Tuesday, 2 November 2010

The Hidden Games of EU Politics


EU summits often seem to be more about show than substance. The latest meeting of EU leaders last week was no exception, despite the fact that some crucial decisions had been taken.


The headlines in the UK concerned PM David Cameron's attempt to portray himself as the latest reincarnation of St. George and slay the dragons of the EU bureaucracy who wanted to raise EU spending by 6%. He rode back accross the channel victorious, announcing that EU spending would now only go up by 2.9%. Although he had previously stated that EU expenditure should not go up at all - this was announced as a great success by the British government. The absurdity of the theatre is of course that this had all been agreed beforehand and the show was for the cameras. Cameron has been criticised - both by the eurosceptics in his own party and by the Labour Party - for agreeing to any rise in EU spending. The argument runs that the EU should be cutting its spending at a time when national governments are introducing austerity programmes.

The other story of the summit involved the German Chancellor, Angela Merkel, pushing forward her policy of introducing severe punishments for governments breaching the eurozone's strict budget rules. In recent months resentment in Germany has grown, after the EU bailed out the Greek banks. The populist argument in the richer states is that the poorer countries in the south were prolifigate with their spending and then came cap in hand to the EU once it all went belly-up. Of course they prefer not to mention that one of the first countries to break the Growth and Stability Pact guidelines was Germany nor consider how the eurozone has provided the Germany ecnoomy with an enlarged market to export its goods to and one in which countries are unable to devalue their currencies. The huge German trade surplus is one indicator of how the country has benefited from being inside the eurozone.

Merkel has proposed that both economic and political sanctions, that punish those eurozone countries that cross the set limits on budget deficits and public debt, should come into effect from 2012. Up till now the rules have largely been ignored and this is therefore an attempt to enforce restrictive budgetary policies accross the eurozone. In reality - considering the state of most government budgets following the financial crisis - this would be a new means of enforcing austerity in Europe.

The Polish government has largely supported the proposals of Merkel (although it has expressed some scepticism about introducing political sanctions). The Polish PM, Donald Tusk, stated: "We favour the changes to the treaty ..... Poland will certainly not block changes that will increase fiscal discipline in the EU as a whole."

Of course it is quite easy for the Polish government to agree to such proposals as Poland presently lies outside of the eurozone. 2015 is now being talked about in Poland as the date that the country could join the eurozone - after the government postponed plans to adopt the euro in 2012 in the wake of the global economic crisis. Up until now, any country wishing to join the eurozone has had to meet the strict criteria laid out in the Growth and Stability pact. Only once inside the eurozone have countries been able to adopt more flexible budgetary policies. Therefore the Polish government has figured that it can support such restrictive rules as they will not immediately affect them directly.

However, the Polish government could find that these new rules are detrimental to its interests, as negotiations begin in 2011 around the next EU budget for 2014 - 2020 (the present budget runs from 2007 - 2013.) As previously shown in this blog, countries such as Poland have benefited from the inflow of funds and subsidies from the EU. This has helped to stave off a recession in Poland, through maintaining investment in the economy, which has been beneficial to the whole EU economy. If the eurozone countries are compelled to further bring down their budget deficits and public debt, then there will be less funds available for this budget. It is likely that the richer countries in particular will be looking to reduce their payments into the EU budget and attempting to gain more of these funds themselves. Unsurpisingly, the British government has recently started lobbying for the next EU budget to be cut, and these new rules could mean that other governments will be more receptive to such proposals.

Most of the negotiations and discussions that affect the lives of Europeans are carried out behind closed doors, with the public just seeing the gamesmanship and backslapping of the various politicians at EU summits. The undemocratic nature of the EU helps to build resentment towards it. However, while some on the left in Western Europe may see the EU as a vehicle for neo-liberal reform, it is often perceived differently in the East. The opening of European labour markets and the inflow of funds through the cohesions funds, has partially counteracted the negative effects of the economic transition, which opened these countries up to global capitalism. The European economy will only be able to emerge strongly out of the present crisis if it pools its resources and embarks on a European wide investment programme to create jobs and promote cohesive growth. Unfortunately, the present proposals of Europe's leaders is pushing it in the opposite direction.

2 comments:

  1. Couldn't agree more with the final sentiment. Here's a comment from my organisation on the EU budget, and handbags:

    http://bankwatch.org/newsroom/highlights.shtml?x=2264719

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  2. There is a real dilemna concerning the EU. On the one hand it pushes unneeded reforms and restrictions on countries. Ont the other it allows for investments and a transfer of resources in the continent. The latter is felt more in CEE although is beneficial to the whole of the continent. I think that euroscepticism is more likely to grow in the richer states as they try to rein in their spending and move away from the principles of cohesion.

    By the way I particularly liked that map on EU spending in CEE - good stuff.

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