John R. Gillingham, The EU: an Obituary, London, Verso, 2016. Review and commentary.Part III: Lost in the Future.

 Part Three of Gillingham’s book, The EU: An Obituary does not make for comforting reading. For readers prepared to soldier on, the author is not saying that the EU is dead, only that if it carries on blandly in the direction it has taken since Jacques Delors’ relaunch to Giscard’s Constitution, it is most likely to die. There are alternative ways to the future, he writes, that could revive Europe’s dynamism, enable its member states to harness their wealth of resources both individually and collectively, and take on the challenge of globalisation. Globalisation is the challenge, and Delors Napoleonic dream, is the problem, to paraphrase the author. For Brussels, he writes, the endgame has begun: too many crises are occurring simultaneously, and the teleology of moving soon to the sunny uplands of a USE is no longer credible. (p.241)

First, the context. With German unity in 1990, the structure of the cold war, initiated with Mao Tse Tung’s triumphant entry to Beijing in 1949, was transformed. With Deng Tsao Ping’s announcement in early 1992, following on the collapse of the USSR and the liberation from the communist yoke of the countries of central and south eastern Europe, that China was open for business, the world market re-emerged in its entirety for the first time since 1914. The central feature of the new global economy was , is and will remain for decades to come, the unfolding cyber revolution, and the entry of China, India and Russia on to world markets. The United States was, and remains, central in the process: it runs the dollar, has its finger on the global energy supply, is now net self sufficient in energy, and rules cyberspace. At the other end of the spectrum, three billion people have been added to the world labour force, hugely extending the reach of global production networks , and greatly increasing the size of the world market by a multiple of what it had previously been. These are the central components of the world economy and they are likely to continue shaping its development stretching deep into the twenty-first century.

Second, the EU. Its record, he writes, has been one of unremitting failure. The Euro has turned out to be a disaster, as many people predicted; the EU is well behind the curve in technology; the public is disenchanted, and what is worse, “the end of the current miseries is not in sight.” The root cause of European miseries, he goes on in his withering prosecution of EU policy, is structural. “The remedy, institutional reconfiguration, would require a degree of statesmanship seldom in evidence”(p.152). He continues his indictment:

”The European Depression, to use the appropriate term for the several years of almost zero growth in the EU, has rekindled a dormant nationalism, bred new North-South hostility, aggravated pre existing intra-national divisions of language and tradition, created lasting generational inequities, widened the divide between incomes and classes, and added to a general public disgust with politics and politicians. The era of good feelings is over. The crisis has also debilitated European institutions, the Commission in particular: it is rudderless, operates in a legal limbo, and subverts the very principles upon which the EU was founded. It is also demonstrably incompetent and, along with the Parliament and Council, ineffective. In the absence of far reaching reform-meaning democratisation, replacement of the single currency system, and the renationalisation of political institutions-no lasting recovery can take place.

Reform however should not be expected. Brussels is reeling from the compounded crises of autumn 2015 and in unable to contain them-it cannot sweep the VW scandal under the rug, turn the refugees away, or protect Europe from terrorists. It is also too disorganized to head off the threat of Brexit by compromise. The unraveling of the EU has begun. It will take more than muddling through to stop it”.

This is not a crisis of capitalism, Gillingham rightly argues, but it is seen as such by large swathes of the European public who have drunk deeply at the well of various strands of Marxism over the past forty to fifty years. It is a European Depression, induced by foolish policy. I concur.  The end of the European Depression, he writes quite credibly, is years away. At the time of writing in early 2016, the EU GNP is 3.5% below that of 2008; unemployment in stuck around 11%(18.6% for youth unemployment, with Greece at 50%, Spain at 44%, Italy at 37%, Portugal at 29% or France at 23%). Inflation is near zero. Not surprisingly, Euroland is in current account surplus, helping to keep the Euro higher on world markets than is required for southern European exports onto world markets, but well below what it would be to reduce the enormous surpluses of The Netherlands and Germany. The author does not mention this, but the European Depression is a major contributor to global imbalances.

It is a European Depression because the EU canoe (this is my analogy) has been paddled enthusiastically by its leaders on ever faster moving waters which they imagined were accelerating because they had made the right choice. They threw away their paddles, in their ‘culture of total optimism”, to use Giandomenico Majone’s phrase, and now they can hear the roar of Niagara fast approaching.

To take some liberty with Gillingham’s text, the moment that the paddles were thrown away was early on, when the EU decided that national bonds (Greek, Italian, Dutch or German) would trade at par. The criteria for entry were fudged, because France wanted its Mediterranean alliance to counterbalance Germany’s Hinterland. German and French banks lent like lemmings.

