Much of the material penned in the days following the EU Brexit referendum has naturally focused on the possible impacts to Britain. The ‘end of the world’ type article typically assumes that the UK will suffer and that the EU will remain intact as a politically stable economic block. This may or may not be the case. There are certainly calls for referenda in Denmark, The Netherlands and France and potentially others but with the British result now out I am sure they will be fiercely resisted. This will no doubt work for a time but if the EU fails to take significant steps to reform itself an existential threat will continue to hang over the whole project.
Like millions of others I like the idea of a European Union and its potential to peaceably knit together many different cultures. The travel and working benefits have been considerable for the general population but the institution has allowed itself to become monolithic, bureaucratic, remote and undemocratic. Politicians in member states, the UK included, have become far more interested in maintaining the status quo rather than addressing the concerns of the millions of people living in areas outside the big cities.
Over the next few months the EU has an opportunity to take a fundamental look at its own construction and purpose and take steps to address deficiencies before those other calls for an exit become overwhelming. A communication campaign explaining its positive aspects may be a start but unless the fundamental issues are resolved it will be no more than a cosmetic move. The institution needs to get back to basics and give British and other EU citizens something to vote for and enthuse about. With the right set of principles I don’t think it’s beyond a possibility that the 4% margin in favour of an exit could be swung into a 4% margin in favour of the EU. After all, if Scotland can table the possibility of another independence referendum why can’t the UK have another one on the basis of a reformed EU? But reform it must beforehand.
A reform agenda
Many of the core principles of the EU and its associate bodies are exactly what European citizens need. Despite the inconvenience of managing terrorist suspects the Human Rights Act should remain as a fundamental principle. The flaws of the working time directive and some of the more extreme ends of Health and Safety regulations may need to be addressed but the basic principles make sense and are broadly accepted across the Union. The depth and breadth of regulation is an issue but the basic concepts behind them are sound. It is not these that need changing. But there are elements that do need to change and some of them are fundamental to the way the institution works:
There is not much democracy in the EU. The commissioner appointment process is an opaque and highly political exercise that often appears more like a retirement project for former state politicians. There is little, if any, accountability which leaves the door wide open for criticism. While there is obviously voting associated with membership of the EU Parliament, the parliament itself appears little more than a debating shop for laws proposed by the unelected. This really needs to change if the EU is to appear as a credible governing body to the citizens of Europe.
‘Ever closer union’
No one seems to understand exactly what this means which is something of a problem given that it is not unreasonable to infer that it will eventually manifest itself as a ‘United States of Europe’. The people of Europe need a clear definition and clarity of purpose. If it is a ‘USE’ the citizens of Europe ought to be given the right to vote on it. After all the natural outcome will be a dissolution of state parliaments or at best a reduction of their purpose to local debating forums.
Unmonitored free movement of labour within the EU
The accession of ten Eastern European states to the EU in 2004 and the associated visa free movement of labour from these nations to the more developed economies has acted as a catalyst for anti-EU establishment thinking. During the referendum the UK political class focused on the benefits to big business and wider economy rather on the concerns of people affected by it. For years politicians of both UK parties exploited low impact forecasts to avoid addressing the funding and investment implications but were happy to blame the EU for its freedom of movement principle.
The EU either needs to amend the principle of freedom of movement or address its implications. It is one of those principles that seems reasonable and sensible in theory but when applied in practice unwittingly creates enormous problems. If a common market is to work then free movement of labour really ought to stay as a principle but its application requires some modification.
If we accept the principle then either some controls are needed or the effects of free movement should be addressed. Either way, labour movement needs to be tracked across Europe through social security or tax payment monitoring. If a control route is adopted we are in a wold of quotas and negotiation, perhaps agreed annually. If an ‘effects’ solution is preferred the EU needs to provide additional investment in the social infrastructure of the areas most affected. Perhaps a ‘per-head’ grant support in the health and other public services in those areas. It may not create many new jobs but it could help alleviate the pressures local authorities face when confronted with thousands of migrants in a short space of time.
An unfettered freedom of movement has become a major issue for some regions and really must be addressed.
It is not difficult to make a case that one of the root causes for the Brexit vote was the premature accession of ten Eastern European nations into the EU back in 2004. In its thirst for expansion the EU made too many compromises and allowed in countries whose economic performance were many years away from any true alignment with those in the North of the Continent. These countries should have been allowed develop over decades rather than over a few years.
Current membership may well be fixed but there is no need to exacerbate an already challenging situation by opening the doors to other developing states. The EU needs to define its boundaries and limit its ambitions. Only then can its citizens be reassured that the socially disruptive waves of economic migrants can be limited and controlled. The accession of Turkey, Ukraine, Bosnia, Georgia and others needs to take place over many decades rather than on the accelerated timelines of the past.
