Tough times ahead for the European Union – Gautam Sen

European Union

Gautam SenThe unprecedented EU project of continental unification is inevitably encountering major hurdles because it is a continuing and unfinished project. … There are compelling national interests in a shared future that have hitherto ensured the survival of the EU albeit with continuing discord. But this reality proved inadequate for Britain to remain in the EU and whether other members will also reach the same conclusion is a moot question. – Dr. Gautam Sen

The formation of the European Union (EU) was an extraordinary venture by international standards since never before in history had an entire continent voluntarily sought such a high degree of common purpose and policy amalgamation. The European Union was formed in 1957, coming into force the following year and the road to its progressive expansion began with six members—France, West Germany, Belgium, the Netherlands, Luxembourg and Italy. It was preceded by a free market in coal and steel, the ECSC, in 1951 and the current membership numbers have reached twenty-seven, stretching from the Mediterranean and the English Channel to the border of the former USSR. The union became progressively closer, establishing common standards and social norms and a level playing field for markets and virtually unhindered movement of people.

The formation of the EU was a rare historic development that generated a vast academic literature on the nature of national political identity and sovereign prerogatives and the steps through which they might be mostly dissolved in a grand compact of hitherto separate nations that had only recently been at war with each other. The two especially impactful momentous episodes, among others, in the history of the European community after its establishment were the Maastricht Treaty of 1992 and Brexit.

The Maastricht Treaty established common citizenship, an EU foreign and security policy, cooperation on justice and home affairs and an agreement to limit national debt and budgetary deficits that presaged the historic common currency of the Euro in 1999. Twenty years after Maastricht, a successor Fiscal Compact was also signed in 2012 that entailed a critical limitation on national policy by agreeing to achieve budgetary surpluses, replacing the earlier Maastricht concord on debt and budgetary restrictions. This was of particular significance because governments routinely use flexible fiscal measures to influence the level of economic activity.

The second dramatic event has been the trauma of the recent British departure from the European Union, the so-called Brexit, with much acrimony and difficult negotiations. It left major issues unresolved and continues to haunt relations between the EU and its estranged former member.

The ongoing dispute over swelling numbers of Arab-Kurdish migrants at the Polish-Belarus border, seeking refuge inside the EU has thrown into relief an intractable dilemma it faces, which has complex roots and eludes easy resolution. In fact, the crisis at the Polish-Belarus border highlights a moment of unity within the EU, but it also, paradoxically, underlines a source of persistent division within it that the failure to resolve the Belarus crisis satisfactorily will only precipitate again and intensify.

Poland’s determination to refuse entry into its national territory of increasingly desperate and often belligerent refugees has elicited the support of European governments despite some typically contrived hand-wringing in Left-wing European circles about their tragic plight. The EU is accusing Belarus’ admittedly unpredictable President Alexander Lukashenko of waging hybrid warfare against it at the behest of Russian President Vladimir Putin, the eternal scapegoat.

The hapless Putin evidently ranks above even India’s frequently demonised Prime Minister, Narendra Modi, in evil quotient among condescending Europeans. The problem lies in the question of which countries in Europe would offer abode to the refugees, attracting innumerable more as a result and opening their purse strings too.

The answer is no EU member, with their economies scarred by the real hybrid warfare inflicted by the world’s only self-certified dictator, who unleashed the global COVID-19, destroying economic life and any scope for budgetary manoeuvre.

The unrelenting tide of mostly Muslim refugees is a source of serious rupture within the European Union, with four former members of the former Soviet camp, Poland, Hungary, the Czech Republic and Slovakia, apparently unwilling to implement a prior agreement to accept their quotas for settlement. This was a burden that was earlier shouldered disproportionately by countries like Greece, owing to geographical location, which was one of the least able to sustain the economic burden.

West Germany’s Angela Merkel upturned expected policy responses in 2015 by accommodating over a million Syrian refugees in West Germany, but that changed its political landscape, with many Germans disgruntled by the massive influx tilting sharply towards the political Right. It ensured such impulsive generosity would not be repeated again and not only in West Germany, with anti-immigrant political parties gaining ground across Europe. So, the arrival of more refugees only means more internal strife within the EU. It might also be remembered Brexit occurred owing to related British reservations about the continuing viability of EU’s policy of free movement of labour, a fundamental pillar of its asserted identity as one community.

The socio-economic convergence of European Union countries, propelled by its executive arm, the European Commission, has also created discord among members and regular disagreement even within the Commission itself, which proposes measures to accelerate it. Such convergence often challenges long-established practices of individual member countries as well as national sentiment within them.

In recent times, the European Court of Justice, the EU’s supreme court that adjudicates European Law, has been at odds with Poland’s reluctance to accept injunctions on alleged arbitrary disciplinary procedures for its judges. Hungary has also disagreed with the EU policy towards LGBTQ rights, arguing it is protecting Hungarian children from moral debasement, provoking veritable uproar in the European Parliament that ultimately oversees policy, with many of its members apparently seized by Woke sentiment. There are other contentious issues relating to the oversight of EU funding because corrupt misspending by recipient countries is considered commonplace. EU funding is the critical bait for the poorer countries of the EU to remain its members since it is a significant net transfer to them and it was also a critical motivation for their decision to join the EU in the first place.

The real insuperable underlying disjuncture of the EU is the very aspiration for comprehensive economic union that the creation of a common currency in 1999, the Euro, sought to accomplish in significant measure. A common currency means that individual central banks of member states lose control over monetary policy, which is an essential instrument for influencing economic activity and therefore the politically sensitive level of employment. A restriction on fiscal deficits, fully instituted in 2012, is an additional limitation on national policy through the issuance of the bonds to finance them and these are also implicitly guaranteed by all EU members. This guarantee to bonds issued by individual member states is effectively extended by other more prosperous member states like West Germany. It is reluctant to authorise their indiscriminate issuance and indeed its policy freedom on the issue encounters legal curbs from its own national courts. This disjuncture illustrates the crux of an inherently problematic dilemma of monetary union without all-embracing fiscal union.

The implicit corollary expectation that national economies will simply adjust to the dictates of markets, instead of resorting to monetary and exchange rate policy, differs in the feasible pace at which it can occur owing to what is described as institutional ‘friction’ within individual member states. Idiosyncrasies of inherited institutions and social norms in different countries mean that markets do not adjust smoothly. The unwelcome result, in practice, is unemployment in order to alter prices to ensure the discipline of the EU’s single market. In effect and, crucially, without a national currency an essential instrument of economic adjustment is substituted by the need to alter prices through employment levels.

This dilemma is compounded by diverging growth in productivity rates among member states of the EU, with Germany enjoying growing price advantages because its productivity has been rising faster than elsewhere. As a result, industry in other EU member countries becomes relatively uncompetitive and indeed German firms gradually buy up firms in other EU countries like Italy as well.

The unprecedented EU project of continental unification is inevitably encountering major hurdles because it is a continuing and unfinished project and any consensus to completely dissolve individual nationhood itself is not the aim. The reason is that, ultimately, national interests as well as sentiments in individual member countries have never been in uncomplicated harmony, as the issues of LGBTQ rights and the critical issue of economic adjustment to the dictates of the market illustrate. There are compelling national interests in a shared future that have hitherto ensured the survival of the EU albeit with continuing discord. But this reality proved inadequate for Britain to remain in the EU and whether other members will also reach the same conclusion is a moot question. – Firstpost, 20 Novemeber 2021

› Dr. Gautam Sen taught international political economy at the London School of Economics and Political Science for over two decades. 

EU borders close to refugees.