European Union: Sinking?


map-eu-member-countries-14142535[1]Over the next nine months much will be said and much publicity will be generated about the EU and in particular whether the UK will remain a member. I will nail my flag to the post; I am in favour of a united Europe. However, I cannot support the present set up, that’s a definite no.

Europe has much to offer in diversity, much sophistication. Sun worshipers need not go beyond its borders; likewise all can linger and breathe in the beauty of the architecture, art, tradition and food as they have always done but it would be nice to do as a truly united continent.

Politically and economically there are many barriers, some of which may never be removed. On the economic front the system of the EU is suffering from rot and is in thVWJRZYWDdanger of collapse. Several member states are weighed down by euro fatigue and the centralization of power.

Greece, Italy, Spain, Portugal, Ireland and France are each having difficulties. Production in Greece has fallen for three (3) months out of 4 bringing an expectation of recession. Italy is heading for another year of decline in an analysis by the International Monetary Fund (IMF). Throughout the 18 nations that constitute the euro zone inflation is at a low of 0.3% the lowest since 2008 which has led to concerns about growth. Manufacturing is at its lowest in over a year. According to Chris Williamson chief economist at Markit, the euro zone could be heading towards stagnation. (Reuters Oct: 2)

An investor index by Sentix showed a three month drop in activity that suggests the EU is heading for a recession. Germany, the strongest economy has seen their monthly orders drop by 5.7%, the biggest since 2009. (Reuters Oct 6)To add to the pressure the euro € has fallen to $1.25 the lowest in two years. All of which has brought a gloomy analysis from the IMF, “Growth in the euro nearly stalled earlier this year, even in the core”. This has left many economists and businessmen praying for sunshine in the midst of winter.

The Swiss authorities add their own kick in the proverbial by suggesting they may introduce a negative interest rate to safeguard the franc. They are worried that the flight from the euro is pushing the franc too high. Reuters

Many business people and economists are waiting to see if the European Central Bank (ECB) will introduce quantitative easing, e.g. pumping money into the system. The hope is that such an action will encourage the banks to loan to small businesses and thus stimulate the economy. However, the Germans are very much opposed to such a move. (Reuters Oct: 2) Here we witness national self- interest coming to the fore. The Germans are not alone in their nationalist outlook. France has a debt of €2 trillion which exceeds EU guidelines. The rules state that debt should not prove more than 60% of gross domestic product (GDP) but French debt stands at 95% of GDP which has brought it into conflict with the EU Commission (France 24 Sept: 30)

A week later (Oct: 6) a Reuters report states that the Commission was likely to reject France’s budget for 2015. France is unlikely to comply and demand time to deal with its problem which it will get. The Commission now has such powers thanks to an agreement of 2013. The significance lies in the centralization of power that the new ruling brings.

The situation could arise whereby nation states may have to submit their budgets prior to publication for clearance from the Commission. This would endow the Commission with a considerable degree of power and an enormous amount of leverage. Power corrupts! Such a scenario would be manna from heaven for those who oppose a centralized state.

Self-interest has raised its head in the form of tax ‘sweetheart’ deals concerning: Ireland, Netherlands and Luxembourg and their association with multinational companies, Apple, Starbucks and Fiat and Amazon respectively. The Commission is to examine the tax advantages given to Apple in 1999 and 2007. It is reported that Apple has accumulated a vast nest egg of $138bn in Ireland which it cannot transfer to the USA where it would be subject to tax. In the USA a Senate inquiry is also looking at the Apple deal. (Guardian Oct: 6)

The furore concerns the payment of corporation tax. The amount paid may be conspicuously low in Ireland and the other countries cited and could therefore constitute a bribe or in EU parlance state aid which is against the rules. As far as Apple are concerned they are doing good business and suggest that other countries should look to their tax levels. Apple would like to pay less tax; wouldn’t we all. But where would that leave society?

Of course Apple is not alone in avoidance of tax and the hoarding of their cash. Starbucks, Fiat and Amazon have been mentioned but Microsoft play a similar game. Google siphon their tax through Bermuda where corporation tax does not exist. Multinational, conglomerate power, this is what free trade looks like!

