The process of global economic integration hit some speed bumps this past weekend.
The World Trade Organization talks in Cancun, Mexico, collapsed in disarray. Swedish voters rejected joining the euro zone within the European Union. And, E.U. officials failed to settle the issue of large nations spurning the “stability and growth” criteria that these very nations had insisted on as a prerequisite for adopting the euro.
All of these events will slow international economic integration. The world, both developed and developing, would be a better place if these setbacks had not occurred.
Such reverses are not permanent or insurmountable, however. They may even be a blessing in the case of Sweden’s vote and the Cancun talks. The first may prompt some necessary soul searching within the E.U. As for the WTO, no agreement might be better than a bad agreement or one that nations simply will not put into practice.
Elected officials and other leaders should treat the reverses as speed bumps. They signal that the pace of integration may be faster than can be absorbed by the involved nations. Slowing down is not bad; in fact, it is better that economic integration work well than that it occurs rapidly.
Moreover, one should recognize that everybody is exasperated by the climate of political and economic insecurity pervading the globe right now. No major economy is booming and several are slowing. The security situation in the Middle East and South Asia continues to deteriorate. All this contributes to international policy cautiousness.
The U.S. decision to press into a war in Iraq created tension not only between the United States and several of its traditional allies, but also within the European community. It also created ill will toward the United States among the developing nations and steeled their resolve to not be rolled over by the rich nations at Cancun.
Achieving any sort of international accord in such an environment would be difficult. The fact that the United States and France are ruled by particularly obtuse administrations makes things even worse. But the world will survive.
E.U. nations apparently believe that the E.U. must simultaneously widen and deepen itself. Widening means admitting additional countries, perhaps as many as 10 in the next decade, some which diverge widely in economic and historical terms from the 15 current members. Deepening means drafting a constitution and adopting various measures that reduce national sovereignty and move power to largely unelected entities in Brussels.
One often hears that integrating Europe is like riding a bicycle. If the rider doesn’t keep pedaling, he falls over. Nice metaphor, but there is little evidence that it is a correct description of the choices faced by the E.U.
While the E.U. had its roots in early post-World War II cooperation, its official founding dates from the Treaty of Rome signed in 1957. Signers of that pact envisioned a (small) Europe with no national border impediments to economic activity. That goal really was not achieved until 1992, and in many ways — particularly labor mobility — still is not true in practice.
If it took 35 years to achieve the limited goals of freeing commerce within quite similar nations, there is no reason much more difficult monetary and political union needs to take place in a shorter time-frame. The changes envisioned are deep, and the social, economic and political ramifications are enormous and unpredictable.
The Swedes, latecomers to the E.U., reflected that uncertainty in their strong rejection of the euro. Things have moved quickly for Sweden and the full effects of E.U. membership are not yet clear. Many voters correctly viewed joining the euro zone as a one-time option. A “yes” vote now would be extremely difficult to reverse in the future. Voting no keeps the option open.
Will this refusal to join result in lower output or higher unemployment for either Sweden or the E.U. as a whole? It probably will, but it should also serve as a signal to E.U. leaders that nagging questions about its internal governance need resolution.
Will France get away with its stance that E.U. rules apply only to the “little countries,” but not to it or to Germany? If it does, the E.U. will face far deeper problems in deepening and broadening itself.
The collapse of the Cancun talks was a loss to global society. There is plenty of blame to go around, but the major industrialized nations bear a far greater proportion of the blame than do the poorer countries.
The world as a whole would not only be more productive, but also would be much more just if the E.U., Japan and the United States reformed the iniquitous ways in which they subsidize agriculture.
But none of the three, however, is ready to tackle the political battle that reform of these unjust and regressive agriculture policies will require. If an accord had been reached in Cancun only to be undermined by subsequent stonewalling and prevarication on the commitments made, we would be far worse off than we are with no agreement at all.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.