Tuesday, November 28, 2017

How can the European Union become popular again?

In a keynote speech at the European Commission's 2017 Biennial Jean Monnet conference, Open Europe's head of Brussels office, Pieter Cleppe, outlines how the European Union can become popular again:

This is a transcript of a keynote speech delivered on 28 November 2017 by Open Europe’s Head of Brussel office Pieter Cleppe on how the European Union can become popular again.
The European Union is possibly the greatest project of opening up trade in history. Its strategy has been to promote peace by opening markets: if goods don’t cross borders, armies will. So let’s make sure goods cross borders.
It was not just a success during the decades after World War II. The Eastern expansion and the prospect of accession helped to prevent civil wars like in Yugoslavia – despite obvious problems and thanks to NATO as well, of course. Central Europe is now growing at the fastest rate in nine years, Romania even with 8.6%.
Still, to what extent do young people still relate to all of this? There are a rumoured 1 million “Erasmus babies” so you could argue these have their lives to thank to the EU. There are many more born out of mixed marriages resulting from the opportunity to travel, work and live across-borders.
Young people – those aged 18 to 34 – stand more favorable toward the EU than people aged 50 and older, according to a Pew poll. Still, the percentage of the young having a favorable view of the EU only ranges between 55 and 62% in founding member states such as Italy, France, Germany and the Netherlands. So real passion seems to be lacking. The support is similar in Sweden and Spain but higher in Central and Eastern Europe.
Also, if the EU is such a great success, why did the UK decided to leave? Why does it seem the governments of Poland and Hungary to be on a constant clash with Brussels? Why have eurosceptic parties done well in virtually every single Western European country?
If you love your children, you should correct them when you see them going the wrong way. That’s also the case with the European Union.
Let’s have a closer look at the legitimacy crisis of the EU in Britain and in both the “new” and the “old” member states.
To learn what went wrong in Britain, it’s important to listen to the other side. Let me quote  John Redwood, a veteran British eurosceptic member of Parliament. He has said:
“Over the years, what appeared to be a modest measure to form a common market has transformed itself into a mighty set of treaties and become, through endless amendment and new treaty provision, a very large and complex legal machine that is the true sovereign of our country.” This feeling of a project having developed in a different direction than it had been sold is quite widespread in Britain.
Regarding the tensions between Brussels and Central and Eastern Europe: the dispute really escalated when the EU imposed mandatory relocation of refugees. If a consultant were to recommend the EC how to become more unpopular over there, the advice would probably have been to do just that: force these countries to welcome asylum seekers. It’s already hard for national politicians to convince their population to be generous to them, so one can’t really blame the EU for struggling to do this.
Then why did the EU decide this? France warned Germany not to do it until 2 weeks before it was decided, but Germany insisted on mandatory relocation of refugees anyway and France went along. What followed was a Eurosceptic backlash, with the Hungarian government thankfully using the opportunity to hold a populist referendum on whether the EU should impose migrant quotas. A lot of capital that has been spent to anchor these countries in the West has been put at risk.
And for what? Telling people where to live is challenging anyway within the passport-free Schengen zone: Only 35 of the 160 Christian Syrians who were given asylum in Poland in 2015  were still in the country one year later. Most of the refugees relocated to Latvia have already left. It’s clearly a good idea to wish for asylum seekers not to be concentrated in one place, but in the borderless Schengen-area this seems like an uphill task. And naturally we should not give up Schengen. Luckily, the EU decided inSeptember to move to a system on a non-mandatory basis but some damage has been done.
