Is Brexit the euro's first major blow to the EU?

Published by New Direction (p25)

In his book "The Euro: The Politics of the New Global Currency", David Marsh shows that the drive to forge a common currency in Europe was animated by the traumatic experience of the break-up of the Bretton Woods agreement in 1971, when the US declared it would default on its obligation to exchange the dollar reserves of European nations for gold.

At the beginning of the 1990s, a system of fixed exchange rates was in place in Europe, in preparation for this planned common currency. In 1992, investor George Soros made a lot of money as his speculation forced the British government to pull the pound from the European Exchange Rate Mechanism (ERM). Soros understood Germany would not be willing take extreme measures to keep Britain in the ERM, an insight lost on many in the City of London.

Similarly to the euro crisis that would come later, this humiliating chain of events did not stop the big project from proceeding. The 10 year borrowing costs of struggling European countries such as Italy, Spain or Belgium (see figure) continued to stay high over the next few years. No half-hearted budget cuts, gold sales or tax hikes succeeded in bringing them down. The only measure that lowered borrowing costs was the decision to create a common currency. In 1995, investors became convinced that the common currency would be a reality and that Italy and other weaker European economies would become members. This is evidenced by the fact that this was the last peak before which borrowing rates dropped off precipitously. For each of the eurozone’s member states, the prospect of entering the common currency zone resulted in a drastic reduction in borrowing rates.

http://www.slideshare.net/btletstalk/keynote-one-the-unbalanced-economy-and-the-next-30-years

Why does this matter? It matters because it explains how the euro was not born as a result of positive experiences with fixed exchange rates or of some ideological consensus. There were many opponents, not least in Germany, but also in France, where almost half of the population voted against the Maastricht Treaty, which provided the euro’s framework. Rather, the euro emerged because it allowed politicians to postpone painful decisions and in some cases even outright state defaults. When politicians were desperately scrambling for ways not to have to cut spending in the 1990s, they eventually discovered that deciding to create a common currency allowed them to kick the can down the road. As the US Dollar has proven for decades, a large currency zone affords more mismanagement, in terms of loose budgetary or monetary policy, than a small currency zone.

Just as the euro was pushed through despite the opposition of a large part of the political class, it has now given rise to a transfer union, despite the reluctance of both Northern European politicians, who had to defend to the system of transfers to their taxpayers, and Southern European politicians, who had to accept the conditions and foreign interference linked to the transfers.

Just as the common currency emerged unintentionally, also Eurozone protectionism, which endangers the whole EU project, may emerge as a result of events. When Spanish banks got in trouble in 2012 and frightened Northern European politicians provided Spain with a 100 billion euro bailout, they could only get away with this move, politically, by ensuring that the bailout had strings attached. In this case, the strings amounted to a concession that a Eurozone framework for financial supervision would be created, parallel to the EU framework, to supervise Spanish and other eurozone banks. The ECB was entrusted with this task, and thereby directly ended up in direct competition with an existing EU banking watchdog, the “European Banking Authority” (EBA) in London.

One can imagine that after yet another round of bailouts and further, stricter prescriptions for banks, eurozone banks may start to lobby to exclude competitors who enjoy market access in the Eurozone without having to comply with ECB rules. In short: common eurozone rules might easily serve as an excuse for keeping out external non-eurozone competition in the future. The aftermath of the Brexit vote and the many warnings from the continent about Britain losing its single market access hint at the underlying desire to kill off competition from outside the eurozone.

The ECB has proved not to be immune for the protectionist virus. Already a few years ago, it tried to force clearing houses to relocate to the Eurozone if they wanted to continue clearing in euros. This attempt at grabbing business from London failed and the ECB had to back down, thanks to Britain’s EU membership, which allowed the UK government to exert some pressure.

As Britain leaves the European Union, further, more aggressive, attempts will likely be made to export Eurozone rules outside of the common currency zone. This in turn will likely boost anti-EU sentiment in Denmark, Sweden and Poland, which may have their financial institutions barred from the eurozone market. Once the EU’s free movement of capital is damaged, it is only matter of time before the freedom of movement of services, persons and goods comes under fire.

Still the differences within “old Europe” are quite material and this itself may be the reason for a hypothetical future EU break up. It is unlikely that the far right in France or the populist left in Italy will manage to convince the citizens of those countries to leave the euro by referenda, because of fears that savings would be ruined in ensuing banking crises. If the euro does blow up, it will likely be the result of some financial event, not a political one. Such a scenario would force the German government to make a choice: will it only bail out its own banking system or will it bail out the banking systems of the Benelux, Austria, France and Italy as well? The German government would not have more than a few hours to make this choice. Perhaps on the next two occasions when it has to make this choice, it will again decide to bail out the whole of Europe. Perhaps the German government will go much further than anyone can now imagine—but at some point, enough will be enough.

