EU: Not Ready For U.S. of Europe

The origin of the European Union dates back to 1952, when six nations formed the European Coal and Steel Community. The Treaty of Rome (1957) broadened the relationship into a Common Market, known as the European Economic Community (EEC). A European Court of Justice (ECJ) followed to monitor compliance. A Customs Union (1968) was added to abolish duties between members, and to set a common tariff as to foreign goods.

The EEC grew to 12, as the UK, Ireland, and Denmark enlisted in 1973, Greece was added in 1981, and Spain and Portugal joined in 1986. The Schengen Agreement (1985) gave EEC citizens the right of free movement in and out of the other member states.

The EEC became the European Union (EU) in 1992, under the European Union Treaty. The EU soon grew to 15, as Sweden, Finland, and Austria signed up (1995). Questions arose as to how much power the EU should have, and what authority should be retained by the states. While customs and commercial policy were yielded to the EU, many other law-making areas remained national. Although the EU had a Parliament, questions arose as to the number of votes each state would have in the EU. To correct some of these issues, the Treaty of Nice (2000) was ratified.

At the same time, the EU created an Economic and Monetary Union (1999). A European Central Bank opened in Frankfurt, which issued the Euro (2002), and abolished national currencies. Britain, Denmark, and Sweden opted out of the Euro, as criteria were set for new EU states, before they could adopt the Euro. The states no longer governed monetary policy, as the Central Bank set interest rates. Although the Bank opposed deficits by national governments, members retained control over fiscal policy. Critics of this said the EU could not maintain tight monetary policies, while states were allowed to have expansive fiscal policies.

The EU states made an attempt to be guided by one written Constitution, in lieu of a series of treaties, but the effort failed when France and the Netherlands rejected it (2005). Nevertheless, 10 additional countries became members of the EU in 2004, and Bulgaria and Romania brought the number to 27 in 2007.

The states of the EU are currently administered by a 27-member Commission, which is their primary source of legislation. The Commission has the power to issue regulations and directives to states. The EU also has a 27-member Council of Ministers, which has the final say on most legislation. Since each state has one vote in the Council, smaller countries have disproportionate influence. The European Parliament is a 732-member elected body, but it has no general law-making power. It must base what it does on existing treaties. It may challenge the acts of other institutions and reject budget proposals, but the Council remains more powerful. Since the Parliament is relatively weak, issues of representative democracy have been raised. The EU also has a 27-member European Court of Justice which has the authority to review: EU treaties, the conduct EU institutions, and enforcement actions brought against the states.

While the EU currently has law-making functions, they are largely limited by treaty to common market issues. They have no authority to legislate regarding national pensions, or health care, for example. The EU has no general power to tax and spend. Under the current arrangement, it would be difficult for a majority of states to change the behavior of another country.

To complicate matters, it will be a real challenge in Europe to take benefits away, because people have rights to them under various Human Rights Treaties. Europeans enjoy the right to collective bargaining, and protection in the event of an unfair dismissal at work. They have a right to fair and just working conditions. They have a right to social security and health care.

The immediate problem in the EU is national governments control their own fiscal policies, and the crisis of the Euro is without a mechanism to save it. The difficulty in creating a fiscal union, or a political union which would entail a loss of state sovereignty, is the strong sense of nationalism that exists in most European countries. A radical change in thinking will definitely be needed before the peoples of the EU could ever become a United States of Europe.

Greece Limited By Euro Monetary Union

Although the U.S. Congress controls Fiscal Policy under an unlimited Constitutional power to tax and spend, and Monetary Policy through the Federal Reserve Bank and the ability to “coin money,” European Union states, such as Greece, who elected by treaty to adopt the Euro currency, are no longer able to use a national Monetary Policy to print money, or a Fiscal Policy to spend in excess of limits set by the European Central Bank.

European unification has been a work in progress since the 1950s when certain European states created a Common Market for the purpose of trading, under a system that allowed them to maintain their control of over national economics. A Customs Union was added in 1968 to abolish tariffs between the member states, and to establish a common tariff as against goods from the outside.

The existence of several currencies and a desire for a easier flow of capital led to a Monetary Union, which created a European Central Bank in Frankfurt, abolished German Marks, French Francs, and other currencies, and replaced them with the Euro in 2002, by making it the exclusive legal tender in Euro Zone states.

