forward, rather than fearing German power, Europe should welcome German leadership.
Europe is in decline … The 28 member-states of the European Union (EU) are all affluent democracies, but their prospects are lackluster. Out of 508 million citizens, 20 are unemployed. Growth is sluggish, demographics unfavorable, and the debt-burden heavier than ever. Stagnant salaries and inflexible labor markets put pressure on welfare systems. Citizens do not feel represented by traditional parties and protest vote is rampant, along with anti-establishment feelings and xenophobia. Politicians and technocrats show pessimism.
… but the world cannot afford a weak Europe. In the current crises-prone environment, the stakes are high. The globe needs a thriving, cohesive Europe.
Asking the hard questions will help. To regain relevance, Europe must acknowledge that profound issues need resolving.
- Is democracy working? Europe suffers a “crisis of democracy”: first, globalized markets defy the sovereignty of democratic governments. Second, lobbying transforms the electoral process into clientelism, and democracy into plutocracy. Third, voters fail to elect capable, visionary leaders and are asked to take political responsibilities via referendums. Fourth, governments are overloaded with bottom-up demands and their bureaucracies can’t cope with this “excess of democracy”. Fifth, important policy-decisions are taken by unelected experts in absence of open political debate. Sixth, the EU itself suffers from a chronic “democratic deficit”: it only admits democracies, but is hardly a democracy itself, as its governance lacks elected legitimacy and institutional checks and balances. Across the continent, citizens are confused, don’t feel represented, and vote “against” rather than “for”. In the post 2008-crisis environment, traditional parties are unable to manage, electoral systems fail to aggregate individual preferences and democracy cannot build consensus. The resulting (incongruous) coalitions lead to political impasse and paralysis, boosting far-right and national-socialist factions. Populism – by promising simple solutions to complicated problems – further undermines the political debate. The democratic process requires rethinking. European institutions need more majority – rather than unanimity – decision-making, and national electoral systems should favor governability (i.e.: become more majoritarian) over representativeness (less proportional).
- Are (unaffordable) living standards depressing fertility rates? Across the continent, the post-World War II economic expansion made possible the establishment of a generous welfare-state. Substantial entitlements, great benefits, and liberal social-security systems contributed to the rise of a new middle class and brought about higher living standards. Over time, employment protection laws and government pensions reduced incentives to form families and fertility rates within families. Young adults, unable to achieve their parents’ economic status, opted to have fewer children. Urbanization and modernization brought about individualism. A growing emphasis on individual rights, including self-fulfillment, lead to a new demographic transition: falling birthrates. In other words, sheltered, comfortable life-styles – along with accessible birth control and rising costs of starting a family – lead to a loss of desire to multiply. Satiety brought about sterility and greying. As a result, all countries are well-below “replacement fertility rates” (less than 2.1 children per woman). In today’s Germany, single living and low birth-rates are the norm. Europe’s future looks grim. The welfare state is financially unsustainable and needs reshaping. Governments must enact policies to encourage childbirth.
- Are meritocracy, risk-taking, and innovation nurtured? Across the continent, beyond slogans there is little ambition to change. Jobs, wealth, and power tend to be distributed by “birth” rather than according to talent and hard work. Most regulations favor élite-capture. Some élite-self-perpetuation is unavoidable, but too often family connections matter more than individual abilities. Meritocracy – choosing the best for the job – is hardly practiced, especially in the civil service. In Mediterranean countries, nepotism drives away valuable talent trained at considerable cost. The distribution of welfare-benefits doesn’t lead to social justice: it just keeps the system going. In short, one’s birth determines life-outcome and restrictions on social mobility are pervasive. Taking risks doesn’t pay off. Inevitably, risk-aversion leads to little or no innovation. According to the European Commission (EC)’s “Innovation Scorecard”, the EU lags behind the US and parts of Asia on most measures, while intra-EU differences are widening. Additionally, while Europe produces an adequate number of new patents, it struggles to turn its knowledge and ideas into commercial opportunities. A change of mentality is needed: to enjoy the benefits of innovation Europe has to accept the disruption and failure that come with it. Nordic countries are good models to follow.
