Tag: european union

The European Commission’s Silent Power Grab

Last week, the European Commission issued an inconspicuously looking seven-page note on economic policy coordination, addressed to the European Parliament and the European Council. Although its publication has attracted scarcely any attention, the document has far-reaching implications. The introduction states, in an unapologetic tone, that:

the Commission considers it important that national plans for any major economic policy reforms are assessed and discussed at EU-level before final decisions are taken at the national level. (p. 2, emphasis added)

While European institutions have traditionally been involved in economic policymaking, their mandate is limited to policing compliance with the rules of the common market and those of the monetary union—with mixed results, one would hasten to add.

The wording of last week’s paper goes way beyond that narrow mandate. While it stipulates that “the process should fully respect national decision-making powers,” (p. 5) it would effectively empower European institutions to harass prospective European reformers in countries that decide to join the scheme. Not that many countries would have a choice—for Eurozone members, there would be a binding requirement to participate in this process of “ex ante coordination.”

Even under the most charitable reading, this would create an additional layer of slow-moving bureaucracy with the potential of delaying reforms. And if “windows of opportunity” for specific economic reforms are limited, it would necessarily imply that certain efficiency-enhancing reforms would be derailed. Arguably, if Slovak or Estonian finance ministers had to justify their tax reforms to their counterparts from France or Germany, the flat tax revolution in Eastern Europe would have never happened.

And why should economic reforms be coordinated across Europe at all? Here’s one argument given by the paper:

 Product, services and labour market reforms as well as certain tax reforms may affect employment and growth in the implementing Member State, and hence the demand for products and services from other Member States. This is because a reform may also have a positive or negative impact on the reforming Member State’s price and non-price competitiveness. (p. 3)

Clearly, cross-border spillovers exist. But the same spillovers exist on a competitive market—whenever a firm changes its strategy or innovates, it can exercise “a positive or negative impact” on sales made by other companies. Yet very few would advocate coordination of innovation or business decisions—partly because the benefits of competition on product or service markets are patently obvious to most people. If anything, the benefits of competition are even more important in the choice of institutions and policies. And that’s why the sneaky power grab by European institutions has to be stopped.

Cyprus: Follow the Money

While the Cypriot Parliament may be dragging its feet on a proposed rescue plan for Cyprus’ banks, the country ultimately faces a choice between Brussels’ bitter pill…and bankruptcy. Cyprus’ newly-elected President, Nicos Anastasiades, has quite accurately summed up the situation:

“A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation.”

 Yes, Brussels and the IMF have finally decided to come to the aid of the tiny island, which accounts for just 0.2% of European output – to the tune of roughly $13 Billion. But, this bailout is different. Indeed, the term “bail-in” has emerged, a reference to the fact that EU-IMF aid is conditional upon Cyprus imposing a hefty tax on its depositors. Not surprisingly, the Cypriots, among others, are less than pleased about this so-called “haircut”.

Still, the question lingers: Why now? The sorry state of Cyprus’ banking system is certainly no secret. What’s more, the IMF has supported a “bail-in” solution for some time. So, why has the EU only recently decided to pull the trigger on a Cyprus rescue plan?

One reason can be found by taking a look at the composition of Cyprus’ bank deposits (see the accompanying chart).

 

There are two main take-aways from this chart:

  1. European depositors’ money began to flow out of Cyprus’ banks back in 2010. Indeed, most European depositors have already found the exit door.
  2. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure. If the proposed haircut goes through, Russian depositors could lose up to $3 billion. No wonder Valdimir Putin is up in arms about the bail-in.

Perhaps a different “red telephone” from Moscow will be ringing in Brussels soon.

America’s European Diplomacy: A Bull in a China Shop

The U.S. government appears to be pathologically unable not to interfere in matters foreign as well as domestic. According to the Sun, the Obama Administration has warned the British government not to hold a referendum on remaining a part of the European Union. The U.S. assistant secretary for Europe Philip Gordon said that, “We have a growing relationship with the EU, which has an increasing voice in the world, and we want to see a strong British voice in it. That is in America’s interests.” He added that, “Referendums have often turned countries inward.”

Predictably, the British are annoyed. Bernard Jenkin, a Conservative Party member of Parliament said:

“The Americans don’t understand Europe. They have a default position that sometimes the United States of Europe is going to be the same as the United States of America. They haven’t got a clue.”

Another parliamentarian, Peter Bone, said that Gordon should “butt out” and that the British membership of the EU had “nothing to do with the Americans.” “It’s quite ridiculous,” he added, “and it’s not what you’d expect from a member of the senior executive in the USA.”

Quite so! After all, how would Americans feel if the British government opined about U.S. membership in NAFTA? Would they not be a bit “miffed?” Not too long ago, the then-secretary of state Condoleezza Rice urged the Europeans to accept Turkey as an EU member state. Again, how would Americans feel if the Europeans urged the U.S. government to make Mexico America’s 51st state?

