The Fundamental Flaw in European Unity

T he flaws of the European Union are many: Its overregulation of AI, growth-killing climate goals, and foreign-policy virtue signaling are but a few of its vices. Much less discussed, however, is the fundamental flaw in the idea that sits at the heart of the EU’s political union: the notion that European unity is, in and of itself, desirable. Europe’s history suggests otherwise.

When picturing a disunited Europe, most observers picture the horrible scenes of the First and Second World Wars, waged between competing European powers vying for dominance of the continent. This is also the picture of “disunity” that the EU likes to sell: We must stay united, or else we will soon be back in the trenches killing one another. Pro-EU campaigners during Britain’s 2016 Brexit referendum even hinted at the prospect of a World War III in their attempts to convince Brits to remain.

In reality, disunity among nations looks much like disunity among firms — in other words, it looks like competition. Competition between European nations was crucial in spreading the industrial revolution. After Britain began the process of industrialization, other European countries faced a stark choice: Reform your economic systems and institutions in such a manner that you can follow Britain and industrialize — or be left in the dust.

The latter option would not just mean accepting an ever-widening gap in living standards between themselves and Britain, but also facing the threat of future conquest from a British military funded by the ever-growing wealth produced by industrialization. It is not a coincidence that France, Britain’s historical archrival, was among the very first countries to follow its lead, with Napoleon removing internal trade barriers and formalizing the ban on guilds introduced during the French Revolution. Belgium, though allied with Britain, also realized what was about to happen and went as far as to smuggle British machinery into its country to copy it. After being defeated by the aforementioned Napoleon, Prussia liberalized land markets and abolished serfdom.

The 19th century also saw freer trade than before, meaning businesses faced international competition — many of them for the first time. Lower trade barriers created even more pressure on governments to keep up with economic reforms that helped their own country’s foreign competitors succeed.

At this, supporters of the EU may clap back that this is exactly what the EU is enabling: creating a free market not just for goods, but for services, capital and labor. The single market is, indeed, the EU’s greatest success, something even harsh Euroskeptics readily concede.

Yet, while businesses in Europe do compete with one another, countries are increasingly unable to do so. Harmonization of regulatory standards has been the EU’s big project for decades. This effectively removes the ability of a country to carry out most regulatory reforms to be more competitive, since its regulations must, in more and more areas, abide by whatever the EU says. On paper, the EU usually only has “minimum” requirements, with countries free to make their internal regulations even stricter if they want. In practice, this minimum is often set wherever uncompetitive countries want it to be and are made to ensure more business-friendly governments in other countries cannot easily poach their firms.

Within the EU, state aid toward individual businesses or sectors is banned. This ban on state aid is vague, and the EU has even dabbled in inferring with tax rates, ganging up with the OECD to successfully bully Ireland into raising its 12.5 percent corporate tax rate by arguing that it was unfair that Ireland didn’t tax its businesses as much as the rest. The EU also forced Ireland to collect additional tax revenue from Apple, one of many tech giants to have headquartered in Ireland to escape the oppressive taxes and regulations that characterize the continent.

Supporters claim regulatory alignment is necessary to maintain the single market. This is only partially true: Yes, everyone having the same electric sockets is handy. No, we do not all need to have the same definition of parmesan cheese or Swedish bologna. When standardization is helpful, markets tend to produce it without or with minimal government assistance.

What the EU is increasingly doing is not helping the market work, but stifling innovation — the latest example being its restrictive AI Act that is smothering the European AI sector before it ever had a chance to grow. Normally, at least a few countries would have retained favorable regulatory environments, giving shelter to AI firms, much like Ireland’s extreme pro-tech and pro-business policies of the early 1990s saw tech giants like the aforementioned Apple headquarter there. To the EU that, however, is a cautionary tale: This time, with AI, there shall be no Ireland providing refuge to Brussels-persecuted entrepreneurs.

Through the social pillar, the EU is also increasingly intervening in labor market policy. This recently led to a generations-old arrangement, wholeheartedly endorsed by Swedish unions, that allowed carers and firefighters to work 16- and 24-hour shifts suddenly becoming illegal. Meanwhile, the new proposed seven-year EU budget includes a host of new EU-wide taxes, the revenue of which will directly fund the union.

One can only imagine how history may have played out differently had the European Union been around in the 18th century at the start of Britain’s industrialization. Rather than playing catch-up and copying Britain’s recipe for success, the other European countries would have likely promptly passed regulations requiring a minimum number of tailors per swindle (and let’s not forget about the industrial pollution!).

European unity is good only in so far as it does not cause European stagnation. Right now, as evidenced by the EU’s perpetually slow economic growth, that is exactly what it is doing. Instead of 27 laboratories of democracy each thinking of ways to improve their business environments and spur innovation — what Eurofederalists wrongly call a “race to the bottom” — we have a continent-wide cartel, trapping its members in a stasis of economic mediocrity. To escape, Europe must put unity to the side and return to the recipe of success from the industrial revolution: competition between fully sovereign states.