Monday, April 18, 2016

Once upon a time in Europe

Once upon a time, the European Union was poised to become a federal union. Leaders gathered in a Dutch city and tried to agree. The UK,which never wanted a federal union, disagreed.

Delors, Kohl, Schmidt and others wanted an ambitious union. They did not get it.

They got a single currency for some (which began 10 years later) but under pressure from the UK and others they did not get their federal way. Plus the UK and Denmark got official opt outs from the single currency. The UK also got an opt out from the so called Social Protocol.

They thought they would improve things in later Treaties of the EU. That did not happen. In 2005 for example the EU Constitutional Treaty was rejected by France and the Netherlands. The federal idea had been shaken.

The euro started in 2001 but high interest rates by the ECB created unbalances.

The subprime crisis later hit Europe too.

Enlargement of the EU was partly the cause of slower deepening.

In the meantime, public opinions in the member states changed too.

The EU never got a single tax system or a real budget (comparable to the US). In many member states, fiscally conservative governments wanted an EU that cost less, no matter the cost.

As a result, in 2016, the EU has lost its way.

World growth is slow and the EU has growth troubles. Unemployment is still high in many member states.

24 years have elapsed since the Maastricht Treaty of 2001/2002 and one can wonder what is the reason for having an EU with 20+ different languages, no single tax system, no federal budget, only laws decided at EU level, an EU el cheapo that is.

If the British voters decide to leave the EU in June 23, this may cause similar appetites in other member states.

One solution is for a new EU. A leap forward towards a United States of Europe with those countries that want and can. An EEA type of EU for the rest. Can the EU make such a bold move? Unlikely.

Europe's problem, which led to two world wars, is that it comprises of too many nation states. Europe has too much history. Can it have a (united) future?

The Greece problem serves as a stark reminder that the EU cannot make decisions. For example its insistence of having the IMF in the Greece troika.

The economic logic of the EU is still a hard case to make. EU economies are still too different, too national, too complicated for a central economic policy. Again, without a single tax system, single laws, a single social security system and of course a real federal budget, the EU does not make economic sense. Especially given the liberalisation and growth of TWO trade in recent decades.

Let's see what the Britons decide in June.

I still think the EU needs an IGC very badly.

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