Moreover, is it really a good idea for the U.S. government to be dissuading foreign governments from consulting their people on matters of national interest? Not quite democratic, is it?

Finally, consider the astonishing brazenness of America’s government officials. Note that Gordon did not say that British membership of the EU was in the British interest. Instead, he simply stated that the British membership of the EU was in America’s interest. That, presumably, settles the matter for everyone. Gordon’s behavior is worthy of a Roman proconsul throwing his weight around some impoverished province on the edge of the world. It is not what people expect from a White House administration that supposedly wishes to correct the foreign policy mistakes of the previous one.

Nobel Peace Prize to the EU Is a Farce

The Nobel Peace Prize Committee has awarded the 2012 Nobel Peace Prize to the European Union for “keeping peace in Europe.” The committee has now turned the award into a farce. But few people are laughing.

The Committee has ignored the important role that the North Atlantic Treaty Organization (NATO) and the United States have played in keeping Europe at peace throughout the Cold War. While it is true that the free trade agreements among the EU countries have led to more prosperity and cooperation, other EU initiatives have exacerbated Europe’s problems and ancient animosities.

Decision making in the EU lacks basic transparency and accountability. As shown by the Danish, French, Dutch, and Irish referenda, the EU has nothing but contempt for disagreement and opposition. The European common currency is in existential crisis. Periodic bailouts, which are needed to keep the eurozone together, have led to riots and loss of life. The EU today is deeply unpopular and distrusted. Corruption, scandals, and cynical abuses of power by EU officials are pervasive.

This is the troubling reality of the EU that should not be ignored. Unfortunately, the Nobel Peace Prize Committee has decided to look the other way.

Here is a related podcast.

Pushing Ukraine Back to the Soviet Union?

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP:  Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.

The Egg on the EU’s Face

The European politicians love to talk about the “huge” benefits of membership in the European Union. It is certainly true that the “single” market between the EU member states has brought tangible benefits, but those have been declining in importance as technological change made access to services and capital cheaper and easier, and trade liberalization progressed world-wide. Moreover, as the Brussels-based EU bureaucracy expanded, economic liberalization gave way to regulation that helped to strangle European growth (see the graph below). Consider the latest absurdity to emerge from Brussels—a poultry regulation, which aimed to increase the comfort of the egg-laying chickens, but resulted in a drastic cut in egg production and a 100% increase in the price of eggs.

The EU bureaucracy may not appreciate the problem of unintended consequences, but ordinary Europeans are beginning to realize that the EU no longer is what it used to be—a byword for prosperity and stability. In the Czech Republic, for example, a record number of citizens do not trust the EU (63 percent) and the EU Parliament (70 percent). If the EU elite persist in killing jobs and growth, it may bring about the ultimate unintended consequence—the break up of the EU.

Why Slovakia May Not Support Europe’s Bailout Plan

Slovakia is set to vote today on the European bailout plan and may well become a holdout. As my colleague David Boaz noted yesterday, this is due to Slovakia’s libertarian speaker of the house, Richard Sulik, who spoke at a Cato Institute conference in Bratislava last year, and who opposes bailouts of Greece and other EU countries based on sound ethical, political, and economic reasoning. Greece is already bankrupt and a bailout will only add to the country’s debt; an EU “rescue” will continue to create moral hazard, thus encouraging bad policies by reckless governments; relatively poorer and better behaved Slovakia should not be forced to support the irresponsible governments of richer European countries; the EU’s response to the Greek debt crisis has led to blatant violations of EU and European Central Bank rules, thus undermining democratic principles and the EU itself; the scare stories of not approving the bailout should not be believed; the best solution is for Greece is to declare bankruptcy once and for all.

In this document by his Freedom and Solidarity Party, Richard Sulik lays out his party’s opposition to the bailout fund. It is consistent with the views of other leading scholars including that of John Cochrane of the University of Chicago (and a Cato adjunct scholar) as expressed in his recent Wall Street Journal op-ed on how to save the Euro.

Sulik has tapped into popular sentiment among Europeans about the “democracy deficit,” or huge gap between the designs of Europe’s ruling elites and the desires of the region’s citizens. The widespread (and accurate) perception of Eurocrats imposing their agenda on Europe to the benefit of their cronies (e.g., big business, labor unions, and politicians in power) and at the expense of the majority is becoming increasingly difficult to ignore. The Slovak government, which supports the bailout, may well fall on account of this vote, but the prime minister has already indicated that the vote on the bailout fund will be held repeatedly until it is approved. (No doubt there will be little possibility of a repeat vote repealing the bill.)

On a related note, a new Finnish think tank, Libera, provides more evidence that Europeans are rethinking big government. It published a study today which reassesses the record of the Swedish welfare state and praises the numerous market reforms that country has introduced out of necessity since the 1990s.