The European Union: Blessing or curse? Past or future?

Monday, 31 October 2016 - 11:00 am (CET/MEZ) Berlin | Author/Destination:
Category/Kategorie: Editorial, European Union, General

Flag_of_Europe.svg Since the Brexit referendum in the UK, again great flurry can be felt in all of Europe and around the world. This contribution doesn’t go in this direction, because a bit of calmness and objectification is the right answer to deal rationally with the situation, or as Queen Elizabeth just put it “Stay calm and collected”. Let us all remain calm and concentrated to meet the upcoming challenges. The article is not intended to polarize, even if the headline might suggests different. In fact, the EU unites curse, blessing, past and future. Our common European past has been a curse for many centuries. On the one hand there was the development of science, art and culture, but on the other hand there were devastating wars. The EU is the logical consequence of shaping a common future in peace, democracy, freedom and prosperity through joint action. This contribution is therefore a clear “Yes” to Europe, a clear “Yes” to the EU and also takes into account the skeptical views. Some will say “Europe is not the EU and the EU is not Europe”. This is correct, but only applies to the moment. We are all background actors of the currently written history. In 100 years people will be able to read in history books about us and our today’s actions. Until then, all European countries can possibly be EU Member States.

The current overall situation can be discribed as follows: The EU is the owner community of a large building with different area assignments of the co-owners and a common house rule. The shell construction is finished, the roof is closed, the windows and doors are built in, the interior finish, garden works and outdoor facilities are well advanced. Some co-owners have already moved in to 100%, others still have problems with the quality of the construction work or the shared house rules. Some are still thinking about whether they want to move in at all, others think about moving out again, and there is already a long waiting list of possible other and new co-owners given. The asset management in Brussels is trying to balance the wishes of the individual co-owners within the framework of contractual agreements and adapt the house rules as required and on a proposal from the owner community.

The Brexit (The Guardian, 26 April 2018: The Brexit economy: looming rate rise clouds outlook as inflation dips, The Guardian, 21 May 2018: Brexit blamed for dramatic fall in UK business registrations, The Guardian, 23 May 2018: Brexit ‘is obvious reason’ for surge in Britons becoming Germans, The Guardian, 4 June 2018: Brexit is unnecessary. We have a plan to build a modern Britain and The Guardian, 19 July 2018: Brexit: Raab and Barnier meet as EU steps up no-deal warnings) now shows, like from a textbook (Economics textbook, chapter “How do I harm a national economy most sustainably with the help of people’s vote and a row of political wrong decisions?”), how important the EU is to all member countries and how disadvantageous the non-participation affects are. In the end, those in the UK who have campaigned the most vehement in favour of Brexit, will be hit the hardest by the Brexit or to speak in historical context: “The Revolution devours its children.” (in the meantime, the May administration had to admit that in ten years’ time, the British people will have less income and wealth than they have today, and only so if there will be a orderly Brexit. The consequences of a hard Brexit are still completely open. Even the government now understands that there will be a long-term economic downward move in the UK, and yet stil keeps up its completely nonsensical proposals for Brexit. On this basis, there is no way how the EU could help or assist) One can like this result or not. Ultimately, however, it can be assumed that for a long time there will be no more referendums with such far-reaching consequences given. At the same time, however, an extensive learning process on the continent has been started. The EU’s approval rates increased by as much as 15% within a few weeks. Apparently, the wake-up call from the Brexit was effective. In the past few years, it has obviously become much too self-evident to enjoy the four basic freedoms of the EU, which are, on closer examination, anything but self-evident. One can discuss extensively why it is so. Ultimately, everyone should realize that the EU is still under construction, much remains to be done, and the construct is accordingly vulnerable. At this point, EU skeptics are starting to use this momentum against the EU, while EU supporters seem to have forgotten to argue in favor of the EU. The latter need to change urgently. A direct effect of Brexit, if it will ever be carried out, for the continent would be that the EU will lose 20% of its economic power. This will have a negative impact in many respects (credit rating, exchange rate of the euro, EU budget, etc.). That is why one should fight for the fate of the British in the EU and a strong, united EU as a whole, instead of merely presupposing it as self-evident and given. With all the challenges arising from the different fields of activity, the biggest by far is Europe’s move away from nation states towards federal states. To many Europeans, this initial change in thought is already present, even if loud, nationalist minorities want to make the public to believe the opposite. It is especially astonishing that countries like the USA or China already understand the EU as one unit, even if it is not completed yet.

