The European Union needs more political integration, not less

In yesterday’s FT former French president Nicholas Sarkozy suggests reforming the European Union, and then offering Britain the chance to rejoin it. This does not look a practical proposition, but it is a useful thought experiment. How should the Union be reshaped?

First of all, we must get past the current British obsession with Brexit. This is shaping the debate in an unhelpful way. Remain supporters are too uncritical of the current EU. Of course they say that the EU should be reformed, but their ideas about how are as sketchy and muddled as Brexit campaigners’ ideas about Britain outside the union. And the EU has much deeper problems than the sorts of things that were upsetting British voters. It is not the right place to start when trying to understand where the EU needs to change.

Indeed the EU is beset by three more serious problems than Brexit: the Eurozone, refugees, and populist governments. These are the issues that most concern Mr Sarkozy. He wants a separate governance structure for the Eurozone that will allow further integration of economic governance. He wants a more coherent immigration policy, with a consistent, contribution-based, system of entitlements to state benefits. And he wants to reduce the competencies of the EU Commission so that it bumps into national governments less often.

But we need to take a step back further than even that. Just what is it the we need the EU to do? Its foundation is the idea that European nations benefit from a degree of political and economic integration. There are two groups of overlapping benefits: political stability and peace; and higher material standards of living.

Political stability and peace remain solid achievements for the EU. That these should not be taken for granted can be seen from the wars involving the former Yugoslavia, and from the aggression emanating from Russia. Ethnic tensions can still lead to wars. States with powerful armies can still seek to get their way by force, allowing corrupt elites to perpetuate their power. Furthermore the EU has been part of a dramatic extension of constitutional, democratic government, firstly in Spain, Portugal and Greece, and then in the former Soviet bloc. But these gains are fraying. Populist governments in Poland and Hungary are undermining constitutional democracy. Other governments are failing to deal with corrupt elites. The EU struggles to confront external threats, because to do so it needs consensus – and weaker governments from smaller powers are tempted to use Russia’s aid in propping up their corrupt elites. Other countries are too far from the source of trouble to show much solidarity.

One striking thought emerges from this. To confront these problems the EU needs more political integration, not less. It needs a more powerful executive with more EU funds to allocate; it needs more power to police the use of these funds, and be able to apply sanctions to countries that fail to meet standards. It also needs to forge tough deals with such troublesome neighbours such as Russia and Turkey. It needs new institutions to confer democratic legitimacy. It probably needs integrated armed forces. The founding fathers of the EU (before it was even the EU) always foresaw this, but others, led by Britons, have been in denial.

Times have changed. The biggest political problem for Europe is posed by the rise of Russia, with its championing of old-fashioned corrupt elites and nationalistic politics. But Russia is incomparably weaker than the old Soviet Union. The latter could not be confronted without US leadership. The US is in retreat, but, nuclear weapons apart, Russia is not so strong that a politically strengthened Europe, based on Germany and France, cannot stand up to it. Russia’s attempts to undermine Europe provide the pretext to unite it. The smaller states of eastern Europe need to understand the choice between a Russian-aligned, weak and corrupt system, or joining the road to something much better. I suspect that they already do if you push them – and that gives a strengthened EU the basis for a mandate.

Economically though, the case for more integration is not so clear. Free movement of people and trade has surely been of enormous benefit. Some interesting work has shown how even brain drains can help the  countries losing workers – the emigrants are replaced, causing greater social mobility. But the pace of change has caused enormous stresses. And, in some countries at least, regional inequalities have become a major headache (Britain is perhaps the worst – if one puts Italy’s primarily down to weak institutions in the south).  This is a complex problem, but I think that greater regional and local autonomy is critical, and the union’s third great freedom – movement of capital – may need some hedging. I suspect that the real problem is not the balance of power between the EU and member states, but the balance of power within the larger nation states. But some of the EU’s single market rules are getting in the way – the limitations on state aid for example.

Then there is the Euro zone. This deserves, and will get, a post (or several) in its own right. Suffice to say that though most Anglo-Saxon commentators regard this project as the essence of madness, it is not dead yet. I believe that floating currencies tend to reinforce and increase inequalities – an argument I need to develop another day – but that fixed exchange rates and weak political governance are a toxic combination, as has been proved on countless occasions, in and out of the Eurozone. The political stresses brought about by the crises in Greece, Cyprus, Portugal and Spain show a degree of failure. (There are successes too: France and Germany have experienced steadier and more equitable growth than Britain has outside the Euro). Mr Sarkozy is right that some form of further integration of economic management is warranted, but a reconciliation between French and German approaches will be needed to make this work.

So where is all this leading? In the extreme France and Germany might lead a new United States of Europe, with much deeper political integration, based on a proper constitution, and, perhaps, a democratically elected president. This will no doubt be tied to the Euro currency area. This new federal state would be surrounded by a looser economic zone, with surrounding countries participating on an à la carte basis.