Why would there be financial crises forcing the German government to make such a choice? The answer to this question is not just about the euro. It is related to the nature of our fractional reserve banking system, whereby banks are allowed to only keep a fraction of the funds they owe to their clients in reserve. This is a means by which the total amount of money in circulation can be expanded, which drives down the price of money, also known as the interest rate. This in turn allows governments to refinance their old loans more cheaply, so they can avoid raising taxes. The unsustainable investment following excessive creation of money produces investment bubbles and financial crises. When these appear in Japan or the United States, the odds are high that the respective governments will bail out the whole currency zone, even when this means they have to impose significant financial repression. In Europe, this is more difficult, given that the burden wouldn’t be suffered evenly across the monetary union. Nationalism would pop up as violently as it did in Greece, where anti-German sentiment was rife during the eurocrisis, which even led to a Greek Parliamentary investigation aimed at pushing for German World War II reparation payments.

Why should the EU break up when the euro collapses? There is no reason that it should, but politicians like Angela Merkel have linked the two together, in order to get away with Eurozone bailouts. In 2011, she said: 'If the euro falls, Europe falls'. One can only hope people understand that to have a common currency is different than to have a treaty whereby countries promise not to impose trade barriers upon each other. When banks close and people lose considerable parts of their savings that message may be a hard sell and human folly may rule the day.

Still, one shouldn’t be overly pessimistic. Already now, many have understood that to have savings in the bank is a risky undertaking, and that it’s probably a good idea to shift a part of one’s wealth into hard assets like real estate, stocks and physical gold and silver, despite the fact that also these investments come with great volatility and risks. Today in 2016, only a tiny part of services are compensated in private “cryptocurrencies”, of which Bitcoin is the most popular, but this will only grow. This kind of currencies have proven to be very volatile and risky, but at the same time they have proven to be a very effective way to avoid capital controls, while the technology behind bitcoin, blockchain, has now been adopted by major banks. If in 20 years time, one third of transactions would be in private currency, a breakdown of the public money system in Europe may be much less traumatic than it would be today.

Another alternative is of course that we could just see the German government effectively allowing the full erosion of savings in the Eurozone in order to save the euro-project, but this isn’t likely, given the current German hostility against such payments. Some may think that common Eurozone joint debt issuance may save the Eurozone, but this overlooks the fact that the ECB has been the crucial actor in propping up the currency zone, precisely because there was no political support for doing bailouts in a more transparent manner, through the eurozone’s lending schemes, such as ESM and EFSF. According to prominent German economist Hans-Werner Sinn, the ECB has provided for about 75% of the bailouts in the Eurozone.

Alternatively, we could see moves towards a world currency, in the framework of the IMF’s “Special Drawing Rights” (SDR). In the same way that the decision to create the euro effectively bailed out struggling European welfare states, the debt-crippled industrial nations of today may get a few decades respite as a result of beefing up the SDR system. US economist Jim Rickards suggests that the world’s bad debt could be rolled up the into the Special Drawing Rights (SDR), which he thinks is also why China has been buying SDRs on the market.

Of course, there are two sides to this coin, and savers would pay the price for such a move. Perhaps there may simultaneously be moves to reboot the system. There may be “bail-ins” or operations to recapitalize banks through the shrinking of the money supply, similar to what happened right after World War II.

Britons had a lot of reasons to vote to leave the EU. What they most certainly did not like, was that the club which was supposed to be about scrapping trade barriers turned out to be a club mostly centred around a common currency helping to boost an ever-centralising bureaucracy and helping to prop up virtually bankrupt European welfare states. Without the eurocrisis, which gave the EU such a bad reputation, the British may well have voted to stay, despite concerns about freedom of movement. Brexit is just the first big blow the euro has inflicted on the European Union.

At the moment, elites in Berlin, Paris and Rome still believe they will manage to save the euro project through a “transfer union”, despite the fact that the large eurozone transfers since 2010 (and before, through the ECB) have done little to mitigate the crisis. Given the series of euro crises that will continue into the future, and which eventually may lead to its demise, it is now crucial to make the case for an arrangement in Europe that secures the right to do business and move cross-border, and make sure this great part of EU cooperation isn’t tainted by the failure of the euro. Otherwise, the enemies of free and open trade will happily seize the occasion to kill the EU, alongside with the euro.

