6/12/2015
By Wolfgang Münchau
I foresee a gradual erosion of the EU that leaves it as a glorified free-trade zone
The main characteristic of today’s EU is an accumulation of crises. This is no accident. It happens because policies are not working. Political leaders such as David Cameron and Viktor Orban, the prime ministers of the UK and Hungary, are even questioning some of the fundamental values on which the EU is built — such as the freedom of movement of people.
The EU is in an unstable equilibrium: small disturbances can produce large changes. We have reached this point because the various projects of the union now have a negative economic effect on large parts of the European population.
I would no longer hesitate to say, for example, that your average Italian is worse off because of the euro. The country has had no real growth since it joined the euro, while it had grown at fairly average rates before — and I have heard no rational explanation that does not attribute this to the flaws in European monetary arrangements.
This is not just a problem for the eurozone. As Simon Tilford of the Centre for European Reform has argued, the worst-paid Britons have been made worse off, too. Their real incomes have fallen, and an inadequate supply of housing has pushed up accommodation costs.
Both trends have been exacerbated by a net inflow of workers from abroad, even though net immigration into the UK has not been extreme by European standards.
No individual is in a position to make an objective assessment of the effect of immigration on their own income and wealth, but it is clearly not irrational to suspect that an influx of net immigration and one’s own falling real wages to be somehow related.
The Danes, who last week voted against ending the country’s opt-out from EU home and justice affairs, also acted rationally. Why opt into a common justice system that still cannot produce adequate levels of co-ordination between police forces in the fight against terrorism?
Home and justice affairs are public goods. Why should a rational voter prefer a dysfunctional public goods provider?
The same holds for Finland. The country has been locked in a four-year long recession. There is now a parliamentary motion in the works that may end up in a referendum on whether to quit the eurozone.
I do not think that Finland will take that step, for political reasons. But, at the same time, I have not the slightest doubt that Finnish growth and employment would recover if it did. A currency devaluation would be a much more powerful tool than the policy that the Finnish government is trying to implement right now: improving competitiveness through wage cuts.
Both Finland and Italy are hanging on to their membership of the eurozone against rational economic interest. This is a situation that was never supposed to happen. The monetary union, the single market and all that were supposed to be economically neutral at the very least.
If the European Union were a democratic federal state, we would not be having this discussion. There would be no euro crisis, and no refugee crisis either. Such a state is currently not attainable, however. This is why the unstable equilibrium is pushing us now in the other direction, towards disintegration.
I am not talking about a formal disintegration of the EU, but of the informal kind: that is, a gradual erosion of political significance that leaves the EU formally intact — but as a glorified free-trade zone, with only the minimal technical infrastructure necessary for that purpose. In short, it will become something exceedingly uninspiring.
The consolation is that there is no destiny in disintegration, just as there was never a certainty of “ever closer union”, as it says so pompously in the preamble to the EU treaties.
Different outcomes remain possible. What I am increasingly convinced of, however, is that if there is to be another stage of integration, there will have to be a phase of disintegration first.
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