The rejection of the EU constitutional treaty in referendums in France and the Netherlands sounds the death knell for the European Union, which had been in the throes of death for sometime. Perhaps the politicians will now see the folly of continued unproductive investment in the European Union and end what will only be an exercise in futility in the future. Disbanding the EU and abandoning the euro without further delay would avoid the prolonged and agonizing demise that is inevitable.
In theory, the establishment of the EU and the introduction of a single currency were sensible and ambitious ideas. The EU could serve as a counterweight to the United States in world politics and provide significant competitive advantages such as a more flexible workforce and travel between member countries. The euro would provide economic benefits such as lower transaction costs for commerce and capital market integration. However, the underlying requirement for success in this enormous project was greater political integration, harmonization, and cooperation. Here is where the EU has been fundamentally flawed—a flaw that is the largest contributor to the failure of the system.
Though EU member countries were initially successful in implementing fiscal rules to ensure a successful introduction of the euro, establishing the ECB, and in organizing the bureaucracy in Brussels, the first wound inflicted upon the EU came when France and Germany breached the fiscal rules relating to budget deficits set forth in the stability and growth pact to which they had agreed. The stability and growth pact was murdered in 2003 when ministers suspended action against France and Germany, in effect granting these countries more flexibility with respect to budget deficits and bringing them back into alignment with the pact. Currently, there is little prospect that this will happen before 2007, if even then. The European Commission now wants to enforce the revised stability pact on Italy and is seeking disciplinary action to set an example for other EU member (with the exception of France and Germany presumably) that budgetary unruliness will not be tolerated.
With the creation of the European Union came the establishment of a huge bureaucracy. However, the European Parliament suffered from the lack of formal powers. Eurozone finance ministers could not formally coordinate fiscal policy. There is currently no foreign minister for the EU. Transparency is questionable. The EU Constitution was to give the Parliament more teeth and ensure further political integration, a necessity if monetary union is to succeed. The rejection of the constitutional treaty suggests that Europeans are skeptical regarding further political integration or the evolution of the EU into a more federal system such as that in the United States. This may not be surprising given that the twenty-five members are a disjointed and disparate group of countries pursuing vastly different agendas and having significantly different cultures. Most are reluctant to give up much autonomy to the government in Brussels. This all suggests that political integration at the level required to ensure the EU’s success is highly unlikely. Therefore, it hardly seems feasible that the EU is a viable union for the long-term.
Supposing the EU did managed greater political integration, at some point, difficult decisions would have to be made if one member country were to take action contrary to the European Parliament. For example, in the United States in 1832, South Carolina nullified a federal law relating to a permanent, protective tariff on imported goods (in order to benefit trade in the northern states) and threatened to secede from the Union. This Nullification Crisis was resolved peacefully, but a dispute between the federal government and the southern states over states’ rights relating to slavery led to the creation of the Confederate States of America in 1861 and four years of civil war. How would the EU respond to a similar situation? Would the EU wage war against a member country for the sake of political preservation of the union? That seems highly unlikely, even if it were necessary in order to preserve the Union.
Upon his nomination as the Republican candidate for the United States Senate seat from Illinois in June 1858, Abraham Lincoln stated that “a house divided against itself cannot stand,” when referring to slavery and the conflict it created amongst the states. Indeed, America engaged in the Civil War for four years following Lincoln’s election as President in an effort to bring the Union back together for political harmonization. The European Union will not survive with many factions pursuing their own agendas and changing the rules when it suits only them. Furthermore, the EU could hardly be considered a major political force on the world stage if the members were constantly bickering amongst themselves to craft a common policy. To avoid what could be a very unpleasant showdown in the future between the European Parliament and the member countries, the EU may as well die peacefully now. Perhaps a new model for integration will emerge many years in the future and be successful, but the existing EU is a vast failure.
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