The EU outdoes itself in the madness stakes

One of the themes I exercised when speaking in Europe recently, particularly when presenting at the French Senate Commission and the Ministry of Finance, was that by pushing European integration into an unworkable currency union and refusing to budge, the European political class was undermining the valid aspects of the ‘European Project’, which the likes of Jean Monnet and Robert Schuman saw as a way of bringing peace to the Continent after several attempts by Germany to usurp the rights of citizens in other European nations through military endeavours. Research released by the The PopuList Project, which is a UK Guardian motivated attempt to bring together academics and journalist to study shifts in European voting sentiment since 1989, is rather alarming for those who hang on to hope that the European Union is capable of progressive reform. And the latest shenanigans in the European Commission and the Council over the ‘Budget’ is indicative of why the PopuList Project is generating such results. If there was foresight among the leaders in Europe they would take a step back and restore national currencies and restore the quality of European democracy, which has been significantly compromised since the 1990s.

To make sense of the PopuList data, one has to combine it with the data from – Parliaments and governments database – which is administered out of the University of Bremen.

The latest PopuList results are rather stark:

1. In the early 1990s, the “populist, far-right and far-left parties” accounted for around 10 per cent of the total vote. By 2020, this share had risen to over 30 per cent.

2. The share of “Eurosceptic, far-right and far-left parties” was around 15 per cent in the 1992 and is now at 33 per cent.

3. The surge in anti-EU sentiment has accelerated since the GFC and the way the EU technocrats handled the crisis.

I created the following graph from the data, which shows the shifting vote shares since 1992 among the “populist” parties in Europe.

One should be cautious in interpreting the PopuList results. If you examine the dataset carefully you will see many anomalies.

For example, Synaspismós Rizospastikís Aristerás (aka Syriza) is listed as a “far left” and “Eurosceptic” party.

When the “far left” includes parties that implement the vicious austerity of the neoliberal right (Troika) then some caution is required.

There are lots of anomalies like this in the dataset.

The other point that should be made is that the anti-EU sentiment is usually not the primary issue that attracts support to these parties.

The strongest vote catcher is related to immigration.

But the trends are fairly robust.

There has been a significant decline in the traditional progressive parties across Europe (Social Democratic, Socialist, Labour) and they have lost votes to the more extreme parties.

The data clearly highlights the rise in parties that are against the current form of the European Union in one way or another.

PopuList separates the Eurosceptics into two camps:

1. Those who unconditionally reject European political and economic integration and who espouse exit strategies

2. Those who are critical of the EU, particularly the EMU.

Which brings me to the latest idiocy in Europe over the ‘European Budget’, which is currently occupying the elites in Brussels.

The President of the European Council, Charles Michel has dared to send a ‘cat among the pigeons’ by offering at 53-page alternative proposal to the European Council on February 14, 2020.

The document – Draft Conclusion – isn’t much of a cat, and the Commission are hardly quiet pigeons.

But in the world of virtually do nothing European ‘budget’ negotiations, the Michel document has caused panic.

One official claimed that the Michel proposal was “Valentine’s Day without presents.”

All of this was input into the – Special European Council Summit – in Brussels on February 20-21, 2020 to “discuss the EU’s long-term budget for 2021-2027”.

It was a typical affair.

All this talk of being European and etc, falls away quickly when national interests are exercised.

The pro-Europe lobby can say what they like but when push-comes-to-shove, all the ‘pro European’ talk evaporates.

And this is why the Eurozone has been such a failure. It promised cohesion and convergence but has delivered neither.

More to the point, the national interests prevail, though hamstrung by the fiscal constraints on Member States, which mean that divergence is the norm.

Repeat.

The conclusion of the Special Council meeting was expected:

Following intense negotiations it became evident that it was not possible to reach an agreement and more time was needed.

Charles Michel said:

The last weeks and the last days, we have worked very hard in order to try to reach an agreement regarding the next European budget.

Unfortunately, today we have observed that it was not possible to reach an agreement. We have observed that we need more time. We know that this European budget is a very difficult topic, it’s a very difficult negotiation, especially after Brexit and the gap between 60 and 75 billion euro.

We have worked very hard to try to reconcile the different concerns, the different interests, the different opinions on the table. But we need more time. It means that we will see in the future how it is possible to work on this topic in order to succeed, in order to get an agreement in the Council, to have unanimity in the Council.

Just so you know what the contentions are in this latest chapter of the “multiannual financial framework (MFF)” negotiations, all the usual suspects are apparent:

– overall level

– volumes of the main policy areas

– financing, including revenues (own resources) and corrections

– conditionalities and incentives

The multiannual financial framework (MFF) is a torturous affair and the latest round, which “will set the limits for EU spending over a period of seven years, as a whole and also for different areas of activity” began in February 2018.

Leading into the most recent Council meeting, have been 22 separate talk-fests to advance the topic since early 2018.

The first problem that has put them into a spin is Brexit. They did everything they could to stop it from occurring but ultimately the democratic will of the people of Britain pushed the departure through.

And for all those progressives in Britain who cannot now cope with that reality and are still intent on putting out Project Fear reports and estimates of the hell that will … eventually, presumably, at some point, maybe, we better revise our last estimate, ultimately, whatever … will break out, the problems it has created for the European Union now are apparent and immediate.

While we have been confronted with the continuing claims by Michel Barnier, the EU’s Brexit negotiator, that Brexit was Britain’s problem, the reality is now clear.

As Emmanuel Macron stated after the European Council meeting ended in dissaray:

The EU doesn’t need the UK to show its own lack of unity …

The EU ‘Budget’ has just lost between “60 and 75 billion euro” over the next seven years and as Euronews wrote, “the Brexit budget hole” (Source):

… leaves the EU at a crossroads: either pay for the British loss or slash its spending.

