EUROPE, POLICIES AND PEOPLE

Frank Gardner & Peter Cullen, the School of Economics, University of the West of England, on 21 November 2003

Frank Gardner (retired Principal Lecturer) first briefly reviewed three centuries of wars between nation states, which were then followed by fifty years of mass nationalist wars, which he claimed resulted from ‘beggar-my-neighbours’ policies. Post-1945 attempts at global economic organisation beyond nation-states brought into being the United Nations and various agencies, such as the Economic Commission for Europe (ECE), the International Monetary Fund (IMF), the World Bank, the International Trade Organisation (ITO), the General Agreement on Trade and Tariffs (GATT) and now the World Trade Organisation (WTO). (He pointed out that GATT was a weak body, because the US had refused to allow agriculture to be a subject for global discussion.)

At the regional European level more such bodies were formed, including the Organisation for European Economic Co-operation (OEEC) – an ‘excellent’ organisation which was designed to enable the US-based Marshall Plan to support European recovery – then the Organisation for European Economic Development (OECD) and the North Atlantic Treaty Organisation (NATO).

Alongside these developed the European Economic Community (EEC), the European Communities (later the European Community)(EC), now the European Union (EU).

He summarised the post-war international system as reflecting two competing ideas – those of ‘intergovernmental co-operation’ and those of ‘supranational relationships’, which he regarded as representative of a basic conflict between ‘democracy’ and ‘bureaucracy’. He believes that the EU has been developed on the model favoured by its prime founder, Jean Monnet, who had a worthy and broad vision for Europe, but who himself reflected a bureaucratic tradition.

He discussed some elements of the resulting structure. The Commission, as executive branch of the EU, has a valuable function of proposing initiatives, but although its members are initially appointed by Member States, each Commissioner has no further direct accountability. The EU Parliament can dismiss the Commission only as a whole body. Moreover, in his view the Commission is already too large and the imminent growth of EU membership will exacerbate the situation.

The EU Council is composed of Ministers from each Member State, who use both a weighted vote system and a veto system based upon unanimity to decide policy. It is a secretive body and policy outcomes are decided essentially by the consensus of representatives who each seek to pursue short-term national interests.

The European Court originally dealt with minor and parochial internal matters, but has extended its scope over the years and now seeks broader coverage. It has never been good at the level of justice for individuals, however, and shows caution in its dealings with powerful Member States. Overall, despite his general support for the EU idea, he believes that its structure needs considerable reform if accountability is to be maximised.

Peter Cullen (Senior Lecturer) then discussed aspects of monetary union. Criteria for a successful Optimal Currency Area (OCA) include flexible wage rates and prices (real exchange rates can change despite fixed nominal rates); mobile labour and capital; similar levels of economic development; similar macroeconomic conditions (particularly inflation) and a high level of interdependence (e.g. through trade). The EU clearly does not constitute a ‘perfect OCA’, since its labour is not perfectly mobile and its prices and wages are not perfectly flexible, at the least. However, most West European economies, including that of Britain, are also imperfect in various ways. The issue has prompted much debate.

One political feature of the transition to the Euro was the need for confidence. That was partially dependent upon the visual representations illustrating cash. In order to avoid any identification with a nation state, neutral symbols (such as bridges and architectures) were used and the name ‘euro’ was adopted. Another political problem was the lack of a single or federal body beyond the single market itself towards which a single currency could relate – the European Central Bank (ECB) may be responsible for monetary policy, but it is not accountable to other Institutions, while national Finance Ministers can and do avoid or change rules.

The economic benefits of a monetary union can be evaluated. In 1990 the Commission of the European Communities estimated that a gain from reduced exchange rate costs would be in the order of 0.25% to 0.50% of overall GDP, which is insignificant. However, theoretically, increased competition and greater transparencies of costs and prices should put downward pressure on retail prices. Moreover, members would not need to own currency reserves of other member states and holdings of other currencies could be reduced . Also, when the ‘euro’ represented a major reserve currency, outsiders would want to hold them. Those who favour free market policies argued also that differentials of capital and labour would gradually equalise.

The speaker then produced a table of national responses to proposals for monetary union, reflecting the situation throughout Europe in Spring 1998. Broadly, this indicated that populations of smaller and less stable economies were more enthusiastic than those in larger states with more stable currencies (e.g. Germany). Generally, more men (65%) than women (56%) and more professionals/self-employed (68%) than retired/manual workers/unemployed (55%) were in favour and support tended to decline with age. Dr Cullen commented that ‘conservatism towards monetary reform was replaced by approval, albeit somewhat reluctant, once it became inevitable’. After its introduction in 2002 proved relatively trouble-free and it became adopted in 12 states, attitudes changed. Since then there have been complaints about ‘rounding-up’ price rises (e.g. in Greece) and some nostalgia for old currencies (e.g. Germany). Three states declined to join the eurozone and the only referendum (Sweden September 2003) rejected membership, despite government, union and press support for it.

Following the two talks general discussion focussed on several issues, the majority stemming from criticisms of the Institutional arrangements of the EU. Lack of accountability was seen as a serious deficiency. Not only was there such a problem with respect to the Central Bank, but also with Commission and Council. In general the lack of both political and economic accountability arguably threatens the independence of European citizens to organise their own lives and it does not provide an efficient means for redress of real grievances. There was support for suggestions that there should be moves away from centralised decision-making towards more local government – ‘closer to the people’. One contributor to the discussion emphasised in particular his dissatisfaction not only with European institutions but also with the lack of local power and accountability within this country.

A graph showed how closely the exchange rates between the euro and the dollar/pound/yen follow one another over many years, despite minor fluctuations. One comment on that was to the effect that fluctuations in the value of reserve currencies are not essentially linked to their separate exchange values, but rather to global economic conditions. With respect to the introduction of a common currency, another comment was that judgements about effects, favourable or otherwise, should not be made in the short term. When the American colonies attempted to create a common currency, it took many years and many disputes before a successful outcome was achieved.

G.Catchpol