In Western Europe, the EU had already been facing anti-EU sentiment before the eurocrisis emerged in 2010. There was Denmark voting against the Maastricht Treaty and France almost rejecting it in the 1990s. In 2005, France and the Netherlands voted against the European Constitution. It was repackaged as the Lisbon Treaty to avoid referendums, according to Valery Giscard d’Estaing, the former chairman of the European Convention, which drafted the Constitution. Ireland voted against both the Treaties of Nice, in 2001, and the Lisbon Treaty, in 2008. Twice it was asked to vote again. These Treaties all had in common that they amounted to transfers of power to the EU policy level, either in the form of scrapping vetoes or by creating ever more EU institutions. How can it not have had any effect on the EU’s legitimacy when popular votes against these projects were countered? This wasn’t helped by the fact that politics remains national and that national politicians have always been eager to blame the EU for everything it did and everything it did not do. When people don’t agree with something at the national level, they typically won’t accuse the national level of governance of lacking the legitimacy to take a certain measure. At the EU level, that often happens. People that don’t like a certain tax imposed by the Dutch government would simply say this is a bad policy. If there was a German-Dutch government and it imposed the exact same tax, many Dutch would say the problem isn’t just the policy but the legimacy of such a German-Dutch government. Whereas Dutch people typically wouldn’t find it unfair to have been outvoted by their national compatriots, many would find it unfair to have been outvoted by Germany. Yet, national governments have been trying to push more and more political decision making to the EU level. One cannot accuse the European Parliament of being unable to mend this so-called democratic deficit, because also there, the so-called Dutch demos would be outvoted.
That level of disconnect was reinforced by the eurocrisis, which boosted the popularity of all kinds of Eurosceptic populists.
How did the euro end up in crisis then, and how did this boost eurosceptics?
What happened with the creation of the common currency is that banks no longer had to obtain funding from their national central bank but could now in many cases obtain much cheaper funding from the ECB. That easy money wasn’t a blessing. It led to unsustainable public investment, most notoriously in Greece, but also to unsustainable private investment, for example in the Spanish and Irish real estate sectors. When the bubbles had busted, to save the euro, politicians decided to organize bailouts. That created a lot of animosity, propelling European politics to the frontpages of the newspapers and not in a positive way. Those having to pay for the bailouts weren’t happy and neither were those having to accept the conditions linked to the transfers, sometimes even in the form of so-called “Troikas” – teams of foreign officials sent to supervise national policy. No governing politician really ever promised this on the campaign trail, but it happened anyway.
The euro seems to drive a dynamic towards transfers and more centralization of power. But, dangerously, this then fuels a certain anger, translating into electoral success for Eurosceptic populists from both the left and the right. Some of them are not merely against the euro, but have used the eurocrisis to rail against the European Union itself. But even if the euro would endanger the EU, nobody has come up with a convincing plan to unwind the euro in an orderly manner. This is also why populists are dropping opposition to it as they get closer to power.
Now what do these Western European Eurosceptic voters, the Brexit voters and authoritarian populists in Poland and Hungary have in common? In my view, whether they are coming from the left and complain about having to follow certain economic or budgetary policies, or from the right, and don’t want the EU to organize transfers or determine asylum policy: the common thread is that they are all concerned about losing control.
So to provide solutions, and looking at how the EU can be made more popular again, we must take this concern serious.
But we must also look at what young people find important.
A 2015 survey by the Brussels-based think tank ThinkYoung found that what young people regard as “the most significant achievements of the EU” are “peace and stability in Europe and the right of EU citizens to travel, to live or study in another member state”.
The Erasmus student exchange scheme, is a precious tool towards the creation of a new reality for younger generations. It truly combines the educational dimension with other formative aspects of life. The late Italian writer Umberto Eco has suggested that “the Erasmus idea should be compulsory – not just for students, but also for taxi drivers, plumbers and other workers.” Well, it looks like Ryanair, founded by the rather Eurosceptic businessman Michael O’Learry, has made that possible, exploiting the opportunities provided by the EU single market.
It’s no surprise that young people are not willing to give up the opportunities created by the EU. They have get used to the ability to travel, work, study and live abroad. As opposed to many older people, they cannot even imagine how life would be like otherwise. Imagine if somebody would propose to reinstate a monopoly for the national airline carrier, effectively banning Ryanair. That won’t go down too well with young people, to put it mildly. The Brexit vote clearly demonstrated this: 73 percent of Britons under 24 voted Remain, 62 percent of voters between the age of 25 and 34 also voted Remain, and even 52 percent of the voters between the age of 35 and 44 wanted to stay in the EU. They only didn’t turn up in sufficient numbers to win.
Secondly, young people are also getting used to the benefits of disruption provided by technology. Airbnb, Uber and Bla Bla Car offer cheaper alternatives to traditional service providers in tourism and transport. Surely regulations need to be adapted but a full ban would be fiercely opposed by the younger part of the population who love to exploit these opportunities.
