On July 6, 1988 European Commission President Jacques Delors propounded the hope that “Ten years hence, 80% of our economic legislation, and perhaps even our fiscal and social legislation as well, will be of Community origin.” The EU has not lost this ambition; this week Michel Barnier, the EU’s chief Brexit negotiator, attempted to prevent Britain from signing a trade deal with the EU unless it conformed to EU regulations. It is therefore worth looking at the damage those regulations have done to what was once an economically thriving collection of countries.
The EU statist agenda
Delors’ July 1988 speech, together with a follow-up to the Trades Union Congress in which he promised them the reversal of Thatcherism, marked the decisive point at which British free-marketers became hostile to further EU integration, and eventually to EU membership. Margaret Thatcher’s own Bruges speech of September 20, 1988, contained the remarkable and ever-quoted sentence that: “We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level with a European super-state exercising a new dominance from Brussels.”
The remainder of the Bruges speech was however remarkably positive about the possibilities of European Community integration, so much so that it would have passed for the speech of a “Remainer” in the last three years. But as time went by, and especially after the signature of the 1992 Maastricht Agreement, it became obvious that imposing socialist regulations on Britain was precisely what the EU under Delors and his successors aimed to do. Within a decade, although by then out of power or even much influence, Thatcher had become committed to leaving the EU whenever it became possible.
Impose controls from Brussels
Thatcher’s Bruges speech was correct in supposing that Delors’ ambition was to impose regulations and controls at a European level, superseding national ones. By use of the Maastricht Treaty, the regulations surrounding the 1998 introduction of the euro and the 2009 Lisbon Treaty, the EU has succeeded in moving a huge percentage of business regulation under its aegis. Whether the EU level regulations comprise the full 80% of total laws, as per Delors’ ambitions, is largely a matter of how you count them. For those within the eurozone, even though the EU’s nominal percentage of total regulations is lower than Delors’ figure, in practice the average importance of EU-level regulations is far greater than that of regulations imposed at the national level (which are restricted by the need to avoid conflict with EU regulations) so Delors’ 80% is pretty near the economic reality of EU dominance.
The appeal of the Common Market
It may be difficult for the current generation to believe, but when Britain made its applications to join the EEC from 1961-73, the main attraction of the then 6-member grouping was its rapid economic growth and policy dynamism. In then-recent decades, Europeans had been accustomed to the high unemployment and misery of the Great Depression (though in Britain that period had been a brief interval of growth within decades of stagnation and two World Wars). It was thought that European living standards were for some mysterious reason destined always to be half or less of those in the United States.
Europe was growing fast
Thus, when Konrad Adenauer and Ludwig Erhard led 1950s Germany to an economic growth rate of some 9% per annum, while pursuing relatively free-market and low-tax policies, it was natural for those trapped in sluggish Britain to want some of whatever Messrs. Adenauer and Erhard had fed their people. France and Italy also enjoyed “economic miracles” albeit less vigorous than that of Germany. It was thought therefore that joining such a dynamic union would provide the British economy with the vigor it needed. That in principle was sensible – deepening ties with a rapidly growing neighbor is generally likely to be economically helpful.
Britain had its own problems
In reality, Britain’s sluggish growth before 1979 was its own fault, and no amount of German vigor could have helped it much. The country had behaved extremely self-indulgently after World War II, instituting an inordinately expensive National Health Service and nationalizing swathes of industry before there was time for economic recovery to take hold. Add to that the costs of an eventually futile attempt to maintain a global Empire, over-mighty and irresponsible trades unions, a tariff policy that prevented Britain from getting the full benefits of that Empire and an exchange rate policy, the Bretton Woods system, that kept the pound permanently overvalued despite Britain’s relatively high inflation, and you have a recipe for economic failure.
Britain turned the corner
Once Britain had joined the EU, the Thatcherite revolution and the abandonment of both the remnants of Empire and the Bretton Woods system solved most of its economic problems. The UK began to grow at a respectable rate, albeit on the basis of services rather than its traditional manufacturing. For a decade, all was well. Then Delors came along, as did the fall of the Berlin Wall and the liberation of Eastern Europe, and the EC/EU, which had been a generally benign influence on Britain’s economy, became an increasingly damaging one.