An interesting question is whether less extreme versions of this idea could unlock enough of the benefits to make it worthwhile. There would be a highly integrated core of countries, alongside a number of less integrated ones.

Where would that leave Britain? Much as I would like my country to be part of further European political integration, politically the country is completely unready for it. Brexit may even be helpful for Europe in the long term, as the country has been a major brake on political integration. If the country does join in, it must be on the basis of a project that is primarily political, not economic. That would be a sea change from how the EU and its forerunners were presented to the British public (by its supporters, that is; opponents have always painted it as a political project with the real goal of a super-state). More Britons are ready for that than used to be supposed, but they are still a minority. But as Britain finds that leaving the EU is no answer to its deeper political and economic problems, and more Britons equate the “good old days” with a suitably idealised membership of the EU (just as they do now with the days before membership) perhaps that might change. On the other hand, for Millennia inhabitants of our island have had some notion of special destiny, separate from our continental neighbours to whom we owe so much. For now we are destined to be observers rather than shapers.

 

 

 

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12 thoughts on “The European Union needs more political integration, not less”

  1. Well it depends on what sort of EU you want. A better title would be:

    “The EU needs more political integration OR less”

    If the EU went back to how things were before Maastricht when everyone had their own currencies which can be allowed to float to allow each national economy to adjust to changing circumstances, that would work just fine. You can have free trade and even free movement of labour. That works fine , too, providing the flow isn’t too much one way.

    Or the EU could move forward to a United States of Europe. There would be Federal Governement, a common currency, a common central bank and a common taxation system. Taxes would be raised in the wealthy areas like London (if the UK was still a member) , Munich, Amsterdam, etc and spent in the poorer areas like Greece, Spain, Portugal etc.

    That would work just fine too. Providing the political support was there for it. But is it? How many Liberal party members living in the wealthy SE of England would be happy being part of the USE and paying taxes which ended up being spent in Sicily?

    Some maybe but not many! The support for all that just isn’t there at anywhere near the necessary level even among those who claim to be the most pro-EU. it’s just the same in Germany too. They might say they are pro-EU but spend their euro tax money in Greece? Neine Danke!

    So the EU is stuck in a failed state which doesn’t work and will never work. It can’t move forward and its going to find it very difficult to move back, but that’s what I’d say has to happen.

    1. Maastricht cam about for a reason. Non trade barriers were throttling the EU economy, and there seemed to be no way round this without much a more integrated system of product regulation. Labour regulation was tagged on because too many politicians feared a race to the bottom. There was also a lot of frustration with floating currencies. Italy’s borrowing costs were soaring. Hyperinflation beckoned in Portugal. Germany feared that it would follow Britain in having its industrial base trashed by rising currency – something its loose fiscal policy following the incorporation of the east threatened. France was struggling with the franc fort policy, which its political elite decided was preferable to endless devaluation. I’m not sure going back to before Maastricht would be all that attractive.

      But as you rightly say, political support for USE is lacking. It looks like a dead letter. Things will have to get worse before minds change on that – or else some intermediate fudge will come about.

        1. This would be a step in the right direction, overall, but in a Union there does have to be a measure of commonality about the system.

          The usual argument is that the euro would be quite successful if only it were confined to countries with stronger economies. But is this true?

          Suppose it were restricted to , take an extreme example, just Germany and Holland and everyone else went back to their own currencies. The Dutch/German euro would soar in value. Everyone else’s currencies would find their own level. The Greeks and the Spanish currency would depreciate the most.

          But this is not at all what German and Dutch exporters want. They want a cheap currency. They need to have the weaker economies involved to hold the currency down. So they’d do what they always used to when they had the Guilder and DM. They’d create extra euros and sell them off to keep their currency low.

          They’d have to co-operate and agree who received the proceeds. This may just about be possible with Germany and Holland but as soon as France was included (as it really must be) then I’d see all kinds of problems.

          So I really don’t see how the euro can be tinkered with. It either becomes the currency of a single country (the USE) and can work like any other, or it won’t work well at all.

          1. Certainly creating a USE is one way of securing the Euro. But that requires more than a change of legal framework – it needs a sense of common destiny amongst the people involved. That is some way off. I continue to envisage a multinational solution – but the prime requirement for that would be a state bankruptcy system, whereby the Greeks, for example, could restructure and write off government debt. The mis-named stability and growth pact could then be relaxed – though there would still be the issue of poor alignment of fiscal policy. This track still seems to be verbotten though.
            The French are interesting. They have long eschewed an independently floating currency – and determinedly aligned the franc with the mark, weathering the rough patches in a way that Britain couldn’t. They also have much more sensible ideas about how the currency area should be run than the Germans do.

          2. They also have much more sensible ideas about how the currency area should be run than the Germans do.

            That wouldn’t be too difficult!

            France doesn’t run the high surpluses that the Germans do. So it does find the rules of SGP much too restrictive. That’s why its stuck with 11% unemployment.

