Phedon Nicolaides, 31 March 2014
The Bruges European Business Conference was successfully organised for the 5th consecutive year by the Economics Department on Thursday, 27 March. Prominent speakers were former Italian Prime Minister Mario Monti, the German Finance Minister Wolfgang Schäuble, the Secretary General of the European Trade Union Confederation Bernadette Segol, Deloitte’s Global Managing Director Roger Dassen and many other business leaders, senior public officials and academics [the programme of the conference and a complete list of speakers can be found on the College of Europe conference website].
To put it crudely, the present British government opposes anything that smacks of, as was called at the conference, “political integration”. But, it is very hard to understand what is precisely meant by “political integration”. If it means the establishment of supranational authorities which have jurisdiction in the territory of each Member State, then for sure the EU’s internal market is deeply political. It is embedded in an institutional framework that empowers the Council and the European Parliament to adopt common rules, the European Commission to contest national measures and the Court of Justice to determine whether Member States apply internal market rules correctly. If anything, the EU experience has shown that successful economic integration and comprehensive removal of barriers to trade and investment must be supported by strong supranational institutions. Mr Liam Fox echoed the views of Prime Minister Cameron when he stressed that the UK was happy to play by the rules of the internal market. He lamented the fact that quite a number of other Member States systematically failed to comply with their obligations. On this point, the UK is undoubtedly right. But the flip side of compliance is enforcement. Effective implementation requires that someone is vested with authority to enforce the rules. Once more, economic integration and correct application of internal market rules are predicated on a strong supranational system that can force recalcitrant Member States to fall into line.
The conclusion that must be drawn is rather simple. It is an illusion to believe that economic integration and free trade can be achieved through voluntary compliance, without sufficiently empowered institutions that, when necessary, can intrude into national policy-making processes. When it comes to implementation, economics is inseparable from politics.
When Mr Fox was asked why the UK was opposed to common procurement rules for defence, he gave a very revealing answer. The defence budgets of the UK and France dwarf those of most other EU countries taken together. Neither the UK, nor France for that matter, has any interest in subjecting its defence procurement to common rules when the defence spending of other countries is miniscule. One can see the Anglo-French logic here. While others will get a share in large military projects, British and French companies will get peanuts in return.
This imbalance represents a real limit to integration. In fact, economics has long recognised this limit. Countries with large economies have little incentive to integrate with countries with small economies. To find a rationale for integration between countries with different size one has to construct an elaborate theory with several special features that cannot be credible as a general model of integration.
One may retort that the origins of the EU are in integration between countries of uneven size. Consider Germany, France and Italy, on the one hand, and the Netherlands, Belgium and Luxembourg, on the other. But in this case, it was the large countries that had to be brought under common rules. Once they lost their ability to act independently, they could only gain by letting others into the same system.
If the process of European integration is to be voluntary and, therefore, in the self-interest of every Member State, perhaps the objective of “ever closer union” is unachievable. But it can certainly be in the self-interest of sovereign countries to wilfully bind themselves to common rules because they bind others too!