Thursday, April 7, 2016

More troubles for an unbalanced EU

The rejection of the EU-Ukraine partnership agreement by the Dutch populous, albeit non binding for the Dutch government, serves as a stark reminder of the troubles the EU is in.

The recent decision of the ECB to cut the Eurozone's central interest rate to 0% marks the worry of the EU policy makers regarding lack of growth inside the Eurozone.

In 1959 the EU started as a mere Common Market because the French Parliament rejected a fuller union.

The UK is to make a decision on EU continued EU membership in a few weeks.

Ireland has rejected a new EU Treaty twice.

In 2005, the French and Dutch voters rejected the Treaty of Lisbon.

Swiss voters have rejected EU and EEA membership years ago.

Swedish voters rejected EMU/Euro membership.

Danish voters rejected the Maastricht Treaty and EMU/Euro membership.

19 of the 28 current EU members have joined the Euro, 9 have not. That creates an unstable system.

ECB interest rates with the insistence of the inflation phobia driven Bundesbank have traditionally been high, to avoid inflationary pressures. That has kept the Euro high and has hurt Eurozone industry not only in foreign markets but also (from imports) at home.

There are no single taxation system, no strong federal EU budget, no single social security system in sight. No wonder intra EU migration is very low compared to the US one then. Plus there are some 23 national languages among the EU 28.

No wonder an unbalanced union as the current one faces unemployment and growth problems. And when such problems arise, then many voters vote for nationalist parties and policies.

True, the EU has helped Europe avoid feuds such as another world war. But this peace has come at a price. The EU decision making machine is seen as foreign by many citizens of the EU member states. Member states with a strong social model such as the Netherlands and Germany have revised these models downwards in recent years. For example Dutch unemployment benefits used to be high, now they are significantly lower. Who are the voters expected to blame?

Countries with strong social models such as Sweden, Norway, the Netherlands have attracted intra and non EU migration in recent years and that has promoted xenophobia among the population.

To this day, the EU has 28 distinct countries as members, there is no real union to speak of. Plus the existing EU has produced too many laws, in addition to the national ones. As a result, too many small companies do not like the Single Market, they see it as a threat, not an opportunity.

Problems have brought fiscally conservative parties into government in many EU member states. Their policy agenda has been conservative, austerity driven and as a result anti-EU and de facto xenophobic. The Eurozone's austere economic policies by its members and the ECB have hurt the Eurozone. The 0% rate by the ECB is maybe too late. The Eurozone is damaged goods. The EU is damaged goods.

A No by the UK voters in the coming weeks may be a blessing for the EU. It may force it to take a good look at itself. On the other hand, it may not. Some EU policy makers have a tradition of dismissing reactions in the member states. They will be mistaken to dismiss the Dutch No to the EU-Ukraine agreement.

Ukraine has a right to feel betrayed at a result. But it should realise that the EU is in trouble, not the Ukraine. I spoke to many youths in Georgia a year and a half ago and they are not gang ho about joining the EU. Maybe they realize it is not paradise for countries in trouble. The ex USSR and ex Eastern bloc states that joined the EU went through very dire straits because of the need to follow the EU standards.

What is the solution? It is hard to say. A United States of Europe would be a solution but so far the EU is stuck with a Eurozone of 19 without a common tax or social models. At the same time, not only Greece but other EU and Eurozone member states as well are facing significant growth and employment troubles.

The EU could ask for things at an international level to help deal with its own problems. For example use its size and its internal market as leverage for even more free trade. Free migration should exist to counter balance freedom for capital and goods. People migrate because there is war (refugees) and to seek a better life (economic migrants). Two and a half decades after the fall of communism in the USSR, the world has structural problems. The West has become de-industrialised to a large extent. Migrants want to flow into the de-industrialised US and EU whereas new jobs are being created elsewhere.

These things need to be discussed and debated in the WTO and the UN. Probably they won't. In absence of a global summit on growth and jobs, countries will continue to pursue their own remedies. And the EU will make even less sense.

The EU needs an IGC to decide on its future, with or without the UK. It needs, above all, to start making sense to the European common man.  It probably won't, though.


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