Monday, 11 September 2006

Europe in Hibernation

As Madeleine Albright once said, “To understand Europe, you have to be a genius – or French.” John Gillingham, author of Design for a New Europe, is definitively not French – as a matter of fact, he is an American historian – but he is undoubtedly one of today’s most original thinkers on European integration. He sheds an outsider’s light on Europe, which makes his views all the more interesting and valuable.

His analysis is based on a thorough knowledge of the history of European integration and the intricacies of Brussels wheeling and dealing. Gillingham has a natural sense for where the weak spots are. Moreover, he is skilled at translating Euro mumbo jumbo into plain language. His book occasionally reads like a novel – and is sometimes even humorous. He sees the minute details as well as the overall picture and succeeds in developing a holistic vision in which bottom-up and top-down perspectives occupy their rightful place. In his criticism he often touches raw nerves – articulating the latent feelings of uneasiness Europeans have about the EU.

Gillingham questions the legal foundation on which Europe rests. “A misshapen outgrowth of a process gone awry and a snare of confused but conflicting legislative, executive and regulatory jurisdictions, the EU is a sui generis entity neither answerable to nor controllable by anyone or anything,” he writes. “The European Parliament is, in fact, condemned to remain a 732-delegates talk shop.”

Gillingham does not attribute the rejection of the European constitution, especially in the Netherlands, to fears of globalization and job losses, but to the “belief that the EU had become remote, unresponsive and unaccountable and had failed to live up to its promises…. Having once been a spur to growth, the EU has become a break on it.”

Is John Gillingham a Europhobe? No. He believes that Europe’s long-term movement toward closer economic and political union deserves credit for two historic achievements. One is to have created a market economy across the continent, the past benefits of which have been considerable. Even more importantly, the EU has, over time, strengthened democracies where they are in place and helped establish them where they are not. This is a worthy contribution to peace, prosperity and human dignity.

But today the EU is weak, inflexible and overstretched. Gillingham believes that the EU should no longer be imagined as a nascent political structure suffering teething problems; it is unsound and unraveling. The design is flawed and the machinery needs repair. But, unfortunately, there is no political force in sight which is able to rise to the challenge to remedy Europe’s ailments. He argues that the ideas floating around to put Europe back on track again have the “intellectual tension of a Tibetan prayer wheel.”

The Common Agricultural Policy (CAP), regional funds and the Economic and Monetary Union (EMU) are the main targets of the author’s scorn. “The two big hand-out schemes [i.e., the CAP and regional support], which together consume three quarters of the EU budget, have warped the development of the Brussels institutions,” he writes. “The CAP privileges an small and shrinking group of constituents – wealthy land-owning foodstuff producers – half of whom are French.”

Gillingham also criticizes administrative malpractices. For 11 consecutive years, the EU’s Court of Auditors has refused to sign off on the European Commission’s books. Whistle-blowing accountants, who have reported irregularities, such as Marta Andreasen, Dougal Watt, Robert McCoy and Dorte Schmidt-Brown, were sacked, victims of harassment and/or suffered nervous breakdowns. Then-Commissioner Neil Kinnock justified “creative finance” as “necessary to get the job done.”

On regulation Gillingham points out that the Commission produces more than 3,500 rules every year – only a third of which are subjected to a cost-benefit analysis. The British Federation of Small Business estimated that in 2004, compliance with this mass of rulings cost 4 percent of GDP.

In the chapters on technology he combines revealing analysis with sound policy advice. He shows that European policies in the field of biotech (“… neoprotectionism disguised by the rhetoric of health and environment”) have been disastrous for the development of the industrial sectors concerned and are completely at odds with achievement of Europe’s goal of becoming the most competitive knowledge-based economy in the world.

As regards the EMU, Gillingham believes that: “The persistence of labor and product market inflexibility – a main source of its [the EMU's] problems – eliminates necessary buffers to exogenous shocks. …. As an antecedent to macroeconomic reform, the EMU must restore monetary and fiscal sovereignty to the member states. … The EMU should be transformed from a single European currency area to a parallel currency area in which the euro’s value is determined by competition with reissued national monies. …. Fiscal and monetary policy could, in any case, reconnect to the business cycle.”

Here I think he is wrong. If monetary autonomy were so attractive, why not split up the US into different monetary entities? Opposition to the EMU often springs from the desire to fiddle with the currency rate because it is believed that the market fails to do the job properly and in time. This way of thinking is linked to a predilection for (national) macroeconomic (fine-) tuning of the economy, which is (or was?) the hallmark of the Keynesian (somewhat dirigiste) approach. Although it may in certain circumstances give some leeway in the short term, it can be disastrous in the long term. Gillingham’s dismissive observations on EMU are to my mind logically inconsistent with the predominant pro-market thrust of his analysis.

Gillingham will undoubtedly shock many readers by debunking a couple of European myths. But he will delight others with his killing insights – frank, perceptive and compelling at the same time. Gillingham’s message will strongly appeal to free-marketeers, classical liberals, libertarians, part of the conservatives and Christian-democrats, and perhaps even a great many Blairite socialists. But it will probably be fiercely rejected by faint-hearted Europhiles, Eurocrats and the Left. For everyone, however, it is a must-read.

By Hans H.J. Labohm
The author is a TCS Daily Contributing Writer.