You can hear the big sigh of relief from Brussels over Emmanuel Macron’s May 7 victory. Now that the French Presidential elections are over, European Union (EU) leaders may be tempted to ignore the fundamental issues that have driven opposition to the economic and political union. However, unless they start dealing with these problems, that relief will be short-lived.
The reality is that the EU has enormous problems that need to be addressed soon. Unemployment in Greece is 23%, 18% in Spain, 11.5% in Italy and 10% in France and Portugal. Of particular concern is that unemployment is particularly high among young people trying to enter the work force. The EU itself and most of its leaders are extremely unpopular in a number of important EU member countries. Only 19% in Greece, 27% in Spain, and 29% in the UK approve of it, according to a 2015 Gallup survey. In fact, the EU only has positive approval ratings in four countries, Luxembourg, Germany, Belgium and Denmark. Ominously, this plunge in approval ratings has taken place mainly in the last five years.
Even though Macron won the French Presidential election, Brussels should not forget that EU skeptics such as Marine LePen on the far right and Jean Luc Melenchon on the far left won about 40% of the vote in France on April 23. That represents significant dissatisfaction with the EU in its second most powerful member. And Brussels cannot ignore Brexit, and the fact that the UK’s vote to exit the EU was heavily fueled by anger at immigration and excessive regulations from Brussels.
The European Union is a 28-nation economic and political bloc that was formally established in 1993 by the Maastricht Treaty. However, the EU’s roots go back to the effort after World War II to tie Europe together economically to prevent future world wars in Europe by finding areas in which the great powers, France and Germany and later the other countries of Europe, could cooperate.
Today, EU rules provide for the free movement of goods and services within the member countries, as well as people and capital. The EU issues regulations, which are binding among all EU countries and supersede domestic law, and directives which set out a goal that all members must achieve but allows members to devise their own laws for implementation. The Maastricht Treaty also provided for the creation of the common currency, the Euro, which is now used by 19 of the EU member countries. In addition, 22 EU member nations are signatories of the Schengen Area (along with four non-EU countries), which provides for passport free travel anywhere in the Area.
Since its founding, EU institutions have grown substantially in power and the membership of the EU has swollen from 12 countries in 1993 to 28 today. European leaders have pursued a dream of a federalized Europe that would bind its members economically and prevent any future European wars. Unfortunately, many believe its institutions have grown too fast, and have sparked a sharp backlash.
The rules providing for the free movement of people are perhaps the greatest flashpoint. For example, LePen calls the immigration rules “the free circulation of terrorists” and the EU’s failure to offer Cameron more flexibility on controlling immigration from the EU may just have tipped the balance in favor of Brexit. Schengen rules do allow a member to temporarily reintroduce border checks “in exceptional circumstances”, but the EU probably needs to give member nations more flexibility with regard to border controls.
Perhaps the biggest problem for the EU, however, is sluggish economic growth since the 2008 financial crisis. While growth has ticked up recently, economic growth in France in 2016 was still just 1.2%, and only 0.8% in Italy and in Greece an abysmal 0.04%.
The single currency – the Euro – is a major contributor to slow growth in countries such as France, Spain, Italy and Greece, as the German economy has been far more competitive within the Euro bloc than these economies. For example, in 2015, Greece had a 9 billion Euro deficit in intra-EU trade, Spain had a 5 billion deficit, and France had an 86 billion Euro deficit, while Germany had a 71 billion Euro surplus. Without the Euro as a common currency, deficit countries would normally let their currencies devalue vis-à-vis the German currency, thereby restoring a trade balance. However, given a common currency, the only way to restore a trade balance is through suppression of wages and prices.
Another cause of slow growth has been the flood of regulations out of Brussels, which can suppress economic growth, and are general annoyances that many see as a subject for ridicule. For example, a Brussels rule designed to save energy requires that a coffee machine be automatically turned off as soon as the coffee is brewed. The British press frets that now “millions of Britons [will be] forced to endure tepid cups of drip coffee”. The EU needs to better curb the instinct of its bureaucrats to control the world.
To preserve the Union, EU leaders need to adopt pro-growth policies and seriously meet the concerns of the citizens.
William Krist is a senior policy advisor at the Woodrow Wilson Center and the author of Globalization and America’s Trade Agreements.
Brian Fedorov is a research assistant at the Woodrow Wilson Center and a senior at UCLA.
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