            The decision of the French to tie their frank to the DM when they could have floated was probably more politically than economically motivated. I suspect they relied on the support of the Bundesbank for that. There really is no good economic reason to not let a currency float.

            If the government intervenes to suppress its value there’ll be a balance of payments surplus which means that the living standards of the population are lower than they need be. If the govt intervenes to try to keep it higher than it should be, it will always have a battle with the speculators. Losing out to them can be expensive as the Tory govt found out the hard way in 1991.

          3. There is, of course, an extensive literature to suggest that there are good economic reasons why a state might want to adopt a fixed or managed exchange rate policy. The two main ones are that floating rates make the real economy too vulnerable to volatile and often irrational capital markets, and that floating rates undermine the effectiveness of fiscal policy; fiscal stimulus raises the exchange rate and it just gives trading partners a free lunch. Many successful states operate fixed or managed exchange rates, notably in Asia – but also Europe. But I will admit that fixed exchange rates lie behind many of the worst economic disasters the world has seen – and it requires strong and far-sighted government.

  2. Populist governments in Poland and Hungary are undermining constitutional democracy

    I don’t like populist politics, but surely creating a system that doesn’t give it a look-in is also undermining constitutional democracy. I believe populism is a genuine voice, usually of complaint, which needs to be engaged with sympathetically, not turned a deaf ear to.

    Other governments are failing to deal with corrupt elites.

    I think there are many Brexiteers who regard the leadership of the EU as a “corrupt elite”. I don’t believe this is fair, but the term should be gone into.

    As I understand, a corrupt elite can be accused of nepotism, of giving and receiving bribes, and of acting outside the law. Their aim is to maintain and increase the wealth and power by whatever means.

    But what if the elite managed to do this will still saying the right side of the law? Whose side is the law on anyway? Many people believe that “justice” is only for the rich.

    Take nepotism: Does it disturb you that there are more than one US president can come from the same family (Kennedy, Bush, Clinton)? Or that the son of a famous politician ends up a cabinet minister (Hilary Benn)?

    Bribery: What deal was Nissan given to assure the us that they would stay in England?

    Skewed regulations: How come the official test of mpg and emissions for new cars are conducted in such unrealistic conditions?

    I am not knowingly disagreeing with you, but I would like to know: a) what is a “corrupt elite”, b) what makes it so much worse than a “non-corrupt elite”, and c) how do you see elitism playing out in Western Europe?

    1. A “corrupt elite” is a network of people that control an institution for their personal enrichment rather than promoting the promoting the wider public good. It is worse than a less corrupt elite because the institution is rendered ineffective, and people who are not part of that elite are excluded from advancement. Elitism itself does not add up to corruption. The French have built a whole system of government on that principle, and it has been one of the more effective systems of government in the world. Which doesn’t mean that French people aren’t fed up with the Enarques and feel that they are out of touch. And they might describe them as “corrupt”. That does not make it true.
      Of course, if you examine it more closely it gets more complicated. I would not describe Vladimir Putin’s regime as directly corrupt. But it suits him to tolerate corruption in many Russian institutions, and to positively promote corruption in neighbouring countries – because he finds it easier to drive advantageous bargains with corrupt elites and manipulate them, rather than work with something more honest and above board.
      Incidentally I would not suggest that abiding by the law is the real test. One common tactic is to change the law or legal institutions to make effectively corrupt actions easier. We need to look at general ethical standards, and in particular how a regime treats people who disagree with it, and how much it cares about the effective use of public funds. The governments I describe as “populist” no doubt have a popular mandate, but they suppress opposition, and hand out government contracts to insiders, etc. Hungary is further down this track than Poland – but the Polish government is undermining state institutions in such a way that corruption will surely follow. They are abusing the trust of their voters – and those people will turn against them in due course. But not until much damage has been done.
      The European idea is for a system of high ethical standards and openness in government, with the executive kept in check by independent institutions, such as the judicial system, new media, opposition political parties and such. It is also based on an assumption of equality and fair treatment for everybody. That creates a lot of frustration in the process – which populists exploit to undermine those institutions and then establish a system which is, in fact, even more elitist.
      Political dynasties do not mean nepotism if it is within a system of democratic controls. I don’t have a particular problem with Donald Trump using family members as advisers. The line needs to be drawn where close relatives are given improper access to state assets for personal enrichment.

  3. If the UK had voted to remain in the EU I would be calling fora new Treaty of Bideford. A treat that would ensure the concepts of Subsidiarity were enshrined in a Constiution that specifies the rights and responsibilities of the EU to the mamber states and vice versa.
    Since the UK voted to leave the EU, I believe that the UK needs a new codified Constitution that specifies rights and responsibilities of the state to its citizens and vice versa; but also to specify the political structure of the UK, re devolution of political responsibilities AND the economic powers to fulfil those responsibilities to the regions and communities within the UK.

    1. I wholeheartedly agree. But though political devolution is an important part of the mix, we need to understand how local communities can be empowered locally too.

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