Following the two World Wars of the twentieth century, the European Union (EU) was designed to integrate Europe politically and economically to prevent future wars between nations in the region from occurring. The EU is a unique economic and political union between 28 European countries, of 508 million citizens, that have relinquished a degree of sovereignty to EU institutions.
The EU originates from the European Economic Community (EEC), created in 1958, of what was initially increasing economic cooperation between six countries: Belgium, Germany, France, Italy, Luxembourg, and the Netherlands. Initially a free trade area and customs arrangement, the EU has metastasized into a supranational government determining policy for European countries without any accountability or transparency to the electorates, or even politicians, in these countries. In its pursuit of democracy and stability, the EU has become incredibly unstable economically, socially, and politically and undermining democracy rather than strengthening it.
EU Member States: Austria; Belgium; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Poland; Portugal; Romania; Slovakia; Slovenia; Spain; Sweden; and the United Kingdom (leaving in 2019).
Democracy Under Threat
The EU is an antidemocratic construct by design, deliberately intended to take power away from national parliaments, and is comprised of five institutions:
European Court of Justice;
European Council; and
Council of the European Union
A large percentage of policy areas that impact the daily lives of citizens in member states are determined by the bureaucracy in Brussels. Federally elected representatives are forced to implement these decisions, which limits their ability to influence EU decisions. Therefore, voters are unable to impact policy change through their elected representatives or hold them accountable in elections. In effect, the EU ignores the will of the people.
Current President of the EU Commission, Jean-Claude Juncker, described the decision-making process as such: “We decide on something, leave it lying around and wait and see what happens. If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back.” [i]
The architect of the European Union, Jean Monnet, wanted to politician-proof the project with its “right of initiative”, whereby power would be held exclusively by “platonic guardians”. As the executive branch of this supranational government, the right of initiative empowers the EU with a monopoly on proposal, amendment, and recall of laws that national parliaments are obligated to abide by. The Commission is comprised of political appointees who swear an oath of allegiance to act in the interests of the EU as a whole, rather than representing the interests of any particular country. Commissioners are not elected and not accountable to anyone; the European Parliament has the power to remove an entire Commission, but not individual Commissioners. So, EU law trumps national law every time, and there is no mechanism for democratic accountability. With the right of initiative as the foundation of the EU project, there is no way to reform the EU, since its premise is based upon an authoritarian attitude toward national parliaments and electorates.
The public in member states do not support a ‘United States of Europe’. Hence, the rise of populist parties across the political spectrum, campaigning on the platform of opposition to EU integration and a return of powers back to the nation states. EU inequalities, ineffectiveness, and policies have created increasing strain among member state relations and citizens in them.
Economic Consequences: Economic Overregulation and Fiscal Abuse
It will likely take generations for the debts accrued by the EU to be repaid. EU mismanagement has resulted in high Millennial unemployment, unaffordable living conditions, and weak economic conditions.
The euro was created as a common currency to unite Europe and is the most widely used currency in the world after the American dollar. The euro is managed by the European Central bank, yet each member country sets their own national fiscal policy. Nine EU member states have not adopted the euro: Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and the United Kingdom. The euro was first introduced in 1999 as a currency for electronic payments, and by 2002, coins and banknotes were introduced.
Benefits of adopting the euro include smaller states having the advantage of being backed by strong economies, such as Germany and France, allowing them to take advantage of lower interest rates and therefore attract more foreign investment to grow their economies. Yet this creates an imbalance whereby the stronger economies hold greater risk because of the smaller, weaker economies and all member states give up more autonomy and control over their national monetary and fiscal policies.
In 2009, a Eurozone sovereign debt crisis and recession were triggered by the global financial downturn that began in 2008 with the burst of the subprime mortgage housing bubble in the United States. it became apparent that with their high levels of public debt Greece was about to default, which would likely be quickly followed by Portugal, Ireland, Italy, Greece, and Spain (PIIGS). In response, Germany and France initiated bailouts through the European Central Bank and the International Monetary Fund to support these collapsing economies. Had the PIIGS defaulted, the EU members feared this would have been worse than the 2008 financial crisis where the banks that held the debt would have sustained huge losses or collapsed, exacerbating the recession or causing a global depression.
As a member, Greece enjoyed low interest rates and foreign direct investment, especially thanks to the strength of the German economy and banks. With the Maastricht Treaty, the EU had mandated member states could only hold a budget deficit limit of 3 percent of the country’s gross domestic product (GDP); Greece had been dishonest about their fiscal policies when they applied to join the euro and now announced their deficit was at 12.9 percent and might default. Credit rating agencies dropped Greece’s credit rating, which drove up interest rates.
