A Stagnating European Union

A Stagnating European Union

The idea of the European Community was born in a post-World War II era when nations were reconstructing and modernizing their industrial economies, and working to ensure that World War II was finally the “war to end all wars” in Europe. Jean Monnet, the visionary head of the French Economic Planning Commission, wanted to establish “a huge continental market on the American scale,” beginning with the coal and steel industries. There was resistance from the start from nations committed to free-market economics, and the history of the European Union since has been one of bargaining for what could be gained by what was to be given up.

The United States of Europe subsequently became the European Economic Community – founded by the Treaty of Rome in 1957 – and evolved into the European Community (EC) in 1967 with 12 member countries, is now called the European Union and has enlarged to 27 members with five candidates in waiting including Turkey.

The situation today – with the precarious economic state of Greece, Portugal and Spain – has brought the concept of the euro and European monetary union into the glare of scrutiny as never before. Questions are being asked about the viability of the European Union now that its main reason for being – monetary union – is proving to be a fragile and disruptive concept. When a monetary union was being discussed, Britain’s Lord Arthur Cockfield wrote a White Paper in 1985 identifying 300 barriers to integration, which prevented a genuine single market of 320 million people. These barriers of tariffs and exchange rates were eventually overcome and the Single European Act was signed in 1986, paving the way for a full monetary union.

Then British Prime Minister Margaret Thatcher, however, was strongly against creating an interventionist Europe that would damage the competitiveness of European industry and undermine national sovereignty. Always the naysayer, Thatcher was eventually brought down in 1990, as British financiers and industrialists were concerned that Britain would be left behind in a two-tier Europe.

One of the more complex aspects of monetary union was the creation of an integrated agricultural policy, with the objective of equalizing food prices and farmers’ incomes, “a bureaucratic nightmare and a fraudsters’ heaven,” writes Stephen George, a University of Sheffield expert in European Community history.

But industrial interests in the richer European countries dominated the process as they saw the absence of a single market as a barrier to investment. There was concern about the outflow of capital from Europe to the United States, and the interests of Europe and the U.S. no longer coincided. Commercial rivalry was also being fed by a breakdown in confidence in the U.S. ability to run the international monetary system impartially. This attitude changed over the years with successive American administrations until today, when the EU is seen as a full partner in global affairs.

The theory of the single market was proved a success in a time of economic growth, but can be viewed as a failed experiment in times of recession. When countries are suffering from downturns in their economies, with job losses and unemployment creating social problems, politicians with an eye on the next election become protectionist. Within the eurozone, however, they can no longer manipulate their national currency to help balance budgets. This was one of Thatcher’s sticking points as she did not want Britain to surrender autonomy in economic policy.

The history of the European monetary system was one of continuing adjustments and realignment of currencies and eliminating the fluctuations in exchange rates that interfered with trade across national boundaries. While the eurozone was being created, some governments welcomed the authority of the EU as they could blame the central institutions for their unpopular economic measures rather than explaining themselves to the electorate. However, this dynamic has lost traction in Greece, where the euro economy has led to such severe austerity measures that the people have turned against both the EU and their own government, struggling to make sense of their sudden economic and social decline. A parallel movement in the creation of the European Economic Community was its social dimension – scornfully dismissed by Thatcher as “euro-socialism.” European visionaries however saw social democracy as a necessary component of economic integration with everyone benefitting from enlightened labor policies, union protections and common wage structures and benefits. Britain, however, saw this as an unnecessary restriction on competitiveness and wanted to retain its lower level of wages and benefits as a competitive advantage over other EC states.

The European Social Charter underpinned the other EC countries, however, with a harmonization of social policy that served the countries well until the recent debacle with the euro. The attempt to redistribute wealth was conceived as an attempt not just to raise the levels of the poorer countries on the basis of economic justice, but was also seen by the richer countries as a way of ensuring new markets for their industrial goods and services.

The regional disparities in economic policies were acknowledged from the start, with relative newcomers – Greece, Spain and Portugal, or the “Mediterranean enlargement” – being among the poorer members. The establishment of a regional fund with contributions from the richer countries was seen as encouragement to the poorer ones, to help establish selfsustaining economies and to encourage inward investment. The size of the regional fund was always an issue of contention as it was never enough and there was disagreement about whether distributions should be grants or loans. However, the payments helped to jump-start a sea change in some economies, notably Ireland’s, and have perhaps by their very success, raised unrealistic expectations that help would always be there.

Today, the dynamic has been reversed, with Greece in particular hurting with budget cuts reaching a level that society can no longer endure. The International Monetary Fund representative in Athens recently recognized that deficit-cutting measures have a limited social tolerance and Greek workers and their families are reeling under the effects of the euro. Greece may still have to leave the eurozone and go back to the drachma if the latest round of bailouts fails to stop the freefall.

Timothy Garton Ash wrote in a Guardian article in 2007, “the European Union is the most successful example of peaceful regime change in our time.” But since the global recession in 2008, the economic union – which was flawed from the start – is showing its inflexibility and limitations. Somewhere along the line, the bureaucrats and financiers lost sight of the social contract that underpinned the European Community. Too many politicians have started to think like Thatcher. And for an organization shaped by the ideal of European unity and the memory of war, it is ironic that today, EU giant Germany has record low unemployment at 6.8 percent, while Spain is at 21.5 percent. With 500 million inhabitants, 26 percent of global GDP and an aging population, the European Union has an uncertain future. The good things of Europe will last – the free movement of people and capital, its common justice, security and military systems, its aid, development, and energy policies, its culture and sport. But the euro may have outlived its usefulness and the single monetary system of Europe may have to become a thing of the past. §

Dr. Azeem Ibrahim is an adjunct research professor at the U.S. Army War College, lecturer at the University of Chicago, fellow and member of the board of directors at the Institute of Social Policy and Understanding, a contributing editor to The Islamic Monthly, and a former research scholar at the Kennedy School of Government at Harvard and a world fellow at Yale. He obtained his Ph.D. from Cambridge University.

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