Saturday, June 09, 2012

Two Europes - Lord Owens Solution to the Crisis in Europe

Europe’s challenges are not just economic – they are political. They focus on the real absence of leadership across Europe, its inability to make decisions in real time and its failure to grapple with the real substantial issue which confronts them: sovereignty.

Europe began as a trade agreement covering coal and steel. It later morphed into a trading partnership which permitted the freer movement of goods and some services as well as people. As the maturing of European Union occurred, more and more integration of laws and systems were needed to permit the engine of growth to continue. Underlying this adolescent phase has been the growth of pan-national institutions which undermine national sovereignty.

One example of this is the European Court, whose fiat can now overturn the legitimate decisions of national elected parliaments and national legal system court decisions. Another is the continued erosion of national authority to that of European wide legislation – the Human Rights legislation, now enshrined across Europe, being a good example. 

When the Eurozone was created as a common currency and economic engine across seventeen member states, what was not done was political integration. Governments remained relatively free to determine economic policy and budgets. This is at the heart of the current challenge to the bloc of all EU nations. How much integration and loss of sovereignty is needed to both save the Eurozone and the EU?

German Chancellor, Angela Merkel, has made clear that Europe needs more Europe not less, which we can translate as less sovereignty and more supra-national control, mainly exercised on behalf of Germany. Political integration is now the agenda, with the economic crisis (self-inflicted by decisions made by the EU as well as national governments – for example, the decision to admit Greece to the Eurozone against the advice of the European Commission who warned the then German Chancellor Schroeder that Greece were using deceptive instruments to “falsify” their economic condition) as the “excuse” for this new entity – The United States of Europe.

Lord Owen, former Labour Foreign Secretary (1977-1979)  and one of the founders of the UK’s Social Democratic Party, recognizes this in his speech to the Lords on May 13th 2012 (here). Noting that the crisis provides a rationale for a new degree of integration within the EU – “far more than has ever been contemplated before” – and that this will be a defining moment in determination of all political and economic decisions for the future of all European countries, whether they are in or out of the Eurozone (or indeed the EU), he suggests that there is a need for an approach which protects sovereignty. 

Lord Owen elaborated on his thinking in a June 7th article in The Times (here) in which he suggests a duality in Europe. One group of nations determine that they want to be in the Eurozone and forfeit a degree of sovereignty, especially on all matters financial and economic, to the EU in exchange for which there is more democratic involvement in the election of the pan-Eurozone President who will oversee the decisions made in the zone on all matters economic. In this fiscal union model within the eurozone, Lord Owen suggests that it would have these characteristics: “a legislature in which the European Parliament would embody the lower chamber and the EU Council of Ministers the upper. The President of the European Commission and the President of the Council would be elected. The Commission would be an executive and virtually a European government, with federal authority for trade, economic, industrial, social, justice, environmental, agricultural, fishing, foreign and defense policies. The European Central Bank would replace the need for national banks, though they might remain as symbols. Under a fiscal union the explicit expectation would be that all EU member states would eventually join the Eurozone” once they agreed to these degree of forfeiture of sovereignty and met strong economic and political conditions. Germany is pushing this very strongly.

The second group of nations, which could also include Eurozone members, simply want to continue with the free trade and mobility aspects of the European Union and this could involve not just the current EU members but also Turkey and those who aspire to EU membership and other members of the European Economic Area (read here for a description). Its focus would be on the free flow of goods, services, people and capital amongst what would then be thirty two European nations.

This two tier Europe suggested by Lord Owen (and several others) has growing appeal. What is likely to happen is that integration will take place for some in the Eurozone as a condition of fiskalunion and further support for the beleaguered Euro and this will force all to address the issue of sovereignty. 

In Britain, as both Lord Owen and Lord Mandelson have suggested, a referendum on Britain’s role in the EU is now inevitable at some point between 2013-2016, with momentum favouring this earlier than later. Lord Own suggests that these two questions should be asked: “Do you want the UK to be part of the single market in a wider European Community?”  - Yes/ No and  “Do you want the UK to remain in the European Union, keeping open the option of joining a more integrated Eurozone?” – Yes / No? It is likely that the answer to the first question if asked today would be yes and to the second no.

When you read of the economic response to the banking crisis in Spain and to poor government in Greece see these responses as starting points for a conversation about sovereignty. This is the true heart of the challenge in Europe.

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