- Does (a narrow) cultural identity prevent integration? When asked what he thought of Western civilization, Gandhi famously replied: “I think it would be a good idea”. Yet, Europeans feel superior. European exceptionalism – the implied belief in the preeminence of European culture, largely due to 500 years (until 1945) of military supremacy – is engrained in popular beliefs. This sense of superiority is challenged by the ongoing, unresolved migrant crisis. The inability to assimilate minorities within strongly-parochial identities and the immigrants’ reluctance to conform to local norms result in discrimination, ethnic prejudice and xenophobia. While racist statements by far-right politicians undermine tolerance, social hostilities against religious minorities are on the rise. Most governments struggle to fulfill basic rights – i.e.: nondiscrimination, freedom of expression and belief – encouraging radicalization and violent kickbacks. The result is immigration-without-integration: Europe is becoming multicultural without becoming inclusive – a mismatch that is eroding social cohesion. As inflows are likely to last decades, poor integration policies will led to cultural isolation. In this context, politics is an arduous balancing exercise. Vision and bold actions are needed; for example, jus soli (citizenship by birthplace) – rather than jus sanguinis (citizenship from parents) – should serve as unconditional basis for nationality.
- Is there growth ahead? After the 2008-crisis, the economic recovery has proved weaker than expected. Euro Zone (EZ) growth is well-below two percent, even after most governments shelved fiscal consolidation and despite a weighty ECB intervention. Most economies – despite different economic, social, and political structures – look increasingly frail. Lack of innovation and declining productivity trigger deindustrialization, and vice versa. Going forward, economic performance will be curbed by reliance on net exports, necessary balance sheet adjustments and an at-best-sluggish pace of implementation of structural reforms. In the long term, adverse demographic prospects (i.e. via declining fertility rates and population aging – see 2. above) will pose significant obstacles to future growth, by increasing: a) the supply of savings (in times of “savings glut”); b) labor-market rigidities; c) public expenditures; d) reluctance to request bank-financing (low investments depress productivity); and e) the social tensions created by “importing workers”. Reforms are needed at the macro (i.e.: a fiscal and banking union, flexible deficit-and-debt thresholds) and micro (e.g.: business-friendly insolvency procedures) level.
- Should Germany lead? The upcoming agenda poses existential threats to Europe’s future. Yet, EU leaders are divided and unable to mobilize support. EU institutions are fragile and slow. Unanimity voting – given the urgency of most threats – is unrealistic and counterproductive. When crisis hit and difficult decisions are needed, nobody is in charge. To stay relevant and avoid divisive disagreements and EU implosion, Europe needs decisive, inspiring and visionary leadership and a less-consensual decision-making. In past EU crises, Germany managed the substitution of Italy’s and Greece’s prime ministers in November 2011, the containment of the Grexit threat over 2012-15, and the refugee crisis in 2015. Going forward, Germany should build infrastructure at home, and allow other countries to suspend fiscal consolidations as long as politically unpalatable, but growth-enhancing, structural reforms are implemented. It should also push the setup of the institutional structure and policy tools needed to manage shocks. Europe should stop fearing German power and welcome German leadership.
I thank Sulayman Al Bassam, Laila Al Hamad, Saad Al Omari, Eduardo Eguren, Pirin Erdogdu, Pablo Gallego Cuervo, Alberto Majocchi, Nicola Pontara, Francisco Quintana, and Mert Yildiz for their comments and suggestions. All errors are mine.
 The EU’s share of global Gross Domestic Product (GDP) has declined from 30 percent in 1993 (year of establishment of the EU) to 24 percent in 2013. Europe’s share of the world’s population has fallen from 20 percent in 1915 to seven in 2015, and could decline to four per cent by 2100. Source: UN, 2015.
 In the Euro Zone (EZ), the unemployment rate reached a peak of 12.1 percent in April 2013, falling to 10.7 percent in October 2015. For years, 15 of the 28 EU members have had unemployment rates above 10 percent. In Greece and Spain, unemployment is above 22 percent. In Greece, Spain and Italy, youth unemployment is above 40 percent. Source: Trading Economics, 2015.
