The end of a European integration process edit

May 16, 2006

From the 1992 inception of the Single Market Program, to the introduction of the euro, to the enlargement to 25 member countries in May 2004, the process of European integration appeared to defy gravity. Bumps like the early 1990s currency crises did not halt it, but spurred it to leap onwards to the next step. Up to late May 2005, all this bolstered the confidence of those who, when designing the Single Market in the 1980s, could not imagine that the Iron Curtain would soon collapse and viewed a single European currency as a distant theoretically unavoidable but practically difficult endeavor. Many dreams had come true, and there was no Plan B, when the French and Dutch electorate rejected the Treaty establishing a Constitution for Europe.

-->What triggered the rejection? Eurobarometer surveys indicate that in the Netherlands lack of information and loss of sovereignity topped the list of reasons for 'no' votes. In France (see ), a similarly nationalistic answer only scored fourth (at 18%); the two top reasons for voting 'no' were economic: effects négatifs sur la situation de l'emploi en France (31%) and situation économique en France trop mauvaise (26%). Blaming Europe for their economic woes may have come natural to the French (and the Dutch, to a different degrees) because slow growth disappointed those who expected the Single Market to propel Europe as an economic powerhouse on the global stage. But a striking feature of the survey responses is significant confusion about what exactly was being approved or rejected. In France, trop libéral sur le plan économique (19%) and pas assez d'Europe sociale (16%) were among the top five reasons for 'no' votes, and at same time as Premiers pas vers / Symbole d'une Europe sociale was cited as a reason by as many as 7% of those who voted 'yes.' The French care about social policy, and a majority appears to have felt that the Constitution was threatening it, but were confused as regards the effects of European integration and of the Constitution.

Confusion regarding what European integration is supposed to do, and whether and how it accomplishes its goals, is still pervasive a year later and was in fact a persistent feature of the policy process that brought the EU to its current configuration, and was seldom a subject of political debate within each country. Confusion is not news, but the news of 2005 was that politicians chose to poll their citizens without expecting that their confusion would, for once and maybe for good, play against further European integration, instead of making it easier through dissemblement of some arguably awkward aspects of a difficult process.

The events of late May and early June 2005 certainly do not imply the end of European economic integration, which has to continue to broaden the scope of economic relationships, as it has done in history from villages to kingdoms and empires and, very recently, to Nations and beyond. But they arguably did signal the end of a process where each integration step appeared to make the next a confusing necessity, or perhaps a free lunch, rather than a choice based on rational assessment of benefits an costs.

Specifically, the referendum results strengthened the case for making sure that completion of the European market space is accompanied by more coherently planned and politically negotiated development of suitable common policies. Establishing a Single Market in goods required harmonization of policy instruments, such as safety and quality regulations. In the macroeconomic policy area, it was clearly impossible for a single capital market and fixed exchange rates to coexist with independent monetary policy: that inconsistency was addressed, in the Eurozone, by forsaking national policy through monetary union.

But many other similar problems are not yet addressed by suitable common policies. The drastic approach of the original Services Directive draft failed to recognize that competition among regulation systems can dismantle quality safeguards meant to address asymmetric information problems: regardless of whether such efficiency considerations or preservation of monopoly rents motivate National regulation, it would be wishful thinking to expect governments and citizens to accept economic integration without harmonization of common regulation. And it is conceptually inconsistent to stipulate that tax and social policies should be set at the National level, allow unrestrained goods and factors market mobility and competition, and hope that policy remain effective despite obvious "race to the bottom" incentives. Whenever collective policy action is needed, and goods and factors of production can interact freely across the boundaries of policy-making entities, self-interested competition among such entities generally defeats collective goals.

The problems are just as simply stated as the classic monetary policy inconsistency, and solving them is even more important and more difficult when it concerns social or tax policies rather than interest rates. It is more important, because wages and taxes are nearer people's minds than monetary policy and are much more clearly a political rather than technical issue. It is more difficult because, for that very reason, a common policy solution to common collective problems should be sought in a political discussion area that does not yet exist at the EU level, and is hard to establish across the boundaries of its widely and increasingly heterogeneous member countries.

The economic role of the government is very important in the eyes of most European citizens, but each country has its own traditions and histories, and its own political language. Politics is still largely National in Europe, but economic policies that bear more directly on redistribution within and across countries would have to be an issue in Europe-wide political media and electoral competitions. While neither exists yet, both will need to develop, slowly but unavoidably, for economic and economic policy integration to proceed in Europe.