“Of course the government must always play a central role. This role must even be strengthened, because in many areas we need much more government.“ (Emmanuel Macron)
Europe is still not in good shape. Although economic growth is recovering slightly, it is still anemic. There has been a minor decrease in unemployment, but it is still very high. However, there have been cracks in the facade of the EU for some time now (here). The euro, Schengen, Brexit, and secessions are the main causes. In the still unstable euro zone, the north still doesn’t get along with the south. The EU is not out of the woods yet. Disintegration still threatens. The refugee crisis continues to smolder, dividing East and West. The ECJ is powerless to change this. The UK, the second largest member country, is leaving the EU. The exit is scheduled to be completed by the end of March 2019, but may end up taking a bit longer. The virus of regional separatism is finally spreading throughout the EU. At this point, Catalonia and Scotland aren’t the only ones infected. Even if the central government reacts repressively, it has no chance against pronounced regional preferences. This is the backdrop against which leaders in Europe are trying to avert a crash. Three speeches mark the European path into the future. Jean-Claude Juncker started things off with his 2017 State of the Union Address before the European Parliament in Strasbourg. In a keynote address in Florence, Theresa May outlined the United Kingdom’s possible path out of the EU. Finally, in Paris Emmanuel Macron presented his plans for the future of the EU.
More EU, more money, more euro
The EU is again feeling a tailwind; after years of crisis the wind is once more in its sails. This, at least, is how Jean-Claude Juncker interpreted the “State of the Union 2017“ on September 13, 2017 (here). He presented his views on how the EU should move forward before the European Parliament in Strasbourg. Those who are familiar with the shrewd social democrat political expert Juncker know which way the integration-political wind blows in his “6th Scenario“. In writing “More EU, more money for it, more euro“, the FAZ Journalist Werner Mussler has gotten to the crux of the issue. This statement is dead on. The European Commission President lives in a world that has long since vanished. White papers and scenarios notwithstanding, he barely takes note of how the (European) world has changed. The EU has become more heterogeneous, both economically and politically. Thus it makes little sense to rely on, above all, antiquated centralist recipes. In a more heterogeneous European landscape, decentralized solutions are required much more often. Jean-Claude Juncker and Martin Selmayr, his power-conscious German cabinet chief, see things differently. They live in a world that has long ceased to exist. They still want to measure far too much by the same yardstick. According to this perspective, the European Commission should ultimately have the say in Europe. The member countries should pay, carry out the decisions of the commission, and otherwise keep their mouths shut. This makes neither economic nor political sense (here).
Jean-Claude Juncker remains true to himself, he wants more EU. He is calling for an EU Commission President who is equipped with more power. The EU Council President is a thorn in his side. He represents the interests of the member countries of the EU. If Juncker has his way, this post will be abolished. Its duties will be assumed by the President of the EU commission. The influence of the member states is to be further weakened by the conversion of the euro crisis funds into a European Monetary Fund (EMF). The EMF shall no longer be controlled by members of the EU, but rather by the European Commission. The most important player would be a newly established European Economics and Finance Minister. Their roll would be to promote and support structural reforms in the member states, i.e. to decide how the money of the members of the EU is spent. They would also be responsible for the coordination of all financial instruments used during economic crises. Decisions regarding how to use financial resources during crises and how to rescue countries would no longer be made by the member states. The EU Commission would have the final say. The “Super Commissioner“ is to become Vice President of the EU Commission, head of the Eurogroup, and inspector of the new EMF. As a member of the Commission, they would report to the EU Commission President. The proposals of Jean-Claude Juncker would weaken the member states of the EU and further strengthen the position of the President of the European Commission.
