EU Treaties-7: Economics & EMU

Ever closer union requires economic and monetary union (EMU) which in turn requires the merging of economies. Features of the eurozone include: monetary union, a single market and customs union, common agriculture and fisheries, free movement of capital, fair competition and prudent economic practices in all member economies. A key to achieving all this is a central bank that conditions the decisions of national banks.

CONSOLIDATED VERSION OF THE TREATY ON EUROPEAN UNION (TEU)

PREAMBLE

RESOLVED to achieve the strengthening and the convergence of their economies and to establish an economic and monetary union including, in accordance with the provisions of this Treaty and of the Treaty on the Functioning of the European Union, a single and stable currency,

The key word here is “convergence”; they resolved to achieve this. The “and” that follows seems to imply (or could be mis-read as implying) that EMU and a single currency will be the means by which convergence is to be achieved. But if the “and” implies no more than a simple conjunction of resolutions we have to ask why they are conjoined here. A more plausible explanation, which points up the deceptive writing, is that EMU and a single currency are the means by which “convergence” is to be achieved, which is strongly implied by the resolution that follows, “to continue the process of creating an ever closer union…”. After all, the means by which the EU will achieve “the convergence of their economies” is not otherwise specified.


Economic divergence among members of the monetary union appears to be growing, while the EU declares that such divergence should be curtailed (see B2). Realistically, the divergence is unlikely to be narrowed; imagine the Greeks behaving like Germans, or vice-versa. If the EU is not able to look after the economic well-being of its citizens, as it claims to be doing, then its future is clouded and uncertain. It may fall apart—because it bases its survival on deceit.

EU leaders state, without supporting theory or evidence, that completing economic and monetary union will resolve all problems, which anyway are the fault of the member states for holding back from completing the component parts of financial union. Divergence is the problem; convergence the solution, although they don’t say why we should believe this. Little has been done by the eurozone to protect the weak members, the EU has spent most of its efforts protecting the strong. (We Need to Talk About EU)


DETERMINED to promote economic and social progress for their peoples,…and to implement policies ensuring that advances in economic integration are accompanied by parallel progress in other fields

They are determined “to promote economic and social progress” but “promote” falls rather short of ‘achieve’, which is as it should be or they would be expected to say how they will achieve this. But then they are going to ensure that advances in other fields accompany “economic integration”, wishing us to draw the inference that the latter will ensure such advances, though they are careful not to state this outright.


The EU provides an “economy that works for people”, which means they are “working for social fairness and prosperity. The EU’s unique social market economy allows economies to grow and to reduce poverty and inequality.”

The current EU/EMU projects are justified by the belief that economic, political and social development can only be achieved from the top down. The assumptions on which this belief is based include the (unstated) view that the nations of Europe cannot compete successfully in the world other than through a federal government in which self-selected (and unelected) bureaucrats rule on behalf of Europe’s citizens.

Many people in EU countries are being sacrificed, for an ideological cause. Some member states have prospered and others have become impoverished. The EU claims credit for the former and delegates blame for the latter. There is little reason to believe that this will improve. (See Economy, Common Currency & Eurozone)


CONSOLIDATED VERSION OF

THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION (TFEU)

Article 26: 2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.

Article 27: When drawing up its proposals with a view to achieving the objectives set out in Article 26, the Commission shall take into account the extent of the effort that certain economies showing differences in development will have to sustain for the establishment of the internal market and it may propose appropriate provisions.

If these provisions take the form of derogations, they must be of a temporary nature and must cause the least possible disturbance to the functioning of the internal market.

The “derogations” that have allowed Germany to continue running huge surpluses at the expense of other members seem to be never ending.


There may be winners and losers but the economy will adjust in consequence to exploit the opportunities and minimise the problems – that’s what an open economy does, it adjusts to find its own level once more, like water will after being disturbed. How soon it does so, and whether the level is lowered or raised, depends on how much freer it is allowed to become.


Article 28: 1. The Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.

Article 31: Common Customs Tariff duties shall be fixed by the Council on a proposal from the Commission.

The Council effectively acts as a ministerial lobby group for the producer interests of its members (see The Future’s Bright, The Future’s Oranges for example, and the multitude of protections for cheeses). Consumer interests are not paramount despite the EU’s declared intention to increase citizens’ prosperity.

