Veto, Deposits and the Single Market

One apparent issue with the Union, in its current form, is the veto power itself. Even bearing in mind that it is rarely used and that it is an option only for certain types of votes, it still can be an issue. It prevents any EU foreign policy from being applied consistently and would be a huge impediment to the working of a common defense force. Sovereign states cherish it though, particularly in the case of enlargement, war and peace, or other vital matters.

Among other reforms frequently mentioned, there is the financial sector. A deposit guarantee scheme is one important idea. The scheme would be meant to encourage savings, and provide protection to weaker financial institutions, as well as the public. Aligned to the financial sector, another essential reform would be the further development of the single market, especially for services. It is one of three priorities of the new President of the European Commission, Ursula von der Leyen outlined in her introduction of the new Commissioner Vladis Dombrovskis of Latvia:

“We have a unique social market economy. It is the source of our prosperity and social fairness. This is all the more important when we face a twin transition: climate and digital. Valdis Dombrovskis will lead our work to bring together the social and the market in our economy.”

Recently Macron and Merkel informally put forward the idea for a two-year Conference on the Future of Europe. Although it is not clear what the main focus of the conference would be, it could still be a good place to answer questions about these reforms, particularly about fast tracked reforms, something that it is perhaps reserved for countries willing to further federalize.

What is the European Single Market?

You can think of the European single market through your own experience of working and consuming as an EU citizen. We have largely achieved the single market for goods, but price convergence has lagged. You can buy pretty much the same goods throughout the Union though at different prices – and states do occasionally create impediments, usually to benefit their producers.

The single market for services remains largely incomplete. As a doctor, lawyer, engineer, pharmacist, accountant, architect, or even real-estate agent or taxi driver, you can be subject to differing regulations and unable to use your license or skills in another EU country. Schengen may have made it possible for EU citizens to move freely, but not necessarily work freely.

A series of EU Directives and landmark rulings of the European Court of Justice (ECJ) have called for mutual recognition of regulatory restraints on providing services except as necessary to satisfy “mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defense of the consumer”. In practice though, mutual recognition has been far from fully implemented and the obstacles have not all been removed. Often, re-assessment of market authorisations are required in EU countries for the provision of services, even in cases where it should not technically be possible to derogate from the rule of mutual recognition.

Although less common, a similar situation can arise with harmonised standards for goods, where local state enforcement can sometimes be used to circumvent EU regulations. The only way to prevent such problems may be true federalism where the EU can enforce its own regulations. Until then, states will have a tendency to make things difficult for non-national individuals or products. A survey of EU services  firms cited regulatory restrictions as the primary impediment to expanding their operations in other EU countries. For this reason fast-tracked reforms for member states willing to federalize might prove fundamental in advancing the single market for services.

What are the Advantages of the Single Market?

As an European citizen you may have traveled by train throughout Europe, visiting the beautiful continent. You will have sung goodbye’s at train stations to your friends, chanting “Bella Ciao”. You will not have needed a passport or a visa, and after 1999 you haven’t needed to exchange your money to local currency, in most cases. Though certain rail lines in Eastern Europe and the Balkans may have required changing trains at the border, rail harmonization too is a product of the single market.

Beyond free movement and the Euro, the single market has radically changed European life in other ways. In the 1970s you would have done your grocery shopping in local stores while walking home from work, or in your own neighborhood after driving home or using mass transit. Small local shops were the main source, and in many cases the only source, of retail trade. They were often family-run, open long hours, and economically very inefficient, requiring as they did frequent dedicated deliveries of small quantities of goods. One of the major effects of the single market was to rationalise retail trade on much of the continent.

With the single market, supermarkets and hypermarkets began to appear on the outskirts of cities and large towns, forcing the small shops to close and often leaving the city centers empty and boarded up. They brought goods to consumers in huge variety and at much lower prices, extended the season for fresh purchases with imported produce, and offered a variety of tropical and exotic products. They could afford to do this because their cost of capital was lower, purchasing and deliveries could be done in bulk, and labor needs per unit of sales were considerably lower.

