Monday, April 18, 2005

The EU - business as usual

The end of the EU, and the break-up of the €uro are just two of the fantasies attributed to rejection of the EU Constitution by France being touted by some in the blogosphere. Such notions are just wishful thinking. Some of the most rational comment on the French referendum and the likely implications/results of a NO can be found at the following:

Friday’s Global Economic Forum digest at Morgan Stanley

The Economist - Can the Constitution be saved?

Financial Times - Europe rallies to save French referendum

Le Figaro - Le “plan B” de Bruxelles si le non gagnait

Le Figaro concludes with the possibility of “…l'Europe à plusieurs vitesses, dans laquelle la France et l'Allemagne ne joueraient plus de rôle moteur.” This view is also hinted at in the Economist article. It's hardly a break-up; simply a multi-speed Europe in which France and Germany are no longer the motor for integration. As I wrote on Thursday the EU is no longer a cosy club run for the benefit of France, Germany and the Benelux countries; times are changing and the EU must change with them.

The above link to Morgan Stanley contains the following in part answer to the question Would a French no lead to a break-up of EMU?:-

In my view, the purpose of the EU is not to have a common currency or to share sound economic rules. It is above all to guarantee peace in this part of the world where wars and bloodsheds, which took a global dimension in the last century, were the rule and peace the exception. That Europe has been in peace for 60 years is a great achievement, but by no means is it a guarantee that it will last forever. In 1870, or in 1938, after long periods of peace (respectively 55 and 20 years), only a handful of visionary thinkers understood that war was coming. The new members of the Union have suffered at least as much as the older ones from this past and their historical vision is the same. The very long-term historical dimension of the EU makes it radically different from previous attempts to build large political entities: the Union is the result of negotiations, not of the use of force. To some extent, a French no would not be so different from “business as usual”, in the EU context.
“A French no would not be so different from “business as usual”, in the EU context.” – that made laugh and I couldn’t agree more.

The issue of structural reform in the leading Eurozone economies is, in my opinion, far more crucial to the success of the EU, and EMU, than any Constitution. The Financial Times gives France some home truths on this issue today in its editorial France’s Fears:
In truth, France must tackle the creeping crisis in its public finances, whether or not the European Commission tells it to. France must deregulate some of its products and labour markets if it ever wants to tackle its high unemployment, no matter how much it wails about the EU's services directive.
The French government should start telling the whole truth to its voters and sell the necessity of reform. Further attempts to dissimulate will only be counter-productive. Mr Chirac's attempts last week to convince a sceptical television audience that all was right with France already appear to have backfired in the polls.
The main argument against reform is that it will undermine the European Social Model and lead to a "downsizing" of the welfare state. The Scandinavian countries are often held up as shining examples of how the “social model” might work. There is some interesting comment on this over at Café Hayek entitled “Do Scandinavians live better than Americans?” which quotes a report from a Swedish free market think tank called Timbro. The conclusion is that they don’t! The Eurozone's leading economies need to wake up and embrace the C21st, and the new reunited Europe that was officially born on Ist May 2004; unless of course the "old EU" stalwarts like France and Germany want to live worse than Americans!