The European Commission’s integration policy is one of centralization. There is no mention of a Europe of multiple speeds in Jean-Claude Juncker’s Strasbourg speech. He wants to further weaken the influence of the EU members, and this is evident at several points in his speech. He suggests abolishing unanimous voting in issues of taxation (corporate tax, VAT, digital economy tax, financial transaction tax). The veto right of the members would be replaced by qualified majority voting. Juncker also wants to make a real job of it in the social sector. New social standards and a joint labor authority are to be introduced, the posting directive is to be expanded, and a European reinsurance for national unemployment insurance systems is to be installed. Juncker would not be Juncker if he did not demand more money for the EU. He has not (yet) asked for EU-specific taxes or borrowing conditions, but he is demanding a strong Eurozone budget line within the EU budget framework. How to use these funds would be decided solely by the EU Commission. Juncker requires these funds to implement his plan for a “euro for all“. All EU countries are to become members of the EMU. Accession assistance is intended to create incentives for non-member countries. A certain fiscal capacity is, according to Juncker, also necessary to reward countries for doing their structural reform homework. In his Strasbourg speech, Jean-Claude Juncker kept to the course of an integration policy of centralization. He has learned nothing.
Free trade zone, finances, transition
Little remains of the euphoria of open markets. This is true worldwide, but is also the case regionally. The Doha Round is not moving forward, Donald Trump does not think much of free trade, and in Europe free trade zones are being rejected. The European Single Market, with its four fundamental freedoms, is also crumbling. Protectionism seems to be back in fashion. There is a significant danger that Europe will also jump on this bandwagon. If this goes badly, Europe will fall into the protectionist trap after Brexit. In a referendum on June 26, 2016, the British decided to leave the EU. They have long been suspicious of the European Single Market. The free movement of persons in the EU is particularly detestable to them. To be governed by a “non-democratically elected“ and bureaucratic EU Commission rubs them the wrong way. They find it even worse to have to submit to the jurisdiction of the ECJ. Instead, the British want a “creative, innovative, and ambitious“ free trade agreement with the EU. They expect that this will provide them with sustainable welfare gains. But that’s not all. They also expect profits to continue to increase if they no longer have to financially support the EU. After all, they are its second largest financial contributor. However, their calculations might be disappointed if the result is a “hard“ Brexit. If the United Kingdom and the EU cannot come to an agreement, their economic relations will be reduced to the WTO status of most-favored-nation tariffs. This will please neither the British nor the EU. Both lose.
The tough stance of the EU seems to be working. In her first “big“ Brexit speech just over half a year ago at Lancaster House in London, Theresa May still displayed toughness. She predicted a great future for her country beyond the EU, and threatened the EU with a “hard“ Brexit. This didn’t just go over badly with Brussels and other European capitals. Even the UK’s own industry and financial world were displeased. They openly threatened to emigrate to the EU. Many trade policy dreams have since been shattered. In her second “big“ Brexit speech on September 21 in Florence, the British Prime Minister backpedaled (here), but she still declared her support for leaving the EU with no “ifs, ands, or buts“: “In short, we want to work hand in hand with the European Union, rather than as part of the European Union.“ The British do not want to stay in the Single Market, they do not want a customs union with the EU, they are against the freedom of movement of EU citizens, they do not accept the decisions of Brussels, and they do not want to submit to the jurisdiction of the ECJ. They want more direct control over decisions which affect their daily lives. The British government similarly rejects the proposed Brexit departure path via the European Economic Area (EEA) à la Norway (here), as well as a modern free trade agreement à la Canada: “We can do so much better than this.“
What concretely it is that the British want is still unclear, even after Theresa May’s Florence speech. The only thing that is certain is that they will leave the EU on March 29, 2019 as planned, but maybe not entirely. The British Prime minister has proposed a two-year transitional period to calmly reach a mutually beneficial agreement with the EU. Such an arrangement is important, as it will provide companies and individuals with greater security in their decisions. The EU’s fear that her proposal will tear holes in the EU’s finances was addressed by May. She promised that during the transition phase, no member of the EU would be asked to pay more or would have to give up their benefits. It has been speculated that the UK will transfer at least 20 billion euros to the coffers of the EU in 2019 and 2020. The British Prime Minister also tried to defuse two other tricky issues. EU foreigners will also be able to settle in the UK during the transition period. However, they will have to register. And May wants British courts to take the rulings of the ECJ into consideration when it comes to the status of EU citizens. This applies after the transition phase as well. Although much is still unclear following her speech in Florence, Theresa May nurtures the hope that there will not be a “hard“ Brexit which accelerates protectionist tendencies.
