IntroductionPatrick Minford and J. R. Shackleton
The relationship between the UK and the EU has never been completely untroubled. However, this book is published against a background in which both the UK and the EU as a whole are facing existential crises, which would not have been thought likely, or even possible, a few years ago. Across the EU, the seemingly inexorable movement towards ‘ever-closer union’ has run into major problems that have set European neighbours against each other in a way that has never occurred before in the decades since the Treaty of Rome.
The euro zone crisis has shown what happens when ill-matched economies enter into monetary union without proper preparation and commitment. The cavalier way in which Greece and some other Southern European countries joined the euro zone has had dire consequences. These were predicted at the time, not least by British economists, but political imperatives overrode such concerns. The financial crisis has now forced euro zone governments to face up to the massive fiscal problems of the weaker members, and the political fallout of the required responses has been dramatic.
Less predictable, perhaps, was the migration crisis set off by the consequences of the Arab Spring, the collapse of governments in Iraq, Syria and Libya, and the rise of the Islamic State of Iraq and the Levant (ISIL). Millions of people have been displaced by war in the Middle East and are seeking, by one means or another, refuge in Europe. The struggles of EU countries to handle the influx of refugees, plus that of economic migrants from many other parts of the world, has placed severe strains on the principle of free movement within Europe – a basic feature of the European ideal since the beginning.
Here in the (still just about) United Kingdom, we face a referendum on EU membership, the outcome of which appears more uncertain than ever. The attempt by David Cameron to renegotiate the UK’s terms of membership, always likely to be a difficult task, will not have been helped by other members’ perceptions that the UK has stood back from helping resolve Europe’s other problems. At home, the strongly pro-EU Scottish National Party has threatened a new referendum on independence should the EU vote go in favour of Brexit. The UK Independence Party polled four million votes in the May 2015 general election. Some of these votes were at the expense of the Labour Party. Following its poor election performance, Labour has swung dramatically leftwards under the leadership of Jeremy Corbyn. This has opened up doubts about Labour’s previously strong support of EU membership. At the same time, although the Conservative Party is perhaps more eurosceptic than it has ever been, there are still considerable divisions about the appropriate relationship with Europe. Only the Liberal Democrats remain overwhelmingly pro-EU, although they are a greatly shrunken force after their disastrous general election results.
This volume attempts to step back from the immediate political battlefield and to consider longer-term issues about the appropriate relationship between Britain and the EU. It is not a eurosceptic treatise, but it is certainly not blindly pro-EU either. Instead, it is intended to clarify the choices available. Working from first principles, the authors were asked to provide their take on appropriate regulatory frameworks, legal arrangements and international commitments for promoting a liberal market economy in the various areas where the EU currently has substantial powers.
These powers, or competences, are set out in detail in 32 review reports commissioned by the coalition government. The reports, which also summarised over 2,000 submissions from interested parties, are a valuable source of information. However, given the politics of the coalition, no real conclusion was reached. In summarising the work at the time of the publication of the final seven reports, Foreign Secretary Philip Hammond contented himself with generalities about the importance of subsidiarity and proportionality, and the need for the EU to focus on areas where, in the banal cliché of government statements, it ‘adds genuine value’.
In the IEA tradition, our authors, unlike the coalition’s competences reviewers, were asked to go back to first principles. They were asked to go beyond reviewing the field and to make judgements: not judgements about what is currently politically possible, but about where we need to be after renegotiation is concluded. Some authors believed that, in respect of the area of policy they analysed, we would be better off if we were not in the EU; others believed that there is a legitimate EU role in policy, but that it should be radically reformed; and some authors were content, more or less, with the status quo. We hope that their analysis will provide readers who have a vote in the forthcoming referendum with a conceptual framework to help them judge the revised membership terms that Mr Cameron intends to put to the electorate.
The next section of the book sets out first principles – four chapters that look at fundamental issues concerning the relationship between the EU and its members, in particular the UK. This is then followed by a series of essays on particular policy areas.
