Europe’s Third Challenge

ECB President Draghi made clear at yesterday’s press conference that new risks have materialized and the central bank’s job to reaching its mandate is far from over. Current efforts may not suffice to achieve its legal prescribed mandate. Monetary policy will be reviews and reassessed at the next meeting in March, when new staff forecasts will also be available.

In his opening remarks, Draghi cited the “slightly expansionary” fiscal policy, “reflecting in particular measures in support of refugees.”  And hence two main challenges, the economy and immigration, converge. Of course, the definition of the economy has to be broad enough to include the prices and finance. Even before the Greek crisis in last year was over, German Chancellor Merkel recognized the immigration-refugee problem was going to more intractable than negotiating with Tsipras and Varoufakis.

It seems to be increasing clear that liberal order that has erected in Europe was partly predicated on illiberal regimes in Northern Africa and the Middle East. The collapse of several strong-man regimes has flooded the Italy and Greece with asylum seekers and refugees. One of the agreements at very foundation of the liberal project of European integration lies the Schengen Agreement (1985), which does away with internal border checks.

An important part of the policy response to the deluge of hungry and homeless people is the imposition of internal border controls. The Dutch Prime Minister Rutte told a Davos audience that officials 6-8 weeks to save the Schengen system before the spring when the flow of refugees is bound to accelerate. Consider that already this month 35,000 refugees have flocked to Greece compared with 1,200 in all of January 2015. EC President Juncker, never one to mince words, recently warned that without Schengen, the may be no reason for the euro.

This challenges of formidable, perhaps even existential in nature, which is all the more reason why many are surprised that European officials chose now to open up a third front. The EC has taken an unprecedented measure to open a formal inquiry into whether the Polish government is undermining its democratic institutions.