The economic upsides of the rationalisation of the retail sector go beyond the immediate benefits experienced by consumers. Smaller shops by closing down free up labour for other economic activities, contributing to economic growth. Capital is also freed up per unit of production, as the distribution networks become more efficient.

Further Rationalisation of the Services Sector

If we achieve further rationalisation of the service sector in Europe, young professionals wishing to work abroad stand to benefit the most. If you are looking for a change, enhance your language and professional skills, or have a foreign partner, you will no longer be hindered by complex licensing requirements. The costs of services would also decline. The economic benefits of this would be great. But so would the downsides. Rationalisation of the service sector could easily bring a new period of economic growth. But growth also means disruption.

Ultimately, Europe has two options: remain a more traditional economy, with strong worker protections and a minimum of change and disruption; or compete fully in the global economy by rationalising, reaping all the benefits and paying all the costs. Finding a middle way will be very difficult, especially considering the pressure from China and the US, which have already made a clear choice: efficiency and competition at whatever the social costs.

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This narrative, which is particularly popular online, is also seeping through public debate. One need only take a look at Emmanuel Macron‘s speeches to see the conflating of western European (or even French) values with those of the entire Union, sidestepping what is actually listed in the Treaties. The picture painted is more or less thus: the original founding countries are able and willing to push forward along the path of ever closer union. The partners that joined in the two eastern enlargements, on the other hand, are backward and stubbornly opposed to more integration, thus holding the entire project back. Some even draw the conclusion that the EU has expanded too fast, and that proper federalisation had to take precedence over enlargement.

This is a comforting narrative, at least for western Europeans. It also contains a kernel of truth: concerns about the rule of law and separation of powers in Eastern European Member States are legitimate and well-grounded. It is also undeniable that these countries and their governments have been quick in pointing to Brussels as a scapegoat for all their ills. What does not follow is the belief that, in their absence, the rest of the continent could speedily achieve unification. Upon closer scrutiny, this belief is revealed to be little more than wishful thinking.

In Search of a Liberal Core

The first problem, when romanticising the EU’s supposed western liberal core, is defining its borders. When it comes to dogged defence of State autonomy, Austria is not that different from Poland. Even if one assumes that the demarcation overlaps with the old ideological borders of the Cold War, the comparison does not look stronger. The current Italian government, which openly cites Orbán as a role model, has no claim on a moral high ground over Eastern Europe. In the United Kingdom, the Tories (who share ECR membership with the ruling Law and Justice party in Poland) are entrenched both in protection of the establishment and in some cases literal aristocracy – hardly a better track record than the Czech Republic or Slovakia.

One may refine this even further, and argue that the western integrationist core corresponds to at least five of the six original founders. This subdivision, however, also fails scrutiny. France has done much to retain its autonomy, particularly in foreign policy and security. The Kingdom of the Netherlands – a liberal western European country if ever there was one – remains one of the most determined opponents of federalisation, especially on military matters and Eurozone reform.

When it comes to European integration and European political culture, there is no such thing as a pro-integration, liberal core. Significantly more lip service is paid in the West to the ideas and values of European integration, but the willingness to translate that into a meaningful pooling of sovereignty is low. French vetoes date back to the foundation of the Coal and Steel Community, and the recent wave of illiberalism sweeping across the West has dimmed prospects even further.

The Blame Game

The turn towards illiberalism is a common phenomenon all over the Western world, even at its margins like in the Philippines. The Republican Party in the United States started to change in the early 1990s with the likes of Dick Cheney and Newt Gingrich, when the EU was newborn and ended at the Oder. This point cannot be repeated too often: what is branded as “populism” in current political discourse is, as a phenomenon, very much independent of the EU and its existence, let alone its membership composition.

Its specific European manifestation is also significant to this argument. Several European countries have increasingly shifted towards illiberal positions – not just in Eastern Europe, but also in the west. Track records on integration are negative all across the map. It is completely unfair – and in many ways gaslighting – to blame Eastern Europe for the halt to integration.

