THE EUROPEAN UNION: A CRITICAL ASSESSMENT

Author: Marian L. Tupy, Senior Policy Analyst at the Cato Institute’s Center for Liberty and Prosperity (June 22, 2016)

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The EU claims to have brought about prosperity and stability in Europe, but those claims are increasingly at odds with reality. Europe is becoming worryingly unstable and is falling behind other regions in terms of economic growth. The EU model, which is marked by overregulation and centralization, seems increasingly out of place in today’s world. What European countries need in the coming decades is openness, rather than regional protectionism, and flexibility, rather than overregulation from Brussels. Above all, what European governments need to do is to reconnect with their increasingly restless electorates, rather than ignore the latter for the sake of the unwanted goal of a European superstate.

What is the European Union, and what has it accomplished? This is how the EU answers those questions: “The EU is unlike anything else—it isn’t a government, an association of states, or an international organization. Rather, the 28 Member States have relinquished part of their sovereignty to EU institutions, with many decisions made at the European level. The European Union has delivered more than 60 years of peace, stability, and prosperity in Europe, helped raise our citizens’ living standards, launched a single European currency (the euro), and is progressively building a single Europe-wide free market for goods, services, people, and capital”

Many Europeans see the EU as responsible for the growing instability in Europe. They see monetary policy as a source of friction between nation states, with the relatively well-off Germany and Austria on one side, and the failing Greece and stagnating Italy on the other side. The same is true of the EU’s failure to come up with an effective response to the recent wave of immigrants from the Middle East and North Africa, thus pitting the generally welcoming German government against the unwelcoming governments in Central and Eastern Europe.

Today, many EU countries, including its richest and most competitive members regularly complain about decrees from Brussels. Thus, while Brussels managed to break down many economic barriers within the EU, it also made the EU less competitive vis-á-vis the rest of the world.

From a humble free-trade area and a customs union among six Western European countries, the EU has grown into a supranational entity that governs many aspects of the daily lives of 508 million people spread across 28 European countries.

The economic benefits of intra-European trade have been undermined by overregulation. As centralization of decision making in Brussels increased, Western European growth has declined . Today, much of Europe is not growing at all. Some of Europe’s woes have nothing to do with the EU and are connected to changing demographics—low birth rates and an aging population. Yet Europe has also suffered from a number of self-inflicted wounds that go beyond overregulation.

The CAP, for example, has resulted in mountains of butter and lakes of milk. Those were later destroyed or dumped in Third World markets, where they undermined local producers. Accompanying the CAP was the Common Fisheries Policy that, instead of preserving Europe’s fish stocks through a quota system, nearly wiped them out. One Dutch study found that to maintain their quotas fishermen tipped “two to four tons of dead fish” overboard for every ton of fish headed for consumption.

The Structural and Cohesion Funds (SCF), a system of transfer payments that used money from taxpayers in rich countries to try to spur growth and employment in Europe’s underdeveloped south, became a legendary boondoggle of financial misallocation and corruption. The European Court of Auditors has refused to sign off on the EU budget for 20 years in a row—citing irregularities.

The euro was supposed to have led to increased growth, lower unemployment, and greater competitiveness and prosperity. According to “50 leading economists” who were brought together by the pro-EU Centre for European Reform, “there was a broad consensus that the euro had been a disappointment: the currency union’s economic performance was very poor, and rather than bringing EU member-states together and fostering a closer sense of unity and common identity, the euro had divided countries and eroded confidence in the EU.”

In retrospect, it should be clear that the Eurozone was poorly designed. Its members have committed themselves to maintaining manageable levels of debt (capped at a maximum of 60 percent of GDP) and deficits (capped at a maximum of 3 percent per year). What the Eurozone lacked was a credible enforcement mechanism. Indeed, some of the biggest Eurozone members, including France and Germany, broke their debt and deficit commitments shortly after the launch of the common currency. Other countries followed suit.

Worse still, Eurozone membership has allowed some of Europe’s worst-managed economies to massively expand their debt by taking advantage of historically low interest rates. The markets lent money to Southern Europe, expecting that if problems arose they would be bailed out. The markets were correct. Thus, when the southern economies crashed, their creditors—chiefly European banks—were bailed out at a massive cost to the European taxpayer. As ever, a problem that was created by deeper integration has led to calls for “more Europe” and the establishment of a “fiscal union.”

