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Analysis
Why Europe must be restructured

Why Europe must be restructured

EMU can survive only with closer union
European Union as part of a wider European Community

by David Owen, Advisory Board

Mon 11 Jun 2012

The euro crisis is driving the European Union to a point when it can no longer be ambivalent about the two basic models for Europe. One is the present one: a union of self-governing nations with a separation of powers between the supranational and the intergovernmental. The other is the model we may have in the future: a fiscal union within the euro area.

Angela Merkel, the German chancellor, has chosen her model, greater integration, but she has repeatedly said she wants the UK to stay in the Single Market. In the UK, but also in some other countries, there are growing public demands for a principled and consistent position to resist any further merging of the two models. The people in these countries want to remain self-governing, in that they are determined to retain their own currency and remain in control of foreign, defence and fiscal policies.

Yet these same countries see the argument for greater integration within the euro area to help resolve its problems. These issues can be resolved in the following fashion: Those countries within the euro which wish to integrate further should do so. Those countries which do not ever envisage becoming part of the single currency should remain in a restructured single market.

In such a process, there is a danger of long and tortured arguments, including challenges to the legal interpretation of the treaties and allegations of bad faith. This can be avoided if all EU countries are involved as equals in an agreed restructuring of the Union. All should remain full members of a single market based on the existing acquis communautaire, but it should become a larger, separate organisation. It should continue to operate under qualified majority voting based on a revitalised single market and customs union, and would hopefully include Turkey as a full participating member as well as other members of the European Economic Area (EEA).

Such a grouping of 32 states or more with Turkey could be called the European Community, funded and controlled by all its member states. It would have common international environmental policies and could use the old political cooperation mechanism for coordination of foreign and security policies, in addition to the NATO membership of most of its constituents. It would have its own secretary general. Whoever is the EU external trade commissioner might be at least initially the single negotiator world-wide on behalf of the group.

The European Parliament is greatly involved with single market legislation now that most of it is adopted under ordinary legislative procedure, that is, by co-decision between the Council of Ministers and the Parliament. So the EU will inevitably be the lead element in devising the legislation for the wider single market but not the ultimate authority.

As part of this restructuring, a more integrated euro area will progressively emerge. This will have economic, fiscal and monetary policies, together with the Lisbon Treaty arrangements for foreign and security policy, that will develop in ways that involve, to all intents and purposes, though not in name, a single government.

This will probably be acceptable for most but not all of the existing euro countries and potentially for many other countries which intend to join the euro. Such a grouping would continue to be called the European Union. A list of countries which would be part of the new Union follows this article. It excludes some countries that are currently members such as Greece.

A step in this direction was taken in 2012 when, to make the euro area work more effectively, 25 countries, comprising all those in the euro and others aspiring to join, created new financial and economic disciplines with a fiscal compact treaty outside the EU treaties. This is now in the process of being ratified in some countries and is being negotiated in others. It represents a limited move towards a single economic government.

The UK and the Czech Republic did not sign. Some of the countries, particularly Germany, want further economic integration. Some have likened this new situation in Europe to the point in the creation of the USA where the 1787 Constitution was adopted. Since the German people will provide the money for any fiscal union, they will have to agree to it first through a federal election as there is no place in their constitution for referendums.

There will be resistance to the German design of a fiscal union from France under President François Hollande. But he is likely to choose, as did his role model, François Mitterrand, to continue the Franco-German route. Mitterrand only narrowly won the referendum to do this in 1992. With a reinvigorated political right, following the defeat of President Sarkozy, Hollande might have difficulty in winning another referendum in France. But even if he did lose, Germany would not let the euro fall and return to the D-Mark. It will assemble a small group to keep the euro intact and expect, at some later date, that the number of countries within the euro area will increase.

Other countries, such as Greece, Portugal, Ireland, Italy and Spain, at present inside the euro area but with mounting economic difficulties, may find public criticism of austerity too strong to withstand. Public opinion may demand measures aimed at economic growth and in the process become resigned to leaving the euro area. It is not clear whether, if they leave, these countries will be able to stay in the EU hoping to rejoin the euro area; if they are not welcome, they would be fully entitled to be members of the single market and European Community.

In the UK, by the general election of 2015, unless the Conservative party and Labour change the situation over Europe, the UK Independence Party (UKIP) may grow in strength as it develops a wider agenda to include public anger against crime, immigration and feelings that the British are being pushed around by euro integration.

At the very least UKIP will be the lever for forcing a Conservative government to concede a referendum on Europe as James Goldsmith’s Referendum Party did in 1997. Labour will be forced to concede as well. A UK referendum on the future of Europe is inevitable between 2013 and 2016. But a referendum will be lost in the UK and perhaps in some other countries if the only option is ever greater integration within the EU. It will only be won if the present Europe is restructured.

In all logic saving the euro area, whether it continues with the existing number of countries or fewer, demands the restructuring of Europe as a whole. The degree of integration needed within the euro area must become predominantly an issue for those countries who intend to be part of it. The UK and some other European countries outside the euro must assert their rights. A country like Turkey cannot be left on the sidelines of any European restructuring.

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