October 20, 2016
Guest blog post by Pál Belényesi, Lecturer in Economics and Law at the John Cabot University.
In a recent EUobserver article signed by the code name Civis Europaeus, an internal European Commission employee argues for a fundamentally revised communication strategy in order to win acceptance for Europe and thereby save the European unification process. The core message is that national politics are wrong; those narrow-minded leaders who blame the EU’s institutions are out of line, and overall, it is all more or less fine – communicating by the authorized spin-doctors to citizens directly at regional level would put in place the European integration. Here I argue that the staunch eurocrat is only partially right: a significantly altered marketing strategy is long-needed but the problems are more profound.
Since the fifties, we changed the way we dress: the wandering waistline and the snug fit dresses have long been out of fashion (ok, in order to recycle retrowaste, as omni-resistant viruses, they came back occasionally). As we drive different cars, we adore a malformed fashion, we should live by different rules. As fashion did, the EU’s architecture should also change.
Let’s make it clear, I am a dedicated integrationalist and I am convinced that cultural relativity is the concept to learn and live by: I believe in the unification of cultures across Europe and that multilateral understanding and attempted integration is better than having a constitutional right to own a gun. I am convinced that the dynamic, stage-based economic determinism (of Bela Balassa) is still a valid concept and that integrating factors of production continue to increase the overall welfare of any society. But I also know that flexibility in economic policy making is as important as beleaguered determinism and the insistence on idiosyncratic political power. In addition, I recognize that demographics are changing and the effects of global free trade, in their current form, have reached their peak. (And I appreciate the high waist, preppy, charcoal style for men – naturally, with a hat.)
How the European project is failed and where Europe is now, is a frequent subject of discussion. J. Habermas, J. Stieglitz, P. Krugman and G. Duval regularly serve readers with (conflicting) considerations, some of them not being shy, calling the euro-related campaigns “economic straightjackets”. Politicians, think tanks and business entities are also keen on providing opinions, dubbing the current situation an “existentialist crisis”. The European Union is buried deep and the hasty, semi-talented regional First Orders’ Snokes are on the lookout for new galaxies.
The original idea of the – then sectoral – integration in Europe was to stop war. Then it developed into an EEC-wide willingness to become a global economic power (safe for the mistakenly profuse social policies that resulted in a Eurosclerosis in the seventies and early eighties). The not-so-powerful central command of the growing integration then realized that sustainability is an important issue, even the precious CAP must reflect that. Finally, and once-and-for-all there were no fences to jump, like a hungry fatty orblet, the EU embraced all post-socialist nations. This last one with wrong timing, I believe, and a faulty design. The first economic-societal-political crosswinds started to develop acute sinusitis. But, contrary to common wisdom, the European integration was not always a sick child.
Rather the contrary, the regional economic integration was a great idea and it served its purpose: according to a study looking at growth effects in the region, the EU-15 GDP per capita between 1950 and 2000 was actually 1/5 higher than it would have been under the general GATT rules – thanks to the integration’s positive static and dynamic effects. In other words, the integration spurred postwar economic growth in the predecessor phantasmal organization of the EU. Standard of living in Europe today is higher than it used to be – to a recognizable extent because of permanent effects of the European socio-economic unification process. Overall, we earn relatively more, we also spend more, we produce more efficiently and we are better educated. On the surface and across the board – but not in a socially balanced way. The rich got richer, the poor got smarter but relatively poorer, and people in the middle (already somewhat educated and economically stable) pulled the shortest straw.
Instead of becoming too technical, let us look at the facts.
During the Golden Age of Economic Growth (generally 1950-73), in a post-world war hype and coming out of the interwar depression (recovery and the recognition of the catastrophic protectionism policy during the 20s and 30s), the freshly integrated part of Europe experienced a higher than expected economic success (some economists claim that it simply returned to the pre-1914 growth path). Naturally, during the slowdown of the seventies, and in the age of the new economy, something else was soon needed: a political support for changing global trade patterns. But it did not come. After the eighties and early nineties, the growth rate of the EU fell behind that of the US. When technological progress should have been secured, policies should have been changed for long-term stability in growth– and supported by institutional changes –, the unification spirit waned. Improvements on the supply-side were not accompanied by demand-side take-up, in spite of continuing reduction in trade costs, at least within the region. This is well documented and analyzed, but for the sake of simplicity, let’s see some numbers.