In recent years, another serious problem has emerged: the mismanagement of mass immigration from Africa and the Middle East. While immigration can be a force for good, European countries have been generally unsuccessful at integrating foreigners. Much of that failure has to do with government policies, such as extensive welfare provisions and labor-market restrictions that keep immigrants out of the workforce, and some have to do with a particularly European understanding of nationhood, which is based on ethnicity, not citizenship. Rightly or wrongly, the failure of Europe’s immigration policy, which has allowed for a large influx of foreigners whom Brussels is now trying to forcefully “redistribute” among the member states, has succeeded in awakening an epic level of resentment.

The euro bailout and the mishandling of the immigration crisis have elucidated one of the least appreciated, but one of the most consequential negative aspects of European integration: the assault on the rule of law.

Clearly, Article 125 of the Lisbon Treaty states that each EU member state is responsible for its own debts. It is inconceivable that the Eurozone would ever have been born without that vital stipulation, which was necessary to assuage the concerns of the German electorate. Moreover, Article 123 prohibits the European Central Bank from buying sovereign bonds in primary markets and sovereign bonds in secondary markets—if the latter is done for fiscal, as opposed to monetary, reasons. Brussels and Frankfurt have ignored both stipulations in order to keep Greece in the Eurozone.

Similarly, the Dublin Regulation specifies that asylum applications by those who seek protection in the EU under terms of the Geneva Convention must be examined and processed at the point of entry, which is to say by the first EU member state that they have arrived in. Greece, and to a lesser extent Italy, have failed to fulfill their obligations and allowed hundreds of thousands, possibly millions, of asylum-seekers to migrate to other EU states, including Germany. The German government, in turn, has unilaterally decided to welcome these migrants only to then demand that they be proportionately distributed among other EU countries.

Putting the humanitarian question aside, even the EU member states which never received asylum-seekers, and which had no say in “letting” them into the EU at large, are now being forced to accommodate them. The member states have responded to the EU threats by breaking with their Schengen Area commitments and erecting barriers to keep the immigrants out—thus exacerbating the assault on the rule of law in Europe.

Democratic Deficit

In today’s political discourse, democracy is often understood as majoritarian decision making. That view of democracy is problematic, for, as history shows, majorities, too, can be tyrannical. Majoritarian rule, therefore, needs to be constrained by separation of powers, checks and balances, and constitutional guarantees.

But the term “democracy” has another important meaning—the ability of the electorate to choose and replace the government through free and fair elections. The choice, however, needs to be a meaningful one. What is the point of being able to choose between two or more candidates if none of them can effect specific policy changes? What is the point of having a vote if the real decision makers are unelected, unknown, and unaccountable? Those are the questions that are at the root of the EU’s problem with the “democratic deficit.”

Over the years, EU member states have ceded a large number of policy areas, or “competences,” to the byzantine bureaucracy in Brussels. Some have been ceded completely, in which case elected public officials at the national level have no choice but to implement decisions made in Brussels. Some have been ceded partially, in which case elected public officials at the national level are limited in their ability to influence decisions made in Brussels. In both cases, the voters’ ability to effect changes of policy through their elected representatives and to hold those representatives responsible in free and fair elections is rendered meaningless.

The problem of the democratic deficit is compounded by two inconvenient facts. First, the nation-state remains the basic building block of international relations, including European. The national identities of European states have been evolving separately, and often in competition with one another, for hundreds, sometimes thousands, of years.

Second, a pan-European demos does not exist. For a vast majority of European peoples, being a “European” remains a geographical, not a political, distinction. Thus, while European travelers to the United States may say that they are from Europe, in Europe they almost always refer to themselves as being from Britain, France, Germany, or whatever country they are from. That is likely to continue, because most people’s identities are not formed by attachment to abstract principles such as liberty, equality, and fraternity, but by cultural, religious, historical, and linguistic ties.

Bearing those points in mind, it is crucial to realize that the EU is undemocratic not by accident, but by design. The proponents of “an ever closer union” understand that there is no public support for anything resembling the United States of Europe.

When the French and the Dutch rebelled and voted against the EU Constitution in their 2005 referenda, they were ignored—and the EU Constitution, relabeled as the Lisbon Treaty, was adopted nevertheless.