When the crisis broke, it became apparent that the EU had nowhere near the range of powerful policy instruments available to the US: a lender of last resort, fiscal transfers, flexible labour markets, one language and so on and so forth. To keep the Euro show on the road, the cult of subterfuge was perpetuated: Euroland banks were not subject to rigorous stress tests; the ECB broke the terms of its own statutes via disguised mutualisation in the TARGET 2 mechanism (whereby Germany has made the largest de facto international transfer ever, while the German government has kept bleating that it is opposed to a Transferunion). France, Italy, and Spain have hedged on the budget numbers, while Brussels turns a blind eye. France has failed to make the necessary structural reforms which were an essential pre-condition to the Euro being a success. To return to competitiveness, France would have to undergo, Gillingham suggests, a wage deflation of 20%, and Portugal by much more. President Hollande presides over one of France’s weakest ever governments, and is proving himself quite incapable of reforming the country. For that he would have to be a de Gaulle, and would need advise from a Jacques Rueff. He is neither the one, nor does he have access to the other.

The Franco-German duopoly, Gillingham’s relentless prosecution continues, is a thing of history. Giscard’s Lisbon Treaty, he maintains, is shot through with inconsistencies: it is a grab bag from which can be drawn a policy rationale of choice (In parenthesis, I do not think it controversial to state that David Cameron and Whitehall’s conduct of the Brexit referendum was pathetic. The British public had long flagged immigration as No 1 concern. Given the imprecision of the Lisbon Treaty, it would have been quite possible for the UK government to impose immigration controls from the EU, quoting Lisbon. But Whitehall and Cameron did not. Why? As I have argued on this blog, the official UK position on the EU since Edward Heath’s time is more supranational than the Pope. The only problem was Whitehall never succeeded in selling the idea to the British electorate. Cameron discovered that too late, and was blasted out of 10 Downing Street. In the UK, there is marginal support for supranationalism, the same goes for many other member states).

“Brussels” is deeply unpopular across the EU, as the author records, and for reason. The promises made on “Brussels” behalf have not come true. The result is that Hallstein’s Guardians are a public joke. Monnet’s élites  lack the democratic legitimacy without which their ambitions are pure pie in the sky. They indulge in mission creep, invent new competences, fiddle the law, cannot balance their budget and in 2012, raised their own pay and benefits in the midst of Europe’s deep crisis. In late 2015, the Volkswagen cheating scandal on standards of diesel emissions exposed the emptiness of Brussels claim to serve as the world’s conscience on climate change and undermined its credibility as a regulator. The scandal reveals both that Brussels is an easy touch to large corporate interests, and in addition has become a Vorort of Berlin. It is just not credible that Volkswagen’s highly skilled workforce; their trade union representatives on the VW board; the board itself, the German auto industry and German government were in the dark about what was going on.

EU élites never cease to appeal to the rule of law. But, in effect, the rule of law does not exist in the EU. Gillingham quotes studies published in impeccable pro-EU sources, (G. Falkner “Is the EU a Non-Compliance Community?” Les cahiers européennes de Sciences Po, 01 (2013), pp.1-58; “Is the European Losing its Credibility?” Journal of Common Market Studies, 51.pp.13-30), that find rules and laws flouted at every turn: monetary union rules have been consistently bent; member states regularly fail to enforce EU rules; not surprisingly, given the lack of legitimacy, ECJ rulings are not respected; despite the hype about “l’acquis communautaire”, member states all too often refuse to abide by previous agreements and commitments. “Overall, the conclusion, writes Falkner,  is, there is no reason as yet to believe that EU law is actually obeyed in a regular manner, particularly when the application and enforcement…is concerned.” Quoted p.172.

EU foreign policy is another failed competence. The Yugoslavia crisis of the early 1990s pitted Germany backing Slovenia and Croatia, while France initially backed Serbia-a Balkan split dating back to before 1914. As mentioned, Schroeder raised the flag of German nationalism in 2002, in defiance of US policy on Iraq. President Chirac, fearing that Germany would now monopolise Europe’s Non to the US with a German Nein, aligned on Berlin. The result was to split a European united front to support the US on condition of United Nations backing, as had happened in the Iraq-Kuwait war of 1991. Chirac bathed in the acclaim with Schroeder of opposition to the Iraq war- a travesty of what in fact happened. By splitting the combined European approach, he played into the hands of the hardliners in Washington, and made war more, not less, likely. ( This is my interpretation, and I will write a piece on my blog about the Chilcot report’s complete failure to mention this crucial European dimension to the Iraq conflict). Brussels then enthused about Ukraine’s “Orange revolution” in 2004, challenging the Russian position there. But warnings from Moscow that Ukraine was definitely within its sphere of influence were ignored. In 2013, EU flags were flown by pro-EU Ukrainians in the Maidan. Ignoring Moscow’s warnings, Brussels offered Ukraine a trade pact. The result was Moscow’s annexation of the Crimea. As Gillingham pointedly remarks, there are no EU flags flying in the Maidan now.

In conclusion, Gillingham argues global market integration will continue apace. Through most of its history, the EU was marginal to this ongoing process. Once a great hope, the EU idea has turned rancid. “An increasingly interdependent world order, he concludes, requires global networks of cooperation rather than the reinforcement of old-fashioned economic and political blocs like the EU”. p.242. I shall turn to this in Part IV, along with my comments on this important contribution to the debate about Europe’s future.

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About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) (www.chinauncovered.net) His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
This entry was posted in France and Germany, Italy, The Euro and the EU, United Kingdom, World politics, business and economics and tagged , , , , , , , , , , . Bookmark the permalink.

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