Will clean coal be allowed to develop in Europe?

Published on Energypost.eu

Trianel Kraftwerk Lünen calls its tself the most modern and efficient coal power station in Europe

EU and national energy policies are strongly focused on promoting the use of renewable energy. However, EU policymakers should not overlook progress being made in traditional energy sources, especially in coal power plants, writes Pieter Cleppe, head of the Brussels office of think tank Open Europe. According to Cleppe, a significant expansion of ‘clean coal’ – which involves both carbon capture and storage (CCS) and supercritical power plants – may be needed to achieve the EU’s climate targets. 

A lot is changing in the energy debate, and not just because President Donald Trump may rewrite the playbook, even for Europe. In fact, for both renewables and traditional fuels, there are major developments on the technological front.

While cost reductions of renewables have been making headlines, technological breakthroughs in the realm of fossil fuels have also been coming thick and fast, although they are much less reported on.

India deserves particular attention: there, despite the country’s significant renewables drive, two-thirds of power still comes from coal plants. Its government plans to double 2016-level coal production, to 1 billion tonnes by 2020, even pledging that state-owned companies would ramp up production if private production wouldn’t be sufficient.

The EU’s own reference scenario predicted last year that two-thirds of solid fuel energy generation will come from plants that use CCS technology

To resolve the discrepancy between India’s reliance on coal power and its global carbons emissions commitments, India is implementing an ambitious CCS program. For example, at a prototype 10 MW facility in Chennai, 90% of carbon dioxide released is being captured and stored. The company behind the technology claims it can be scaled “up to 1,000 MW”, indicating how important this technology could become.

While the Chennai facility promises to capture nearly all of the CO2 emitted from the burning of coal in a commercially viable way, India’s government has also announced it will invest in modern, more efficient “supercritical” coal-fired power plants that leverage new technologies to produce more power with fewer emissions. In fact, Indian Energy Minister Piyush Goyal is so optimistic about this new development that he recently argued that upgrading 40GW of such out-dated plants will generate CO2 “saving[s] [that] will be far greater than possibly the 100,000 MW of solar power that we will be generating.”
Green campaigners

According to U.S. coal industry representatives, a favourable legal framework could spark a surge among “clean coal” plants in the United States as well. With Donald Trump in the White House and the GOP firmly behind a fossil fuel-friendly energy agenda, coal might very well get a boost.

To avoid a national blackout that month, Germany had to rely on coal power plants, 30 of which are scheduled to be shut down by 2019

Green campaigners may object to Trump’s pro-coal policy, but in view of the fact that coal will remain a dominant part of the energy mix for decades to come – at least according to the International Energy Agency – any option for making it cleaner should be given a chance.

Actually, under the Obama administration similar efforts were made. Obama increased tax credits for capture and sequestration last year. Just before he left office in January, the first large-scale government-backed “clean coal” facility was declared operational in Texas. Another is near completion in Mississippi.
If Trump double downs on carbon capture technologies, as he will according to his allies, this may have an effect on Europe as well.

Overregulation

Governments in the UK and France have pledged to phase out unabated coal generation completely, and more than half of Europe’s power generation is currently coming from non-fossil fuels, including renewables and nuclear energy.

Still, member states like Germany and certainly Poland generate a large percentage of their electricity from coal, more than 80% in Poland’s case. As a result, Europe will need to implement carbon capture technologies similar to the ones being developed elsewhere, if only to reach its own emission target reductions for 2050. Actually, the EU’s own reference scenario predicted last year that two-thirds of solid fuel energy generation will come from plants that use CCS technology.

The development of supercritical plants will be important too for Europe. In Germany, this technology is already being used, for example in the Trianel coal power station in Lünen. On average, Europe’s coal power plants lag behind Japan’s and even China’s in terms of efficiency, so there is a lot of room for improvement.

Construction of Trianel Kraftwerk Lünen

In almost every EU member state, electricity markets are characterisedby subsidies, overregulation and preferential treatment for various energy sources. On top of that, the EU is distorting competition itself through its imposition of targets to achieve a certain share of renewables. With Open Europe, we’ve estimated that the cost of adopting the EU’s 2020 climate change targets will come to an extra £220,000 for a small-to-medium British business. At the same time, this delays technological progress which could benefit both consumers and the environment, given that technologies to improve coal aren’t as rewarding any more when the market for non-renewables is kept artificially smaller than it would have been otherwise.