Above all, the question is, of course, what the EU shall be or become in the future. If the 500 million citizens of the EU were asked about their views, they would probably give 500 million different answers. The views range from complete refusal of the EU, to the confederation of European countries with a common economic, financial, domestic, foreign and security policy with at the same time as many decision-making competencies remainig to the governments of the member countries, to the United States of Europe, ie full EU integration. Medium and long term, it will be seen which of the numerous perspectives will ultimately be able to get through, for whatever reason. Apart from that, from time to time it is helpfull to recall what the EU is, what it does, what it doesn’t do, what it has achieved and how it can and should continue. The following is a brief overview of the functioning of the EU, taking critical views into account. The links in the article mainly lead to Wikipedia entries. These are not always scientifically exact contributions, but are well suited as starting points, especially because of the numerous links to further entries and external websites.

The EU is the successor organization of the European Community (EC), the European Economic Community (EEC) and the European Coal and Steel Community (ECSC). The European Coal and Steel Community was created after WWII, in order to achieve a better economic cooperation between the countries by increasing prosperity and freedom, and at the same time to prevent disagreements for the future, which have often let to military clashes in the past. Since 1951 this has worked very well, so that the concept became an “export hit” and was finally extended to more and more European states at their request. Therefore, new and further regulations were needed, of which there have been many over the years that have been created as a substitute for expiring agreements or additions to existing agreements. Important agreements for the present are: The Maastricht Treaty, the Treaty of Lisbon, the Schengen Agreement and the Dublin Regulation.

The fundamental freedoms
The four fundamental freedoms form the basis of the single market. They are:

  • Free movement of goods
    The European Union is also a customs union. This means that member states have removed customs barriers between themselves and introduced a common customs policy towards other countries. The overall purpose of the duties is “to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the Common Market”. By agreement between the Union and the states concerned Andorra, Monaco, San Marino and Turkey also participate in the EU Customs Union.
  • Free movement of persons
    The free movement of persons means EU citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and more recognition of professional qualifications of other states. Fostering the free movement of persons has been a major goal of European integration since the 1950s
  • Freedom to establish and provide services
    As well as creating rights for “workers” who generally lack bargaining power in the market, the Treaty on the Functioning of the European Union also protects the “freedom of establishment” in article 49, and “freedom to provide services” in article 56. (European corporate law and European labour law)
  • Free movement of capital
    Free movement of capital was traditionally seen as the fourth freedom, after goods, workers and persons, services and establishment. The original Treaty of Rome required that restrictions on free capital flows only be removed to the extent necessary for the common market. From the Treaty of Maastricht, now in TFEU article 63, “all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited”. This means capital controls of various kinds are prohibited, including limits on buying currency, limits on buying company shares or financial assets, or government approval requirements for foreign investment.

Regions of Europe – Cultural diversity
A very amazing statement by nationalists and right-wing populists is the assertion that the EU would “destroy” local, regional and national cultures and characteristics, although the exact opposite is true. Never before has a supranational organization done so much for minority protection and cultural heritage as the EU actually does. The EU is even much more successful than the Member States ever was or ever wanted to be, and this in nearly every respect. In addition to the protection of minorities, this also includes the protection of regional languages, local cultural characteristics, folklore, music, or the protection of geographical origin of food and drink. Thanks to the strong commitment of the EU, there are now often for the first time in European history clear protection regulations given. Here you can dig a bit deeper into the topic: Regions of Europe, European Union’s contribution to the flowering of the cultures of the Member States, Geographical indication, European Charter for Regional or Minority Languages, Minority rights, Charter of Fundamental Rights of the European Union and European Convention on Human Rights.

Is the European Union democratic?
Of course the EU is democratic. However, there are deficits that have been identified and are being phased out step by step. Due to the large number of participants, however, it takes time until it is fully completed. The most important institutions are the European Parliament and the European Commission. The election to the European Parliament takes place every five years. The members are elected separately for each Member State. Citizens of the European Union are eligible to vote either in the country of their domicile or in their country of origin. The European Parliament is thus not only the only directly elected institution of the European Union, but the only directly elected supranational institution in the world. The European Parliament has become a legislative body which is equal in all aspects to the Council of the European Union. The European Commission is a supranational body of the European Union. In the political system of the EU, it is primarily responsible for the tasks of the executive and is therefore approximately equivalent to the government in a state system. As “guardian of the treaties”, she supervises the observance of European Union law by the EU Member States and can, if necessary, take legal action against an EU Member State at the European Court of Justice. Members of the Commission of the European Union, the “EU Commissioners”, are nominated by the governments of the EU countries and confirmed by the European Parliament. They shall be independent in their decisions and represent only the common interests of the Union, not those of their respective EU countries of origin. Their term of office corresponds to the five-year legislative period of the European Parliament.

