EU Still Converging

In October 2015 the EU Commission issued a COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN CENTRAL BANK

Its subtitle is: On steps towards Completing Economic and Monetary Union and the issue code is ‘Brussels, 21.10.2015 COM(2015) 600 Final’

It’s 17 pages long and contains an update to and continuation of the theme of the earlier Five Presidents Report, which was subtitled: Completing Europe’s Economic and Monetary Union.

In our recent post, Euro-Decline and Fall, we summarised an article by John Lanchester which provides a challenging critique of the Euro project and its history. In this related post we examine some of the evidence from the most reliable source, the EU itself, taking the evidence mostly from the October 2015 Communication. As far as we know this document has not been rescinded or superseded; Brussels is quietly going ahead with implementing the two-stage process of completing the EMU. completing-emuOur first observation is on the subtitle, On steps towards Completing Economic and Monetary Union, which is almost sufficient evidence in itself. However, we’ll look more closely at what the EU means by ‘steps’ and ‘completing’.

The Introduction argues that, “… the EMU’s resilience needs to be further reinforced in order to re-launch a process of upward convergence, both between Member States and within societies, with increasing productivity, job creation and social fairness at its core.”

This reveals both the ideology and the contradiction it generates. The purpose of economic and monetary union is to bring on “upward convergence”. In the nearly quarter-century of its existence EMU has consistently failed broken_wine_glassto deliver the three things “at its core”. Productivity and growth are lower in the EU than in any other developed economy. Unemployment is higher and the aim of social fairness has been discredited by one crisis after another (see our posts on Fragility and Disillusion).

In any rational society or organisation the euro experiment would be discontinued. But the euro is fundamental to the ideological goal of ever closer union and cannot be discontinued while a federal government remains the underlying purpose of the EU. We cannot rely on rationality to reform practices founded on such a rock.

“[T]ranslating the Five Presidents’ report into action requires a shared sense of purpose among all euro area Member States and EU institutions.”

Another point is that EMU is seen by the EU as the principal means to achieve the completed Union that is at the heart of the project. Countries that have opted out of EMU are peripheral to the project. If Britain were to change its mind and stay in the EU then it would be expected to participate fully, by joining the EMU. And this is what we could expect:

Given the deeper interdependence of euro area countries … enhanced coordination and stronger surveillance of the budgetary processes and economic policies of all euro area Member States is necessary.”

In other words, Britain would hand over responsibility for managing its economy to the EU.

Here is the ideology again, this time from the Five Presidents Report: 5pr-cover

“… we need to set in motion a renewed effort for all to converge towards the best performance and practices in Europe, building upon and further strengthening the current governance framework.”

Through “strengthening the current governance framework” the EU will force all eurozone nations to converge “towards the best performance and practices”, as defined by themselves. They appear to believe, what we cannot, that countries as diverse as Greece and Germany will agree to behave in the same converged way. Of course they don’t have to agree, once the strengthened governance framework is in place; they will just have to obey. And will such convergence and obedience be tolerated by the citizenry? Why can the EU mandarins not see the risks their own performance brings to their cherished project? The evidence is staring them in the face, from economic failure to political rejection.

In a Monetary Union, the financial system must be
truly single. … At the same time, the financial system must be able to diversify risk across countries.”

That means that stronger countries must pay for the ‘mistakes’ of weaker ones, so generating justified resentment. Here is one of the srisk-1ignature features where the Union is most likely to fail: spreading risk from those who create it to those who have taken pains to avoid it. The resentment this convergent ideology generates is of two kinds: first, for example, the resentment of Germans at having to bail out the weaker members of the EU and, second, the resentment of citizens on the receiving end of ‘advice’ they cannot refuse – austerity and structural reform. They cannot refuse because they will not be bailed out unless they obey. Hence the North-South divide, with the South antagonistic to Brussels, to Germany and to the North in general, for and by whom the rules are devised.

For example, a problem with German-imposed austerity on Greece is that it shrinks the latter’s economy so that the debt becomes larger in proportion and harder to repay, trapping the Greeks in perpetual recession – unless they default or leave the Euro and offer to pay in devalued drachmas.

Both the Five Presidents Report and the later Communication focus on Eurozone member states, thus reinforcing the point that the EU is already operating at two levels which, given the all-important link between economic and political union, we may call the ‘All-in’ and the ‘Half-hearted’. The British should be in no doubt about where they figure in this.

“… all EU institutions and Member States should agree and take action on the measures presented in this Communication.”

Some claim that ‘ever closer union’ has been put on the back burner and the Five Presidents Report is gathering dust somewhere. The EU doesn’t agree and a recent update to the Report and the Communication confirm that they are assiduously, if stealthily, following the roadmap set out in the Report and given more substance in the Communication.

The following selections are from the European Commission website, updated on 10th November this year (see http://ec.europa.eu/economy_finance/euro/emu/index_en.htm) euro-commission-1

Whilst all 28 EU Member States take part in the economic union, some countries have taken integration further and adopted the euro.”

Following the outbreak of the economic and financial crisis, the European Union took unprecedented measures to improve the economic governance framework of EMU (such as the strengthening of the Stability of Growth Pact or the adoption of new mechanisms to prevent economic imbalances and better coordinate economic policies).”

In October 2015, the Commission began implementing the “Five Presidents’ Report” by adopting a package of measures.”

The Five Presidents Report outlined “a roadmap to deepen the Economic and Monetary Union in two stages as of July 2015 and complete it by 2025 at the latest.

  • Stage 1 or “Deepening by Doing” (1 July 2015 – 30 June 2017): using existing instruments and the current Treaties to boost competitiveness and structural convergence, achieving responsible fiscal policies at national and euro area level, completing the Financial Union and enhancing democratic accountability.
  • Stage 2, or “completing EMU” (by 2025): more far-reaching actions will be launched to make the convergence process more binding, through for example a set of commonly agreed benchmarks for convergence which would be of legal nature, as well as a euro area treasury.”

Note that “benchmarks … would be of [a] legal nature”. A benchmark is usually a standard, selected from experience against a pre-defined criterion. In the case of the EU the pre-defined criteria are hidden from view so the selected standards to be used as benchmarks are based on the opinion of those who choose the benchmarks. For example, which measure of budget deficit will be selected, German or Greek? And will the Greeks accept the German standard, as imposed by the EU, or will they have to be forced, by law and by threat? We know the answer because we’ve seen it in practice. Convergence is to be imposed; the biggest, unmitigated risk of all. For more evidence, if it is needed, see The Great Deception Continues, in which Jean-Claude Juncker and Martin Shulz outline how they expect to achieve their long term goal of a proper European govred-queen-aliceernment.

The juxtaposition of “competitiveness” and “convergence” strikes us as self-contradictory, particularly as both are to be boosted. The object of the two words, in this context, is surely the member states, since ‘instruments’ and ‘treaties’ apply to these. We are asked to imagine nations converging while they compete, and doing both under legal obligation. But then we have long been expected to believe that a federal government can deliver growth, jobs and stability. Cue the Red Queen.

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