Perhaps the British were right all along about the perils of ever-closer union

#CriticalThinking

Picture of Vicky Pryce
Vicky Pryce

Joint Head of the UK’s Government’s Economic Service (2007-2010) and lead author of the CEBR study “The economic costs of physical inactivity in Europe”

The preamble to the treaty of Rome signed by the EU’s six founding countries famously says that they “were determined to lay the foundations of an ever-closer union among the peoples of Europe”. These words have hung around the necks of Europeans ever since. That grandiose language harked back to the preamble to the League of Nations when it was set up in 1920 ‘to secure international peace and security.’ For all its faults, the treaty of Rome has weathered better than the League of Nations; its magnetism is such that countries still queue to join. Croatia has just done so, and others like Serbia, Moldova or Kosovo hope very much to get in.

The common market created by the treaty of Rome in 1957 was not much more than a customs union, and tariffs within it were not finally abolished until 1968. In France, General de Gaulle ignored many aspects of the treaty, and also treated Brussels with contempt. And the real questions surrounding an ever-closer union were only to become sensitive in the 1980s. The Single European Act, which was strongly promoted by Margaret Thatcher, marked the single biggest transfer, or at least sharing, of sovereignty ever seen in Europe. It was followed by the Maastricht treaty and then a decade ago by the Constitutional treaty, which paradoxically removed the reference to ever-closer union because by the early years of this century politicians were getting more and more nervous about the growth of euroscepticism in their countries’ politics.

EU governments must accept that individual countries’ budgets will no longer be decided by national governments alone, and that national banking systems will be supervised and monitored centrally

The term was reintroduced in the Lisbon treaty because it simply took over previous language from older treaties, even though opt-outs were developed as part of the sequence of European treaties to accommodate the need for the Danes to stay outside the currency union or in 1992 to allow the British to steer clear of social policy. Despite free movement of people, though, the closer integration of standards and an opening up to greater competition across Europe, the power of national governments to resist or delay a fully open market has remained strong. It was not until 1988, that the Germans had to admit that their Reinheitsgebot (purity ordinance) on beer dating from 1516, which laid down that beer could only be made from water, barley and hops, was a protectionist barrier against competition from brewers in other countries which add more ingredients.

But what exactly does ever-closer union mean today? Many markets across Europe are still far from being integrated, as a casual look at the service sector will testify. Taxes are unharmonised and there remains intense tax competition between countries. Moves towards political union have so far, to put it politely, been limited. In Britain, the House of Commons library examines each year the total number of laws adopted in the UK, and can never find more than 8% of primary legislation that originates from the EU. Despite the moves to greater integration since the euro crisis first struck, the fact is that if one looks at the legislation making headlines across Europe – gay marriage, education policy, health care provision, whether to have contributory or free systems of pension and student fees, welfare reform, voting systems, pay control, or even speed limits on motorways – it is Europe’s national governments that are still firmly in the driving seat.

What Europe has instead witnessed in recent years is the rebirth of the nation state in contrast to the years between the treaty of Rome and the Single European Act. It is doubtful that the founding fathers of the European project ever dreamed that Lithuania would one day preside over their Europe, or that Slovakia and Croatia would have the same veto rights in European affairs as Germany and France. Catalonia has its own “embassy” in Brussels, as do Scotland and most of the major regions and provinces. The languages of Europe are respected and guaranteed as are national cultures. Far from an ever-closer union, it may be argued that it would be more accurate to talk of ‘ever more nation-states’ as the chief product of the EU in recent times. And the euro crisis has if anything encouraged even greater nationalism in many countries in Europe as a reaction to austerity policies.

Far from an ever-closer union, it may be argued that it would be more accurate to talk of ‘ever more nation-states’ as the chief product of the EU in recent times

At the same time, the European Parliament sees fewer and fewer citizens voting in its elections. Only 20% of Croatian voters could be bothered to turn out to elect their six MEPs in April of this year. In Germany, Chancellor Angela Merkel often talks of ‘more Europe’, but on condition that no more German money should be involved. In fact, the more Europe has sought to appropriate the symbols of a union or a single entity the less its citizens have wanted to pay, and the more they have supported the anti-Brussels political formations that have grown in strength in nearly all the EU’s member states.

On foreign policy, there certainly is no ever-closer union. Europe is divided over whether or not to intervene in Syria and its member governments habitually take different positions on such key international questions as recognition of the Palestinian authority as a UN state. Europe’s military strength is diluted by remaining parcelled out between different armies with different defence procurement policies.

On energy policy, there is equally little sense of an ever-closer union – Germany opts out of nuclear, Poland sticks to brown coal, Britain keeps dashing for gas, and prices paid by industry vary widely.

Despite this, co-operation and the search for agreement on common policy is worthwhile and necessary. Political agreement, if not political union, is needed to transfer authority to the European Commission in areas like trade and competition – and financial supervision and control. Political union in the sense of supranational agreement to transfer sovereignty to the European Court of Justice in key areas has been a good thing from an economic point of view. The single market, although still not complete, is the product of ever-closer political union.

The big question remains the single currency. British eurosceptics point to the eurozone crisis as proving the failure of the attempt to move to a closer ‘union’ through the adoption of a common currency across much of the continent. And even the most devoted supporter of the euro must surely admit that too many countries with too many different levels of development rushed into EMU at the same time. That was ignored by the ‘mission accomplished’ complacency that followed its introduction more than a decade ago, and left no mechanisms to spot the housing bubbles, unsustainable cheap money credit growth and the failure of some national economies to align their spending and revenues. Arguably the single currency still requires ever-closer political union with more power to be held and used at the centre. And it is precisely because that didn’t exist that the eurozone has experienced the terrible difficulties of recent years.

The single currency still requires ever-closer political union with more power to be held and used at the centre. And it is precisely because that didn’t exist that the eurozone has experienced the terrible difficulties of recent years

Today, the elements of complacency are again visible. Yet the euro is still in trouble and the basic flaws in its construction have still not been corrected. There can be no doubt that to make the single currency work there will have to be exactly what the British have long feared, more political union that can make the EU capable of overruling Berlin and telling Italy and Portugal how better to govern themselves. It’s hard to see this happening in a hurry, and to get there there are a number of preconditions that must be met. It would in the first place require collective responsibility to ensure that the eurozone gets out of its current problems sustainably. That in turn means an understanding by surplus countries like Germany, whose growth has been export driven and which has greatly benefited from membership of the wider euro area of the concessions they too must make. They need to rebalance their own economies in favour of more consumer spending, open their own markets to competition, which in many areas is still lacking, and support growth on the periphery through the direct and indirect transfer of funds to weaker countries. They also need to accept that the debt burden of many of the ‘stressed’ countries will remain unsustainable, and that further restructuring is inevitable. But this should be on condition that the periphery countries fully buy into the proposition that they must themselves focus on investment and growth through the substantial reorganisation of their economies.

The European Central Bank should also be allowed to do what it is supposed to do if it is to act as a proper central bank of an integrated Europe and should be able to engage in Outright Monetary Transactions (OMT) to buy the bonds of stressed countries whenever necessary to prevent periodic sovereign debt and credit crunches. The ECB should in effect embark on Europe’s own version of the quantitative easing that has worked elsewhere, most notably in the U.S. And most controversial of all, EU governments must accept that individual countries’ budgets will no longer be decided by national governments alone, and that national banking systems will be supervised and monitored centrally.

Bits of all this may happen as European countries move forward kicking and screaming. But is anyone in the EU up for the whole package? If the answer is no, then it would be better to start rethinking what ever-closer union really means, and whether Europe will ever get there.

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