In a recent article we use the failing-forward concept to analyze the E.U. response to the euro-zone crisis. Failing forward involves a painful cycle of crisis followed by incremental reform that leads to deeper integration.
Here’s what happens: First, bargaining between European leaders, some of whom are unwilling to delegate significant powers to the E.U. level, leads them to establish institutions that are incomplete in crucial respects. These institutions work, but not very well and certainly not as well as they might have if they were more comprehensive. The incompleteness of these institutions later helps spark a policy crisis that threatens to destroy whatever progress they have made toward integration.
Unwilling to allow such a collapse, E.U. leaders agree to the minimal set of reforms they think are necessary to save what they have accomplished, strengthening their common institutions but still leaving them incomplete in ways that will later spark another round of crisis and reform.
The failing-forward cycle alternates between incomplete integration, followed by crisis, followed by incomplete but deeper integration, followed by crisis, and so on.
Banking reforms offer a good example of failing forward.
The messy progress Europeans have made toward establishing a “Banking Union” illustrates the failing-forward dynamic. Before the onset of the recent economic and financial crisis that started in the summer of 2007, national governments jealously guarded the right to regulate banks. After all, banks can offer national politicians things like cheap loans for favored industries or resources for regional development.
When the crisis broke out, however, politicians discovered that these banks were too big to fail — but too expensive to bail out. Soon after the collapse of Lehman Brothers, the Irish government had to offer to underwrite the whole of the country’s banking system and the Icelandic government had to close off its financial markets with capital controls. The Belgians, British, Danes, Dutch, and Germans were badly affected as well. Worse, the euro zone’s incomplete banking system proved particularly vulnerable to bank runs: The combination of strictly national deposit insurance schemes, some of which did not inspire confidence, with a single market that allowed free movement of capital encouraged the outflow of deposits to safer havens.
By June 2012, Europe seemed headed for disaster. Instead, Europeans agreed to raise common standards for national deposit insurance and eventually establish a single supervisor for European banks and a mechanism for restructuring failing financial institutions. But with Germany a holdout, the euro zone has stopped short of an integrated common deposit insurance system that would boost consumer confidence in the euro-zone banking system.
Nevertheless, in response to the euro crisis, E.U. leaders established a banking framework that can be strengthened later. If the past is prologue, with each new crisis, European leaders can take another halting step toward a comprehensive Banking Union. That progression from incomplete agreements to more ambitious, more integrated, more complete ones is what failing forward is all about.
Bailouts are part of the learning process.
This failing-forward dynamic is not limited to banks and markets. A similar framework can help explain how Europe got better at handling sovereign bailouts. When Greece’s economic problems first emerged, European leaders agreed on an ad hoc arrangement. As other countries foundered, the E.U. began to institute more-ambitious bailouts.
Eventually, Europe’s leaders agreed on a European Stability Mechanism with permanent financial resources. Of course, many economists argue that will not be enough if things get truly dramatic. The point is that European leaders, faced with the real and imminent prospect of the collapse of their monetary union, will do what is necessary to preserve it. Viewed up close, this looks like muddling through. With the benefits of greater distance and perspective, this is a more distinct pattern of how European institutions evolve.
Failing forward applies to the migration crisis, too.
Similar dynamics go on outside of the economics of the E.U. — even in the response to the recent migration crisis. E.U. border-control and asylum policies also form an incomplete and unsustainable governance regime. The E.U. established free internal movement within the Schengen zone but left control of external borders and asylum policy mostly in national hands, subject to inadequate and poorly enforced European rules.
Long before the recent spike in refugees, the system was already weak, and European leaders responded via piecemeal, inadequate reforms. A new, though toothless, coordinating agency, Frontex, was part of the E.U. response, along with new common standards on treatment of asylum seekers and a European Asylum Support Office, which was supposed to support governments. But when the flow of refugees into Europe jumped in 2014, these institutions and rules turned out to be ineffective.
Overwhelmed front-line states such as Greece and Italy could not secure their borders. So they flouted the E.U.’s “Dublin rules” that required them to register and house asylum seekers. Greece and Italy, along with Hungary and other states along the route, waved refugees through as they traveled toward preferred destinations such as Germany and Sweden. Germany then effectively suspended the Dublin system by announcing that it would accept any Syrian refugees who arrived. Eventually, the entire Schengen zone started to break down as states that feared being saddled with the refugee burden began erecting border controls to halt the inflows.
While these border controls remain in place today and Schengen is still under threat, the E.U. has laid out plans — once again — to muddle through. National governments approved a European Commission proposal to create a European Border and Coast Guard Agency, with far more resources than Frontex, to help secure the external border and hopefully prevent the tragedy of refugees drowning at sea. The commission has also proposed an ambitious reform of the Common European Asylum System, although it remains to be seen whether governments will endorse this. If these reforms succeed, Europe may gain a greater ability to manage the cross-border movement of people. If that happens, this existential crisis may someday be seen as a trigger for major progress.
What happens next in Europe, though?
Failing forward is an inefficient approach, and Europeans should not be complacent about muddling through crisis after crisis. First, this approach uses up too many resources trying to reach some kind of consensus and it delivers too little payoff in terms of making the world a better place. Second, relying on a process that generates cycles of policy failure makes European leaders appear incompetent — and thus undermines support for the European project.
So failing forward may work in the short term but be self-undermining in the long term. And this approach may be vulnerable to the confluence of crises. While the E.U. may have been able to fail forward through one crisis at a time, today the E.U. faces a perfect storm, as a series of major crises have hit it at once. Can policymakers handle so many crises simultaneously, including the U.K. vote to exit from the European Union altogether?
There’s always a chance that failing forward might lead to outright failure. Europe’s political leaders may have the wherewithal to respond to crisis, but Europeans are running out of patience. They see an E.U. that appears to stumble from one crisis to the next, perpetually behind the curve and offering half-baked policy solutions that prove unsustainable.
Europe’s citizens aren’t so much against the E.U. as they are against an E.U. that doesn’t work. That is at least partly why so many Europeans — and a new generation of populists — are turning against the leaders who managed to bring them through the financial crisis without seeing the euro zone break apart.
The E.U. will really struggle if the results of the recent British referendum are repeated elsewhere. To preserve the union they have labored to build over the past six decades and recapture some of the public support they have lost, European leaders will need to start offering bolder and more comprehensive policy solutions. They also need a compelling vision of where all this failing forward is headed.
Erik Jones (@Erik_Jones_SAIS) is a professor of European studies and international political economy at the Johns Hopkins School of Advanced International Studies and a senior research fellow at Nuffield College, Oxford.
Daniel Kelemen (@rdanielkelemen) is a professor of political science and the Jean Monnet Chair in European Union Politics at Rutgers University.
Sophie Meunier (@SophieLMeunier) is a research scholar in the Woodrow Wilson School of Public and International Affairs at Princeton University and co-director of the European Union Program at Princeton.