The referendum was presented by David Cameron as the opportunity to support a “reformed” European Union. Given the suspicion of the Prime Minister’s sound bite politics, perhaps we should ask the question what reform actually means.
From public utterances, it would be easy to deduce that Cameron saw his expensive tour of EU states to have been a step in the direction of reform. Cameron noted the key achievements which have been some minor welfare reforms and a statement that ‘acquis communautaire’, ever closer union, will not apply to Britain.
It would be easy to conclude that the impression Cameron has been trying to give is that EU reform means a drawing back of boundaries.
There certainly seems to be a case for reform. As previously discussed on this site, economies within the EU are diverging. Germany, the location of the European Central Bank (ECB) is experiencing steady if unspectacular growth. Nations close to the German geographical core are growing, albeit slowly. Those on the Euro currency zone periphery are suffering.
To some extent, there is already a two-tier EU. Of the member states, 19 have adopted the euro as their currency. They are still subject to the acquis communautaire. As such, their march to ever closer union is, according to the Treaty of Rome and subsequent treaties, irrevocable.
The existence of a single currency has significant implications on the direction of reform.
Single currencies have exited before. Early examples come from the Roman Empire and in the far East, the Chinese dynasties of Qin and Han. Their durability over centuries may have been due to centralised power combined with markets that were less efficient than today’s. Coins that carried their own value in gold, sliver or bronze may have also helped.
The Roman currency became devalued as coins became plated in silver and gold.
Further attempts at currency stability have been made over time. The Gold Standard provided a basis for currency values. This worked from 1717 until World War I. Promissory bank notes were supported by the value of gold.
The 20th century saw developments in money markets and currencies. Notes have become trusted without the backing of a commodity. Telecommunications and electronic trading have intertwined the values of currency and commodities. It has been the stability of governments that has allowed financial markets to develop.
Similarly, as compared with Roman times, commodities and their derivatives can be traded in global markets, between Europe and America at the touch of a button in Asia.
Smaller currency unions have worked in the 20th century onwards in some cases. These have tended to be when a smaller country has tied in to that of a larger neighbouring country. Others, such as on the African continent, have worked where neighbours shared a similar economic structure.
Modern currency unions on a larger scale can work. A classic example in the United States which has a diverse economy, with a range of climates that is even wider than those of the EU. It works because if one state or region does not perform, central government can redeploy resources around the union of states.
If the EU and the Euro are to work, does that indicate that reform should take a different direction to the looser affiliation that Cameron seemed to suggest before the last election?
Can the Euro succeed unless there is the sort of government that can divert funding flows from New York to Idaho? How can Greece, Portugal, Spain and Italy expect to remain in a currency union with Germany?
The answer probably comes from the EU 5 President’s Report from 2015 entitled ‘Completing Europe’s Economic and Monetary Union’.
This document sets out 4 further steps for integration:
- a genuine Economic Union
- a Financial union
- a Fiscal union
- a Political Union
These certainly seem logical steps if the Euro is to work. There is even a timetable for reform in 3 stages. Stage 1 “structural convergence, completing the Financial Union, achieving and maintaining responsible fiscal policies at national and euro area level” by 2017.
Stage 2 sees a completion of the “economic and institutional architecture”, through agreed benchmarks which could be of a legal or constitutional status. Stage 3, or completion, scheduled for 2025.
So we have a picture of reform generated from within the European Union. Far from being reform towards liberalisation, the proposed path is for closer integration. Whilst monetary policy I decided by the European Central Bank, fiscal policy is to be constrained through convergence criteria. Political union becomes inevitable.
Of course, it remains possible for those countries outside the Eurozone to opt out of those arrangements. The question remains, what sort of status will they have? Will we see Norway’s trading model? Does pooled sovereignty mean he majority of EU members decide on further bureaucratic measures that will suck in those nations who have opted out of the Euro?
One thing is clear, that at the moment we do not know what “IN” looks like. Uncertainty over the direction of travel creates risk. Will a Britain without an ability to create its own fiscal policies be able to attract sufficient inward investment to maintain high employment levels in the future?
With less than 2 months until the referendum, it is time for the government to make its case, tell us what IN looks like and explain their vision for a reformed EU. How does this compare with the EU institutions and what are the chances of success?
The time for Project Fear is over. The time for clarity has come.