Article 32: In carrying out the tasks entrusted to it under this Chapter the Commission shall be guided by:

(a) the need to promote trade between Member States and third countries;

How do 25% tariffs on imported vehicles and 40% on some cheeses promote trade? A 17% tariff on Africa’s roasted or processed coffee beans helps Germany become the worlds’ no. 2 coffee exporter (after Brazil) rather than helping Kenya and others develop their economies by adding value to their raw product.


In 2016 the EU quietly increased the tariff on oranges from 3.2% to 16%. UK growers were delighted at the added protection, well they might have been if there were any (whatever happened to the 19th century craze for building orangeries?) In fact it was the Spanish who wanted protection – another example of discrimination against poorer countries, in this case South Africa.


(b) developments in conditions of competition within the Union in so far as they lead to an improvement in the competitive capacity of undertakings;

We don’t know whether this is a statement in support of raw capitalism and free markets, with a hedge in case a member needs a bit of bias to help it level up; or is it a case of ‘these are our principles but if you don’t like them we can soon change them’. It seems to be written to appear to suit every side.

Article 37: 1. Member States shall adjust any State monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States.

No chance then that France might aid Renault or Air France? Or multiple member states provide subsidies to Airbus.

Article 38:1. The Union shall define and implement a common agriculture and fisheries policy….References to the common agricultural policy or to agriculture, and the use of the term ‘agricultural’, shall be understood as also referring to fisheries,..

Article 38: 4. The operation and development of the internal market for agricultural products must be accompanied by the establishment of a common agricultural policy.

This is largely for the benefit of France; no other sector has such a protective term in the treaties.


Clearly there are problems with disengagement that affect some companies or sectors but there are potential advantages for others, especially smaller firms that have little to do with Continental trade but are bound by its cumbersome rules. Consumers may also benefit from lower world prices after the abolition of tariffs and protective regulations that only serve other members’ interests


Article 39: 1. The objectives of the common agricultural policy shall be:

(a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;

(b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;…

More emphasis on the demands from France.

Article 40: 1. In order to attain the objectives set out in Article 39, a common organisation of agricultural markets shall be established.

This organisation shall take one of the following forms, depending on the product concerned:

(a) common rules on competition;

(b) compulsory coordination of the various national market organisations;

(c) a European market organisation.

In practice all three seem to have been applied.

Article 42: The Council, on a proposal from the Commission, may authorise the granting of aid:

(a) for the protection of enterprises handicapped by structural or natural conditions;…

Article 42: 3. The Council, on a proposal from the Commission, shall adopt measures on fixing prices, levies, aid and quantitative limitations and on the fixing and allocation of fishing opportunities.

What more is there to say about the CAP? It started with subsidies on production regardless of demand, just like Soviet 5-year plans, which generated wasteful surpluses. Eventually, recognising this, they switched to subsidising land so that the biggest estates get the largest subsidies—an example of “For unto every one that hath shall be given, and he shall have abundance“; the rest of the verse (King James version) continues “but from him that hath not shall be taken away even that which he hath.”


The EU provides an “economy that works for people”, which means they are “working for social fairness and prosperity. The EU’s unique social market economy allows economies to grow and to reduce poverty and inequality.” Oh! Really? Monetary union has failed to increase growth or converge the economies of the eurozone countries. The EU is the lowest-growth major trade bloc in the world and its share of global GDP is fast shrinking.


Article 63: 1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.

Article 119: 1. For the purposes set out in Article 3 of the Treaty on European Union, the activities of the Member States and the Union shall include, as provided in the Treaties, the adoption of an economic policy which is based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition.

The expression “close coordination” reminds us of the underpinning objective, to achieve ‘ever-closer-union’.

Article 119: 2. Concurrently with the foregoing, and as provided in the Treaties and in accordance with the procedures set out therein, these activities shall include a single currency, the euro, and the definition and conduct of a single monetary policy and exchange-rate policy the primary objective of both of which shall be to maintain price stability and, without prejudice to this objective, to support the general economic policies in the Union, in accordance with the principle of an open market economy with free competition.

Apart from being neither comic nor in verse, this reads like doggerel.


