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A new European social contract

The year since the publication of our previous report in April 2016 has

been nothing short of an

annus horribilis

for the European Union. The vic-

tory for Leave in the UK referendum was followed by the triumph of

Donald Trump in the US elections and his stated support for the further

weakening of the EU, an attitude that the President of the European

Council, Donald Tusk, has described as a threat. At the same time, there

have been a number of significant events, both in Europe and elsewhere

in the world, which we analyse in this 6th Report on the State of the EU,

produced in partnership between Fundación Alternativas and the Friedrich

Ebert Foundation.

With European integration immersed in the worst crisis of its history,

we ask what lessons we can learn from the financial crisis, Brexit and the

rise of nationalism and populism in Europe and the United States if we are

to guarantee the survival of the European project. To meet these chal-

lenges, this project must address four key problems.

Stability deficit:

the effects of the financial crisis have spread through-

out the EU in the form of a series of national budget crises. Although the

so-called euro crisis is not really a crisis of the common currency but rather

(depending on the country) a combination of state debt, household debt

and debts held by individual financial institutions, the euro is the spear-

head of European integration and its failure would pose a significant risk,

threatening the political future of the EU.

Structural deficit:

the pressure exerted by the financial crisis has re-

vealed the structural deficit in economic policy in the eurozone, making it

clear for all to see that the region lacks a common economic and financial

policy, and shining a light on the obscure and inadequate regulations that

govern the creation of monetary policy by the ECB. Unsurprisingly, the

fiscal compact is increasingly regarded as a cost that does not produce any

benefits, and it is becoming impossible to ignore the social and political

costs of austerity. At the same time, macroeconomic divergence between

members of the eurozone, far from declining, has in fact risen, and this is