United We Stagnate

Lately in EuroSavant we’ve been reviewing articles complaining over economic slowdowns in the Netherlands and in Germany – “complaining” from outsiders’ points-of-view, that is, so perhaps you can assume some element of Schadenfreude. Now comes a piece in the German opinion newspaper Die Zeit (United in Stagnation) advising us not to count too much on the European Union to pull such countries out of their economic problems, not if the draft EU Constitution is any guide. At least when it comes to economic policy, author Petra Pinzler writes, that Constitution is “as superfluous as a bicycle for a fish.”


But don’t let the dredging-up of old clich├ęs fool you (and who knows, maybe that “bicycle for a fish” riff still sounds fresh in German): Pinzler’s analysis makes a pretty fine-tuned selection of those economic functions that the EU can just leave alone, and those that do require the sort of pan-national coordination only such an organization can provide – but which it looks like it will fail to do. Look, she writes, we’ve had the euro now for over two full years, and the unblocked internal market for longer than that, with the cheaper prices it brings through free competition from imports, the enhanced opportunities to search for work in other European countries, and the like. We’ve got sufficient international integration of social services – for example, a citizen from one country can draw his pension even as he moves to retire in another (EU) country. Especially as Euro-citizen suspicion towards the EU as some sort of unelected bureaucracy grows, do we need any more higher-level economic coordination? Doesn’t that just mean the danger that low-tax countries in Eastern Europe will be muscled to “coordinate” their tax rates higher to please high-tax countries like Germany?

It doesn’t have to mean that, and Prinzler does make a pretty persuasive case for certain greater pan-EU economic coordination. For those paying attention in the Netherlands and Portugal, and other smaller euro-zone countries struggling with the task of staying under the 3% government budget deficit ceiling mandated by the Growth & Stability Pact, all it takes is her reminder that those same rules haven’t seemed to apply so far to the big boys (i.e. France and Germany). More generally, though, remember that the need to make the EU run more efficiently even as it expanded to twenty-five members and beyond was generally accepted as the rationale for a new Constitution in the first place. With the parallel advent of the euro and a one-size-fits-all interest-rate policy run out of Frankfurt, that likewise laid the charge on those responsible for the new Constitution to ensure that it would enable the EU to better coordinate economic policy among member-states.


Unfortunately, the new Constitution does not do that, but the fault lies not with those who originally wrote it but with the politicians who finally managed to approve a common draft at the latest summit last June 18 in Brussels. As originally written, the Constitution would have have given more power to the Commission to formulate common economic policies. There were also attempts to use it to actually put some teeth into enforcement of the euro’s Stability Pact. And when it came tax policy, Pinzler writes, the document proposed making but one element subject to qualified majority voting (that is, not the current rule of unanimity, meaning that any member-state can veto something it doesn’t like) – just one, and that had to do with measures against tax-evasion.

But Tony Blair succeeded in Brussels in holding out in his insistence that all aspects of EU tax policy continue to be decided unanimously, giving the UK (or of course any other country) right of veto. France and Germany successfully headed off any toughening of Stability Pact enforcement, and the supposed additional economic policy powers for the Commission were watered-down. The result, according to Pinzler, is that, at least in the economic realm, that new Constitution is basically “a symbol of the hypocrisy of our governments.” They preach greater European integration; what they engineer behind closed doors at European Council summits is something else entirely.

One thing that is supposed to happen is the appointment of an EU “Supercommissioner for Economics and Innovation” later this year. But what are supposed to be his instructions? To further economic liberalization, or rather promote “national champion” industrial policies? Europe can’t agree among itself, but eurozone members still have that “one-size-fits-all” uniform monetary policy coming from Frankfurt to try to deal with. And when can we expect another European Constitutional Convention to have another crack at fixing these fundamental institutional defects? (Possible answer: Sooner than you may think, when more-than-one current member-state fails to ratify this Constitution and it fails. But the EU as we know it, in something close to its current form and make-up, will have to survive that trauma first.)

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