Wednesday, March 09, 2005

Too little pain

Mary Ann Sieghart, of The Times, seems to be one of that dwindling band of journalists who does not read this Blog, to judge from her column today headed: "No gain yet, but plenty of pain. No wonder Europeans are voting 'no'".

Her thesis is as per the title, that the EU seems to bring member states a great deal of pain, with little gain to offset the pain – not a thesis that can be sustained when Spain is factored into the equation, to say nothing of Greece and Ireland, all of which have enjoyed EU funding largesse.

However, Sieghart does have something of a point, referring to a conference about Europe on Monday, when a Dutch politician stood up and expressed her Government’s fears. "We haven't had a referendum in Holland for 200 years. Our people have never been asked what they thought of Europe. Now we're finally giving them the chance to tell us, and we might not like what they say."

Says Sieghart, The Netherlands, like nine other EU countries, is holding a referendum on the proposed new constitution. You might have thought, she says, that this country, a founder member of the EU, would be bound to vote "yes". In fact, the contest looks set to be very close. And the result may have little to do with the constitution itself:

What angers the Dutch about Europe, Sieghart tells us, is the possibility of Turkey joining the EU, and the brazen breaching of the growth and stability pact by bigger countries such as Germany, France and Italy. "The Dutch don't see why countries that have had to go through painful reforms to meet the pact's strict conditions should make allowances for other member states who have not been brave enough to do so."

Rightly, Sieghart points out that the growth and stability pact has caused nothing but trouble among Europe’s voters. The countries that had difficulty meeting the criteria have had to introduce unpopular spending cuts, tax rises or welfare reforms. Voters, of course, blame Brussels for the ensuing pain. And in those countries that have instead tried to fudge the criteria, voters resent being lectured — and possibly, in the end, fined — by the EU commission over what they see as a national matter.

Yesterday, she says, Gordon Brown was "furious" about the prospect of the commission having more power over member states’ finances. "It is vital," he said, "that member states retain ownership of their own fiscal policies. It's not Britain that has been failing the stability pact; it's actually the stability pact that has been failing Britain."

One of his points was that, if a British chancellor takes the right fiscal and structural decisions about the economy, then the Bank of England will reward the measures with lower interest rates. In the eurozone, by contrast, a member state can be as good as gold, but win no recognition from the ECB because of the antics of less responsible countries.

The same problem arises over the so-called Lisbon reforms, which were supposed to make Europe "the most competitive and dynamic knowledge-based economy in the world" by 2010. EU leaders meet this month to assess their so far pretty dismal progress at the halfway mark. Far from turning into a sleek, streamlined growth machine, the EU has been watching with dismay as the US has streaked into the distance and India and China have zoomed up on the inside lane.

Sieghart reminds us that, last year, Wim Kok, the former Dutch prime minister wrote a report on the Lisbon process, noting that the plan risked becoming "a synonym for missed objectives and failed promises". And since the euro was introduced, progress towards the Lisbon objectives in the eurozone has stalled, not accelerated.

"What are the rewards of going through the electoral pain of cutting social security, facing down trade unions and making hiring and firing easier?", she asks. In the long term, as Britain has discovered, such policies increase growth and employment. But in the short to medium term, they cause only misery and insecurity, without any bonus from lower interest rates. As Jean-Claude Juncker, Prime Minister of Luxembourg, put it: "We all know what we need to do, but we don’t know how to win elections after we have done it."

Many EU member states, with elections looming, will shy away from the required reforms. Others will tell their voters that the EU commission is to blame. And if those voters turn around and vote “no” in their referendums, who can blame them? These days, concludes Sieghart, the EU seems to bring them nothing but pain.

Almost right, Sieghart, but her prime example is The Netherlands, which make the highest per capita contribution to the EU budget. Until the pain is more uniformly shared, and the cause of that pain is fully recognised, there will still be those, like the Spanish electors, who will give "Europe" the benefit of the doubt. At the moment, however, there is too little pain.

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