Published in Business Spectator (Melbourne), 24 January 2012
To the many explanations of the great European crisis, US political scientist Francis Fukuyama has just added another one. In a speech at the University of Geneva, now republished in The American Interest, he made a number of observations: that the EU was an elite-driven project; that there had never been much grassroots support for a European superstate; and that national identities remained stronger than pan-European idealism.
All of this is correct, and in fact Fukuyama is not the first commentator to come to these conclusions. However, in his speech he also made one claim that, frankly, puzzled me: “The EU in many respects was created as a technocratic exercise done for purposes of economic efficiency.” Really? Was European integration the result of a deliberate attempt to increase economic welfare? Or was it not rather driven by entirely different considerations?
For a long time, economic theory had assumed that the purpose of politics was to govern a country well. Economists were trying to prescribe ways in which enlightened rulers could improve economic outcomes, ensure an efficient allocation of resources and create favourable conditions for growth. In a way, such theorising implicitly assumed a benevolent dictator doing everything that is objectively needed while ignoring all political distractions.
Today no serious economist would still believe in such a naïve model of government. Thanks to researchers like Nobel laureate James Buchanan, Mancur Olson and Gordon Tullock we now have a more accurate view of politics that goes by the name of ‘public choice economics’. It is a world in which economic considerations certainly matter in politics. But it is also a world in which they often take the back seat while political opportunism and individual rent-seeking prevail.
Public choice may be a cynical interpretation of politics – or ‘politics without romance’, as James Buchanan once called it. Nevertheless it looks much more realistic than those theories that require a benevolent dictator in order to work. It is a world in which politicians and bureaucrats are human beings, not angels or saints.
Applied to the European Union, the public choice perspective offers insights which make Fukuyama’s claim appear questionable. The politicians who have established and shaped European integration may have had some economic considerations in mind as well. But personal and national interests have always mattered more than the common European good (however defined) – despite all solemn declarations to the contrary.
When the first forerunners of the European Union were established in the 1950s, improving economic welfare was certainly not the major concern. Back then it was power politics, pure and simple. No wonder that the first European institution was the European Coal and Steel Community, founded in 1951. This offered the West Germans a way back into the international community while allowing the French some degree of control over Germany’s crucial industries. It also helped to form an anti-Soviet alliance in Western Europe. No wonder the US supported European integration from the beginning while Joseph Stalin was equally furious about any such initiatives.
European integration, or more precisely Western European integration, was initially a by-product of the Cold War although it is unfashionable to remind European politicians of this historical fact. In the immediate post-War period the establishment of the ECSC, the European Atomic Energy Community, the defence organisations Western European Union and NATO, and later the EEC and EC all served one overarching purpose: to build a block against the Soviet Union and its satellites. Unsurprisingly, these initiatives were soon mirrored in the East by organisations like the Council for Mutual Economic Assistance (Comecon) and the Warsaw Pact.
Though all this now lies in the distant past, it remains important to understand that the EU’s roots lie in power politics and not in lofty idealism, let alone in a quest for economic efficiency. To understand the workings of the EU it is vital to analyse them from the viewpoint of national interests. Otherwise they do not make much sense.
The appointments to high offices in the EU are the perfect example for the prevalence of national interests over the European common good. Ideally, the EU would be led by independent-minded, strong politicians who could develop policies that work for the whole of the continent, even if they collide with individual member states’ priorities. But nobody would seriously say this about the EU’s highest office holders.
Commission president Jose Manuel Barroso, Council president Herman van Rompuy and ‘foreign minister’ Catherine Ashton were all picked for the same reason. They were sufficiently weak characters that could be expected not to interfere with national interests at the European level. If the goal had been to improve the efficiency of the EU it is obvious that these people would have never been chosen. The truth is that neither the French president nor the German chancellor were keen to have their respective influence diminished by a powerful or even charismatic EU leader.
Monetary union is another counterexample to Fukuyama’s claim that the EU was all about efficiency. It is an open secret that the euro was introduced mainly because other European countries, in particular France, aimed to break the monetary dominance of the German Bundesbank. In fact, there are strong indications that giving up the deutschmark was France’s condition for approving German unification in 1990 (A French power play that backfired, 17 August 2011).
If it had been about increasing economic efficiency, the euro would have never been created and European countries would have stuck to free-floating national currencies. For similar political reasons, the euro is now forbidden to die even though giving up the folly of monetary union for a disunited continent would make economic sense.
The great European crisis is not, as Fukuyama claims, an economic experiment that has gone horribly wrong because it was imposed on a reluctant public. It is in fact the result of political power plays in which economic considerations have always played second fiddle. In order to promote national goals, achieve foreign policy objectives and gain personal power generations of European politicians have pursued policies that no economic textbook would have ever prescribed.
Unfortunately for the Europeans, the management of the current crisis shows all the hallmarks of EU power play. Instead of moving towards sensible economic solutions, national interests and individual vanities once again prevail.
The tragedy of the European crisis is not that it was caused by striving for too much economic efficiency. The real tragedy is that it could have been predicted by public choice theory.