Entangled Alliances

photo credit: rockcohen

Five years on from the “big bang” enlargement of 2004, and in a year of such economic turbulence, what are the prospects for European integration this year? Analysing this situation is difficult because there are so many different factors to consider, from the world recession and the European Parliament elections in June to the continuing saga of the Lisbon Treaty and the the energy security challenges posed (in particular) by Russia. Many of these issues have already been highlighted in Mark Mardell’s excellent Euroblog.

In order not to dilute the importance of all of these issues, it’s probably worth devoting a post to each of them. Today we’ll start with the global economic downturn – join me below the fold.

Economic slowdowns have historically – almost without exception – led to greater protectionism as each country faces demands from its electorate to shield them from the rising storm of global financial turbulence. This can certainly be applied to the history of European integration; the 1970s and 80s saw a halt to further integration, as well as protectionism, particularly through non-tariff barriers. One of the most famous cases was in 1982, when the French government demanded that all Japanese VCRs pass through a customs inspection (to ensure health and safety standards) in Poitiers, a small town in the centre of the country. With limited resources and only eight members of staff, this significantly increased cost and reduced the quantity of imported videos. The abolition of such non-tariff barriers has been the driving force behind the Commission’s zealous pursuit of standardisation and harmonisation – the regulations which often result in the stuff of British Eurosceptic dreams – bendy bananas and the abolition of British orchards, for example (both of which remain rather more dreams than reality).

For European integration itself, the 1970s and early 1980s were termed the ‘doldrum years’, as they saw virtually no new advances in integration during this time. Nevertheless, it still saw the accession of the UK, Denmark and Ireland in 1973, followed by Greece in 1981 and Spain and Portugal in 1986. This suggests that, while deeper integration is off the cards, a widening of the Union is a still a possibility.

This therefore raises two questions: firstly, does a nasty economic downturn really preclude deeper integration? And secondly, should we look forward to another enlargement in the next couple of years?

Deeper integration

photo credit: insidious and subtle M

On the first point, the evidence is mixed. While the 1970s and 80s do seem to suggest that deeper integration is indeed more difficult in a recession, the Maastricht Treaty establishing the European Union was signed in 1992 in the middle of economic unrest – although, of course, in difficult circumstances. The economic problems now rocking the global financial system as a result of sub-prime loans and the consequent credit crunch may also persuade leaders of the need to be part of a larger community than an individual country; while speculators may rock the Icelandic Krona or even Sterling, the much larger Euro has proved far more resilient.

On the other hand, countries may (understandably) cave to more populist demands and raise tariffs and quotas, or introduce non-tariff protections along the lines of France in 1982. The EU is urging the Obama administration to strip the protectionist “Buy America” provisions from the stimulus package currently working its way through Congress. The growing clamour in the UK over the employment of workers from other parts of the European Union in the energy sector shows that in a recession, arguments about the benefits accrued from pooling resources in a common European Union fall by the wayside when people see jobs in their local area going to people from elsewhere.

As yet, the British government shows few signs of backing down in this dispute. Certainly, to place barriers in the way of Italian or Portuguese workers from taking on jobs in the UK would be to radically clash with the core purpose and goals of the Union, focused around the four freedoms of labour, capital, goods and services. It seems fairly unlikely that this will happen, and in any case, British workers have benefited enormously from the ability to work with relatively few restrictions in a much larger labour market (apart, of course, from the language barrier) throughout Europe.

Non-tariff barriers will always be a problem in the European Union, despite the best attempts of the Commission. Even without any additional laws, geographic and social mobility will always be a problem (as in the US), but as mentioned above Europeans have to face the additional problem of the language barrier. Nevertheless, casual and hidden discrimination is certain to remain and likely to increase during the recession. The UK has been much more enthusiastic in embracing competitive tendering processes in good faith than its counterparts on the continent: it’s no coincidence that the French police drive Peugeots and the Germans use Volkswagens.

Another brilliant example of non-tariff barriers can be seen in the varied response by EU member states to the credit crunch late last year. As Irish banks teetered on the brink of a run on the bank, the Irish government announced that it would insure 100% of all savings in the three biggest Irish banks – not just those savings held by Irish citizens or residents. Governments across the Union reacted angrily, denouncing it as illegal state aid. Fortunately, the Internal Market Commissioner Colin McCreevy is Irish. Less cynically, the Commission seems to have taken the view that state aid is inevitable (and possibly even desirable) at the moment to prevent the collapse of industries and financial institutions which in less extreme circumstances would be fairly robust. Thus, while Italy’s attempt to prop up Alitalia last year was struck down by the Commission, the UK’s plans to provide support to a range of “strategic industries” have not faced the same problems.

The global economic downturn will therefore have some impact on deeper integration, and Ireland’s second referendum on the Lisbon Treaty in Autumn will be key (but that’s for another post).

Wider integration: prospects for EU enlargement

photo credit: Atli Harðarson

On the second question of EU enlargement, the prospects are more difficult to tell. Again, the Irish second Lisbon Treaty referendum is highly significant, as there is widespread agreement that there can be no further enlargement in the EU’s present institutional set-up. Again, however, that’s for another post.

If we assume (and it is a big assumption) for a moment that the Irish vote yes in the second referendum, what then are the prospects for EU enlargement?

On Friday there were reports that Iceland could be fast-tracked into the EU, to join at the same time as Croatia in 2011. The country had previously been fairly Eurosceptic, to a large extent as a result of its reliance on fishing and opposition to the EU’s Common Fisheries Policy. However, the economic crisis has had such a big impact on Iceland’s economy that the social democrats, set to enter into a coalition with the anti-EU Left Greens, are likely to push for a referendum on EU membership as soon as possible. An alternative to full EU membership – of “unilateral euroisation” – has been suggested, under which Iceland would unilaterally adopt the single currency along the same lines as Montenegro did in 2003. According to the Guardian, however, this is dismissed in Brussels as nonsense, and indeed Iceland is not Montenegro.

Nevertheless, given that Iceland probably already meets all of the Copenhagen criteria, membership negotiations could be expected to progress rapidly, and most of the work would involve the transposition of the EU’s laws and regulations into Icelandic law. In any case, a lot of these will already have been transposed, as EFTA/EEA members like Iceland and Norway have to adopt a lot of EU laws to allow them to trade with the EU.

Dependent on the outcome of the Lisbon Treaty referendum in autumn, the global economic downturn could thus act as a stimulus to further EU enlargement this year. One notable exception, however, is Turkey: while membership negotiations were already difficult (with France and Germany decidedly unenthusiastic), rising unemployment will make existing member states much less interested in permitting the free movement (into their labour markets) of another 90 million people.