Too slow, too weak, too inefficient
French President Emmanuel Macron completed the trilogy of “Speeches on Europe” with a keynote address at the Sorbonne in Paris on September 26, 2017 (here). Much of what he said was a repetition of previous statements. Some of his points are correct, others risky, and some wrong. He is a man of the (central) state, not of the market. And he demands many European solutions. This is right in the areas of defense, the fight against terrorism, and in response to global climate change. But it is also holds true for dealing with flows of refugees. This applies to asylum and immigration policies. Joint solutions are needed to secure external borders, and to organize rules for the admission, registration, administration, and distribution of asylum seekers. A centralized solution for the education and vocational training as well as the integration of refugees, on the other hand, makes little sense. There is much to be said for decentralized approaches at the regional level. Macron’s proposal to harmonize national immigration laws is problematic, but once again, necessary. The EU countries differ in their ideas of whom they want to admit as immigrants who come to Europe for economic reasons. This speaks for solutions at the national level. However, if the free movement of persons in the EU is to be maintained, as I argue (here), the immigration policy must also be a coordinated one. Here, Macron is right.
However, many of the French president’s centralized European proposals are risky or even harmful. It is economically risky that Emmanuel Macron has long called for “a finance minister, a budget, a parliament“ for the Eurozone. This would admittedly be conceivable in a political union. However, a centralized European solution would not make sense there either. A competitive federalism would always be preferable. It would better serve both the preferences of the people and the economic efficiency. In reality, however, a European political union is still a long way off. I am convinced that even in France, a majority for the abolition of the nation state does not exist. In the current institutional structure of the EMU (“money without government“), an economic government as envisioned by the French president is neither economically sensible nor politically enforceable. The fear that an EU constructed as such would degenerate into a transfer union is widespread, and not just in Germany. And rightly so. The same can be said for a European unemployment insurance system (here). Nor does it make sense to give the EU the key to the taxation cash register. This applies to the Financial Transaction Tax proposed by Macron. But it is also true with regard to the frequent demand for EU autonomy in debt related decisions. It is indeed appropriate that the EU continue to receive its funding from the national member countries.
The social policy proposals made by Emmanuel Macron in Paris are economically harmful. Just as with Jean-Claude Juncker, the EU Commission President, Macron also wants to strengthen the social policy pillar in the EU. Â This in itself is not reprehensible. However, the proposal to harmonize minimum wages in Europe is counterproductive. He would not be helping the vulnerable groups in the job market. The situation in the national and regional labor markets varies greatly among the member states of the EU. Anyone who wants to increase the employment opportunities of (low-skilled) unemployed workers must not resort to the instrument of similar minimum wages across Europe. It would be best for them to avoid the issue of minimum wages entirely. But if they implement them, they must allow national, or better still, regional differences. The French president clearly wants to undermine the national competencies of EU countries in labor market and social policy. This is not a good idea. It will restrict institutional competition, making “learning from the best“ more difficult. Without this competition, the EU Commission would probably never have heard of the concept of “flexicurity“. The French president should in fact already be aware of these advantages of institutional competition. An important and correct element of his planned French labor market reforms is the further decentralization of wage and collective bargaining policy. Centralistic labor market and social policy solutions are counterproductive. This is also true at the European level.
More government, fewer rules, more centralism
The EU Commission launched the debate on the future of Europe with its White Papers. Jean-Claude Juncker, Theresa May, and Emmanuel Macron have added more fuel to the fire. However, the value of their speeches should not be based solely on the visions they present for Europe. They must also be judged according to how they want to tackle the current problems. The British Prime Minister’s Brexit speech makes it clear that countries in Europe differ in their political, social, and economic preferences. The integration approach of the EU must take these growing heterogeneities into account. Lumping together as much as possible is not an integration strategy with a future (here). The EU will only be successful if it grants its member countries and their regions more leeway when it comes to decision making. Jean-Claude Juncker’s “6th Scenario“ is not the future of Europe. This will not lead to blooming landscapes. On the contrary, there will be more Brexits and (Catalan) secessions. The EU will only survive if it engages in a “Europe of multiple speeds“, or even better, a “Europe à la carte“. And Theresa May’s speech has shown something else as well. The desire for a transitional period in the Brexit process also stems from the concern that protectionist tendencies in Europe will become socially acceptable again. Emmanuel Macron fed such fears in his speech when he, in traditionally French fashion, made the case for a European industrial policy (planification). In his opinion, sensitive economic sectors should not be left to the free play of market forces.