It’s also a matter of energy security. Germany, which has a highly developed renewable energy sector, has to rely on traditional energy when push comes to shove. On a single day in January of this year, nuclear- and gas-fired power plants, as well as those using black- and brown coal, had to supply 90 percent of Germany’s electricity. With hardly any sun or wind, renewable energy sources failed to provide much energy.

Renewable technology holds great promise, but how responsible is it to exclusively rely on it while ignoring very real downsides

Indeed, to avoid a national blackout that month, Germany had to relyon coal power plants, 30 of which are scheduled to be shut down by 2019. Partly due to the decommissioning of nuclear power plants, coal’s share in the electricity mix has remained stable, accounting for about 40% of Germany’s electricity production. With willing customers for its relatively cheap coal-generated energy in neighbouring countries, German coal production levels are expected to only decline slowly.

Real downsides

Outside the EU, major energy markets are far less shy about using coal power. In Japan, South Korea, Southeast Asia, Turkey and the Balkans, it is far from extinct. The International Energy Agency (IEA) foresees that coal will remain the single biggest global source of electricity generation until 2040, while worldwide demand would increase by 5%. It’s no wonder that the IEA and the United Nations Intergovernmental Panel on Climate Change consider carbon capture and storage to be a necessary technology to curb greenhouse gas emissions.

While renewables continue to develop, Europe shouldn’t miss out on other technological developments which may help achieve the same goals

Renewable technology holds great promise, but how responsible is it to exclusively rely on it while ignoring very real downsides? Wind and solar energy infrastructure operates part-time and needs back-up capacity, driving up electricity prices. Furthermore, how wise is it to declare only one particular kind of energy production environmentally friendly and economically viable? Hazardous materials are needed to produce solar panels, while the environmental downsides of wind turbines have also been documented. While renewables continue to develop, Europe shouldn’t miss out on other technological developments which may help achieve the same goals.

A glimpse at EU member states’ guidelines for the Brexit negotiations

Published on Open Europe's blog


Dutch daily De Volkskrant has more on the long-awaited 'guidelines' that will determine the position of the 27 remaining EU member states in the upcoming Brexit negotiations. Open Europe's Pieter Cleppe provides a summary of the revelations.

The document only contains ten pages and would only have been seen by six people, including European Council President Donald Tusk and European Commission President Jean-Claude Juncker. De Volkskrant is reporting about its content on the basis of information provided by “some who were involved” in its preparation.

The guidelines have been drafted during the last nine months by the head of the Council’s Brexit task force, Belgian diplomat Didier Seeuws. He used to be both the chef de cabinet of Herman Van Rompuy (when he was European Council president) and the spokesman of the European Parliament’s Brexit ‘point man’ Guy Verhofstadt (when he was Belgian Prime Minister).

Chapter 1 – “Access to the internal market requires the acceptation of the EU’s four freedoms”

The first chapter of the guidelines is reportedly quite general, and insists that the EU-27 are united and that access to the internal market requires acceptance of the ‘four freedoms’, including freedom of movement of workers.

Chapter 2 – Principles regarding the exit

The second chapter deals with the principles preferred by the EU-27 for the “exit” negotiations. First of all, the EU-27 reportedly want the 3 million EU citizens who are currently in the UK to be able to stay, keep their jobs and right to health care. In return, they would be prepared to guarantee the same for the approximately one million Britons who reside in the EU.

Secondly, the chapter deals with the UK’s “liabilities” or “exit bill”. According to De Volkskrant, the guidelines won’t mention the €60 billion figure which the EU Commission has floated. The idea would be to negotiate a calculation method. The newspaper mentions that this part is a technical and legal minefield, given the challenge of how to calculate future pension liabilities of EU officials as well as the value of the EU’s assets, to which the UK has contributed.

One particular challenge results from former Prime Minister David Cameron’s efforts to cut the EU’s 2014-2020 budget. This resulted in a compromise by which EU “payments” are being cut for the first few years, while – in return – higher “commitments” were agreed for the future. As a result of this, the situation will arise that the EU Commission will be promising money during the time that the UK is still a member which member states would only need to effectively pay for after Brexit.

Furthermore, as the UK would no longer recognise the European Court of Justice (ECJ) as the arbiter to sort disputes related to the exit negotiations, the International Court of Justice in The Hague may fulfill this role – or at least some are suggesting that it should.