 Europe’s population is projected to shrink (from 738 million in 2015 to 707 in 2050, down to 646 in 2100) and age (in 2015, 24 percent of the population was aged 60-years-or-over; in 2050 the ratio will to rise to 34 and in 2100 to 35 percent). Source: UN, 2015.
 Between 2008 and 2015, most EZ governments’ debt-to-GDP ratio rose by about 50 percent. Since 2007, in Britain and Spain it has nearly doubled. The aggregate EZ ratio rose from 68.6 (2008) to 93.7 percent (2015). Note: The debt-to-GDP ratio is calculated as “general government gross debt as a percentage of GDP”. Source: IMF, 2015.
 In 2015, European Commission (EC) President Jean Claude Junker repeatedly stated that “The European Union is not going very well” and “our EU is not in a good state”. He also added: “Economically, we see the end of Europe’s glorious years compared with what others are doing”. EC First Vice President Frans Timmermans, warned that “what was unimaginable before now becomes imaginable, namely the disintegration of the European project”. President of the European Parliament Martin Schulz said “Europe is in a bad condition”.
 Recurrent international crises reflect an under-provision of global public goods. Europe needs to contribute to peace-keeping and international security, economic and political progress, technological change, communicable-disease control, transnational communication and transportation, cross-border welfare systems, addressing immigration and unemployment, and – last but not least – preserving the EZ unity.
 Capitalism is not always compatible with democracy: most economic challenges need solutions that go beyond the electoral cycle; at the same time, socioeconomic inequality leads to political marginalization.
 Wealthy organizations and individuals make use of fundraising and donations to exert influence over the political agenda. As major contributors are rewarded on a quid pro quo basis, democracy succumbs to relations of patronage of economic élites and business interests.
 Because of the Dunning–Kruger effect, democracies rarely or never elect the best leaders. In other words, elections tend to lead to mediocre choices. The key assumption (i.e. citizens can recognize the best political candidate, or best policy idea) is erroneous, because the majority of citizens lacks those competences. In other words, unskilled individuals are inherently unable to judge the competence of other people, or the quality of those people’s ideas (e.g. on tax, pension, labour market reforms). The advantage over other forms of government is merely that democracies “effectively prevent lower-than-average candidates from becoming leaders”.
 As citizen show high levels of disaffection with politics, low levels of trust in democratic institutions and low approval of governments and politicians, membership in political parties declines.
 Many governments and citizens learned the hard way that national politics matters less than European mandates or market demands. In 2011, Ireland’s budget was sent to Germany before that to the Irish parliament. In Greece’s 2015 legislative elections, after promising the opposite, the leading left-wing coalition entered in an alliance with the right-wing populists and accepted the EU bailout conditions.
 According to the Copenhagen criteria, candidate countries need to have “achieved stability of institutions guaranteeing democracy, the rule of law, human rights, respect for and protection of minorities, the existence of a functioning market economy (…)”.
 The power of entities without electoral accountability (e.g.: transnational institutions, central banks, regulatory bodies) keeps rising, and their complex governance lacks transparency and accountability. During the multi-year debt crisis, many governments handed over institutional and democratic functions to the European bureaucratic superstructure. Greece repeatedly ceded sovereignty in matters of economic-policy-making to the IMF, the European Commission (EC) and the European Central Bank (ECB).
 In 2014, Italy appointed its third unelected Prime Minister. In the 2014 European Elections, the UK Independence Party (UKIP) received the greatest number of votes (27.49 percent) of any British party and became the largest UK political grouping in the European Parliament (EP). In the 2015 regional elections, France’s socialists and republicans allied at the second round to prevent the far-right National Front – the largest grouping from France within the EP – to control the regions where it had won in the first-round. The results of the 2015 general elections make the governability of Spain challenging. After having won the parliamentary elections in Hungary (2014) and Poland (2015), the conservative-religious right has displayed authoritarianism, illiberal attitudes and the tendency to undermine constitutional democracy. In 2015, the Danish People’s Party in Denmark became part of the governing coalition, and has set conditions including adopting a more Eurosceptic approach toward the EU, the introduction of border controls and restrictions on Denmark’s asylum policy.