Following 1996, the EU GDP annual growth rate fluctuated, and now is just under 2%, the same as in 1996. On the one hand, it is not so bad, since the region seems to recover from the -5.4% index of 2009. On the other hand, in its latest forecast, the Commission foresees the same growth (stagnating economy?), and even less for the Euro-area (1.6%). Neoclassical economists on the other side of Atlantic and Eurosceptic-populists on the continent immediately note that countries without the common currency in the CEE “do better”, they produce higher numbers, Romania reaching as high as 4%. One needs to note this sluggishness is partly because trading partners’ interest in the region is less than enthusiastic and local consumption does not compensate. The EU’s trade with its main trading partners developed unevenly and when they experience economic and fiscal downturns the effect on Europe is felt. It must be recognized that the GDP-related growth effects on productivity growth of the region (how efficiently firms and states produce) is less certain.
Yet Europe’s architecture did not change significantly since 1957, though its socio-cultural outlay did. Some policies became exclusive competences, the Parliament is stronger and citizens have (?) a voice that is more direct in policy-making, theoretically. But there is no single and shared EU spirit, there is no unique political will to integrate fiscal policies, and there is no acceptance or acknowledgement of the failure of former pronouncements. There is not even trust in neighboring countries to back each other up (lack of mutual common deposit insurance agreement). There are visionless EU kingpins and wannabe regional honchos. They do serious harm to their subjects, hand in hand.
What can we learn from all this?
The case that the legal and institutional set-up that well suited the golden ages and the few similar economies is outdated, seems to be convincing. Yes, there were attempts to modify and adopt these to the enlarging trading area (Single European Act, Maastricht, Nice, the Constitution, and ultimately Lisbon). Most were fable if not unprepared, and some failed. However – and it has by now become a commonplace to declare – there has never been an EU-identity crisis as deep as it is now. There has also never been a successful opinion vote to urge a government in a member state to leave the block (to be precise, fractions of countries did leave, and attempts were also made by members without success). General “support for the EU” (whatever this exactly means) has never been so evidently low. Public opinion is even more antagonistic when citizens outside of the Eurozone are asked whether they would like the Euro (a string symbol of enhanced integration).
Take another example: competition policy. The original 1957 rules from the Treaty of Rome remained substantially unchanged. State aid and merger control enforcement and design, sector specific regulations complemented the original patchwork, the ECJ assisted where it could, but the Member States obstructed fundamental changes: an update to the post-Chicago thinking. Even today, there is only “discussion” about how to deal with digital markets, one of the critical sectors the economy, while the US has chosen its approach. Some Member States continue to revolt against the direct and rigid moves of the Commission, even when it is obvious that tax competition distorts any economic integration and the beneficiaries are receiving state aid.
Fine, these are jargons – almost figures of speech, but by no means are anachronistic. Why is this so? Maybe because people have rapid access to more information, which results in highly opinionated voices. Maybe because the original European idea (coordinated and balanced increase in the standard of living across the region) became so incompetently represented, maybe because politics has changed. Most likely, because European countries, once again, show serious signs of negative ethnocentrism; because people in Europe needed an old-new enemy to deal with slowing improvement of their living conditions. But even more likely, because the temporary strong effects of the prosperous standard of living have disappeared and to maintain the sense of ever-better, ever-more standard of living in an “ever-closer union” requires political dedication, institutional changes and targeted communication.
How could all this be resolved?
There is no simple and unified method, which could remedy such systemic errors. But almost certainly, the architecture of the EU must change.
First, the majority of the Treaty rules were designed for a few member states, with similar economic characteristics, all who suffered during two world wars. Now we have 28 member states, with substantially different development paths from the past 60 years. The society and its layers have changed, too. Europe is even more diverse and divided than it was after WWII. Things became more complicated, so, on the regulatory level, the rules must be more detailed, too because harmonization has become significantly more difficult.