The problem of the Single European Market
The Single European Market, signed into existence in 1986 and coming into effect in 1993, was the first problem, because it was thought to require the “harmonization” of product standards. This was entirely unnecessary; a free market could have been created based on mutual recognition of each other’s standards, with the EU countries, all but Greece fairly wealthy, taking the position that wealthy European countries were all capable of deciding such matters.
Thus, if France liked straight woody bananas and Italy liked small curly squishy ones, each country could recognize the validity of each other’s standards and allow the other country’s products to trade freely. Then if consumers in southern France developed a taste for Italian-style bananas, and the Italians had certified their quality, there would be freedom of entry. However, such a sensible arrangement would have aggregated no additional power to the bureaucrats of Brussels and would have allowed bananas of all shapes and sizes to circulate freely, both anathema to the tidy-minded socialist Delors and his power-seeking colleagues.
Integrating Eastern Europe into the EU
The other growth-suppressing factor in the richer states of the original EU was the liberation of eastern Europe, and its countries’ transition into initially primitive capitalist economies. Slovakia illustrates thus quite well. Until 1998, under the post-Communist leadership of Vladimir Meciar, little true privatization was done, corruption was extortionate and the economy stagnated. Then in 1998 the genuinely pro-reform government of Mikulas Dzurinda took over until 2006, resulting in an extraordinary surge of growth and Slovakia’s living standards raising rapidly towards the EU norm. Since 2006, there has been partial backsliding by the government. But the momentum, assisted by massive investments from Western Europe, has proved too great for even local bad policies or increasingly intrusive EU regulations to halt (Slovakia joined the EU in 2004 and the eurozone in 2009) and Slovakia has continued to grow much faster than Western Europe.
Suffocating EU regulations
The plethora of regulations imposed by Brussels in the last three decades has devastated EU growth rates. This has been exacerbated by the economic arbitrage between Western Europe and the more dynamic if poorer Eastern Europe. At the EU level, with Eastern Europe mostly members since the mid-2000s, the deadening effect of regulation has been masked. Currently, the Eurozone (mostly rich countries) is growing at only 1.0% per annum, while France and Germany are growing even more slowly. Even Britain, mired in the toils of Brexit, does better than this, while Canada, Australia and the United States are growing around twice as quickly.
Over the longer term, Eurozone productivity growth since 2010 has averaged only 0.6% per annum. That results partly from the ineffably foolish monetary policies of the European Central bank, which has held rates near zero for nearly the whole of that period. Still, it compares with a growth rate of more than double that, 1.3% per annum in the previous 15 years, 1995-2010, even though that period included a sharp downturn in 2007-09. It also compares with a productivity growth rate of over 1% in 2010-19 in the United States, even though that country’s monetary policy has been almost equally inept.
More and more regulations
The legacy of Jacques Delors has been to centralize or “harmonize” regulation at the European level, with regulation imposed by bureaucrats who have the least possible contact with popular sentiment or economic and social conditions in the highly varied countries of the EU. That has slowed to a crawl the robust, healthy growth rates of Western Europe in 1950-73 and Eastern Europe in 1991-2007 and is showing every sign of slowing the economies further in the years ahead. The result has been “Exit” movements not just in Britain but throughout the EU.
A policy reversal is essential
A reversal of Delors’ policies is thus essential. The EU must deregulate almost completely at the center, firing its overstuffed bureaucrats and inserting a principle of mutual recognition for EU members’ national regulations and product standards. National deregulation should also be encouraged and left-inspired regulatory bonanzas like the climate change movement rigorously suppressed. Otherwise, the European dream will become a nightmare and Exits by country after country will become inevitable, until the EU remains a club for a few remaining impoverished Marxist moochers.
The views and opinions expressed in this issue brief are those of the author.
|Martin Hutchinson is a GPI Fellow. He was a merchant banker with more than 25 years’ experience before moving into financial journalism. Since October 2000 he has been writing “The Bear’s Lair,” a weekly financial and economic column. He earned his undergraduate degree in mathematics from Trinity College, Cambridge, and an MBA from Harvard Business School.
This article was originally published on the True Blue Will Never Stain http://www.tbwns.com