 Voters, while unhappy with the statu quo, neither want to go backward nor forward. For example, they like the Euro and want to keep it. Yet, they are opposed to the further integration that is needed to make the currency union viable. Populist parties of both left and right are becoming more popular by showing hostility to globalization, free-trade, migration, religious minorities and Muslims. The EZ periphery – and non-EZ EU members such as Hungary and Poland – suffer from austerity and reform fatigue, while the EZ core, led by Germany suffers from bailout fatigue.
 Acting through the democratic process, populism relies on the “tyranny of the majority” to place its interests above those of (ethnic or religious) minority groups. It also challenges the separation of powers, the independence of judicial system, the Central Bank and the press.
 Between 1945 and the early-1970s, Western European countries experienced high, sustained growth and full employment. In West Germany, during the Wirtschaftswunder (Economic Miracle), gross national product (GDP) grew at about 9 percent per year and industrial production doubled from 1950 to 1957. Between 1947 and 1973, during the Trente Glorieuses (The Glorious Thirty), France experienced 5 percent growth per year on average, and the real purchasing power of the average French worker’s salary went up by 170 percent between 1950 and 1975, while over-all private consumption increased by 174 percent in the period 1950-74 . In the 1950s and early 1960s, during the Italian economic miracle, growth hit record high rates: 6.4 percent in 1959, 5.8 in 1960, 6.8 in 1961, and 6.1 in 1962.
 According to the Easterlin hypothesis, couples try to achieve the “same-or-better” living-standard they experienced when growing up. If a couple’s potential-earning power is lower than aspirations (i.e. to reach at least their parents’ living standards), the partners become hesitant to marry and have children.
 An urban lifestyle brings about socio-economic factors – such as changing priorities (building wealth, buying a house, autonomy and self-realization), women’s higher education and employment, lack of affordable housing, increased direct and opportunity costs of raising a child, an increase in sexually transmitted diseases, a rise in obesity, etc. – that bring about delays in starting a family, leading to a decrease in fecundity due to ovarian ageing. The amenities of urban living and career prospects increase the opportunity cost of childbearing and tend to delay pregnancy beyond the age of 35 years. In many countries, fertility is highest in rural areas, middling in small towns and suburbs, and lowest in the cores of large cities. Inner London has a fertility rate of 1.5, compared with 2 in outer London. Japan’s government believes big cities are causing infertility, and wants to prevent young people from moving to them.
 According to the demographic transition theory, as a country becomes wealthy and industrialized, fertility falls. Over the last 50 years, the global fertility rate decreased by almost-half, from 5.0 to 2.7 children per woman. Over the next 50 years, it is forecasted to drop to the replacement level of 2.1 children per women. Source: UN, 2015.
 In plain language, removing pressing needs allows human beings to become selfish. This is consistent with Maslow’s hierarchy of needs (once basic needs have been reasonably satisfied, individuals aim at the highest level called self-actualization, to realize their full potential), and with the fact that altruism seems to be “practiced” if financially rewarding.
 In Europe, children can become an economic drain: a single child costs 20-30 percent of household income, either directly – clothing, housing costs for needed extra bedrooms and education costs (school fees, tutoring for exams) – or indirectly, by reducing working hours and salaries. In the US, raising a child is 70 percent more expensive than 15 years ago. A 2014 USDA report estimates the average cost of raising a child to the age of 18 at USD 245,000. College tuition adds another USD 20,000 and post-graduate studies can reach USD 55,000.
 Over the last several decades, higher education and professional careers lead women to have children late in life. As women participation rates in the labour force increased, fertility rates declined. Across the world, lower fertility is associated with higher female labor force participation, and vice versa. A lower number of marriages, more cohabitation and divorces are also contributing factors. Educated women perceive a trade-off between work and active parenting (due to cultural norms, long working hours, unsympathetic employers, unhelpful husbands, and distant, low-energy grandparents – a consequence of older parenthood) and tend to choose the first.
 The welfare state in its present form is unsustainable: for decades, growth allowed for redistribution via social security. Today, the model is challenged by high levels of unemployment, lasting changes in demographic, social and family structures, rising entitlements and growing social expenditures.
