Shrinking And Deepening – A New Pathway For The EU

kurt huebnerVery much pressured by Tory backbenchers as well as by the rise in the polls of the strict anti-EU ‘UK Independence Party’, Britain’s PM David Cameron eventually presented his long announced and often postponed speech on the future relations of the UK with the EU. No surprise in regards to the content of his speech. Cameron wants an à la carte Europe where each member can chose what she likes, and thus opt out from items she is not willing to digest. In best neoliberal manner, Cameron pledged for a Europe that comes with low-level regulations of all markets, a free trade orientation, national self-control of a widely defined range of core policies that follows the principle of subsidiarity, and a small state approach. In brief, Washington Consensus policies across the board.

Obviously, this is not the path the project of European integration currently is moving onto. Like it or not, and Cameron can rightly point to the grumbling of vast social sectors in many member states, the majority of political and economic elites of the EU favors further steps of deeper integration in order to deal with the institutional flaws of the common currency. These are not full-hearted steps but moves out of desperation. Far advanced in the game, so the hidden assumption of the policy drivers, it is seen safer to move forward than backwards. Whether we are talking about the shapes of a banking union, the already established centralization of fiscal policy control, the financial transaction tax, rescue funds, competitiveness policies, and the like, it goes without doubt that those projects run against Tory instincts, and mostly against the interests of the City of London. It is not of any help that the UK is outside the Eurozone as those steps have unavoidable implications for the overall shape and the working mechanisms of the EU as a whole.

For a minimum, all those projects transfer sovereignty and power from the national to the supranational level. They may even have the potential to weaken the nation states. The Tories seem to think that they never signed up to such a transfer of control and power. Cameron’s strategy to advertise the renegotiation of already generous opts-out rules for the UK is in stark contrast to the functional reform needs of an endangered project. To be clear: institutional reforms that are currently under way or are already accomplished are guided by the wish to stabilize the existing regime by ‘normalizing’ an austerity and competitiveness approach across the board. This approach means more and not less Europe.

The EU is a permanent process of negotiations that ask for compromises from all sides. Even in the current situation it would be wrong to argue that the changing shape of the EU is dictated by Germany. Compromises reign – not an optimal crisis management, but such is life in the EU. Seen in such a light it is not very convincing to argue , as Cameron did, that member states had signed up to a different EU. Sure, the EU of the Treaty of Rome differs in many respects from the EU of the Lisbon Treaty. This is the nature of the beast, though, and not an aberration from the original. No doubt, however, that member states can decide to walk away from such a negotiated institution.  Much of the current debate has to do with the simple fact that none of the members has ever decided to do so. So far, the EU is a growing and not a shrinking project. It may be time to rethink this trait.

Let us assume the Tories will again head the British government in 2015 and the planned in-out referendum would result in a majority for leaving the EU. What then? From a purely economic perspective the whole Tory plan seems pretty absurd. Currently, Britain is on its way into a triple-dip recession, this time not caused by an out-of-control financial sector but due to a misguided economic policy that is based on exactly the neoliberal project Cameron and his team want to impose on the rest of the EU. Why should anybody, besides out of purely ideological reasons, favor a project that has failed on so many levels? For quite a long time the UK’s economic growth has been driven by a big and growing financial service sector that has made the UK to a strongly financialized economy. Its lack in overall productivity and a weak industrial sector in combination with an overvalued currency contributed to a meager level of international competitiveness and thus to the deficits in its trade balance.

When the crisis hit, public debt got a hit, too. The change in government and its implied change in economic policy added to the wounds. Rather than taking advantage of the fact that Britain is in control of its currency, the incoming coalition acted as if being under the pressure of the IMF of the early 1980s. Ironically, Washington Consensus policies were introduced at a time when on the global scale those policies were on its way out. It is part of this irony that it was the IMF that sent a number of alerts to the British government to rethink its crude austerity project, without avail. Learning seems not to be the strength of ideological-driven projects. Today, the UK is in a severe crisis situation, and its emphasis on bringing down public debt is pro-cyclical in the best-known way.

With the UK gone the EU would fall back into the situation pre-UK membership of 1973. It would be a less balanced EU where neoliberal market orthodoxies would still prevail but be no longer as strong as today. This is probably the main reason why Chancellor Merkel would like to see the British stay around. Rather than having to do the heavy liberalization lifting herself, she could always rely on the Tories to do the job. Leaving the EU would not mean that the UK gets cut off from EU markets. Negotiations would find a way to keep the relations open. However, Britain would no longer be as attractive for international companies as the European mainland. In time, the UK may also lose some of its financial center privileges, if only due to ongoing EU efforts to domesticate the financial industry and to make it harder for financial actors to move business and operations to the City of London. Having said that it needs to be stressed that quite some water will run down the Thames until all this may materialize. First, it is no done job yet that the Tories will return to government at all. Second, even if this happens it is not clear  whether a referendum will succeed. Still, it would be silly not to anticipate a withdrawal of the UK.

Cameron’s speech made clear that the time is ripe to re-evaluate the project of European integration. Continuing with widening and deepening in a kind of business-as usual-manner will not work, nor does Cameron’s approach. Offering more and more choices for member states sounds flexible and may be in the interest of Britain but this would only contribute to weakening the EU as a major global player, and it would undermine its internal coherence. To be clear: it would weaken the EU in favor of the nation state. There is no doubt that this is an option. However, it is an option for an even weaker and even more irrelevant EU. The strength of any integration project lies in harmonization as the source of efficiencies. Moving away from this strength is not the way to go in a multipolar world. Rather, it may be time to restart the whole project. The first step could be to cut the ‘acquis’ into slices and to define an essential core no member can opt-out from. Such a core has to comprise more than the common market. It needs to include the common currency and its attached institutional architecture. The rethinking of this architecture is one key task, not least for gearing up to the best practices of other world centers. More so, the core needs to be embedded into a framework that is guided by the principles of de-marketization. Recall, the current mess has been generated by unfettered liberalization. Some of this misaligned liberalization needs to go back into the bottle.

Would such an EU be attractive for the UK? Not at all, and the same is probably true for some other current members. Disintegration as a process of deepening and shrinking is the future. Thanks to Cameron we now have to truly make up our minds what the European project of the 21st century is supposed to look like. Actually, I think a redesigned project that draws the lessons of the recent disasters is highly attractive.

  • Global City

    That’s exactly what should happen, but ONLY in response to popular support by the citizens of each country. The way in which the project has grown until now is unacceptable. There is no reference to democracy in your piece. ‘Vast social sectors’ is a poor description of ‘people’ as well.

    Your assumptions about the desperate need for the UK to be within the political project to prosper is an absurd one. Trade is trade, and as your piece highlights, the UK has always had a different perspective on trade, especially global trade, than much of the EU. The irony is, with regard to the single market is that the UK would have more influence in shaping it from outside as it does from within. Most of the single market principles are agreed at international level, where the UK is not present, and imposed on the EU.

    Britain is as different from the continent, politically and commercially as Japan is to China. I see no clamour for Japan to meld into the East Asian behemoth in order to be part if it’s single market.

    • Kathleen McMullen

      Britain versus the continent? That’s a false opposition meaning little. Thousands of Brits live and own property across Europe. Thousands of Poles, Italians, Irish, etc. live in Britain.

      A revolution is required. A permanent one. If they insist on making the homeless in Britain pay council tax then with luck it’ll begin here.