European Central Bank and European Investment Bank
In order to achieve economic stability within the Eurzone and the economic objectives of the EU as a whole, the EU founded the European Central Bank and the European Investment Bank. The European Central Bank (ECB) is the central bank for the euro and administers monetary policy of the eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world. It is one of the world’s most important central banks and is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU). The capital stock of the bank is owned by the central banks of all 28 EU member states. The Treaty of Amsterdam established the bank in 1998, and it is headquartered in Frankfurt, Germany. The European Central Bank is the joint monetary authority of the Member States of the European Monetary Union, founded in 1998, and forms the European System of Central Banks (ESCB) with the national central banks (NCBs) of the EU Member States. A central bank isn’t an ordinary bank but has to manage the monetary policy of a country, it is intended to pursue two important objectives. The first goal, usually also the main goal, is price stability. It is important to avoid large fluctuations in the value of money. The second goal of a central bank is the balanced economic development of the respective country. This important secondary objective of monetary policy has the purpose of avoiding a recession. The economic development is measured by the capacity utilization of the national economy. Central banks pursue these objectives by increasing or decreasing the price of lent money (changing interest rates), and in this way influencing the economy. Thus, a central bank can have an impact on inflation as well as on the economic development in general. The ECB carries out this tasks for the entire Eurozone. Since its founding in 1958, the European Investment Bank has had the task of “contributing to a balanced and smooth development of the single market in the interest of the Union” by means of its own funds, and is achieving this by “economic policy through lending”. The European Investment Bank is also active outside the EU. Together with European Investment Fund, it forms the EIB Group. The shareholder of the EIB are the Member States of the EU.

Is the Euro a cost driver and a soft currency?
No that’s not him. On the contrary, the Euro is above all a success story. At the time of the introduction, the exchange rate to the US-Dollar was 1.00 Euro to 0.82 Dollar. At the top, the exchange rate was at 1.00 Euro to 1.60 Dollar. Even today, after the debt and financial crisis and under the impression of the Brexit, the exchange rate is at 1.00 Euro to 1.10 Dollar. Anyone who wants to speak of a failed project is plain wrong. It is true, however, that there are some difficulties with the “framework program” of the Euro. In order to be able to use the Euro as a tool, a single economic and financial policy need to be enforced from Brussels in order to build robust barriers and to take regulatory actions in the Member States. This hasn’t happened so far and is causing some turbulences. Related to Germany, further challenges arised, which are based in the middle of the 1980s. As in many other Western European countries, the German economy was in a normal cyclical downtrend, which resulted, among other things, from protracted reforms and slow growth. In Germany, the downward trend was initially halted by the reunification and then returned with full swing from the mid-1990s on, while the rest of the Western European countries were already on an upward trend. Germany was regarded to as the “sick man of Europe”, the West German states stagnated, while in the new federal states the unemployment rate was partly at 30%, due to the processing of combinates. In order to counteract, the ambitious “Agenda 2010” was developed and implemented. Since the mid of the 2000s the German economy has become more and more stable and is now the “locomotive and the stability anchor of the EU”. This is due, among other things, to the very moderate and cautious collective wage agreements between trade unions and employers’ organizations. While companies and capital owners could capitalize on the successes, this is not yet the case for employees (especially in the lower and low wage groups) and this is the real problem behind the alleged “price increases by the euro”, which actually doesn’t exist. Wages and salaries hasn’t grown over the years to the extent of the growth rates of the economy, so that the actual, individual purchasing power has declined. This can only be countered by salary and wage increases. It’s not the job of the government to achieve this, even though the statutory minimum wage is a good and viable approach.

Inflation and price increases today and then
The introduction of the Euro hasn’t invented inflation. It exists since mankind has been trading with each other. The Eurozone partners agreed on that the general inflation rate should be between 1% and 2% per year. For some time now, the inflation rate has been below 1% per year. By comparison, in Germany the inflation rate was rarely below 3% per year before the introduction of the Euro. The Euro has led to falling inflation and to stable prices.

There is much more to say and write about the EU, of course. Over time, this will happen in this blog. Read more on VOLT Europa, United Europe and Pulse of Europe.



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