EUROPE: What role for the EU in an era of austerity?

How does the recession affect higher education in Europe and what impact will it have in the future? Public funding represents on average 75% of European universities' income. The majority of European Union member states have announced budget cuts in higher education. France and Germany have decided to invest in higher education. The Nordic countries remain unaffected.

Budgetary cuts no doubt appear significant. But it is difficult to get a full measure of their magnitude without geographic and longitudinal comparisons. For example, 70% of states in the US have experienced cuts in public spending allocated to higher education, in comparison to 66% in the European Union.

The fact that cuts in public spending on higher education are an international phenomenon implies a somewhat lesser decrease in international competitivity for Europe. Moreover, these cuts actually match long-term changes in the economics of higher education.

Cuts in public budgets lead to various coping strategies, for example increasing tuition fees and class sizes, limiting permanent employment and allocating more targeted and competitive funding as opposed to block funding, which leads to a potential fragmentation of universities' budgets and management.

The case of England is particularly telling. England announced much-publicised cuts to its public budget for higher education in the winter of 2010 and strong reactions followed.

The Secretary of State Vince Cable and his Higher Education Minister David Willetts announced a whopping reduction of 56% in teaching capital and of 22.91% for the recurrent grant for teaching between 2010 and 2013.

In fact, the changes in budgetary allocation are more significant than changes in public spending per se. The government is channeling funding to higher education institutions away from the central funding agency, the Higher Education Funding Council for England, and through the intermediary of students via a mixture of universal maintenance grants and income-contingent loans. These loans are not cost free to the public purse and remain heavily subsidised by the Department for Business, Innovation and Skills.

This reorganisation of the allocation of funding undeniably poses a varied set of challenges for higher education institutions, mostly because it significantly increases higher education institutions' dependency on students' willingness to pay. But as far as the government's involvement goes, the picture is less drastic than it looks at first sight.

The budget allocated to research admittedly decreases temporarily, but is predicted to progressively increase from 2012. Moreover, higher education remains free upfront with every student eligible for a universal maintenance grant.

In a loan format not fully dissimilar to a targeted tax, graduates and not students pay for their fees. And this repayment is significantly subsidised by the government through the income-contingent threshold, for example. In fact, the government may end up subsidising students to a greater extent than it did before, since the maintenance grant has risen for the most disadvantaged and the repayment threshold has increased.

England is just one example of how European governments are looking to adapt to public spending cuts in higher education.

What is the wider significance for the European Higher Education Area? Should we expect to see more integration in higher education as a result of the recession, or more disintegration?

On the one hand, the current pessimism regarding the future of the Eurozone dampens any claims of future integration for higher education. But on the other hand, a reduction in national governments' spending power could tip the balance of power toward the EU for more integration.

This is an audacious claim for many. But previous recessions often triggered significant reforms and more European integration. The Single European Act followed the recession of the early 1980s and the Treaty of Maastricht was concurrent to the recession of the 1990s. A recession creates a rationale for and, for better or worse, opens up a window of opportunity for legitimate reforms.

In the United States, federal intervention in higher education takes two forms; direct support to higher education institutions and financial aid to students. The US federal government has acted on both levels.

Direct federal support for higher education institutions, adopted as part of its stimulus package, does not compensate for the shortfall in state funding, but has reduced the decline in state funding. But the federal government has also acted on the budget allocated to financial aid to students, through Pell grants and student loans.

Here again, more significant than spending figures are changes in the modes of allocation of federal aid. The federal government has acquired sole responsibility for the allocation of federal student loans, which were previously allocated by private lending institutions. This centralisation changes the student loan market in the US and allocates large powers to the federal government.

This increase in federal powers is more dormant in the European Union. The EU's influence on higher education remains limited, the EU having invested EUR7 billion (US$9.5 billion) in higher education (its lifelong learning programme) over 2007-13, a relatively insignificant amount in comparison to the US's investment of US$149 billion in financial aid alone.

Nevertheless, the European Union has manoeuvred a progressive increase in its powers over the past decades and has expanded cooperation programmes and benefited from large-scale European initiatives such as the Bologna process.

This progressive increase in powers has extended to direct support to individuals, a grant allocated to support mobility programmes and plans for the introduction of a publicly subsidised EU-wide student loan scheme.

Deeper integration in higher education policy is likely to occur for several reasons. This is because, once public spending is allocated, it is difficult for a federal government to reduce its appropriations. Policies create long-term commitment.

Generally speaking, a federal-level commitment to supporting welfare state policies reduces the chances of it not doing so in the future. The economic recession means that there is more incentive for states to pressure federal institutions to keep high funding levels or to increase them. It is easier for the federal government in both the US and the EU to generate capital through bonds than for some states, which have a lower credit rating on the capital market.

The states that contribute the most to the federal budget would clearly be expected to be more resistant to further integration. But the voting rules actually limit the veto powers of big states in the European Council. The requirement to obtain a qualified majority means that it is possible to adopt EU legislation without the agreement of Germany, France and the UK.

Hence, as state spending becomes more and more constrained in this economic climate, the EU will increase in influence, both in terms of spending and competencies, resulting, in the case of the EU, in deeper integration.

In higher education, preliminary signs of a more significant influence at the EU level, at least in terms of spending power, are taking place in the negotiations over the budget.

The fund for the flagship higher education programme Erasmus is tipped to increase by 71% in the 2014-20 budget, making education the area with the highest budget increase. This budget would double the number of youths, students and academics involved in mobility programmes from 400,000 to 700,000 to 800,000 each year.

So it is likely that the EU, provided it survives the debt crisis currently shaking the foundations of the Eurozone, will continue down a path of deeper integration in higher education, manifested at least by an increase in the budget allocated to higher education. Deeper integration admittedly does not only mean an increase in the public budget.

A new political impulse and fresh ideas have yet to emerge in the European Higher Education Area since the Bologna process reached its 2010 target. Such an impulse would require policy innovators as well as provide a window of opportunity that parallels the one of the late 1990s.

* Cecile Hoareau is a researcher in the Center for Studies in Higher Education at the University of California, Berkeley.

* This is an edited version of a paper she presented at the European Consortium for Political Research conference, held in Iceland in August.