It is very telling that the only truly major anti-government demonstration in Hungary in the last few years took place when the government wanted to tax internet data traffic. Tens of thousands of youngsters protested on the streets which provoked a very rare result: the Hungarian government backtracked.
Here, I think, the EU has a great advantage, simply because it will find the younger generation on its side when it fights to conserve its achievements and when it proposes further opening of barriers to trade, which inevitably means disruption. Disruption is typically good for the outsiders and often disturbs the cosy position of the insiders. Young people typically are outsiders,both economically and politically.
There is so much the EU can still do to develop its core business, which is working to scrap barriers to trade and barriers in our everyday lifes. It’s good to see the EU making a new push to agree trade deals with non-EU countries. But what about opening up trade within the EU? Why has the insurance market not been properly opened up? People spend quite a bit of money to this so more competition could make insurances cheaper. Why has there in some countries, for example Bulgaria, not been more progress to liberalise the energy sector? Bulgaria receives a lot of EU funds so the EU has leverage there. Some vested interests also seem to manage to stop progress in opening up railways, postal and telecom services. In the age of e-commerce, we can no longer afford this.
To be fair to the EU, it’s often the member states blocking this. But has the EU sufficiently prioritized this? Hasn’t the focus in the last twenty years been more on institutional naval-gazing and increasing the EU’s powers and responsibilities? It’s fair to be in favour of that, but is it the right time to pursue it when the fundamentals of the EU may be under siege?
The EU is losing political capital by sometimes focusing on the wrong things. When a member has just decided to leave the club, because it thinks the club management has deviated from the core business of the club – opening up barriers to trade , the answer seems to be even more deviation: a Eurozone budget and Finance Minister, a European army, European asylum policies, European social policies. Regardless of the pros or cons, this is going beyond what the EU was initially meant for. It is clear that there are areas where there is wide divergence of opinion between EU countries. Italy looks differently at Russia than Lithuania. Romania’s labour market is different than the one in Denmark. In my native Belgium, it’s already hard to conduct a harmonized labour market policy for the different economic realities. Isn’t the EU inviting gridlock when focusing on this?
Would vested interests who fear a European Union that finds back its mojo, as it did in the 1980s, when the single market was decided, not prefer the EU to lose itself in endless debates on grand projects for which there is insufficient common ground?
Luckily, the recent establishment of Juncker’s Task Force on “Doing Less More Efficiently” is a promising initiative. Also, we’ve seen enhanced cooperation tried for willing member states to pursue more cooperation on areas that aren’t the EU’s core business, for example with the financial transation tax, so those who don’t want to participate are respected. With Open Europe, we’ve even suggested that this procedure could be used for the single market: a coalition of willing countries could agree to open their services markets up to each other.
To become more popular, I think the EU should simply focus on what is popular. The EU’s core business – opening up trade – is very popular. Most of the time when the EU faces opposition, it is because it is organizing fiscal transfers, because it is imposing conditions linked to these fiscal transfers or because it’s sticking its nose into what possibly is the most sensitive topic in every country in the world: immigration. Not when it enables Ryanair or Easyjet.
Also free trade of course still suffers from opposition, but even the opponents of the EU-Canada deal CETA did not really complain about the fact that there will be less tariffs. On the contrary, they were more concerned about issues related to sovereignty, such as the fact that their governments would have to respect the judgements of private tribunals or would no longer be able to set their preferred industry standards. Few have complained how scandalous it was that consumers would now have to pay 0% tariffs on Canadian products, or that they would would enjoy more choice, or that Canadian and European companies would now become able to bid for each others government tenders.
Isn’t freedom of movement then unpopular in some quarters? True, but when there is opposition, it’s mainly against the fact that migration isn’t controlled, not against migration in itself. Even 80% of Brexit voters support skilled migration. The EU Treaty offers opportunities for member states to impose some controls so citizens feel this isn’t a chaotic process. Perhaps some more controls should be devised to boost support for freedom of movement, in the same way that the European Commission’s suspending of Schengen in 2015 in some countries may have served to save it. Some flexibility will go a long way.
