The Corner

Diagnosis & Prescription

For a corrective to Van Rompuy’s dismal bunker ramblings, check out this Daily Telegraph piece on the EU and the euro by the Czech Republic’s splendidly Thatcherite President Václav Klaus:

European integration was originally based on a rational idea to liberalise Europe, to open it up and to expand trade by building a common market and a large, interconnected economic space.

I’m not so sure. Even if many supporters of what became the EU wanted just that, the motives of the Union’s founding fathers were a good deal more ambitious, and a great deal more sinister, but they were patient folk, and the early stages of European integration did indeed generate much that was worthwhile.There was, so to speak, bait as well as trap:

This liberalisation more or less characterised the first decades of the European integration process. And it brought positive results, especially compared with the 1930s.

But the current era is different, because European integration moved to a different stage. Liberalisation was replaced by a massive shift of competencies from individual member states to the European Union’s “commanding heights” in Brussels; by the radical switch from intergovernmentalism to supranationalism; by the carefully organised weakening of the original building blocks of European integration – that is, individual countries; by large-scale centralisation, additional anti-market regulation, standardisation and harmonisation of the whole continent.

In the past a highly heterogeneous continent flourished due to its diversity, non-uniformity, and the healthy competition between countries. This changed when Europe became unified and was artificially made uniform by centrally organised governance and legislation. It led to the disturbing economic outcomes we see today and to what is called a democratic deficit. I call it post-democracy.

Institutional uniformity turned into a straitjacket that keeps blocking all kinds of positive human activities. The most important moment in this process was the establishment of the European Monetary Union and the introduction of one currency in a group of 12 countries (now 17) that do not form what economists call an optimal currency area. The eurozone sovereign debt crisis is an inevitable consequence of one currency, one exchange rate, and one interest rate for countries with diverse economic parameters. The political decision in favour of this arrangement was taken with almost no attention being paid to the existing economic fundamentals.

Quite. Because the political class knew best.

Klaus argues that change is badly needed and, needless to say, has a few ideas as to the form it should take:

Let me suggest the main components of such a change. First, we must get rid of the unproductive and paternalistic social market economy. Second, we should accept that economic adjustment processes take time and that impatient politicians and governments usually make things worse. Third, we should start making comprehensive reductions of government expenditures and forget flirting with solutions based on tax increases.

We should also stop the constantly expanding green legislation…

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