 Welfare policies have a limited effect on fertility (only 0.07 children per women for benefits 25 percent higher than average). The most effective policy is subsidized childcare in day-care facilities, to make it easier for women to combine work and motherhood. Lower direct costs of children and higher part-time availability also help. Longer maternity and paternity leave do not encourage childbearing. Cash payments and gifts encourage couples to reproduce earlier but not to have more babies.
 Élite-capture occurs when local economic or political élites use their influence to capture resources (e.g. government programs aimed at distributing funds to the general public) originally destined to the larger citizenry.
 Inherited power and wealth give access to expensive education and valuable contacts, and are powerful predictors of future success.
 The brain drain leads to the cost of a “reverse technology transfer”. Innovations produced by brain drain, owned by the countries in which they are made, will have to be bought by the countries of origin.
 The EU still accounts for almost a third of the world’s science and technology production but is facing increasing competition. Technology adoption is not a viable way forward. To improve creativity, Europe needs to invest in Research and Development (R&D – between 2002 and 2013, the EU allocated less than 2 percent of GDP to R&D) and innovation and needs to put in place innovation ecosystems (incubators and accelerators), where investments in human capital are linked to innovation infrastructures.
 In 2001, Italy’s Prime Minister Silvio Berlusconi said: “We must be aware of the superiority of our civilization, a system that has guaranteed well-being, respect for human rights and – in contrast with Islamic countries – respect for religious and political rights, a system that has as its value understanding of diversity and tolerance” and added: “Europe must revive on the basis of common Christian roots”. In 2008, Geert Wilders, a Dutch politician and a member of parliament in the Netherlands, said: “I don’t believe that cultures are equal. Our culture is much better than the retarded Islamic culture”. In 2011, the Danish People’s Party (DPP) founder Ms. Kjaersgaard accused Danish Muslims of living at a “lower stage of civilization, with their own primitive and cruel customs”. In 2012, France interior minister Claude Guéant said: “contrary to what the left’s relativist ideology says, for us, all civilizations are not of the same value”. “Those which defend liberty, equality and fraternity, seem to us superior to those who accept tyranny, the subservience of women, social and ethnic hatred”. In 2015, Nadine Morano, a French European MP said “We are a Jewish-Christian country… of white race, which takes in foreigners”. In 2015, Hungarian Prime Minister Viktor Orbán said: “What we have at stake today is Europe, the European way of life, the survival or disappearance of European values and nations, or their transformation beyond recognition … We would like Europe to be preserved for the Europeans. But there is something we would not just like but we want because it only depends on us: we want to preserve a Hungarian Hungary”.
 In The Clash of Civilizations and the Remaking of World Order, Samuel P. Huntington writes: “The West won the world not by the superiority of its ideas or values or religion […] but rather by its superiority in applying organized violence. Westerners often forget this fact; non-Westerners never do.” Between the 15th and the second half of the 20th century, European militaries – thanks to technologically superior armed forces – were able to conquer large parts of the known world. Small-sized Portugal and Holland ruled the seas. Mid-sized Britain, France and Spain built empires. The technological-military advantage facilitated resource-capturing across the globe. This wealth enabled economic and political development, creating the fertile grounds for the flourishing of ideas (artistic and philosophical thinking), and – last but not least – empowered scientific development, which furthered the technological divide.
 The harassment of Jews and Muslims is widespread. According to Amnesty International, Muslim suffer three significant trends: 1) increased bias attacks on mosques, 2) violent hate crimes against those perceived as Muslim (for example, women practicing hijab), and 3) pervasive employment discrimination. Switzerland bans mosques from having minarets. In Catalonia, Spain, Muslims pray in the streets because of local resistance to building mosques. In the Lombardy region of northern Italy, in Pontoglio (a town with approximately 7,000 inhabitants, of which 1,160 – or 16 per cent – are foreign-born), signs invited “Those who do not intend to respect Western culture and deep Christian traditions” to leave. In Ireland, several mosques and Muslim cultural centers received threatening letters. One of the letters stated, “Muslims have no right to be in Ireland. The Irish people are not happy with your presence in our country, which belongs to the true Irish people”. In 2015, Hungarian Prime Minister Viktor Orbán stated “Europeans will become minorities in their own countries”.