In 2021, the EU will get a great opportunity to show it has changed. This because a new EU budget period then begins, and the EU is about to lose the net payments coming from the UK. In the current 2014-2020 budget more than 270 billion is spent on “direct payments” to owners of agricultural land – banks, for example, or the Queen of England– regardless of whether they produce or not. To put that in perspective: that’s almost seven times the amount the eurozone bailout fund used to bail out the Spanish banking system a few years ago. How can the EU ever be popular with young people if it continues to focus on this, instead of for example boosting the Erasmus – programme? Surely supporting struggling farmers doesn’t mean the same as handing out checques to those who happen to own agricultural land? These payments aren’t going to bankrupt our Continent but along with other wasteful spending and the problematic travelling circus of the European Parliament between Strasbourg and Brussels, they inflict great damage the EU’s reputation. The EU’s core business of opening up trade and administrative barriers is very much in tune with the younger generations, so the EU has a great opportunity to reform itself by focusing on where it is good at. It should not waste it.

Wednesday, November 15, 2017

Europe would be mad to let Britain leave without a deal

Published on CapX
It’s hardly suprising that Brexit isn’t the top priority of the EU27 . There is the attempted Catalonian secession from Spain, Greece and Portugal have become financial protectorates of its fellow Eurozone member states, banks in Italy and elsewhere are still struggling with very high levels of bad debt, the governments of Poland and Hungary are on a constant clash with Brussels, and all over Western Europe, eurosceptic populist parties have done well in elections.
Still, as much as they may regret the British decision, the remaining EU member states should step up their game to prevent the UK leaving without a deal. Indeed, Brexit is already having a profound effect on the EU – and things, as I discuss below, can only get worse.
The “financial transaction tax” has been frozen
In 2011, the European Commission proposed this tax, which didn’t garner much enthusiasm. A limited number of member states decided to pursue the idea, with only Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain still at the table. The proposal has been widely criticised for various reasons and even before the Brexit vote led to warnings that it would endanger pensions.
Brexit has now sounded the FTT’s death knell. In July, the French Finance Minister, Bruno Le Maire, said that Brexit could bring “thousands of jobs to Paris” and that this opportunity could be lost if the tax were imposed, effectively announcing a pause.
Wolfgang Schaeuble, the then German Finance Minister, said that “quite a bit speaks in favour of the French argument to look first at how the Brexit negotiations are going”. By September, however, French President Macron seemed to have changed his mind about suspending the FTT, pledging to “relaunch” the initiative. Whatever happens now: the important thing is that it shows how future regulatory competition, which will probably only start in 2021, is already having an effect on current policy.
The rules on banker bonuses are being questioned   
The desire to lure the financial industry away from London after Brexit is not only affecting possible future legislation, such as the FTT, but also existing regulation. Ireland may revisit caps on banker salaries and bonuses at bailed-out banks, while the Dutch Economy Minister has saidthat the Dutch limit on bonuses puts the Netherlands at “a disadvantage” when attempting to attract companies from abroad. The new Dutch government has pledged to relax bonus rules in order to attract business from London.
The Netherlands has reduced its dividend taxation to 0 per cent
Dutch Prime Minister Mark Rutte has explained that Brexit is behind his government’s decision to reduce dividend taxation to 0 per cent. The logic is that when companies know that they won’t have to pay any tax on dividends they will be more likely to keep their decision making centres in the Netherlands. London-based companies may also look at the Netherlands more favourably when considering relocation.
The Northern-Ireland debate is flaring up
The Brexit referendum has given new impetus to those keen to unite Northern Ireland with the Republic. The Irish make the fair point that they didn’t ask for Brexit and aren’t wild about having a border imposed. Most British politicians, not least the Northern Irish Unionists, also want to avoid a hard border too and are keen to sort out the issue. Meanwhile, the EU Commission has showed goodwill by making the Northern Irish question one of its three priorities to make progress on before trade talks could commence.
To secure a soft border, the British government has basically agreed to Irish-European demands of a common customs union and no regulatory divergence, at least for the transition stage. Given that Ireland has been making these demands before the EU has started trade and transition talks, it does look like it won’t be possible to sort out Northern Ireland before the negotiations move on.