The speeches of Jean-Claude Juncker and Emmanuel Macron feature a significant degree of overlap. Their integration-political tune sounds different than that of Jacques Delors. He relied on a market-based integration policy. This was beneficial for Europe. The Single Market project has been the most successful step thus far with regard to integration in Europe. But much still remains unfinished. Labor and service markets in particular lag behind. They could do with much more competition. In Europe, the protectionist spirit of discord could be nipped in the bud. The European Commission President and the French President see it differently. Both are putting their money on more (welfare) state and less market. In doing so, they are following the anti-market zeitgeist. The development of a social union in the EU is important to them. In pursuing this goal via European minimum wages and the harmonization of welfare systems, Emmanuel Macron is betting on the wrong horse. This is neither efficient nor fair. Both Juncker and Macron want more discretionary and less rule-based decision making. The “German“ way would become a discontinued model. The philosophy of the French economic government would defeat the idea of the German economic constitution. Both presidents want the process of decision making to become more centralized and less decentralized. Subsidiarity plays no part in either of their speeches. Both avoid making clear statements on how the competencies should be vertically distributed (here). However, they appear to favor centralized, European solutions.
Neither Jean-Claude Juncker nor Emmanuel Macron seems to have understood that European integration is seriously threatened when action and liability do not coincide. Policymakers are not, or are only partially, held accountable for the consequences of their decisions. This is especially true in fiscal policy. Such incongruent behavior inevitably attracts free riders. However, neither Jean-Claude Juncker nor Emmanuel Macron is particularly bothered if action and liability do not coincide. This becomes apparent when considering their proposals for fiscal policy in the E(M)U. Both want to centralize fiscal policy in Europe to a much greater degree. They are indulging in the idea of implementing a common fund into which all members make deposits. A central authority, such as a European Finance Minister, would then carry out necessary expenditures. A euro zone parliament would decide what funds are spent and who gets what. The national governments are left out of the process. If the European treasurer incurs debts, the members must take responsibility for those debts. This is already the case with the fiscal and monetary bailout funds, and Eurobonds would intensify the issue. A European unemployment insurance system would further aggravate the problem. The danger is great that some will then live at the expense of others. Public budgets won’t be consolidated, necessary structural reforms will be omitted, and the economic bedrock of the E(M)U will erode. A pompous re-founding of the EU would become superfluous.
The EU is coming out of its state of shock. Frenetic activity is occurring everywhere. With the White Papers, the EU Commission has fired the starting shot. Visionary plans are being forged. Jean-Claude Juncker and Emmanuel Macron have fueled the process with their speeches. However, Theresa May’s Florence speech is a reminder that important issues still remain unresolved. It is not only the explosive device that is Brexit that needs to be defused. Despite modest economic recovery, the EMU is far from being out of the woods. Europe is still waiting for necessary structural reforms. National budgets still aren’t consolidated. The ECB alone is keeping the shop running with a dangerous fiscal monetary policy. Meanwhile, the refugee crisis continues to smolder. So far, the problem has only been outsourced to Turkey and elsewhere in the neighboring countries bordering the Mediterranean. The EU is deeply divided over the issue of immigration. The distribution of refugees in the EU reveals profound differences of opinion and provokes national breaches of law. All of this discord in the EU continues to grow. It is obvious that politicians want use visions of a future Europe as a distraction from current problems. Jean-Claude Juncker and Emmanuel Macron have done so in speeches in Strasbourg and Paris. However, what they have said makes the hair of liberal-minded Europeans stand on end. It is impossible to build a future-proof Europe by way of more government, less rule-based politics, and more centralism. That would be the end of the story of European integration.
Hinweis: Der Beitrag ist die englische Version von “Straßburg, Florenz und Paris. Drei Reden zur Zukunft Europas”. Michael Labate hat ihn übersetzt. Herzlichen Dank!
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