12 April 2021

Paul Goldschmidt: Is the European Union losing its way?

The events unfolding under our eyes, and whose roots reach back over the last several decades, are questioning the foundations of the EU which have been the focal point around which European society has coalesced since WWII.

Firmly scotched to the USA during the reconstruction period and benefitting from its benign protection against the spread of communism, European nations favored building regimes emphasizing a welfare State and to a greater or lesser extent wealth redistribution, at the expense of their economic, monetary, defense and finally political autonomy, these aspects being clearly closely interconnected.

Up until the introduction of the Single Currency, the EU created the illusion of being in the process of establishing itself as a “great power”, replacing the USSR on the geopolitical stage dominated by the United States, prior to the emergence of the Chinese challenge. The enlargement in the early 2000’s from 15 to 28 Members reinforced this perception. Simultaneously, the participation of the U.K. and France to the club of “nuclear” powers together with their veto power at the U.N. Security Council, remnants of circumstances now obsolete, perpetuated the double illusion that these countries retained their status of “global powers” and that – by osmosis – a similar recognition was granted to the EU.

At present the unforeseeable combination over a short time span of several factors, including the pandemic, exploding inequalities, Brexit, the Trump presidency and Biden’s election, are important markers which challenge the viability of a rational narrative underpinning the EU, supposed to allow its citizens to enjoy economic prosperity, military security and their aspiration to political independence, while sharing common values of freedom, democracy and protection of human rights.

The pandemic has revealed the existence of both contradictory and irreconcilable demands: on the one hand the necessity of worldwide cooperation, illustrated by the remarkable success of the development of a vaccine, while, on the other hand, controversies relating to its distribution were creating protectionist barriers, incompatible with the aim of eradicating the virus. Similarly, the logic of a globalisation, relying essentially on relative production cost competition, revealed an unacceptable degree of dependence on the access to strategic supplies as well as the damage to the environment (long distance transport) or the vulnerability of logistics (blockage of the Suez canal). Furthermore, the necessary huge additional financing needs stemming from the pandemic would have been out of reach without the capacity enjoyed by the largest economies with the support of their respective Central Banks and who’s so far unlimited interventions are not without creating severe risks for the stability of the international financial system.

While the consideration of these problems appears to create a consensus on the need for a coordinated response at EU level, (the cost of research, production and distribution being out of reach for each individual Member State), a counter trend aiming at reinforcing the powers of national governments (border controls, mobility restrictions, health management) is only raising further obstacles to efforts aiming at further European integration such as completing EMU, implementing the €750 billion Stimulus Plan or furthering cooperation in the fields of defence, foreign policy, taxation, etc.

This drawing apart of the economic and political logics presiding over the European construct finds also its expression in the marginalization of the EU in the confrontation developing between the U.S. and China for world leadership. The Union lacks cruelly of a credible military establishment in support of its political autonomy. It is subject to being humiliated diplomatically by Russia and Turkey, largely because of the internal competition waged by MS between themselves and with the European Institutions that are supposed to represent them. On the monetary front, the € figures less and less as a credible alternative to the $ whose exorbitant privilege is reinforcing itself and to which the Renminbi, over time, appears to be the most dangerous rival. Furthermore, with a rapidly expanding economy, India is emerging as the key power capable of arbitrating between the American and Chinese ambitions in the Asia-Pacific area while the EU, riddled with unrealistic visions of sovereignty among its Members, is faced with the choice of being a passive spectator or yielding to the pressure emanating from its American master.

The recent proposal made by Janet Yellen, the American Secretary to the Treasury, concerning a uniform minimum corporate tax rate for international companies, coming on the heels of massive stimulus and investment programs, constitutes an emblematic element of the policies of the new Biden administration. It accompanies a reversal in the forty year old trend towards lower levels of taxation, aiming in particular at the wealthiest segment of the population. This surprising and unexpected reversal must still overcome numerous obstacles domestically, where the ideological battle between Republicans and Democrats is far from decided.

Whatever happens, this proposal will constitute a major challenge for the unity of the EU because the opposition of the Trump administration to the taxation of the GAFAs can no longer serve as a smokescreen hiding the MS internal disagreements. In particular the MS will have to confront the removal of rule of unanimity in fiscal matters (and in the other areas where it applies) if one wishes to give this radical proposal a chance of being implemented. It would eliminate, at the stroke of a pen, a lot of the attractions of tax havens and limit the scope of tax competition, sensible objectives but infringing on many very particular and private interests.

The European response will be a decisive marker leading either to the further and ever closer integration of the Union together with the affirmation of its power, or, to the contrary, to a reinforcing of centipede forces which will inevitably lead to the dismemberment of the Union and to the confirmation of the relegation of its main Members to a status of secondary powers. Time is short between the hoped for exit of the pandemic and key elections taking place in Germany and France. The future of the Union must become the central plank of the polls and the debate should extend to EU as a whole which cannot afford to stand by watching a possible lurch of one of its founding members towards a “euro-sceptical” regime which would paralyse the Union prior to ensuring its demise.  

A deliberate effort to make use of the platform offered by the forthcoming Conference on the future of the EU could form the base of a massive campaign to promote the added value of the Union as many citizens have come to realize during the pandemic. It is of paramount importance not to fall into the trap of appeasement by sheer laziness or to be seduced by the economic successes of a number of autocratic regimes which, transposed to the EU within a context of exacerbated inequalities, can rapidly compromise the exercise of the basic freedoms for which we have fought so hard.

Paul Goldschmidt

© Paul Goldschmidt