Two Europes in one? Part Two European Portal of Integration and Development


Yesterday's article dealt with the issue of Cameron's EU policy and raised the question of how integration goes in our days. Today, the second part of the article will examine the risk of fragmentation and some possible prospects of integraiton.



Risk of fragmentation

The split between EU member states is not only about their position in terms of the eurocrisis and the monetary union. It is today relevant to talk about a two-speed Europe divided between the haves and the have-nots; a two-speed Europe that is roughly manifested in a north-south division.
The terms “widening” and “deepening” have been commonly used in EU studies. The wideners advocate a looser association of sovereign Member States, with membership extended across Europe, in order to achieve maximum benefit from a big Single Market. Certainly there is a group of Member States interested in developing a free trade area but reluctant to transfer political authority to the EU, whereas another group of countries, led by Germany, are prone to further political integration, most notably in the euro area.

If we look back at history, since 1957, the European Economic Community has been built in parallel with the EFTA, a free trade association of European countries, which was founded in 1960 in order to avoid the politically orientated European Community.
The United Kingdom, Ireland and Denmark joined the EEC in 1973 and most of the EFTA members did it in 1995, leaving the EFTA as a lobbying organization for small countries outside the EU (Iceland, Liechtenstein, Norway and Switzerland).

When Mr Cameron upholds national sovereignty against intrusions from Brussels, he tries to set a free-market vision for Europe (reminiscent of the EFTA). He stresses that the British vision is away from the German vision, which includes harmonization and more control of the economy.
The UK governments have never been very fond of supranational institutions. Many EU member states are also disappointed about the lack of subsidiarity and would be in favour of a “flexible union”. 

As for the opt-outs, there is wrangling over the Financial Transaction Tax, and environmental and social affairs issues, like the directives on parental leaves and working time, or EU health safety measures, to name a few.
So, Cameron’s vow to hold the referendum would raise the stakes for other EU leaders.
It is almost impossible to make projections, since they might be as misguided as the prophecies of Greece leaving the euro. As the Eurozone has proven to be so resilient, so may the European Union be itself. 

The single market is much more than a free trade area, it sets common regulatory standards to ensure the free flow of goods, services, capitals and people. To ensure its proper functioning, Member States accept the common rules, including consumer rights and wider protection of the citizen’s rights. So the harmonization agenda is pursued for the benefit of citizens. If a Member State is allowed to scarp regulations, gaining a competitive advantage, the game would be unfair and unacceptable to the European partners, which compete in the global markets on the basis of the EU standards. So far, the members of the EU have all sacrificed part of its sovereignty.

After the enlargement, the heterogeneity of preferences among EU has increased, making it more difficult to reach political agreements. Yet, there are still many fields where further integration benefits, clearly in the euro area, where cooperative agreements (treaties) are expected to cope with conflicting needs.
The Fiscal Compact has overcome the unanimity requirement for its adoption by the Eurozone, leading to the harmonization of macroeconomic policies. In this context, a set of federal governance rules are considered, like giving more powers to the Commission, which has traditionally led across-the-board harmonization proposals and now works for the federalization of the common agenda.

The EU is already the vastest economic trading area, and is still growing, making governance more complex. It has to tackle with growing economic and social tensions. The most likely scenario is that the EU will continue progressing towards integration, in parallel with the development of stronger EU governance. This would require the EU Parliament to take a leading role to control the Commission, and holding sessions to dispute over budget deficits, overspending and regulations, bringing transparency and confidence to the citizens…


The case for a federal Europe

We have mentioned that the eurocrisis has aggravated economic divisions, being the cleavage more evident when northern countries attach to the idea of austerity, whereas southern countries are more prone to growth stimulus and burden-sharing.
If the Member states diverge on the basic features of the EU social and economic model, the policy-mix will get more cumbersome.
While the United Kingdom and others call for a bigger role for national governments in the framework of intergovernmentalism, there are also calls for the one-size fits all approach.
My take is that both visions are compatible, for subsidiarity
holds that policies should be executed at the lowest possible level of government, while decisions should be based on mutual trust. The federal approach allows for thetransfer of powers to the political centre, being compatible with decentralized execution. It has to do with the idea of flexibility some members are fond of.

There is a growing consensus (even Cameron agrees on that) that there must be an institutional deepening of the euro area, to face the competitiveness crisis. These institutional changes require democratic accountability in many of its technocratic decisions. What seems clear is that EU leaders do not want to go through another ill-fated referendum (France, 2005) on the EU Constitution.
As for the multi-speed Europe, no institutional actor has shown much support. Harmonization of standards are beneficial because they facilitate trade and movements, and centralization is seen as the most efficient way to agree on standards, though making it more necessary for some countries to receive compensations, like the Structural and Cohesion Funds.

In the current EU setting, the Member States already cooperate on many policy dimensions, particularly the single market, when most have accepted to surrender their sovereignty. So, despite the asymmetries and its costs, most countries are not willing to assume the cost of uncertainty.

After the Maastricht Treaty the EU political project has been underway, as a way to boost Europe’s political voice, while problems arise every time that the Member States cannot even agree on how to set and pursue common goals. Since 2008, the financial crisis has taken up a lot of resources from Eurozone countries, facing high levels of debt, spiralling costs and low levels of competitiveness, while locked into a currency union where exchange rates are beyond their control. It seems now that the worst is over. Burden-sharing and sustainability of the euro is guaranteed by the permanent bailout fund and the new budgetary commitments under the Fiscal Compact, not to forget the low-interest loans by the ECB. Yet the hardship has a political cost, in the context of a general austerity fatigue. The push for growth rather than cuts is growing.

In order to be able to act, the EU institutions need resources and decision-making capacity. But the most important value is coherence, as the ability of Member States to come together to work towards a common goal. This will only depend on a sufficient level of shared interests, values and even the perception of common threats.
The good performance of the euro in the last weeks will not be enough to improve the attractiveness of the EU model, put into question in the light of the drastic cuts and the painful consequences of economic decline for many Europeans, but we should keep in mind that the European Union is the most highly developed integration project in the world. This is what is really at stake.