There is both good and bad regulation emanating from the EU although general opinion is that there is simply too much of it. On the whole it benefits big business by erecting cost barriers for smaller ones. Most businesses in the UK and other European countries are small but have to face the same regulatory challenges as larger ones. Thus from a business perspective the trading benefits of being a member of the EU are predominantly experienced by the far smaller group that actually exports across borders.
The EU needs to create more appeal for smaller businesses by introducing far more flexibility in its regulatory framework. Smaller businesses need to be provided with the chance to grow before facing the regulatory challenges more suited to pan-European and global organisations. Far more exemptions and tolerance is required.
The poorly publicised ‘bail-in’ rules introduced by the EU to help recapitalise the banking system when it fails is not a particularly appealing piece of legislation for EU citizens. The EU ought to re-think how banking system issues are resolved without resorting what would be effectively theft from its citizens. Should people unconnected to the problems of banks be forced to pay for issues entirely outside of their control or influence? This really needs to change. Cyprus should not be the template for resolving all future issues in the European financial system
Institutional controls and bureaucracy
The EU has received an audit report for the past twenty years but has not received a ‘clean’ one. In examining the reasons for the qualification it would appear that between 4% and 5% of the EU’s annual budget has not been spent according to its own rules. This does not necessarily translate into anything criminal but it does suggest that €6bn or €7bn a year has not been subject to proper controls. That is not an insignificant amount of money and equates to the net contribution for some EU member states. This must change. The EU cannot be credible without an unqualified audit report every year.
More control and openness on the subject of EU salaries and expenses would also improve confidence and reduce suspicion.
Complexity breeds bureaucracy and we seem to have this in spades within the EU. You can get a sense of how it all fits together on the EU website:
The EU cannot become tightly run efficient and effective machine with this level of complexity. Its entire structure requires an overhaul with a lot less ‘design by committee’ involved. This could be the hardest part for the politicians and bureaucrats who have a vested interest in maintaining the status quo but it has become one of the primary drivers of its decision sclerosis.
There is an increasing perception that the EU has become a vassal of big business and that the Brussels lobbying industry has evolved in the image of Washington. A principle of EU trade agreements ought to be that they benefit the people of Europe and are not there just for the benefit of the large multinationals. The negotiators in Brussels need to ask themselves whether the EU/US trade agreement currently being negotiated will actually work in favour of member states. The implications of current leaks from these negotiations are not encouraging. Starting with the medical principle of ‘primum non nocere’ would not be a bad idea.
The Euro and the European economy
Some action from the EU, especially the Eurozone, in actually addressing the economic dysfunction in Europe. The ECB is rapidly running out of options; it’s time for the EU to do something even if it means splitting the currency area in two. A partition between the developed and less developed regions of Europe would benefit both and might even start to help the UK change its mind about membership, not just of the EU but even the Euro.
Most of the European economy is the Eurozone and it’s a basket-case. The ECB is printing more money to inject into the EZ system. Having basically run out of sovereign bonds to buy it has now moved into ‘junk’. Poorly rated EU companies are now eligible for the ECB’s buying programme. Mario Draghi is the de-facto saviour of the EZ project and is simply following through on his promise to do ‘whatever it takes’ to save it. He really wants the EU institutions to establish a reform programme but for political reasons they have been reluctant to take the necessary steps.
Meanwhile 15% of Euro debt now has a negative yield, a situation which is set to get worse, and Greece, Spain, Italy and Portugal still see moribund economic activity and high unemployment. Average EU unemployment rates disguise the higher than 50% rates impacting certain age bands, especially the young. The ECB is running out of options and the EU bureaucracy reluctant to contribute towards a resolution is simply accelerating the prospect of a major economic challenge. Nothing is inevitable but the failure of one or more of these states, or the banking systems within them, looks like a highly probable outcome.
Another financial crisis in Europe is virtually a certainty unless the EU starts a process of reforming the economies of many of its member states. The ECB cannot act on its own; the EU has a political and economic part to play in this process.
British and other Northern European taxpayers need to feel that they will not be potential milch cows when the next financial crisis appears. It would be far better to reduce the potential for such a crisis by pursuing a reform agenda today rather than waiting for the worst to happen and then financially punishing its victims, EU citizens.
I’m sure there is much I have missed but in my view this is the sort of reform agenda that might make the EU more appealing to both UK and other European citizens. There is much criticism at the moment of the people who voted to exit but the result was really a symptom of the problems caused and ignored by both Westminster and Brussels. I do think that most people would like to believe in the European Union idea but they need to feel that it works in their interests and not simply for the benefit of big business and the European political class. To achieve that it needs to reform, and quickly, or in a few years it might not even exist.
Get back to basics and give those British citizens who voted ‘Leave’ something to help them change their minds.