What EU Breakup Fears Say About Sentiment

With EU elections this week expected to yield a fragmented parliament, the UK oh-so-slowly exiting the Union and a recent survey allegedly showing a majority of EU residents doubt it will survive the next 20 years, the EU’s future may seem dim. We think this view is likely too pessimistic—a snapshot of dour sentiment towards Europe today. In our view, this raises the likelihood of positive surprise as the EU—and its economy—prove more resilient than thought.

First, the seemingly bad news: According to a YouGov survey released last week, over half of Europeans believe there is a “realistic possibility” the EU “will fall apart in 10 to 20 years.”^[i] In a more perturbing result, “28 percent of EU voters now see a war between EU member states as a realistic possibility” within a decade.^[ii]

While this doesn’t sound great, we must quibble with how some pundits portrayed the findings. For the question, “Do you think it is likely the EU will fall apart in 10 to 20 years,” the response options were “realistic,” “not realistic” and “don’t know.” If respondents understood “not realistic” to mean “not a chance—not even in the realm of possibility,” and “realistic” to mean “probably shouldn’t rule it out, because you never know”—reasonable interpretations, in our view—then a majority of respondents shrugging and saying “maybe, I guess” doesn’t seem all that shocking. 20 years is a long time, and the future is tough to predict. Possible outcomes aren’t necessarily probable. Yet headlines like, “Majority of Europeans ‘Expect the End of EU Within 20 Years,’” and “Majority of Europeans Think the EU Will Fall Apart Within 20 Years, Study Finds” assumed the surveys were statements of high probability, rather than mere possibility.^[iii] That seems like a leap.

That said, we will grant the results aren’t exactly a full-throated vote of confidence in the EU’s long-term prospects. But in our view, they primarily illustrate how years of dour headlines have pounded sentiment towards the EU. Coverage has long seized on internal EU disputes as evidence of the Union’s fragility—from the terms of Greek bailouts to Brexit to populists’ rise to Italy’s budget battles with Brussels. No wonder, then, that folks aren’t feeling super sanguine—especially as pundits pile on with exaggerated descriptions of their skepticism.

Building on this negative feedback loop, many argue voter dissatisfaction coupled with policy dysfunction mean the EU needs a makeover to survive. These worries seem overwrought to us. Yes, EU leaders have warned that without major reforms further integrating the EU—like a common fiscal policy and common debt—it will inevitably crumble. Yes, member-state disagreements have all but stalled progress on said reforms. But as we wrote in October 2017, without them, the EU and eurozone probably just keep muddling along—as they have for decades. The EU has survived many contentious debates since its founding in 1993—over which new countries to admit, whether to adopt a common currency (not all did), how to respond to the 2011 – 2013 sovereign debt crisis and more. If it stuck together through these turbulent times, extrapolating present disagreements into a breakup (or war) strikes us as a bridge too far.

More populists in the EU parliament isn’t a one-way ticket to dissolution, either. It probably brings more squabbling and less action—fine for stocks, by the way—but this doesn’t mean wholesale splintering. EU membership is still quite popular with voters, even in member-states with large populist contingents. 92% of YouGov survey respondents said they believed they would be worse off without the EU.^[iv] A recent EU-commissioned poll showed support for the EU near historical highs.^[v] Even in Italy, the poster child for euroskeptic discontent, only 21% of voters said EU membership was “a bad thing.”^[vi]

Moreover, greater representation in the EU parliament and national parliaments for groups who feel excluded presently could soothe euroskeptic fervor. Or, when these groups prove to share traditional parties’ inability to accomplish much, the pendulum could swing back toward centrism—as in Greece, where once-radical Syriza backed away from its antiestablishment pledges in an effort to stay in power and is now polling behind the traditional center-right ahead of this autumn’s vote.

Overall, despite voters’ uncertainty about its durability, the EU doesn’t seem moribund—and pundits’ persistently describing it as such is a window into what we believe is overly dour sentiment towards the region. In our view, skepticism about the EU’s distant future mostly reflects feelings about its recent past and worries about its immediate outlook—worries we believe are broadly overstated. As EU parliamentary election uncertainty fades and Chinese stimulus starts rippling globally, we think Europe’s underappreciated positive fundamentals should come into focus, lifting markets.