The EU is dragging down the European economy
There’s a reason the EU can’t overcome its economic problems, and that’s because the root cause is... the EU itself
I’ve written for UnHerd about von der Leyen’s plan to revive the EU economy, the so-called Competitiveness Compass — and why it won’t solve any of the EU’s underlying economic problems. This is because many of the EU’s fundamental problems do not arise from mere “policy missteps” or, even less so, from the bloc’s supposedly “incomplete” nature. Instead, these issues are deeply embedded in the EU’s supranational design. In other words, the only way to truly tackle the EU’s economic challenges is to recognise that the core issue is the EU itself:
One of the most significant — and frequently overlooked — constraints on the EU economy is the euro. Though even populist and nationalist forces today shy away from radically critiquing the single currency, the reality is that the loss of monetary sovereignty entailed by the currency, coupled with the stringent deficit and debt rules enshrined in the EU treaties, remains one of the single greatest barriers to growth in Europe, hampering the ability of member states to stimulate their economies through public investment and active industrial policies.
Moreover, the EU has failed to offset this surrender of sovereignty with adequate European-level fiscal and investment tools, limiting itself to temporary measures such as the Covid-19 recovery fund. This structural limitation is a key reason why public sector investment in the EU has consistently lagged behind that of the United States and other advanced economies.
Besides, even if the EU were to succeed in expanding its “federal” fiscal and investment capacity, as envisioned by the Competitiveness Compass, this would only create more problems than it solves. Rather than addressing the EU’s structural issues, such a move would only further empower its supranational institutions, particularly the Commission, deepening the bloc’s technocratic and undemocratic governance.
Another issue is the EU’s historical bias against robust industrial policy. Since its inception, the EU has been deeply influenced by neoliberal economic doctrines that emphasise the supposedly “distortionary” nature of industrial policies. Stringent state aid rules broadly prohibit any support granted by member states that could favour certain companies or industries, unless explicitly allowed under specific exceptions. The idea is that allowing member states to support their domestic industries could lead to an uneven playing field, creating conditions where companies with state backing have an advantage over others. But this leaves Europe dramatically ill-prepared to compete with countries such as China and the US, which have relied heavily on state-led industrial policies — such as the CHIPS and Science Act and the Inflation Reduction Act (IRA) — to achieve a competitive edge, especially in recent years.
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The EU’s complex governance framework poses an additional challenge. The bloc operates through multiple layers of decision-making, involving not only the member states but also several key institutions. This highly bureaucratised, multi-level apparatus results in a slow and convoluted decision-making process, which often leads to fragmented and inconsistent policy responses.
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When viewed against these systemic challenges, the limitations of the Competitiveness Compass become apparent. Although it may set targets to boost investment, encourage innovation and improve skills, the reality is that all these efforts operate within the straitjacket of the euro, the EU’s constraints on industrial strategy, and a cumbersome governance model. Moreover, any solution aimed at further centralising industrial policy, as noted, would only further empower the very institutions that often exacerbate these structural problems through flawed policies.
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Ultimately, a true reckoning with the EU’s economic troubles means recognising that these are rooted in the economic and political constraints of the supranational model itself.
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Thomas Fazi
Website: thomasfazi.net
Twitter: @battleforeurope
Latest book: The Covid Consensus: The Global Assault on Democracy and the Poor—A Critique from the Left (co-authored with Toby Green)
Perhaps this is a silly question — but what exactly is a difference between the present imposition by the EU and the previous by the USSR on their respective ‘member’ states?
The pars destruens of the piece makes for entertaining read. As to the implicit pars adstruens, I am afraid is just involuntarily entertaining. Hard to see how the fragmenting of the EU market along national lines - which the author at one point deplores - would result in the growth renaissance that the same author seem to expect from the dismantling of the EU. As to the economic benefits that peoples on the Continent can expect from unfettered national monetary and regulatory sovereignty, they do no t have to look any further than the other side of the Channel.