Chapter 3 – Principles regarding Britain’s trade status after its exit

The third chapter deals with the UK’s status after Brexit. Here, the proposed EU-27 guidelines would insist that EU membership should be rewarding, meaning that the UK should lose some of its trade “benefits”.

This of course assumes that a benefit for the UK isn’t a benefit for the EU-27, indicating that the EU – or at least those who drafted the guidelines – consider trade really to be a zero-sum game. Little consideration is made for EU-27 consumers facing higher hurdles when trying to tap into capital from the City of London or UK consumers facing more expensive German cars or less choice in European wine.

Chapter 4 – “Loyal cooperation” as the guiding principle of the negotiations

The fourth and final chapter discusses the principles of the negotiations itself, with “loyal cooperation” being pushed forward as the key principle.

More about the negotiations

The article reveals that EU leaders will need to decide if they’ll start with the talks about the separation act and trade relation simultaneously or whether they’ll prioritise the former, suggesting that there may be some sympathy for the UK government’s stance that things should be discussed in parallel. Let’s hope that this line will indeed prevail. Not only is trade access to the UK also very important for a number of EU member states so it’s better not to lose time, the EU may well manage to convince the UK to pay a bit more if this is linked to trade access. Interestingly, the newspaper mentions that a third option is being considered, which is to start negotiating on everything with the caveat that there can’t be a deal on any issue related to trade before there is a deal on the exit-aspect of that issue.

When the 27 EU leaders approve the mandate at 29 April, it’s reportedly expected they’ll have some discussions on the calculation method for the exit bill and on whether negotiations on exit and on whether Britain’s trade status after the exit should be conducted in parallel. After that, the EU Commission’s Brexit team, led by former French EU Commissioner Michel Barnier, will further develop their “directives” to negotiate in detail and then receive approval for that as well. That apparently shouldn’t take a lot of time, as the guidelines would have been prepared in close coordination with Juncker and Barnier in the first place.

Barnier and his deputy, German EU Commission official Sabine Weyand, have now visited all 27 member states and would be ready with the registration of all sensitivities and possible division points among the 27. Barnier himself is keen to start the negotiations already in May, aiming to conclude them in autumn 2018, so member states and the European Parliament can approve the separation act before the European Parliament elections of May 2019.

Another recent blog comment on Brexit can be found here.

The EU could learn from Dutch PM Mark Rutte on how to stop the populist tide

Published on CNN, Czech newssite eurozpravy.cz and Open Europe's blog

Just because Geert Wilders’ Party of Freedom failed to win as many votes as predicted in the Dutch elections, it doesn’t mean wider discontent in both the Netherlands and across Europe has disappeared.

We shouldn’t forget that during his campaign, Wilders didn’t even try to moderate himself – unlike Marine Le Pen, leader of the French National Front, for example. In February, Wilders called Moroccan immigrants “scum,” despite only two months earlier having been convicted of inciting discrimination against the very same group. His style may have lost him the votes of people who thought he was too extreme. But it is possible that this was part of a deliberate strategy by Wilders to influence the policy discourse of the opposition. To a certain extent, he’s been successful at that.

Not only was there Dutch Prime Minister Mark Rutte’s firm stance on immigration during the campaign – in January he wrote an open letter to immigrants, saying those who did not “behave normally should go away” – but also Rutte’s confrontation with NATO ally Turkey in the days before the vote. The Turkish Foreign Minister was banned from entering the country and Turkey’s family affairs minister deported, according to Turkish media, after being told she was not welcome to give a talk at the Turkish Consulate-General in Rotterdam. His use of the term “normal” is questionable from a civil liberties perspective, but Rutte’s Turkey-stance was broadly supported across the political spectrum. International law also allows host nations to declare a particular member of the diplomatic staff to be persona non grata at any time, without providing a reason. However, without Wilders, the Dutch government may not have gone so far.

The other two traditional mainstream parties in the Netherlands – the Christian Democrats and Labour – have also adopted a more critical stance towards the EU. As a result of this, it will be hard to get the Dutch government to agree to shift more powers to the European Union. This could create fresh tensions, as the new coalition is unlikely to become more Eurosceptic: The centrist D66 and maybe even the Green Left, who’re both in favor of more transfers of powers to the EU, stand a good chance of entering government together with the Christian Democrats and Rutte’s more Eurosceptic, center-right VVD.