Is it any surprise, therefore, that while the EU Commission and the EU Parliament grew in power and importance, the European peoples’ interest and participation in EU institutions have steadily declined? When the first election for the European Parliament was held in 1979, for example, 62 percent of eligible voters cast their vote. In every subsequent election, voter turnout has declined. It reached a nadir, 42.61 percent, in 2014.

Rise of Populist Parties

Unwittingly, the EU has become a driving force behind the rise of populist parties in Europe. These parties come from across the political spectrum—from the far left to the far right. Often they have nothing in common except for their opposition to further European integration and a desire, at the very minimum, to repatriate some of the EU powers back to nation states. They are present in all EU countries and hold, remarkably, one-third of all seats in the European Parliament.

While some of these parties are more respectable than others, the EU often paints them with the same brush. Thus, people who happen to believe that the EU is a threat to liberal values, such as democratic accountability, are often treated with as much disdain as people who happen to believe in authoritarianism.

So, what are the reasons for the rise of populism in Europe?

First, many Europeans, but especially the citizens of well-functioning democracies such as Denmark, Holland, and Great Britain, resent the democratic deficit. They feel that far too many decisions impacting their lives are being made in Brussels by people who are unelected, unknown, and unaccountable. This feeling is not as strong in the East, where democratic accountability is recent and deeply imperfect, but it is growing in countries such as the Czech Republic and Hungary.

Second, many Europeans see the EU as having failed in some of its core competences, including monetary and immigration policies. The Westerners do not wish to continue subsidizing the inefficient south, while the Easterners reject immigration from Africa and the Middle East. Calls for solidarity between European countries are resented and, increasingly, rejected. In the absence of a pan-European demos, citizens of Germany cannot understand why they should pay to bail out the Greeks, and citizens of Hungary cannot understand why they should take in some of the non-EU immigrants who have arrived in Germany.

Third, many Europeans feel a general sense of malaise and decline. To be fair, the blame for Europe’s woes does not rest with the EU alone. The national governments are also to blame. A growing number of Europeans are frustrated by the failure of the EU establishment and of the mainstream political parties at home to address low economic growth, high unemployment, mass immigration, and rising debt. By voting for populist parties, they are lashing out against the “establishment.”

Is EU Reform Possible?

The piecemeal amalgamation of 28 distinct cultures, polities, economies, and histories had proceeded apace in spite of a growing resentment among the European peoples. That process of unification may well have continued, unimpeded by popular sentiments, had the EU lived up to its own rhetoric and delivered prosperity and stability to the European continent. Regrettably, it has failed to deliver either.

Many thoughtful commentators have recognized the need for EU reforms. Many believe that such reform should include at least some repatriation of EU powers back to the nation states. Unfortunately, past experience with EU reform does not augur well for the future. In fact, the EU has shown itself incapable of serious reform even when faced with possible disintegration. Prime Minister David Cameron’s desire to “fundamentally change” Great Britain’s relationship with the EU met with stubborn refusal in Brussels to consider anything but cosmetic modifications to existing treaties. For example, Cameron asked for national parliaments to have the ability to block legislation originating in Brussels. What he got instead was a promise that if more than 50 percent of EU parliaments raise concerns over an EU proposal, the EU Commission will reconsider it.

The real problem for those who wish to see EU reforms is that the EU establishment has a strong incentive to centralize decision making in Brussels rather than decentralize. Quite aside from the ideological commitment of the EU bureaucrats to the creation of a United States of Europe, which they may or may not believe in, centralization of power is in their interest. It increases their power and resources.

The EU is not only failing to address Europe’s problems, it exacerbates them. Moreover, it seems to be unable and unwilling to reform. With every electoral cycle, “establishment” parties committed to further European integration are growing weaker and anti-EU parties are getting closer to power. The EU has been very successful in plodding along, but its rearguard action cannot succeed indefinitely. At some point, one of the EU’s 28 member states will elect an anti-EU government. I fear that the longer the EU establishment ignores its opponents, the more belligerent the latter will become.

The EU has become a large pressure cooker with no safety valve. Large parts of Europe suffer from low growth, high unemployment, rising deficits, and stratospheric debts. To make matters worse, tensions between the people of Europe are increasing. Some feel that they are being forced to adopt policies they do not like, while others feel that they have to unfairly subsidize people with whom they have nothing in common. The EU could turn down the heat by repatriating many of its competences back to the nation states. That, alas, is not in its nature. The EU risks imploding in an uncontrolled way and if that happens, everyone will lose.