The EU in 2030

European Diary: Amsterdam, March 2024

The Austrian Economics Center and the Nederlands Instituut voor Praxeologie held a meeting at the Amsterdam Public Library on Tuesday 12 March 2024 where I was a speaker. The topic assigned to me was what the European Union would be like in 2030. This was a good opportunity to reflect on the development of the European Union since its foundation  as the European Economic Community in 1957. In my contribution, I suggested that the history of the European Union could be divided into two phases. It was focused on economic integration from the beginning and until 1992 when the Maastricht Treaty was adopted. There were strong arguments for this economic integration, or free trade in Europe, already laid out in 1776 by Adam Smith in the Wealth of Nations (and before him by the Fenno-Swedish pastor Anders Chydenius). Free trade not only brings about prosperity, but also tends to favour peace. When goods are not allowed to cross borders, soldiers will. Your propensity to shoot at your neighbour diminishes if you see in him a potential customer.

The Common European Identity

However, after 1992 the focus of the European Union shifted to political integration, the attempt to construct a European superstate, the United States of Europe, with one currency, one flag, one national anthem, and, crucially, one government. But a state usually is built upon a common identity: It is the expression of the will of a people to share the same political arrangements. Is there a common European identity? My answer was that indeed there is such an identity, to some extent. It was shaped by two historic events: At Poitiers in 732, Charles Martel led Frankish and Aquitanian forces to victory over Muslim invaders from the south. European Judeo-Christian civilisation was saved. Outside Vienna in 1683, forces of the Holy Roman Empire and the Polish-Lithuanian Commonwealth under Jan Sobieski repelled Muslim invaders who two centuries earlier had conquered the remains of the Byzantine Empire. European Judeo-Christian civilisation was saved again.

This common European identity was eloquently described by Edward Gibbon in his monumental history of the decline and fall of the Roman Empire: ‘It is the duty of a patriot to prefer and promote the exclusive interest and glory of his native country; but a philosopher may be permitted to enlarge his views, and to consider Europe as one great republic, whose various inhabitants have attained almost the same level of politeness and cultivation. The balance of power will continue to fluctuate, and the prosperity of our own or the neighbouring kingdoms may be alternately exalted or depressed; but these partial events cannot essentially injure our general state of happiness, the system of arts, and laws, and manners, which so advantageously distinguish, above the rest of mankind, the Europeans and their colonies.’

Open Market or Closed State?

The question is whether this common identity is strong enough that a European superstate (and not a federation of states) can be built upon it. The answer is no, I would submit. Most people identify strongly with their families and friends, and less strongly, and nevertheless firmly, with their nation, such as the Danes, Italians, and Poles, but rather weakly with Europe. Nevertheless, a small group of euromantics is trying to impose this idea on reluctant or even hostile national populations. Those people are trying to change Europe into a fortress (with a prison in the basement, of course). They are trying to transform an open market, successfully developed by economic integration between 1957 and 1992, into a closed state, where political integration is just a euphemism for centralisation. They want a federal state instead of a federation of states. Their project has some farcical elements. For example the relocation of the European Parliament from Brussels to Strasbourg once a month to placate the elite ruling France has earned it the nickname ‘the travelling circus’.

Horse-Trading in Europe

I pointed out that two European institutions have their origin not in lofty ideals, but in shameless horse-trading. One of those institutions is the CFP, the Common Fisheries Policy. In 1971, on the very same day when four countries applied for membership in the EU, the United Kingdom, Ireland, Denmark, and Norway, the fisheries ministers of the six incumbent members declared the fishing grounds of all member states to be a commons. The prospective members would have to open their fishing grounds to fishing vessels from other EU countries, and all European fisheries would have to be governed from Brussels. Three of the four prospective members accepted this last-minute declaration, whereas Norway refused to join. The CFP has turned out to be a disaster, with ever-growing fishing fleets chasing ever-dwindling fish stocks. By contrast, Iceland, happily outside the EU, has developed a sustainable and profitable system in the fisheries, based on individual transferable quotas, which amount to the enclosure of the commons. Thus Iceland avoided the notorious ‘tragedy of the commons’—the inevitable over-utilisation of open-access natural resources—whereas the CFP meant the reintroduction of the problem.

The other institution is the euro. In late 1989, to everybody’s surprise, East Germany fell not with a bang, but with a whimper, and the leaders of West Germany desperately wanted to unite the two German states. Some other European leaders, in particular French President François Mitterand, were not keen on the idea. The wits observed that they loved Germany so much that they wanted to have two of them. The price paid for their consent for the unification of Germany and the accession of this new state to the EU and NATO (as revealed in memoirs from the French elite) was that West Germany abandoned the stong and stable Deutsche Mark and accepted a common currency. The Germans insisted nonetheless on strict rules to ensure the stability of the new currency, the euro. For example, the European Central Bank was not allowed to lend money to individual member states. But in the last twenty years, almost all these rules have been broken. There are, I said at the meeting in Amsterdam, two structural reasons why it is more difficult to maintain a stable common currency in the European Union than in the United States of America. One is that the European labour market is not nearly as flexible as the American one. Hence, in hard times there is an incentive to avoid inevitable wage cuts by debasing the currency. The other reason is that there is much less mobility in the Europe of more than thirty languages than in English-speaking North America. People move much more easily from a depressed Arkansas to a booming Massachusetts than they would from Greece to Ireland. Hence, when the economies of some member states are in a depression there is an incentive to help them out by, again, debasing the currency.

The Subsidiarity Principle

At the meeting in Amsterdam, I was asked whether I could point to any single cause of the centralisation in the European Union. My answer was that this was a complicated and almost dialectical process, but without doubt the CJEU, the Court of Justice of the European Union, had played a crucial role in enabling it. It had for example accepted obvious breaches of the rules about the euro. They usually decided in favour of the European Commission, the obscure, non-transparent, undemocratic Brussels bureaucracy. There were two reasons, I suggested, why the judges of the CJEU were sympathetic to the political integration of Europe or in other words to centralisation. One reason was self-selection. Usually the judges came from groups of so-called experts on Europe, and such experts tended to be euromantics. Another reason was the almost natural inclination of an agency such as the CJEU to extend its power. Perhaps two institutional changes might arrest or even reverse this development, as the eminent German economist Roland Vaubel has suggested. First, the judges should be selected from a pool of experienced judges in member countries without having necessarily demonstrated any interest in European affairs. In the second place, the task of the CJEU should be restricted to deciding issues about European law. Another Court, perhaps called the Subsidiarity Court, would decide in matters regarding the division of powers between the Union and the member states. Moreover, the legislative power now held by the European Commission should be transferred to the European Parliament.

In 2030, the European Union will certainly still exist. But it needs to be reformed. The subsidiarity principle must be revived. There are three well-known responses to the abuse of power: exit, voice, and loyalty. The main problem with centralisation is that it abolishes exit as a possibility. The same Gibbon who wrote so eloquently about Europe as ‘one great republic’ also said: ‘The division of Europe into a number of independent states, connected, however, with each other by the general resemblance of religion, language, and manners, is productive of the most beneficial consequences to the liberty of mankind. A modern tyrant, who should find no resistance either in his own breast, or in his people, would soon experience a gentle restraint from the example of his equals, the dread of present censure, the advice of his allies, and the apprehension of his enemies. The object of his displeasure, escaping from the narrow limits of his dominions, would easily obtain, in a happier climate, a secure refuge, a new fortune adequate to his merit, the freedom of complaint, and perhaps the means of revenge.’