The popularity of the anti-establishment forces in the Netherlands can be explained by more than just excessive intervention in domestic affairs by the European Union and the opposition to political globalization – which should be firmly distinguished from economic globalization. Also crucial were uncontrolled mass immigration, lack of integration of existing minorities and Islamist terrorism, while the Dutch welfare state is struggling to cope with an aging population. Technological disruption has also gotten people used to the idea of the status quo being upset in many ways, so even in a country with pretty decent economic performance – achieved after the implementation of austerity measures – many are keen to challenge the system.

The European Union could take a lesson from Rutte about how to stop the populist tide and take the concerns of the disgruntled more seriously. It could become more modest and focus on what it’s good at: scrapping trade barriers. As long as it thinks it will win the hearts and minds of people by concentrating ever more power and money at the central level or micromanaging national and local issues, it’s bound to fuel the anti-establishment brigade.

What a Wilders victory would mean for the European Union

Published on IB Times 

It’s widely expected that Dutch right-wing populist Geert Wilders is unlikely to enter government in the Netherlands, when it elects a new Lower House on Wednesday. Mainstream political parties are simply planning to form a government with as many parties as needed just to keep him out. However, what would happen if he would somehow manage to rise to power after all?

Then, the first concern wouldn’t be Dutch membership of the European Union. It would be Dutch membership of the Eurozone. Wilders has said that "If I become prime minister, there will be a referendum in the Netherlands on leaving the European Union”, specifying that “We want be in charge of our own country, our own money, our own borders, and our own immigration policy."

As destabilizing a Dutch EU exit may be, the likely thing is that markets would focus on a possible Dutch exit from the monetary part of the EU club.  

It has emerged that in early 2012, at the height of the euro crisis, both the Dutch and German governments had emergency plans for a return to their national currencies. The details have never been disclosed, but it’s obvious that a bank holiday and capital controls would be implemented during the transition stage, which may take a few years. Who would keep their savings in Dutch banks in the run up to the referendum? A bank run would be a real risk, which on its turn would also make it less likely that people would vote to get rid of the euro. It may actually be a good idea for the Netherlands to exit the euro, given how taxpayers, importers, consumers and savers would gain much more than the advantage an undervalued currency represents for exporters, but due to the unstable transition stage, even a country where deposits may go up in value if it were to exit the euro may decide not to do so.

Would a Dutch euro-exit lead to other countries leaving? Possibly. Finland would be a candidate, pursing “Fixit”, but also Germany, the eurozone’s paymaster, may do so. Countries who would see their new currency depreciate against the euro are less likely to exit as a lot of their debt would then still need to be settled in euros, making a default more likely. Still, the precedent would make markets more convinced that an exit of a weak Eurozone member state could be a serious option, so a Dutch euro exit would accelerate the end of the euro.

What about Dutch EU-membership? On the one hand, there is a much stronger consensus that the EU is a good thing for the Netherlands than there is about the euro. On the other, it’s probably much easier for the Netherlands to leave the EU, as costly as it may be, than to leave the euro. A “Nexit” is currently not enjoying support in opinion polls, but the difference between “remainers” and “leavers” is only a few percentage points in some polls. Also, well-known pollster Maurice de Hond has pointedout that EU opponents could win a referendum if the turnout among Nexit supporters would be higher than expected.

Even if the Netherlands would somehow remain a member of the Eurozone while leaving the EU, this would be a massive blow to the EU project. Not only was the Netherlands one of the six founding members of the project in 1960, it’s also a member of the EU’s predecessor, the Benelux Customs Union, which was agreed in 1944.

In all likelihood, a Dutch exit from the EU would cause a fundamental rethink of European cooperation. If a new alternative arrangement would be created, it would have the following two features.

First of all, it wouldn’t be as intrusive as the EU has been at times, with its overregulation, fiscal transfers, national budget supervision and measures imposing mandatory quotas to accept asylum seekers.

Secondly, it wouldn’t have as many member states, as especially Bulgarian and Romanian EU-accession are seen as a mistake by many Dutch. This is also why the Dutch government is blocking accession to the passport-free Schengenzone for them.

According to a Pew poll, a majority in EU member states wants to return powers from the EU back to national capitals. In the public discourse, the European Union rarely gets criticized for making it easier to buy or sell products or services across borders. Typically, when it is under fire, it’s because some are annoyed about freedom of movement of people. It’s hard to imagine that if the EU were to be refounded in some modified form, monopolies for airlines would be restored. Imagine the public outcry. On the contrary, the “new EU” may not include a number of Balkan countries, something that may make them more unstable, while also freedom of movement may face more restrictions. In any case, especially in the age of e-commerce, if the EU wants to become more popular again, it should focus on its core task where it still enjoys trust: removing national barriers to trade.