The Sins of the Fathers and the Sins of the Sons: Economic Consequences of a United States of Europe
By Anthony de Jasay
See the Editor’s Introduction to this article.
When in the 1990s the debate was raging in Germany about the adoption of a common European currency “like the dollar”, there was a steady majority against it of just short of two-thirds. The political parties, academia and the press unleashed a barrage of arguments about the economic benefits of such a move, but the polls remained unpersuaded. The old recipe used to be that when the people do not agree with the government, change the people. Lately, the recipe has been “if they don’t agree, don’t ask them” and this is what the German government has finally done, adopting the Euro with the full complicity of the people’s elected representatives.
The real motive of the political classes was not the putative stimulus to economic growth which a common currency might provide, a stimulus that has in the event proved sadly absent. At the time, Chancellor Kohl was rightly advised that the Euro would prove to be a lame device, perhaps even a downright failure, unless the countries using it came under a common economic government “like in America”. Kohl convinced himself that the mechanics of the common currency would eventually force Europe to organise itself as a single federal state, something it would probably never do otherwise. The Euro was designed to make another European war forever unthinkable. (That the U.S. dollar did not prevent the American Civil War from taking place was, probably rightly, dismissed as a false analogy.)
The fiasco of the Euro and the need to make it work as it was supposed to has led gradually to the participating states coming together, creating an economic super-government, soon to be followed by a full-fledged super-state, without anyone taking much notice of what was going on. But important as this creeping shift may be, it is being overtaken by a more rapid and more deliberate series of moves to endow Europe with a collective decision-making mechanism.
The European Coal and Steel Community was founded in 1952 and its membership consisted of France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg. The European Economic Community was founded by the Treaty of Rome in 1957. The original six members were France, Belgium, Luxembourg, the Netherlands, Italy and West Germany. The United Kingdom, Denmark and Ireland joined in 1973; Greece in 1981, and Portugal and Spain in 1986.
What started out as the four-nation Coal and Steel Community in 1952 (inspired by the naive Marxist notion that wars are caused by the need of steel barons to sell cannon and shells) became the six-nation Common Market in 1957 which was in theory to work by the principle of unanimity but which was run essentially by France. As such heavy-weights as Britain (1973) and Spain (1986) entered and membership finally expanded to fifteen nations calling themselves the European Union with an executive arm in Brussels and a legislature in Strasbourg, majority rule was introduced to deal with some questions, but countries retained veto rights over what they chose to regard as their vital national interests. On issues where German submissiveness to French leadership persisted, decisions were reached by Franco-German arm-twisting, on other issues they were fudged or deferred. The feeling grew among the political classes that the system was just not viable. The single market was functioning reasonably well in manufactured goods, but in politically charged areas, such as agriculture, fisheries, financial services and taxes gridlock was created. Above all, no progress could be made on the supreme goal the believers in a really united Europe had set themselves, namely a common defence and foreign policy.
With the membership rising from fifteen to twenty-five states as of May 2004, and with further candidates crowding at the entrance, the existing makeshift ways of reaching decisions are judged to be hopeless. It occurs to nobody that decisions at supranational level need only be taken if there is a supranational agenda, and it is not a law of nature that there should be one.
This, then, is the great chance to put in place a powerful decision-making body that will do for Europe what the White House and the Congress have done for the U.S.A.—the same, only much better. Anxious to banish their fathers’ sins, the sons are getting ready to commit a new type of sin for which future generations may have to pay dearly.
Two more or less rival projects are in the running. One, spearheaded by Romano Prodi, the president of the EU’s Commission in Brussels, seeks to strengthen the Commission, to emancipate it from its present subjection to the member states and to transform it into a real executive branch of government. The Commission’s budget is now barely 1.5 per cent of European GDP, and even of that modest percentage two-fifths are pre-empted by farm subsidies which Brussels would dearly like to but cannot reform. There is clearly a long way to go before Brussels’ spending power and patronage reach Washingtonian proportions, let alone the bite which the budgets of the separate European nation states take out of their respective GDPs. The Brussels executive is now a mere tadpole. To grow into a political toad, powers, revenues and functions will have to migrate from the national capitals to Brussels just as they have migrated from the states to the federal government in the U.S. The central executive can grow not only by capturing money and functions from the states, but also by engaging in exciting new areas of activity which no one has done before—for there are so many useful things a government can find to do! To help achieve all this, this project would enhance the Commission’s legitimacy by rendering it more responsible to the Strasbourg assembly and making its presidency elective rather than appointed as at present.
The other project is more solemn and formal. It is a constitutional convention guided by Valery Giscard d’Estaing, a former French president who is to Mr. Prodi as a hornet is to a bumblebee. Prodi wants to be an elected president of the Commission; Giscard (who at 78 cannot be faulted for lack of ambition) wants to be the President of a new “United States of Europe”. This new entity, a republic modelled loosely on the United States of America, shall have the power to tax and to harmonise the fiscal policies of the member states. It is to be dedicated to “human rights” and to the fostering of the “European social model”, a code word the great European center-left, allied to the labour unions on one side and the anti-globalisation and anti-American opinion-makers on the other, will take for a discreetly friendly nod towards their political and economic agendas.
Acquiring the power to tax directly, instead of depending on the member states’ contributions for its budget, is of course the decisive novelty. If eventually adopted, it will inexorably create a new top layer of government in Europe that will be destined to grow ever denser, ever heavier as such layers have always done and always will. However, the constitution would also endow the new republic with powers to intervene in the fiscal, welfare, and labour legislation of the member states to prevent them from competing with each other by lowering corporate taxes and contributions to social welfare schemes. This healthy inter-state economic rivalry, which goes by the unflattering name of “social dumping”, is a practice which is jeered at by socialists and cheered on by the small but brave band of “neo-liberals” because it frustrates the full flowering of the “European social model”. What little tax and regulatory competition which exists between the European states at present is what has prevented many European businessmen from throwing up their hands and shutting up shop, tired of rising payroll taxes and burgeoning regulations.
The road to Brussels is paved with good intentions and the framers of these new constitutional arrangements are motivated by the best political correctness one could desire. They are preparing something that will be neither Soviet Russia nor Nazi Germany. In fact, whether knowingly or not, they are creating a new European constitutional arrangement largely as a reaction to these very same horrors. It is such a pity that they do not see the unintended but very probable effects upon the next generation of what they are now creating. In politics and economics, and perhaps elsewhere too, you often avoid doing harm by refraining from doing anything very much or, in the words of the 18th century French liberal Physiocrats, laissez faire laissez passer. But how will the sons who strive to correct the sins of their fathers learn this important lesson?
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For more articles by Anthony de Jasay, see the Archive.