The European Union is the result of an economic integration process geared to reach a neoliberal utopia. It was designed to eliminate, neutralise or severely limit all national policy instruments capable of standing in the way of trade and capital flows, and to narrow down member states’ policy choices to deflation strategies, mainly focusing on wages and taxes. Some have referred to this as “negative integration”, with the EU more about repressing national sovereignty than creating European instruments, capacities and accountability.

Member states lost their monetary and exchange policies, and saw their budgetary policies limited, first through the Growth and Stability Pact and then, even more so, through the Fiscal Compact. The result is a new process of economic divergence and social disaster. Peripheral economies have accumulated systematic external deficits, financed through growing external debt. After the financial crisis, private debt was made public and several countries became insolvent. To make matters even worse, the European institutions pushed an insane austerity strategy that continues to prolong the economic crisis. The self-evident failure of this strategy is deeply rooted in the countless flaws in the EU’s institutional design. For those who share this point of view, the question is what changes are needed for the Union to work, as well as whether a transformation of today’s failed design can really be enacted.Without any presumption of being comprehensive, I would highlight five necessary reforms:

  • Place the European Parliament at the centre of European democracy, with the power to dismiss the Commission and the right to propose legislation.
  • Ensure that the European Central Bank puts full employment at the centre of its mandate, and make its price-stability objective, which the Bank has consistently failed to deliver, more flexible. The ECB itself must be fully accountable to the European Parliament, including provisions for the dismissal of its governing council.
  • Make EU fiscal policy focus its rules for national fiscal policies on debt sustainability rather than annual deficits, which are necessary for counter-cyclical fiscal policy. We must have the creation of a real European budget financed by surplus countries, focused on public investment and highly redistributive to reduce the Union’s internal asymmetries.
  • Abolish all off-shore and other privileged tax jurisdictions within the EU, and establish a minimum corporate tax rate for all member states to abide by, avoiding a race to the bottom on corporate taxation.
  • Promote a debt restructuring procedure that can return peripheral countries’ public debt to sustainable trajectories and significantly reduce their debt repayments.

These changes amount to the EU abandoning a model by which countries are forced to compete through internal devaluation, and instead building a solidarity economy. This will only be possible
once all members accept that the integrity of the Union depends on significant and systematic financial transfers from the core to peripheral economies to compensate for today’s devastating imbalances. All EU policies should be reducing those imbalances through the development of peripheral economies, not through imposing a race to the bottom on wages, which will only contribute to economic stagnation, as we can already see.

So are these reforms possible? I have grown more and more sceptical for several reasons. First, the economic and social crisis has fuelled discontent with the EU’s institutions and the European
project itself. The Union was built on a promise of development and prosperity that has failed to deliver, which is obviously true for the peripheral economies, but also for the working classes of
surplus economies. Second,the EU leadership’s total disregard for the democratic will of peoples in several member states destroyed one of the most important elements needed for a successful process of integration: democratic legitimacy. The EU was already found wanting before the economic crisis, but this degree of disrespect for national democracies will make people increasingly wary of further integration under Europe’s leaders.

Third, there was an enormous amount of irresponsibility exhibited by the EU’s leadership, and some national leaders, when it came to pushing an explanation for the crisis. Their analysis was based on moralistic tales, or borderline racist theories, about “competent” and “hard-working” people on the one hand, and “sloppy” and “lazy” people on the other. These narratives have helped waken political monsters that Europe had hoped to bury. Finally, and crucially, there is an institutional obstacle. The European treaties are among the most armoured pieces of legislation in the world. Many of the required changes will need unanimous support, but that only comes after overcoming the European institutions’ lack of democratic accountability and the dearth of political power for the Parliament. In the EU, institutions with power are undemocratic and institutions that are democratic are given no power.

I had hoped that after crushing the Greek government and seeing the United Kingdom vote to leave, the EU’s leadership would pause and reflect on the road the European project is taking. But their
bitter response to Brexit couldn’t have been more disappointing. The sad truth is that today, in Brussels and Berlin, I can’t see any sign of change – only stubbornness and vindictiveness.

I believe that it’s our responsibility not to give up on the European project. But far greater is the responsibility not to give up on the social rights for which Europeans have fought so hard. If conflict
between the current EU and the rights that have given shape to our democracies becomes unavoidable, it will be wise to choose the way of a peaceful separation. Even if the Union fails, we’ll always have Europe.

IMAGE CREDIT: palinchak/Bigstock.com

Commentary

Failure of structures and leadership

The financial and economic crises of the EU have lasted so long and the recovery been so weak that no criticism can be called excessive these days. Where critics can disagree is whether it is the EU economic model that failed, or the decision-makers.

Marisa Matias shoots at both. She believes both the EU’s institutional design and the EU’s leadership to be at fault. And she’s probably right. The design of the single currency was flawed, as economists from Paul De Grauwe to Joseph Stiglitz have testified. But over the last decade the decisions taken in the areas of fiscal policy, monetary policy and debt management have been either inadequate or untimely (just read Philippe Legrain or Martin Sandbu).

But constructive criticism needs to be specific. A general reference to irresponsible leadership is too broad-brush, and whitewashes the responsibility of particular bodies (such as the Eurogroup) or certain officials with greater than average influence on credit conditionality.

The mixed experience of the crisis response should not overshadow the entire EU project and its servants. If there is a hero for EU officials, it is probably Jacques Delors. He created a policy framework for a social market economy, and not a neoliberal utopia. But EU instruments enforcing stability are much stronger than those supporting growth, meaning that the EU has seen both
a slower and weaker recovery than that in the United States and a slower overall growth performance in the last 25 years.

Linking wrong decisions and substandard governance to the democratic deficit is common (see the activities of Yanis Varoufakis after he stopped being Greece’s finance minister) but not necessarily the answer.

First, some member states have as big democratic deficit as the EU (or are backsliding). We should not, by definition, consider the EU to be less democratic. Second, the shift in EU economic policy towards austerity was linked to centre-right victories in national elections from 2009 to 2011. By 2012 and 2013, a shift to the centre-left saw more investment-, growth- and jobs-oriented policies. Third, the least democratic EU institution, the European Central Bank, did the most to stabilise the eurozone from 2012 onwards.

Matias misses the full employment mandate of the ECB (to supplement the price stability objective), and she is not alone. Her views on the fiscal rules are very close to those of Catherine Mann, chief economist of the OECD. EU automatic stabilisers is a topic explored by several think tanks, the Commission, and more recently, by finance ministers.

Matias is rightly concerned about the feasibility of reform. The Commission’s Green Paper on stability bonds (2011) was shelved, and elements of the Banking Union (since 2012) diluted or blocked. How many Presidents need to write a report on deepening EMU before it is too late? When leaders routinely resort to the lowest common denominator, it needs an extraordinary shock to put currency reform back on the agenda. And it will come.