When Greece chose to adopt the euro as its currency it agreed to terms that determined national fiscal policy, such as budgeting criteria, as outlined in the Maastricht Treaty. Additionally, the country was not allowed to print more money to pay its debts, and when Greece asked the EU to loan the funds to pay these the EU imposed austerity measures and demanded Greece cut spending. The Greek debt crisis spread across the eurozone since many European banks had invested in Greek business and sovereign debt.
As the two strongest economies in the eurozone, German Chancellor Angela Merkel and French President Francois Hollande disagreed over the right approach. Merkel developed a treaty based on a plan she believed had worked in integrating East Germany following reunification and vowed to lenders that the EU would stand behind its members’ sovereign debt. Germany’s bailout and forced austerity measures on Greece created animosity between the citizens of both countries, of Germans who resented generating wealth to pay for the dishonesty of Greeks. A bailout package was approved for Greece in May 2010 and bailouts were disbursed to Cyprus, Ireland, Portugal, and Spain over the next two years. After all this, and Greece is now debating leaving the EU.
Doubling Down on Bad Policy
The debt crisis revealed several dangerous regulatory shortcomings and failures of the euro, most notably the lack of an enforcement mechanism for the fiscal rules outlined in the Maastricht Treaty. EU leaders attempted to correct this on March 2, 2012 with a new fiscal pact, the Stability and Growth Pact, which bound signatories to limit government deficits to 3 percent of their GDP or face automatic penalties. In October 2012, EU leaders created the European Stability Mechanism, a permanent bailout fund. The European Commission also proposed integrating the eurozone’s 6,000 financial institutions into a single banking union, with oversight provided by the European Central Bank. The Commission argued this system would allow for the centralized supervision of banks’ capital reserves, as well as the restructuring or direct recapitalization of imperiled banks without regard to national boundaries.
Iceland: Worst Case Scenario to Resiliency
In 2009, the Icelandic government took on $62 billion of bank debt by nationalizing its three largest banks when the banks went bankrupt. Afterward, the government collapsed when its political leaders resigned, and a new coalition government was elected. The currency plummeted and inflation skyrocketed, nearly all businesses went bankrupt and housing mortgages doubled as home prices fell, yet Iceland’s economy rebounded within a few years, much sooner and more resiliently than forecasted.
The imbalance of wealthy and mismanaged economies between north and south Europe brought tensions between member states to a head with the economic crisis, caused by southern, mismanaged economies taking advantage of low interest rates to massively expand their public debt. Proponents of the EU have used the crisis to call for “more Europe” and an integrated fiscal union. Juncker has said EU monetary policy should be discussed in “secret, dark debates”.[ii]
Transfer payments under the Structural and Cohesion Funds (SCF) are collected from taxpayers in wealthy member states and sent to those less affluent, with the intention of generating growth and employment. Instead, it has resulted in gross financial misallocation and corruption, and citing irregularities. The European Court of Auditors has refused to sign off on the EU budget for the past twenty years, while also saying the accounts have been accurate since 2007. But they have historically recorded significant errors in how money is paid since their first audit in 1995. In the most recent year, they found a significant part of the EU’s spending was largely error-free for the first time. [iii] [iv]
The EU budget:
is funded chiefly (98%) from the EU's own resources, supplemented by other sources of revenue;
is based on the principle that expenditure must be matched by revenue;
has in-built schemes to compensate certain EU countries.
Own resources provide the EU's main revenue, of which there are three types:
Traditional own resources – Customs duties on imports from outside the EU and sugar levies.
Own resource from value added tax (VAT) – A standard percentage is levied on the harmonised VAT base of each EU country.
Own resource based on gross national income (GNI) – A uniform percentage is levied on the GNI of each EU country. It is used to balance revenue and expenditure and has become the largest source of revenue.
The EU can be credited as a contributing factor in reduced barriers to internal trade:
Liberalized movement of people (Schengen Agreement of 1985);
Largely free trade of goods (Single European Act of 1986);
Liberalized movement of capital (Amsterdam Treaty of 1999).
Despite being most of the economic output in all EU economies, protectionism continues for trade in services, resulting from the failed Bolkestein directive in the early 2000s, which intended to liberalize this as well.
Yet, overregulation undermines these economic benefits, and because of the centralization of decision-making, Western Europe’s economic growth has declined. Hundreds of thousands of directives and regulations written and enacted by the bureaucracy has made the EU less competitive in terms of external trade with, and compared to, the rest of the world.