“The corporations don’t have to lobby the government anymore. They are the government.” Jim Hightower, cited by Ha-Joon Chang Economics: The User’s Guide

Shimmying around the ethical boundaries of EU legislation highlights a structural weakness. When political power is at stake – Musketeers be damned. The political expediency of the party in power takes precedence over the collective good and the prospects of a Gosplan lay in tatters.

Be aware that what the big boys don’t pay in tax you have to make up. It’s a double whammy as you also pay when you purchase the product, it’s part of the cost. The government will have its revenue come what may – you pay.

thAW9I7EY1There was a lack of an overall economic tie from the start and as each new member state joined they must have thought they had secured a safe seat on a gravy train. Some doubtless thought they had won the lottery and spent accordingly. A problem always arises when you hold a committee meeting of self-interested parties; you end with a recipe that has many ingredients which are difficult to blend, takes longer to cook, and, proves very hard to cut into slices.

Individual state interest has been at the heart of the EU since its inception. The Common Agricultural Policy (CAP) is proof of that and while it has been tinkered with over the years it still remains heavily subsidized. Everyone knows that France championed its outline and substantially its content. Today there are 14million farmers and 4m in the food sector. An incredible 70% are less than 5 hectares in size. The big boys stay healthy with their subsidy while the little guys make ends meet.

Several attempts have been made to reform CAP:

  • Mansholt Plan 1968, to reduce by five million the number of small farmers to make the industry more sustainable – dropped.
  • MacSharry 1992 aimed to cut over production by reducing subsidies to cereals by 29% and beef by 15%. Also to create set aside e.g. pay farmers not to grow crops.
  • Agenda Report 2000 another attempt to reduce subsidies on cereals, milk, milk products and beef over a period of time. The farmers to be compensated with ‘income support’.
  • Commission Report 2003 suggested big cuts in CAP expenditure – ignored.

What was agreed in 2003 was that CAP spending be retained until 2012. France led the battle cry and got German support. We evidence here the determination of individual member states to hold on to their way of life, subsidized by the rest, and thus their electorate at the expense of the collective good. How do you build a ‘union’ when each hankers after an individual package?

CAP accounts for 40% of the EU budget while employing 7% of the workforce and contributed 6% to the EU GDP.

Politicians speak loudly about human rights but only when it does not conflict with their self-interests. According to the Human Development Report (HDR) 2003, in the year 2000 the EU spent $913 as a subsidy per dairy cow but gave $8 per person in aid to Sub-Sahara Africa. In a later report 2005 the HDR stated that the problem facing the World Trade Organisation (WTO) was “rich country subsidies”. Interestingly, in 2008 the WTO meeting collapsed in disagreement over the issue of subsidies. In December 2013 at Bali in Malaysia the WTO meeting again broke down due to rich country subsidies.

“…the West spends high amounts on agricultural subsidies each year, which amounts to unfair competition”. (Wikipedia op cit 🙂 So much for free trade!

Another major problem with the EU is its continual failure to balance the books or have them audited. Until the books are audited we cannot take the politicians seriously. The fact that no one has lost their job is testament to their contempt for the public.

The election of executive commissioners is a further example of their contempt. AllNew Picture (1) elected MEP’s join one of several groupings: centre right, centre left, ultra this and ultra that. They then caucus in their own gang where they plan to get a set number of their clan elected and to block other clans. It is a time for “partisan infighting and tactical manoeuvres”. (Guardian Oct: 2)

Notice that no thought is given to whom might be the best candidate for the job or what might be in the best interest of the electorate. No thought is given to the people; their own brand of politics is core to their thinking. They have entered the Colosseum, thumbs at the ready. Let the games begin! Even at the start they are distant from their electorate and so they remain.

Across Europe people are showing their discontent by voting, in increasing numbers, for anti-EU political parties. The EU needs a root and branch change. Politicians may try to persuade that the present crisis is solvable but the Union has been weak from the start. Actually, it has never really been a union, just a mishmash of contending interests. The EU is weak, the politicians and bureaucracy are insular. Is there a doctor in the house!