Tuesday, 2 September 2003

Bastiat in Europe

New Year’s Day marked the tenth birthday of the Single Market, which was created to abolish “obstacles to the free movement of goods, persons, services and capital” in the European Union. Ten years after the then European Community approved the initial package of 280 laws harmonising microeconomic policy (not to mention a decade of roughly one legislative proposal per day) the European Union is now considering the harmonisation of macroeconomic policy.

The French and German foreign ministers and the working group on Economic Governance at the ‘Future of Europe’ Convention have called for the coordination of economic policy to be enhanced. Dominique de Villepin and Joschka Fischer have called for Broad Economic Policy Guidelines (BPEGs) to be adopted by the Union. Some Convention members have gone further and called for macroeconomic policy to be upgraded to the level of a ‘shared competence’, decided by both the Union and the member states.

Quite apart from the political question of whether any power over economic policy should be exercised by the European Union, there are economic difficulties with a common macroeconomic policy. First, the existing mechanism for economic policy coordination, the Stability and Growth Pact, has failed to prevent excessive government spending.

Last week, the Commission described France’s budget policy as “inadequate” and demanded that Germany undertake “urgent reforms” after they breached the budget deficit threshold of 3 percent. Second, just as a single interest rate in the Eurozone has caused problems in Ireland (too high) and in Germany (too low), it is difficult to see how a common economic policy would suit all the 28 member states of an enlarged Union.

What is most interesting about this debate is how attitudes towards integration in this area are moulded by national economic policy. On the right, for example, conservatives from largely social democratic countries such as Denmark see European integration as a means of overcoming ‘socialism at home’, whereas conservatives from traditionally market-orientated countries such as Britain fear ‘socialism through the back door’. The key, as Conservative Convention representative Timothy Kirkhope MEP said, is to focus on the principles of the great French economist Frédéric Bastiat: “By virtue of exchange, one man’s prosperity is beneficial to all others.”

Trade Not Aid

At this month’s plenary session in Strasbourg, MEPs overwhelmingly approved an increase in the budget of the European Community Humanitarian Aid Office (ECHO) to EUR 550 million from EUR 425 million in 2002. According to the report by the French socialist MEP Marie-Arlette Carlotti that accompanied the debate, 18 million people are assisted each year by ECHO aid in more than 60 countries, through 208 partners such as NGOs and United Nations specialised agencies. Unsurprisingly, the report concludes by saying that the “the financial resources made available are not commensurate with the size of the task” because they do not take into account “forgotten crises”.

The picture of the ECHO’s work painted in the Carlotti Report is very different to the conclusions of a recent report from the House of Commons International Development Committee. British MPs criticised the delays and mismanagement in delivering aid to the victims of global disasters. Nearly two years after Hurricane Mitch left almost 7,000 people dead in El Salvador, Guatemala, Nicaragua and Honduras, for example, the European Commission had failed to deliver “a single penny” of the £170 million allocated for reconstruction. Clare Short, Britain’s International Development Secretary, described ECHO as “the worst development agency in the world”, part of a “monstrous Kafka novel of disgraceful administration” with a bureaucratic culture which “like concrete” cannot move.

The ECHO is but one part of the European Union’s EUR 4.8 billion annual aid programme which, to the detriment of the people it tries to help, concentrates on aid rather than trade. Presidents and prime ministers meeting at EU summit in Copenhagen shortly before Christmas were lobbied by Oxfam to scrap the Common Agricultural Policy’s export subsidies regime which is having a devastating impact on farmers in the developing world. In a new report about the EU dairy industry, Oxfam demonstrates how the EU dairy regime encourages the over-production of milk and dairy products. The surplus is dumped on poor countries, using costly export subsidies, which drive down world prices, create unfair competition and destroy local markets. To paraphrase Bastiat, we should engage in trade, not aid.

Matthew Elliott

Matthew Elliott is a columnist for Tech Central Station (www.techcentralstation.be).