On October 12, it was announced that the European Union had won the 2012 Nobel Peace Prize. The announcement was greeted with warmth in Brussels and distinct coolness elsewhere — including throughout Europe. The award is notably odd because the EU’s policies are currently helping to destabilize the continent. Indeed, because of the euro, it may not survive another year without a secession crisis, or worse. Only a reversal of course on the EU project itself can restore hope and guarantee peace.
The EU was conceived as a framework for binding France and Germany together in a way that would keep the two countries from ever going to war again. Indeed, many German socialists, such as Martin Schulz, the current leader of the socialist group in the European Parliament, credit the EU with restraining Germany and guaranteeing peace. Giving the EU credit for this ignores the role of NATO over six decades, although the EU Customs Union undoubtedly helped. As the saying goes, when goods do not pass over borders, armies will.
But whatever constructive role the EU may have played is all in the past. EU regulations now suppress industry rather than encourage it. In many countries, EU regulations, piled on top of national rules, make it almost impossible to hire or fire employees. Generous welfare states and minimum-wage laws have contributed to youth-unemployment rates at or around 50 percent in much of southern Europe. Historically, large numbers of unemployed young men have not been a harbinger of peace.
Moreover, the EU’s insistence on introducing a common currency, the euro, among countries with widely disparate economies has significantly destabilized the continent. In the rush to show how committed they were to the European project, several EU member states signed up to the currency without taking into account its likely effect on their national finances. And initially, the effect seemed beneficial. Countries that had suffered high borrowing costs thanks to weak currencies were able to borrow at rates the same as those in Germany, a titan of economic confidence.
That initial benefit could not and did not last. Some nations found themselves either overspending on state benefits or indulging in huge property and infrastructure bubbles. When the financial crisis began, many countries converted private debt into public, exacerbating their deficits. Meanwhile, their economies proved uncompetitive within the euro zone, while hyper-efficient Germany took over much of their markets. Balance-of-payment deficits multiplied.
For most countries, devaluation is the only option left when faced with these problems. This is painful and leads to massive short-term losses and unemployment. Yet countries that devalue their currencies are normally able to pick themselves up and recover in a short time, becoming competitive again in the world market.
For the euro-zone countries, that option is off the table, as they do not control their currency. The only remaining option is austerity of a particularly grim sort: “internal devaluation,” as it is known (in other words, reducing labor costs). Internal devaluation has had some success in Eastern Europe, but it is deeply unpopular in the euro zone. So unpopular, in fact, that it has led to riots and civil unrest in Greece and Spain. Opposition to the policy led to Silvio Berlusconi’s ouster as prime minister of Italy by a euro-zone cabal, which replaced him with Mario Monti, an unelected, if competent, bureaucrat. So much for the Nobel Committee’s claim that the EU has championed democracy.
The problems persist and proliferate. On several occasions, the EU has taken action that appeared to calm the market, but only for a short time. Now echoes of the 1930s abound. The European Central Bank (ECB) has said that it will open the floodgates and keep printing money to buy bonds from distressed countries. Germany’s Bundesbank is horrified — a bitter irony, given that the ECB was set up to imitate the Bundesbank on a European scale. In Greece, the people are turning to a neo-Nazi party, Golden Dawn, in frustration. In Spain, Catalan nationalists threaten to split the country. Britain is turning to isolation again.
The EU is doing all it can to keep the European project going, but it does so at the cost of peace and harmony across the continent. The divide is no longer between France and Germany, or East and West, but between North and South — that is, between strong economies and dysfunctional ones. Moreover, if France continues to pursue its current policies, it will probably suffer the same fate as the Southern economies before long.
In the past, the Nobel Peace Prize has been awarded to terrorists and warmongers, so it should come as no surprise that this year the prize committee once again awarded it to a source of global instability. If the EU really wants to promote peace and stability in Europe, it needs to stop doing virtually everything it has done to control countries over the past 20 years and instead give them much more freedom.
— Iain Murray is vice president for strategy at the Competitive Enterprise Institute in Washington, D.C.