And the antagonists are the so-called “Frugal Four” (Austria, the Netherlands, Sweden and Denmark), who pay the highest contributions per capita to the EU Budget, on one side, and, the 15-nation “Friends of Cohesion” (Bulgaria, the Czech Republic, Cyprus, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia and Spain), who all receive net contributions from the EU Budget, on the other side.

Germany, the largest contributor to the overall Budget, is basically an ally of the Frugal Four. Angela Merkel admitted after the Special Council meeting that the “differences are too big” to reach any sort of agreement.

Another large contributor, France, is typically interested in protecting its farming lobby and is falling in with the Friends.

The obvious cuts, if they come, will be to agricultural subsidies – current proposal a 14 per cent reduction.

In an article in the Financial Times (February 16, 2020) – The ‘frugal four’ advocate a responsible EU budget – Austrian chancellor Sebastian Kurz made the case for the Frugal Four:

Now that we have a smaller union of 27 member states, we simply have to cut our coat according to our cloth. The responsible approach in this situation is to prioritise in the interest of our taxpayers.

The article was co-written with “Mark Rutte, prime minister of the Netherlands, Mette Frederiksen, prime minister of Denmark, and Stefan Lofven, prime minister of Sweden”.

They invoked fears of inflation – yes, sorry, they still pull that one out – for maintaining a hard line on the level of the EU Budget.

The article maintained their position:

This requires the budget to remain at 1 per cent of EU gross national income and a system of permanent corrections to protect individual states from having to shoulder excessive budgetary burdens.

Now, before we go any further, lets just look at the numbers:

1. The Brexit loss to the EU is equivalent to about 0.1 per cent of GDP (measured in 2018) of the 27 remaining Member States.

2. The Frugals want to retain the 1 per cent of EU Gross National Income limit on the Budget.

3. Charles Michel’s proposed (along similar lines to those proposed by the Finns previously) that the Budget should be 1.074 percent of EU Gross National Income. He also proposed to divert cash from rich to poor regions as part of the ‘Cohesian’ funding.

4. The European Parliament wants the quantum to be 1.3 per cent.

5. The European Commission proposed 1.11 per cent on the basis that the Member State pay less than 1 per cent of their total revenue into the European Budget. But by the end of the Special Council meeting were proposing a limit of 1.069 per cent of GNI.

6. So, essentially, they are arguing over around 6 billion euros a year.

7. For many of the poorer countries, if the Cohesion funds are cut, investment in public infrastructure will fall dramatically. It is important to remember that the EU Budget is typically considered to be an ‘investment’ outlay budget.

8. To preserve cohesion funds and placate France over agriculture, major cuts in the research, innovation, migration and climate response allocations have been proposed.

The Times Higher Education supplement article (March 2, 2020) – EU leaders desert research in Brussels budget showdown – says that:

… when it comes to the crunch, EU member states have fallen back into old habits, putting their weight behind spending items seen as national priorities rather than supporting pan-European investment in research and innovation …

And remember all those Remainers claiming that research funds would dry up for Britain as a consequence of Brexit. Well the funds are drying up across Europe as a consequence of mindless austerity and a failure to act as Europe rather than separate Member States.

9. Importantly, all of the proposals, which increasing nominal outlays, will result in cuts to real outlays based on reasonable projections.

10. So austerity lives on in real terms.

The EU ‘federal’ budget needs to be considerably more than 1.x per cent of GNI.

If you think about the average US federal deficit since 1950 was 2.4 per cent of GDP although there are clearly differences at the State level compared to the EU Member States.

I thought this Tweet from the European Commission’s Director General for Budget (a fancy title) summarised the situation:

And the Remainers wanted to be part of this circus.

The point is that there is no uniformity at the European level which would justify a common currency and the creation of a properly-resourced federal system.

Without that option, the EMU (which is a subset of the EU) will continue to be dysfunctional and the next crisis may well terminate it – as it currently is structured.

A recent Bruegel paper summarised the problem (Source):

In principle, the EU budget should provide truly European public goods that benefit every European country, in which case net balances should not matter. But in practice, this is not the case. If the largest net contributor member states believe that a big share of the EU budget is redistributed to countries for spending which do not constitute European public goods, or there are risks for their improper use, the attempt of reducing the overall size of the budget and thereby net contributions is understandable.

There is no Europe in a fiscal sense because there is no European demos.

The nations have such different cultural and historical backgrounds and exhibit a deep mistrust with each other that all these debates deliver dysfunctional outcomes.

And with respect to Britain, the Michel Barnier boot is firmly on the ‘other foot’ now.

Britain is now, seemingly going to engage in significant public spending, if only for political reasons to shore up the Midlands and North as non-Labour voting areas.

Further, it has no incentive, in my view, to agree to any of the European conditions over a ‘trade deal’.

Why would it?

It runs a surplus on services of some 34 billion euro against the EU but runs a deficit on goods of about 112 billion euro.

And if Britain goes out on WTO rules, then it saves 47 billion euro.

Britain doesn’t need the equivalent of £39 billion it would hand over, but the EU surely needs it given the way the Member States have surrendered their own currencies, and the European Commission does not issue the euro.

The shift in bargaining power is what I was predicting all along.

Conclusion

The latest fiscal deliberations in Europe should be sufficient to remind the British how lucky they are now to be out of the EU fiasco.

With the rising social issues reflecting in the shifts in political preferences, it is hard to see the current system in Europe persisting.

Eventually, the cumulative damage these characters are inflicting on ordinary citizens will become too much.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.