The problem with the Monetary Union is the lack of a Political Union to oversee it. Unlike the U.S., where all 50 states obey Washington DC on national matters, the EU is a collection of independent countries that happen to have a Central Bank. The EU Parliament cannot pass national legislation, like the Congress; they can only follow existing treaties, or propose new ones.

It is doubtful the recent European Monetary Union financial crisis will cause the independent countries of the EU to form one Political Union. It is more likely to have the opposite effect.

The problem is national governments like Greece already gave up aspects of national control under prior EU Treaties. When the Monetary Union was made, the EU Framers required the various national governments to coordinate their economies. National Debt, for example, was not to exceed 60% of GDP. Countries that previously used Monetary Policy were no longer able to do so, since these powers were transferred by treaty to the Central Bank.

National governments that previously spent their way out of recession, now had their Fiscal Policies controlled by the EU Central Bank, which imposed spending caps. Their Stability and Growth Pact (1997) required states to pursue balanced budgetary policies, and imposed sanctions against those that failed to adjust.

The European Central Bank has the authority under treaty law to restrict the democratic wishes of the Greek people and to operate without regard to political pressures. The risk is a renunciation of the EU Treaty by Greece, which may trigger others to follow, in a manner like South Carolina’s secession from the U.S. in 1861.

While the EU is not going to allow member states to default, the question is whether the Greeks will allow the Central Bank to reduce their jobs and pensions without a secessionist revolt, which Greeks may feel is their only option, since the Bank now controls their national Monetary and Fiscal policies, under the EU Treaty.

European Union Needs More Power

Since 54% of the 483 million-member European Union (EU) come from Germany, France, Britain and Italy, too much is being made of the Euro Crisis, as only 2% of the EU population lives in Greece, 2% in Portugal, and less than 1% in Ireland. The Euro Crisis simply does not directly affect 95% of the European Union.

Britain, one of three to opt out of the Euro, with Denmark and Sweden, is now smirking on the sidelines and hyping the crisis, as the German Bank tries to craft bailouts for Greece, Portugal and Ireland. But British criticism of the Euro-zone is not the answer. The Euro instead needs more, not less power. What the UK could do to help and restore Euro confidence is to boldly abandon the Pound and adopt the Euro.

Here, in America, many are unable to follow the EU story, since the organization did not even exist when they were in school. The EU had its origins with the European Coal and Steel Community (ECSC) (1952), and the Common Market, also known as the European Economic Community (EEC) (1957). The EEC later became the European Community (EC) (1967), and finally the European Union (1992), which now has 27 member states.

The EU established an Economic and Monetary Union, which opened a European Central Bank in Frankfurt (1998), and circulated a Euro Currency (2002). Britain, Denmark and Sweden opted out of the Euro. The Central Bank controls Euro monetary policy and affects national spending, since Euro-zone states are now unable to print their own currencies and must make up for budget shortfalls by borrowing. The EU adopted a Stability and Growth Pact to limit national budget deficits, but Greece, Ireland and Portugal failed to comply. With no money to print, and none to borrow at reasonable rates, a crisis developed.

A European solution is not as easy as the one implemented in the U.S. during the recent financial crisis, where Congress and Federal Reserve Bank stopped things from spinning out of control. Although EU institutions look like those in the U.S., since they have an executive in Brussels (Commission and Council of Ministers), a 732-member Parliament in Strasbourg, and a Court of Justice, in Luxembourg, they are not as strong as their U.S. counterparts. The EU is not really a political union able to make its own decisions, but rather an organization which is dictated to by its 27 member states. The EU Parliament has no general lawmaking power and cannot tax and spend. All the EU can do is issue directives to member states and ask national governments to implement EU policy.

Some say the EU will never become the USA of Europe, but it’s just a matter of time. It took the U.S. 172 years to assemble 50 states in one union across North America, and it will take many years to complete the European Union picture.

For now, instead of Britain, Denmark and Sweden resisting the Euro currency, as they have in the past, they should courageously convert to it and give the EU more power. All 27 member-states should grant their EU institutions the authority they need to keep their currency strong, so they can correct the budgetary problems in the member states, such as Greece, Portugal and Ireland.