The Five Presidents Report states the vision of the benefits of EMU: “A complete EMU is not an end in itself. It is a means to create a better and fairer life for all citizens, to prepare the Union for future global challenges and to enable each of its members to prosper.”


Article 120: Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Union, as defined in Article 3 of the Treaty on European Union, and in the context of the broad guidelines referred to in Article 121(2).

Of course they shall, or at least ‘should’

Article 121: 1. Member States shall regard their economic policies as a matter of common concern and shall coordinate them within the Council, in accordance with the provisions of Article 120.

So how does the EU explain the growing gap between the richer (Northern) and poorer (Southern) members?

Article 121: 4. Where it is established, under the procedure referred to in paragraph 3, that the economic policies of a Member State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Commission may address a warning to the Member State concerned…

Within the scope of this paragraph, the Council shall act without taking into account the vote of the member of the Council representing the Member State concerned.

Have they tried ignoring or denying the German vote?


Germany uses the cover of the EU both to promote its own interests and to disguise this fact, given its sensitivity about its twentieth-century history. There is some confusion between Germany’s obsession with not appearing to be dominant in Europe and the fact that its financial culture is clearly dominant in the EU.


Article 126: 1. Member States shall avoid excessive government deficits.

Except that France—and others—don’t, and won’t avoid “excessive government deficits”, where “excessive” is defined elsewhere to be greater than 3% of GDP.

Article 126: 2.. The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors.

If they have identified “gross errors” they haven’t done much about (some of) them.

Article 126: 8. Where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council may make its recommendations public.

But doing anything else is not specified, perhaps because in the most egregious cases, action would be politically impossible.

Article 127: 1. The primary objective of the European System of Central Banks (hereinafter referred to as ‘the ESCB’) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union*. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources.…

*Article 3 of the TEU contains: “3. The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.

Article 131: Each Member State shall ensure that its national legislation including the statutes of its national central bank is compatible with the Treaties and the Statute of the ESCB and of the ECB.

Subservience by edict, again.


“Their notion of the public interest is apt to be quite closely connected with their own exercise of authority. They may not, indeed, always understand their own motives. The love of power may sink too deep in their own hearts even for their own scrutiny, and may pass with themselves for mere patriotism and benevolence.” (US Senator Daniel Webster, from a speech given in New York in 1837).


Article 134: 1. In order to promote coordination of the policies of Member States to the full extent needed for the functioning of the internal market, an Economic and Financial Committee is hereby set up.

In this case (and below) “compatible with” means ‘subservient to’ and “coordination…to the full extent needed…” tells us that this will be regarded as a legal requirement.

Article 136: 1. In order to ensure the proper functioning of economic and monetary union, and in accordance with the relevant provisions of the Treaties, the Council shall…adopt measures specific to those Member States whose currency is the euro:

(a) to strengthen the coordination and surveillance of their budgetary discipline;

(b) to set out economic policy guidelines for them, while ensuring that they are compatible with those adopted for the whole of the Union and are kept under surveillance.

We’ll be keeping an eye on you—so we’ll know what’s going on even if we permit non-coordination by default, in the case of the big members.

Article 138: 1. In order to secure the euro’s place in the international monetary system, the Council, on a proposal from the Commission, shall adopt a decision establishing common positions on matters of particular interest for economic and monetary union within the competent international financial institutions and conferences.

Yet another less-than-sharp pointer to ever-closer-union.

Article 282: 1. The European Central Bank, together with the national central banks, shall constitute the European System of Central Banks (ESCB). The European Central Bank, together with the national central banks of the Member States whose currency is the euro…shall conduct the monetary policy of the Union.

Article 282: 2. The ESCB shall be governed by the decision-making bodies of the European Central Bank. The primary objective of the ESCB shall be to maintain price stability. Without prejudice to that objective, it shall support the general economic policies in the Union in order to contribute to the achievement of the latter’s objectives.

Financial matters in the member states are also ruled from above, by EU institutions.


The EU’s true hierarchy of ‘values’ puts the interests of the EU above any interests of the citizens, whilst claiming the latter take priority. They need to protect their processes from scrutiny because they are so often at odds with their sanctimonious claims, and rules.



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