Principles
In his chapter, Martin Ricketts applies economic reasoning to the process of assigning powers and responsibilities to different levels of government in the EU. He starts from the proposition that one of the state’s basic roles is the provision of public goods. For some such goods, the existence of international spillovers suggests that the appropriate locus of decision-making is above the nation state, although Ricketts concedes that detailed examination of cases may call this into question. In some cases, decisions should possibly be taken at a higher level than the EU: for example, some defence issues are better determined by NATO than by the relatively feeble European capability. In many cases, however, appropriate jurisdiction is clearly at the national level, and there is little economic justification for ‘ever-closer union’.
Using Coasean reasoning, Ricketts draws an analogy between decisions to assign competences between states and the EU on the one hand and firms’ decisions to merge (often as a result of high transactions costs) rather than continue to rely on contractual relations between individual firms on the other hand. The important issue for the EU is ‘the complex one of determining the relative bargaining costs, agency costs and effectiveness of different collective decision-making processes’.
Ricketts places great emphasis on the benefits from competition between jurisdictions over such matters as taxation and regulation. The argument in Tiebout (1956) that factor migration and ‘exit’ will reveal preferences better than a voting system may have been based on restrictive assumptions, but Ricketts feels it was essentially correct. He rejects claims that competition leads to a ‘race to the bottom’. He argues that such claims – which lie behind the promotion of many of the EU’s ‘shared competences’ – reflect producer interests. Many health, safety and environmental costs, for example, are truly local, and EU harmonisation may act as a barrier to trade and encourage rent seeking.
Roland Vaubel’s contribution examines the institutions of the EU from the angle of the UK’s renegotiation stance. He argues that negotiations should focus on these institutions because there is much wider support among governments for limiting centralising powers than for reversing specific policies.
Vaubel emphasises the need to reform the European Court of Justice (ECJ). He argues that the Court is the ‘lynchpin of the system’: the judges misinterpret the European treaties because they have a vested interest in centralisation at the EU level, for instance in relation to financial regulation. The Commission’s role as initiator of legislation and enforcer/prosecutor breaches the principle of the separation of powers. The European Parliament should, in his view, be reduced in size, and a second part-time chamber added, with a veto over centralising legislation and consisting of members selected by lot from national parliaments.
Four types of institutions, Vaubel proposes, are needed for international cooperation: international courts or arbitration tribunals; international public prosecutors to monitor and enforce compliance; international fora to negotiate these commitments; and an independent international competition authority. Importantly, he argues that such cooperation should not necessarily be confined to the EU. Like Ricketts, he argues that wider cooperation through the North Atlantic Treaty Organization (NATO) or the Organisation for Economic Co-operation and Development (OECD) may sometimes be more appropriate.
Vaubel points out that EU institutions differ from the ideal because the ‘founding fathers’ of the European movement intended to use the common market as a stepping-stone to political integration, setting up institutions that went far beyond what was necessary to abolish national barriers to trade and capital movements. This theme is taken up by Gwythian Prins, whose contribution traces the origins of ‘The Project’ of European union to the generation of Monnet, Salter and Hallstein, who reacted against the horrors of World War I.
Prins emphasises that Monnet and his colleagues, seeing that a direct move to a united Europe was unlikely ever to be agreed by independent nations, promoted a ‘creeping federalism’, epitomised by the acquis communautaire, the ratchet principle by which all integration is essentially a one-way process.
Prins sees the lack of a true European identity as the fundamental flaw in Europeanism and the autocratic rule of the EU elite as a cause of the hollowing-out of democracy in Europe. Increasing integration and centralisation has ‘deepened the gulf between rulers and subjects’. The current crisis in Greece is only one aspect of a wider disillusionment with the EU, also manifested in Spain with the rise of Podemos and even, perhaps, in the election of Jeremy Corbyn as Labour Party leader.
For Prins, the issue is not simply, or even mainly, the economics of EU membership. He argues that the UK’s worldwide political and strategic interests are increasingly likely to be more important than belonging to a federal state founded on the ghosts of the past.
In an important chapter, Martin Howe spells out the legal framework for exiting the EU (relatively straightforward) or renegotiating the terms of membership from within (much more difficult).
Withdrawal from the EU is possible under Article 50 of the Treaty of European Union. The state concerned notifies the European Council of its intention to withdraw. Negotiations then take place on the arrangements for withdrawal and the state’s future relationship with the EU. At the end of two years, the state ceases to be part of the EU, whether or not those negotiations have been completed. Howe shows tha...