The UK undoubtedly holds the record of vetoes, exemptions, and red lines, covering a broad range of matters from collective defence to the single currency. London’s outright exemption from the principle of ever closer union was in itself an admission of defeat for serious prospects of political unification. Britain’s prominence, however, shouldn’t blind us to the obstacles placed by others. Britain itself was often an excellent alibi for other sceptical countries, allowing to entirely skirt discussion on topics like common defence because London had already vetoed them anyway.

Several European Member States didn’t even need this alibi to shoot down integration. France voted down the proposed European Constitution in a referendum. While it is currently busy trading thinly veiled accusations with Germany over who is falling short on what initiative, it has also displayed a dogged determination at patrolling its own borders in the wake of the refugee crisis. Denmark also has opt outs, and is profoundly sceptical of further integration. The Netherlands, Germany, and all Nordics are squarely against Eurozone reform, while their equivalents in Club Med are vehemently against aligning their policies to those required to make a banking union function.

The conclusion is inescapable: there is no popular legitimacy anywhere in Europe for more integration. But if European integration is dead in the water, who is the culprit? Curiously, very few political camps in the Union have actually owned up to the chronic lack of political will that allowed this to happen. Pointing fingers and outsourcing the blame is a popular strategy, but it leads down a dangerous road – one with no answers and an abundance of acrimony.

Eastern Europe Is Europe

When the discussion moves to the economy and workers’ movement, its ugliness becomes all the more apparent. A popular narrative, particularly among left-wing circles in Italy and France, is that the eastern enlargement was driven by companies in the quest for cheap labour. Reinterpreting the enlargement as a product of shadowy forces is a way of delegitimising it. The short-sightedness of this argument is so total that it’s hard to tackle what makes it so wrong.

The Single Market, of course, grants freedom to trade and move across the Union, and that naturally includes businesses. Ultimately, however, the Single Market is also about long-term economic convergence. Companies truly committed to a quest for cheap labour on meaningful time-scales go to South-East Asia – wages in eastern Europe will not remain low forever. Thirdly, and most importantly: businesses do not dictate EU policy, nor that of its Member States. There is no secret cabal of corporations who manipulate governments from the shadows.

There is little doubt that powerful economic actors like corporations have played a role in European integration, and that these same actors can count on powerful lobbyists. But this is part and parcel of political life in any democratic country. The belief that these actors could unilaterally drive a political undertaking of such a scale based on profit sheets alone is close to a conspiracy theory – the obsessive quest for an agent on whom to pin the blame.

Paradoxically, Eastern Europe tends to be a lot more outspoken than the West in its support for the EU in general, in spite of the sometimes stark disagreements over the rule of law and democratic values. This is no coincidence: for many of these Member States, the EU and NATO are a matter of survival, not of policy-making. With an aggressive Russia to the east, and a history of totalitarian dictatorship still eerily close in their past, there is little room for geopolitical experiments. Hungary is at present the only Member State in Eastern Europe bucking the trend, and openly adopting an openly friendly position towards Russia.

The entrance of Eastern Europe into the EU was a bold political act that took place within a limited window of opportunity. Together with NATO’s expansion, it banished the spectre of further Russian domination of the newly independent countries. Renouncing it over political rows is another classic example of the myopia that affects European political culture.

Meaningful Unity

Ultimately, playing the blame game by exploiting regional rivalries is the epytome of failures when it comes to integration discourse. European unity is about undoing the damage the continent wrought upon itself through two global conflicts and the Cold War. The latter in particular divided Europe in half for forty years, resulting in very different experiences, problems, and ways of looking at the world. The hypothetical future unification of Europe resembles the reunification of Germany, but on a much larger scale.

This can feel daunting – and so it should. The quest for peaceful, democratically legitimate European unity is an ambitious and unprecedented undertaking, one spanning many generations. This lofty goal cannot be meaningfully pursued without keeping an eye on the obstacles that lie on the road ahead. It will take decades to even start mitigating the damage done by forty years of division, Communist dictatorship, and foreign occupation of the eastern half of the continent. Playing the blame game, however, is one sure way of failing in this grand endeavour.

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