European integration in the economic storm

It has not been long since the European Union leadership, in spite of the difficulties of getting ratification on a formal constitution and a revised treaty formalizing its status of political union, felt able to congratulate itself on the strides made since its foundation. Not only had the EU established a single market and economy, but it was also able to provide itself with what was generally accepted as an increasingly efficient system of decision-making and implementation, and efforts at repairing the so-called “democratic deficit” of the system.

Recognition of each other’s country as a sovereign state had not prevented their governments from adopting the principle and practice of subordination of their decisions on the single market and economy to strict laws of governance in respect of decision-making and decision-implementation. And there has been continued adherence to the decisions of the European Court of Justice, recognized as the system’s final adjudicator, superior to the national courts. And even the British, with their well-known adherence to the notion that ‘Parliament cannot bind itself’ and by extension, cannot be bound by  another institution, have, eventually reluctantly, accepted that through the European Communities Act, their national courts are subordinate on matters coming under the jurisdiction of the European Union. For years now, there has been no longer serious resistance to this. And in another sphere, Britain, traditionally resistant to what it might deem excessive immigration, soon began to take a more positive view of the free movement of, especially, skilled workers, as she saw its beneficial effect on the liberalization of her labour practices and then on the lowering of labour-cost inflation.

In more recent times, the EU has congratulated itself on its ability to include within its jurisdiction the states emerging from the dissolution of the former world socialist bloc, and to see prosperity rapidly increase in many of the states of Eastern Europe, like Czechoslovakia and Poland; in some of the countries of the Baltic; and even in former entities of the now disappeared Yugoslavia, like Slovenia. In addition, entry into the EU has been seen as largely responsible for the rise of Ireland from a relative economic backwater to a booming “small European economic tiger.”

Finally, the EU has even been able to claim that it is at least partially responsible for the progressive adjustment of the economies and levels of living of former colonial entities like Malta and Cyprus. And particularly on this latter basis, the EU has been prone to suggest that adherence to the “integration requirements” of its system can also enhance the adjustment and transformation of other developing states. Thus its holding out of the Economic Partnership Agreement as a template for growth through liberalization.

So the recent events of financial and then economic and industrial meltdown have come as a slap in the face to the leadership of the EU. At first, witnessing the rapidity of growth of the US subprime crisis and its morphing into a general financial, industrial and then unemployment crisis, the Europeans felt that it was generally due to policy errors made in the private and public decision-making centres of that country. But the speed with which the same phenomena came to affect the United Kingdom has quickly caused second thoughts. As huge and long-standing commercial banks began to ‘melt down’ there, not least the Royal Bank of Scotland in Prime Minister Brown’s own birthplace, both policy makers and economic commentators have had to change their minds.

Britain’s current predicament is coming to be seen as in part the consequence of a somewhat over-dependence over a decade on financial liberalization in her efforts to make the country the financial centre of Europe, leading, in terms of national revenue, to a prioritizing of financial services over industrial advancement.  And Mr Brown himself, only a few years after having boasted, as Chancellor of the Exchequer in Tony Blair’s government, that Britain had gone beyond the “boom and bust” of previous times, has had to eat his words. Having originally also presented himself, at the start of this American-induced, now global, crisis as the harbinger of a global approach to its solution, he has had to buckle down to concentrating on recuperation of the British economy in much the same way as has new President Obama.

All of a sudden too, now against the trend of a liberalism and diminution of the role of the state policy introduced by Mrs Thatcher in the eighties and nineties and followed by Blair, Brown has also found himself back to what is now being called a partial (dread word) nationalization of the financial sector. And in a genuflection to anti-immigration sentiment, has spoken of “British jobs for British people.”

A degree of panic too, has affected the Government of France, whose never too-far submerged economic nationalism has come to the fore there through the mouth of President Sarkozy’s claim that the nation’s money cannot be used to establish investments, and therefore jobs, in foreign countries, privileging them over French workers.

This economic nationalism has frightened not only the Germans, the largest industrial exporters in the world, but also the East and Central Europeans who are the real objects of Mr Sarkozy’s assertions. For it is some of these countries which, with their lower labour costs and generally favourable terms of investment, have been the beneficiaries of capital investment from the older EU states, in the context of one of the articles of faith of the European Single Market and Economy – the free movement of capital. And here, supporters of the European integration process see a real threat to its further progress and even talk of a tendency to diminution of the core principles – freedom of capital, labour and of goods and services. They see this as a threat to the consolidation of the European Union internal market, and of the economic union more recently put in place. And with this they see, also, a threat to the euro and the euro monetary system established not too long ago as an anchor of the liberalised system. Their appeal is to have the difficulties of, especially the newer countries, dealt with at a global, rather than simply European, level, meaning the level of the International Monetary Fund. They obviously do not wish the euro to be dragged down by  substantial depreciation – the usual liberal remedy for regaining cost competitivenss

At the level of geopolitics, the protagonists of the EU process as beneficial to peace and stability in the wider Europe, now see a threat of disintegration of some of the newer (East and Central)  European economies, and a possible tendency for them to recoil into the old nationalism and instability. This would be a blow to what they consider one of their great achievements – the peaceful disintegration of the socialist bloc and the peaceful integration of the East-Central portion of that bloc into a stable Europe and effective bulwark against what they see as an assertive Russia.

London’s Financial Times, editorially contemplating the scope of the threat to the integration system, observes that “if Brussels fails to reassert authority in policing the single market, the EU risks being pulled apart. This Union needs a stronger Commission” (FT February 12, 2009).

Ironically in our Caricom we seem to call for less governance – or at least cannot agree on the required scope of necessary governance. But all is not lost for the Europeans and their example. Last week, in the middle of this grave crisis, the ASEAN countries, at their meeting last week, recommitted themselves to the creation, by 2015 of a “Single Market and production space in which there is a free flow of goods, services, investments and skilled labour and a freer flow of capital,” and an economic community by 2010. And Prime Minister Lee Hsien Loong of Singapore, in supporting the initiative observed that “we can always go faster.”  Interesting, for largely developing countries many of whom, unlike ourselves, have experienced “economic miracles” in years gone by.

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