Allan Barber assesses how the first 30 years of the European Union has worked out, a formation that has had an impact New Zealand's trade with Europe

Under the leadership of European Commissioner Jacques Delors, 1993 was the year the European Union was established with a much grander vision than the EEC which preceded it. The goal of the EU was political union across the whole of Europe with right to travel, work and live freely across member countries’ borders, moving towards the single currency which was launched on 1 January 1999 with the formal introduction of banknotes and cash three years later. Only the UK rejected the Euro, a decision for which it is now profoundly grateful.

It is coincidental the 30th anniversary occurred in 2023. the same year Delors died at the age of 98. Economic commentators have recently asked the big question whether the EU’s formation, therefore the major achievement of its instigator, can be regarded as a success. British analysts, as one would expect, have tended to indulge in a dose of schadenfreude at what they see as an ambitious project that has actually gone backwards over its 30 year existence, more notably over the 25 years since the Euro’s introduction.  

Ironically Christine Lagarde, European Central Bank president, was reduced to singing the praises of the beauty of the new banknotes which are about to be issued and reflecting satisfaction that many European citizens may not even be able to remember a time when the Franc, Deutschmark, Lira and others were the individual currencies. She made the valid points the single currency unites Europe by making it easier to work, conduct business and ensure price stability, although she failed to mention the salient point the EU’s share of global GDP has roughly halved since the Euro’s introduction.

Price stability hasn’t been a great success either, with inflation differing wildly from one country to another, whereas greater stability may have been achieved if each country’s currency had been allowed to float independently of each other according to respective economic performance and inflation rates. The ECB’s original intention was not to bail out individual members’ economies by underwriting huge amounts of debt which effectively allows them to avoid the tough decisions. However if it hadn’t resorted to debt funding during the GFC, the whole project would probably have blown apart.

15 years ago Greece hit a financial crisis which necessitated 12 rounds of tax cuts, spending cuts and reforms, resulting in civil riots as well as bailouts from the IMF and ECB, in the face of strong objections particularly from Germany. Greece also negotiated a 50% reduction of private bank debt to the tune of €100 billion. The Greek recession at this time was the longest ever suffered by a developed economy. On the other side of the Adriatic, Italy’s economy has remained virtually stagnant for the last 20 years.

There is little evidence political and currency union, administered by a massive bureaucracy in Brussels, has actually delivered the economic growth envisaged by Delors in the early 1990s. By 2004 he had become disillusioned with the single currency concept because member governments had failed to commit to a common fiscal policy without which it could not work efficiently. He even agreed the UK had done the right thing by rejecting the Euro, although he supported its continued membership of the EU at the time of the Brexit referendum.

The original goal of the EU was to reduce barriers to trade and encourage competition which explains why British Prime Minister at the time, Margaret Thatcher, supported it enthusiastically. But these goals were hindered or defeated by the imposition of centralised product regulation and workplace legislation, the introduction of the single currency without consideration of the wide discrepancies in economic performance across the bloc, and the omission of services which make up more than three quarters of economic activity.

Delors’ vision was to build a European model of society that would present a strong counterpoint to the “savage capitalism” of an American-dominated global economy. This social model envisaged imposing workplace legislation centrally on all member states, covering working conditions, hours of work and wages which naturally enough strangled competitiveness and innovation.

To place this in a New Zealand context, one only needs to reflect on the dramatic increase in the number of public servants since 2017, the introduction of fair pay agreements, and the regular increase in the minimum wage without consideration of the impact on inflation or productivity. The EU currently shows many of the same characteristics as this country – higher than desirable inflation, declining productivity, a bloated bureaucracy – but at least we have the advantages of being able (mostly) to make our own decisions, change governments every three years if we want, and only having one currency to worry about.

A biographer of Delors described the EU as “the house that Jacques built,” but it is possible by the time of his death in December he may have seriously questioned whether his design was good enough to ensure its long-term survival.

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