 When the Roman Empire was in trouble, it was able to choose a non-roman citizen as Emperor. Trajan (“an Iberian, and neither an Italian nor even an Italiot”) was the first non-Italian to become “Imperator Caesar Augustus”. It was the right choice: Trajan turned out to be one of Rome’s most outstanding emperors. He was declared by the senate optimus princeps, “the best ruler”. Under his leadership the empire reached its largest territorial extent (via the greatest military expansion in Roman history), massive public building programs were launched and social welfare policies implemented.
 After initiating spending cuts in intermediate years, most governments have increased their total expenditure as a percentage of GDP from 2008 to 2015. In the EZ, expenditures were cut by 1.7 percent of GDP during 2009-11 but rose from 46.3 percent (2008) to 48.3 percent (2015). Similarly, fiscal deficits as a percentage of GDP are expected to grow for most governments after reductions in intermediate years. In the EZ, it declined from 2.1 percent (2008) to 2.0 percent (2015). Source: IMF, 2015.
 In January 2015, the ECB announced a EUR1.1tn scheme under which – in open market operations involving the purchase and sale of Treasury securities, a practice referred to as Quantitative Easing (QE) – it would buy EUR60bn of EZ government bonds each month. As a guaranteed purchaser of assets, the ECB is giving confidence to bond investors. Bond-buying helped bring down governments’ borrowing costs. Since, the ECB has maintained its interest rates at 0.05 percent and in December 2015 has announced further expansion of the QE program. Overall, ECB’s balance sheet expanded from USD2.4 (December 2008) to USD2.9tn (October 2015). Coupled with low interest rates, QE should free up capital and encourage risk appetite amid ultra-supportive monetary policy. Weakening inflation might lead to mounting calls for another round of QE. Source: Trading Economics, 2015.
 In 2016, the EZ will suffer the global downturn. The EZ 2015 current account surplus stands at 3.2 percent of GDP. The EM slowdown leaves the EZ even more reliant on exports to the US and UK to compensate for a weak domestic demand.
 To grow there is the need to encourage household consumption and corporate investments in equipment and people.
 Most countries don’t have enough young people to pay older-generations-pensions. As the number of working-age adults able to contribute to older-generations-pensions declines, pension and health expenditure fall on government budgets.
 The monetary union requires deeper market integration, a fiscal union (i.e. advanced fiscal-policy coordination and a EZ treasury), a banking union (including financial-sector regulation), and shared legal systems. The EZ Stability and Growth Pact needs more flexible criteria. By imposing a public debt below 60 percent of GDP, it calls for an aggressive debt-reduction via fiscal austerity; if carried out, this would: 1) further increase excess saving; 2) lead to a shortage of sovereign bonds (i.e., safe assets: in bond markets, between 2009 and mid-2015, regulators – by forcing institutional investors to invest in triple-A assets, while the supply of these assets declined by 50 percent – pushed real interest rates lower. The quest for financial safety brought about severe safe-asset shortages and, eventually, deficits in aggregate demand); and 3) bring about deflation. To revamp demand and employment, lower taxes should fuel the multiplier and productivity growth lead to higher salaries. Governments should focus public expenditures on infrastructure developments. Finally, to overcome dependencies (from Russia), energy production and distribution should become integral part of the “green economy” agenda.