Second, the economic situation in the fifties, thanks to the outward need to rebuild countries, some entirely, and the presence of the external aid (such as the Marshall-plan) were projecting economic growth. Now countries stagnate and there is not likely an emergent event, which could produce unexpectedly high productivity change or GDP growth – therefore a plausible improvement in living standards. As economic determinism suggests, further integration is needed: fiscal policies and extra role concerning the possibility to influence unemployment policy should be transferred from the member states to the European Central Bank. This implies that the rules, which were set up in 1992 (and were lacking political congruence, while lacking sound economic basis (why the numbers of 3%, 60%?)), should be revised. They represented great monetary ideas overall but politics did not follow. While the US is recovering, the EU remained in stagnation – some of the countries in deep depression (Greece, Spain, Italy). Celebrating 20% unemployment as less than “it used to be”, and shaking hands over “only 50% youth unemployment” is like walking on treacherous terrain. Today, the Eurozone is not flexible, focuses only on inflation – lacks authority to adjust employment policies –, and is outdated. Joseph Stieglitz, in his new book, “The Euro” argues for the fatal design of the currency and the lackluster policy makers. Europeans, of course. Member states are to recognize that this is inevitable. Should this be led by the country that produces one the highest trade surplus in the world, Germany? Most likely, not. But it should not be a choice either: fiscal and monetary policy with authority to deal with unemployment, or leave the Eurozone.
Third, competition law and regulation should be updated to better fit the digital world. B2C, B2B, everywhere. The enforcement of these rules ought also to be as vigorous as ever. Notwithstanding the lack of clear rules, competition enforcement is one of the areas, I believe, where the EU is doing better than anywhere else is. Once again, Member states should accept that there is no exception. Not for Luxembourg, Belgium, the Netherlands, Ireland or anyone else.
Fourth, migration is a phenomenon and it is, in its form, a recent one. Believing that the global rules adopted in the forties and fifties are still fit, is deceiving. Those were created when the world’s population was less than 3 billion, while now it is 7.4 billion. Human rights should be eternal but consideration should be given to extremely changed circumstances. The corresponding rules in the European Union do not reflect this. We need to change procedures and must be – in its imperative sense – more mindful of what is acceptable for Europe’s citizens. First of all, this should be learnt objectively, not through populist referendums.
Managerial courses teach that one can, in principal, be endowed with personal and organizational power institutionally. The second is better for the organization, while the previous may be a fascinating character, it mainly produces turf builders. In the idea of European unification, organizational power is ersatz. It never truly existed because Member states hold the leashes on important issues (migration, foreign affairs, fiscal and economic policies, Eurozone). On the other hand, personal power is a rare attribute, and except perhaps for the visionary founding fathers and Jacques Delors, it is non-existent. It is certainly lacking in today’s over-politicized Commission.
In the world of companies, when results do not come and when things go bust, the corporations change structure – often fundamentally – and change the top management. A profound restructuring then more often than not, results in short-term dissatisfaction but brings better results in the medium and long-term. It is time to realize that the basic set up in the EU is outdated: the seminal rules of a post-world war-hype reflect a very dissimilar reality to 2016. We are more, we have less enthusiasm, we can know our neighbors if we want to, and we are much better informed generally. We use digital technologies and there is no communist “enemy” to contest. But we do have structural problems, we have a loud and unsatisfied-unemployed youth population and we do live in a period of culturally challenging time. Austerity policies are not working the way they should, the weak continue paying for the results of the structural problems caused by the untimely fixing of exchange rate.
But it is still ok, “the EU” tried it. Now it is time to admit the mistakes, recognize economic and political maladministration, and finally change management and restructure the project’s procedures and design. Those who want to go: leave. Those who stay, prepare for a speedy and stronger integration with painful compromises but with light at the end of the tunnel, with a changed management and architecture. For the sake of the project and its main cultural and economic beneficiaries: us.
Winter is coming and we need new clothes.Blogactiv Team