Naturally, Britain can’t outsource its trade policy to Brussels for ever so a technical agreement to aim for an “invisible” border when the UK exits its common customs union with the EU needs to be worked out.
A hard border in Ireland could be avoided by letting only Northern Ireland stay in the EU’s customs union, but this would effectively split the UK. It’s troubling that not only Sinn Fein, but also the Irish government and even the European Commission have proposed this.
As if Brexit weren’t divisive enough, vested interests are now trying to use it to split up the UK.
The EU’s Common Agricultural Policy is failing
Brexit could blow a 20 billion euro hole in Europe’s budget, according to the EU Commission. It’s well known that about a third of the EU’s long-term  budget, is spent on agriculture. Less well-known is the fact that more than 270 billion is spent in “direct payments” to owners of agricultural land – banks, for example, or the Queen – regardless of whether they produce or not. To put that in perspective: that’s almost seven times the amount the eurozone bailout fund used to bail out the Spanish banking system a few years ago.
We won’t have to look far to find ways to deal with the “Brexit hole”. Agriculture is an area that urgently requires pruning. The EU27 should be grateful Britain is forcing politicians in mainland Europe to finally do this.
Indeed, as Politico reports, many in Europe’s food industry expect cuts to be made to the EU’s Common Agricultural Policy (CAP) following Brexit. Propping up companies and individuals who own agricultural land isn’t high on your average Euro-citizens list of priorities.
Direct CAP subsidies have often acted as an outright disincentive for farmers to modernise. French farmers in particular have been on the receiving end here. After milk quotas were abolished in 2015, allowing more production, the French government, aided by an EU scheme, has been handing out cash to farmers not to produce milk, effectively contributing to a butter shortage in France in 2017.
Brexit and the CAP cuts it’s likely to inflict effectively reduce the EU’s scope for failing economic planning schemes like this. A new EU measure which would allow farmers more leeway before being considered as engaging in cartels in their negotiations with bigger players such as supermarket chains, has been explained by an industry source as being the result of Brexit as “the real story is about money and what happens to finance in the future. That’s really what has changed, not the debate about the supply chain”.
Fears of a cliff-edge Brexit are increasing amongst European industry
Some might be bored by the tale of the German car manufacturer who would push the German government to make sure there’s a good deal for the UK, eager to keep market access – especially as tactic was used in the British EU debate in the 1970s.
Still it’s a good example. The Association of German Chambers of Industry and Commerce DIHK just published a study revealing how a cliff-edge Brexit would result in 2.35bn euro in tariffs alone for Germany’s car industry, irrespective of the damage it would do to sales. Of course, it added that the UK shouldn’t be allowed to “cherry pick” but it’s clear who’s getting nervous here.
Ulrich Hoppe, the Director of the German-British Chamber of Commerce has stated that “an outcome without a deal would be fatal for the [Germany] economy”, explaining that “German chemicals and car industry as well as all other exporters to UK” would be hit, calling a transition very important. Also the Confederation of German Employers’ Associations has come out stressing that “we need clarity”.
Emma Marcegaglia, president of pan-EU business federation BusinessEurope, has warned after a meeting with Theresa May on Monday that “business is extremely concerned with the slow pace of negotiations and the lack of progress only one month before the decisive December European Council…”Business aims to avoid a cliff edge and therefore asks for a ‘status quo-like’ transitional arrangement with the UK staying in the customs union and the single market, as this will best provide citizens and businesses with greater certainty.”
Now guess what: the UK has practically suggested such an arrangement, but the EU is still haggling over the details of what can constitute “sufficient progress” in ongoing negotiations on the divorce bill and citizens rights. Some on the EU side assume that time is on their side, but given how trade benefits both sides, one cannot really “win” here by going against the interests of the other side.
WTO tariffs threaten 1.2 million job losses in the EU27 alone, according to one estimate by KU Leuven University. Even if this may be inflated and even if Britain may be hit relatively harder: such stats are slowly focusing minds on the Continent.
As I’ve argued before, Brexit could happen without major disruption for citizens or businesses. The UK has already made major concessions, effectively suggesting solutions that the EU isn’t likely to oppose. Now the EU side must also move if it wants to minimise the disruption that Brexit is about to inflict on the member states.