Tuesday, March 3, 2009

EU headed to membership crisis?

One could hardly say at this juncture that Europe is falling apart at the seams, but if this past weekend's "emergency" summit of the 27 EU leaders is any indication, there are some big issues to deal with and some huge personality egos to overcome. The leaders rejected a call from Hungary for a €180 billion aid package to assist the central and eastern members in the trade bloc -- but did agree that they should collectively put pressure on the IMF and World Bank to tap into its reserves to help out. Not that they haven't already extended billions.

There's also apprehension that the wealthier EU states are bailing out their own industries, for example France has extended to car companies in that country about €6 billion in lines of credit -- possibly a violation of trade rules which are supposed to give equal treatment to companies across the trade zone and not just in one country. The whole beggar thy neighbour scenario looms large. While the leaders are saying they're in this together, I'm beginning to wonder.

From where I view it across the pond, it's not just a case of those countries in Euroland versus those out -- after all, the UK, Sweden and Denmark are getting hammered by the recession too. It's also continued resentment that there are actually two classes of EU citizens right now. Sure, the passports throughout the EU are stamped "European Union" right at the top and technically one who is a citizen of any state has the right of travel in all the others. But the right of abode is another matter: Those who joined before 2004 can live anywhere in Europe. The countries that joined in or after 2004 have restricted residency employment rights until 2011, and for Bulgaria and Romania who joined most recently, 2013. It's a double edged sword: Those in Eastern states may want to get jobs in the West in these tough times, those in the West of course want to give employment to their own and are quite apprehensive about what will happen when the gates fully come down.

Also, it is inevitable that the remaining states out of Euroland will join, although perhaps not as soon as those countries initially thought. The efficiencies of a common currency are far too numerous to mention. But many of the poorer states will have to undergo even greater shock therapy than they are right now, and the three odd men -- the UK, Denmark and Sweden -- are probably going to resent even more bailing out their neighbours than they are right now with their own respective currencies; let alone what will happen when they do finally adopt the Euro and the shots are all called from Frankfurt. Even without a bailout, the currency will naturally devalue as some weaker members join in -- a target range of $1.10 to 1.15 isn't entirely out of the question compared to the roughly $1.27-1.35 range it is at now.

In the end, I think the EU will hold together; and contrary to what many televangelists prophesize, the UK will still very much be a part of the zone. But this recession will fundamentally alter what the zone has been until now, and there will be great pressure to brings things back to what the idea was in the first place -- the four freedoms of people, goods, services and capital with common rules and possibly open borders; but a much reduced bureaucracy and return of power back to individual states. More than now "subsidiarity" -- bringing decision making back to the closest level to the people -- is needed, and that went out of the window more than two decades ago. The EU is a remarkable success story, but getting back to basics may be the only way to preserve the union.

In short: Slash back the number of Eurocrats. Give the European Parliament real power, including the right to name its own Europe-wide President (rather than have one forced upon them by the PMs). Make the Union a real union, not the UFC. Again, I'm not a Euroskeptic but it's time to go back to basics. Keeping it short and simple will get rid of a lot of the red tape, which there is too much off even in the best of times; and a government of bureaucrats can be as potentially dangerous as that of an absolute monarch or president.

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1 comment:

Anonymous said...

Very good article! I mostly agree with everything you said but they Euro as a currency. If the remaining countries of the EU would accept the Euro it would solve many problems. It is a very stable currency these days and provides a lot of advantages for the countries that accepted it. We see this on a beautiful example: Slovakia. This little country accepted the Euro at the beginning of this year and we can already see the results. I've been watching news and articles about this little country and it seems that it's not being touched by the crisis at all, or very lightly. Whereas if we look in every other direction (Poland, Czech republic, Hungary) we see the real impact of the crisis! By Slovakia joining the Eurozone, the Euro did not drop and provides "protection" for the Slovaks.

Regards, Elli