Reports of the death of the European Union are highly exaggerated. Yes, in the past week strong majorities in both France and the Netherlands voted to reject the proposed EU constitution. Whatever this means politically, it will have surprisingly little effect on the global economy in the near term.
That’s because no matter where the EU ends up on several fundamental questions it faces, the economic benefits Europe derives from five decades of increasing economic integration will not disappear.
When the original six nations joined together in a precursor of the EU in 1957, their primary motivations were political, not economic. After three increasingly destructive conflicts in 75 years, they sought to bind Germany and France so tightly together that they would never fight each other again. Forming a united bloc against the Soviet threat was also a powerful motivator.
Reducing barriers to the movement of raw materials and goods did contribute to economic growth. European recovery from the war’s destruction in the quarter-century after 1945 was one of the triumphs of the 20th century. The European Community played an important part in this economic growth, particularly after 1960.
By 1992, the original goal of eradicating barriers to movement of resources, goods and services had been accomplished. That success, coupled with an exchange rate crisis, led to the ambitious goal of complete monetary union with one currency by 1999.
At the same time, the collapse of communism in Eastern Europe created many more independent European nations that wanted to be EU members. Leaders decided the union needed to be both more deeply integrated politically, especially with respect to foreign policy, while simultaneously broadening membership from 12 to 25 nations.
Those simultaneous goals are proving to be a bridge too far. But while the long-term structure of the EU is up in the air, it still encompasses more than 350 million people and some of the most important companies in the world.
Germany, Italy and France do have serious structural economic problems. But the economies of the United Kingdom, Ireland, the Netherlands, the Scandinavian countries, Austria and Spain are fundamentally sound and growing. The 10 recent entrants from former Eastern Europe are poor, but dynamic.
Productivity in many EU nations rivals that of the United States. Most EU households have substantial buying power.
One immediate effect of last week’s votes – the weakening of the euro against the dollar – is bad news for Minnesota farmers and medical technology firms, but will give a boost to European manufacturers.
It is in the whole world’s interest that the EU attain some workable governance structure. It also is in the world’s interest that Germany, France and Italy make structural reforms. But it is just as imperative that the United States put its fiscal house in order. We should avoid focusing on Europe while ignoring our own problems.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.