 Bankruptcy laws need serious rethinking. Despite recent changes, the EU insolvency law is still less supportive of companies and consumers than its US equivalent. In Europe, insolvency is admitted too late (owners don’t disclose financial troubles because of the “insolvency stigma”, especially among family-owned businesses), but once acknowledged is treated too punitively, reinforcing the risk-aversion biases (see 3. above). Companies end up in a formal, legal process and most are liquidated. According to Standard & Poor’s (S&P), in France, 90 percent of insolvency procedures result in liquidation. In Italy, the average bankruptcy process lasts a decade, more than 90 percent of companies are liquidated and creditors get back only about 14 percent of their money. Also, EU insolvency proceedings treat bankruptcy more punitively than in the US: depending on the country, the bankrupted entrepreneur can be banned from starting a new business or lose the right to vote in elections. In other words, in Europe the only way to restructure a company is to avoid insolvency procedures. In the US, the legal system favors an early-admission of financial troubles and helps distressed companies work things out with their creditors in private out-of-court restructuring processes. In other words, in the US the easiest way to restructure a company is to go into insolvency procedures, namely Chapter 11, i.e.: a reorganization-plan to keep the business alive and pay creditors over time, by: a) obtaining a court protection from creditors (typically for three months); b) preparing a new business plan; c) convincing creditors to restructure the debt; d) seeking fresh financing (from creditors that automatically become “senior”, i.e. the first ones to recover their money should the company be liquidated); and e) opening the door to new investors via debt-to-equity swaps.
 On the international front, the agenda is challenging: widening (global and intra-EU) economic imbalances, the EZ’s debt crisis, Russia’s assertions of power in Ukraine and former Soviet Union, the rise of IS, Syria’s civil war, the surge of jihadi terrorism, the refugee and migrant crisis (during 2014, 42,500 individuals were displaced per day, four-times the number of 2010), the Balkans’ refugee crisis, China’s downturn, the US Federal Reserve monetary policy normalization, climate change, the recognition of Kosovo as an independent state.
On the internal front, there is the need to manage the lack of political cohesion and of a common energy policy, frail banking systems in Greece and Italy, the rise of populism (i.e., extreme political parties voted to economic nationalism), centrifugal forces (e.g., a British “in-or-out” membership referendum – Brexit), terrorist attacks and security cooperation, the refugees’ redistribution strategy (so far, against the promised 160,000, only a few hundred redistributions have taken place), the survival of the Schengen passport-free travel zone (without joint coastguard and border controls), tensions between Germany and peripheral EZ countries over fiscal policy (while Berlin wants more firmness from Brussels, Italy asks for flexibility on public expenditures and Athens aspires to debt restructuring), political uncertainty in Spain and Portugal, the possible unravelling of the internal market and – as a consequence – the Euro. Adding to the cacophony of national requests, dictated by local agendas, London wants more power for national parliaments and a less super-national Europe, Germany opposes ECB’s liquidity injections because it depresses interest rates, favouring indebtedness in Mediterranean countries but penalizing German savers (the electorate).
 In November 2011, Mario Monti, an Italian economist who had served as a European Commissioner from 1995 to 2004, following the resignation of Prime Minister Silvio Berlusconi during the Italian debt crisis, was appointed Prime Minister of Italy, and lead a government of technocrats, composed entirely of unelected professionals. In November 2011, Lucas Papademos, a Greek economist who had served as Vice President of the European Central Bank from 2002 to 2010, following the resignation of Prime Minister George Papandreou during the Greek debt crisis, was appointed Prime Minister of Greece, and lead a provisional coalition government.
 Asymmetric shocks are likely to put the monetary union under intolerable pressure, as long as it lacks a: 1) common fiscal policy; 2) smooth inter-country labor mobility; and 3) solid banking union.
 In 2011, Polish Foreign Affairs Minister Radek Sikorski told German leaders: “Because of your size and your history you have a special responsibility to preserve peace and democracy on the continent” and “I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation. You may not fail to lead”.
 As big member states have not delegated executive power, Brussels is structurally unable to provide decisive leadership. Britain – not in the EZ and is still debating its EU membership – has lost influence. France is struggling: the economy is stagnant and uncompetitive (the economic gap between Germany and France is wider than ever). Germany, Europe’s biggest and central economy, is the only power capable to become Europe’s hegemon: in 2015, it accounted for a fifth of the EU’s output and a quarter of its exports; it is the largest EZ creditor country and is able to borrow at negative real interest rates. The budget is balanced, government debt is falling and long-term bond yields are the lowest in Europe. The jobless rate, at 5.4 percent (using standardized OECD statistics), is less than half Europe’s average. Youth unemployment, dramatically high throughout the continent, is at a 20-year low. Private consumption rose at about 2 per cent, its fastest rate for 15 years.