Last week, French President François Hollande made what was practically a U-turn in French politics. He proposed that the EU adopts common economic governance (presumably meaning harmonised taxation, a single budget, a banking union, common economic policies, etc) and a political union within two years.
This marks a U-turn for France as in the past it had always objected to German soundings on a political union. The subject is likely to be discussed (even if informally) at the next EU summit due at the end of June. However, it raises as of now a number of considerations.
I am not convinced at all that an economic and a political union in the EU would be of benefit to our country
What is relevant for this contribution is the economic considerations rather than the political ones. However, economic and political considerations tend to get intertwined and feed on each other. In effect, there can never be an effective complete economic union in the EU unless there is a political union; and a political union presupposes the existence of an economic union. It is also interesting to note that Hollande picked a particular occasion for his statement. He was addressing a press conference of 400 journalists – so it was not an off-the-cuff comment.
What about the countries that would be very sceptical about both an economic union and a political union? One would naturally put the UK at the top of this list. The UK has always been more open to the free movement of persons, goods, services and capital; probably more so than other EU member states. However, there is a very clear line beyond which the UK will not go. Even if the economic and political union were to be restricted to the eurozone, there would still be great opposition.
Italy, for example, would have serious problems with such a proposal, as the people north of the River Po would feel uncomfortable with further centralisation. The same may be said for some of the newer member states as well the more well-off regions in the countries that had given birth to European integration. The expectation is that there is less centralisation and not more centralisation. The economic culture in the various geographic regions of the eurozone is so diversified that further integration may not be possible. One example to look at is Germany. Although it was unified 20 years ago, the distinction between certain areas in the west and areas in the east is like the difference between night and day.
In fact, from an economic perspective, this is an important consideration as it is becoming increasingly evident that tax revenues collected in one region are expected to be spent in that area. This argument can be expanded further as there are also many who challenge the concept of tax harmonisation. A common tax structure for all of the eurozone would imply common social benefits and common access to these benefits, with common policies as to what is paid for by the state (or the EU in the case of an economic union).
The corollary to these would be harmonised labour markets (which is totally different to the simple free movement of people) with common wage structures, something that is highly unpractical. Such impracticalities would render the concept of a single budget for the EU totally useless. And if a single budget for the EU would not work, then how effective would an economic union be? Obviously this would not preclude joint economic initiatives to create more jobs, to stimulate innovation, to achieve higher economic growth – which is where stronger action is required.
I have always declared my conviction that membership of the EU and of the euro would have been a great benefit to Malta from an economic, political, social and cultural perspective. Facts have shown that it has actually been so. I also believe that the principles of solidarity and subsidiarity are principles that the Maltese uphold very willingly. Yet, I am not convinced at all that an economic and a political union in the EU would be of benefit to our country. I therefore believe that this French U-turn is a threat to our economy.