Welcome to 2017, the year that may determine whether the Treaty of Rome – the founding instrument of the European Union – is a living document or a living will.
The prognosis is bleak as the year begins. The treaty’s stated goal of a united Europe converging in “ever closer union” is being ripped apart by a collection of centrifugal forces, any one of which might have been enough to undermine the enterprise. Together, they so severely threaten the EU that I don’t think it can survive in its current form.
Actually, that’s a superfluous statement. Its current form includes the United Kingdom, and the British have already voted to leave. All that remains is the painful process of negotiating the terms.
But that is just the beginning. From France to the borders of the old Soviet Union, populist and nationalist forces are rising that vary in form from country to country, but which share the common theme of antipathy to the EU. In fact, the growing opposition to Brussels may soon be the most unifying sentiment among EU nations. And when that happens, the whole thing is over.
Americans commonly misconstrue the EU as fundamentally a free-trade arrangement. It is exactly the opposite. The basic premise of the EU is protectionist – it provides a captive market for mainly German and French enterprises in the populous but poor states to the south and east, while mitigating competition between those two countries. In return, the poorer countries get money – supposedly for economic development – and, via free movement across borders, access to jobs that their native lands are incapable of generating. (The British were never a perfect fit for this model, which is one reason that, although the United Kingdom is in the EU, it never adopted the euro currency.)
The European enterprise is governed by layer upon layer of costly, stultifying bureaucracy. This requires a lot of tax revenue to support, so another function of the Brussels headquarters is to prevent the individual European states from competing too vigorously with one another for business by cutting taxes.
This is why the EU is targeting Ireland and Luxembourg for allegedly offering favorable treatment for multinational (often American) companies that put substantial operations there. Ireland and Luxembourg happen to be two of the smallest and least bureaucratic countries in the EU, and they both rely on their attractive tax structures to bring in foreign investment.
To the east, the problem has been mass migration and the EU’s utter inability to secure its external borders. Together with the organization’s ineffective management of external and internal security threats, this has led to the reintroduction of border controls in some places, along with a sharp political backlash against Brussels in places like Hungary and Poland. In turn, the EU has accused those member governments of being undemocratic and has even threatened to impose financial penalties against them.
A populist revolt is gaining momentum across the continent. The new year will bring important national elections in France, Germany and the Netherlands. Greece is likely to again find itself pressed against the financial wall. The Italian government recently fell after the country’s citizens balked at reforming their dysfunctional legislature, and the new government’s opponents are already calling for new elections. Meanwhile, major Italian banks are nearing the crisis point; Rome has already agreed to a $21 billion bailout of one institution.
The EU has never looked less united. The theory was that the strongest and best-managed nations on the continent, places like Germany and the Netherlands, would – through leadership and financial support – raise the standards of government, and ultimately the standards of living, in Europe’s less-advanced nations. Instead, the opposite seems to be happening; Europe is stagnating and the EU is drifting toward the lowest common denominator of governance.
The British decided that they want to be British, not “European.” A lot of other people in a lot of other countries are apt to reach the same conclusion shortly. If the movement gets big enough, the EU in its current form does not have much of a future.
Posted by Larry M. Elkin, CPA, CFP®
photo by Derek Bridges
Welcome to 2017, the year that may determine whether the Treaty of Rome – the founding instrument of the European Union – is a living document or a living will.
The prognosis is bleak as the year begins. The treaty’s stated goal of a united Europe converging in “ever closer union” is being ripped apart by a collection of centrifugal forces, any one of which might have been enough to undermine the enterprise. Together, they so severely threaten the EU that I don’t think it can survive in its current form.
Actually, that’s a superfluous statement. Its current form includes the United Kingdom, and the British have already voted to leave. All that remains is the painful process of negotiating the terms.
But that is just the beginning. From France to the borders of the old Soviet Union, populist and nationalist forces are rising that vary in form from country to country, but which share the common theme of antipathy to the EU. In fact, the growing opposition to Brussels may soon be the most unifying sentiment among EU nations. And when that happens, the whole thing is over.
Americans commonly misconstrue the EU as fundamentally a free-trade arrangement. It is exactly the opposite. The basic premise of the EU is protectionist – it provides a captive market for mainly German and French enterprises in the populous but poor states to the south and east, while mitigating competition between those two countries. In return, the poorer countries get money – supposedly for economic development – and, via free movement across borders, access to jobs that their native lands are incapable of generating. (The British were never a perfect fit for this model, which is one reason that, although the United Kingdom is in the EU, it never adopted the euro currency.)
The European enterprise is governed by layer upon layer of costly, stultifying bureaucracy. This requires a lot of tax revenue to support, so another function of the Brussels headquarters is to prevent the individual European states from competing too vigorously with one another for business by cutting taxes.
This is why the EU is targeting Ireland and Luxembourg for allegedly offering favorable treatment for multinational (often American) companies that put substantial operations there. Ireland and Luxembourg happen to be two of the smallest and least bureaucratic countries in the EU, and they both rely on their attractive tax structures to bring in foreign investment.
To the east, the problem has been mass migration and the EU’s utter inability to secure its external borders. Together with the organization’s ineffective management of external and internal security threats, this has led to the reintroduction of border controls in some places, along with a sharp political backlash against Brussels in places like Hungary and Poland. In turn, the EU has accused those member governments of being undemocratic and has even threatened to impose financial penalties against them.
A populist revolt is gaining momentum across the continent. The new year will bring important national elections in France, Germany and the Netherlands. Greece is likely to again find itself pressed against the financial wall. The Italian government recently fell after the country’s citizens balked at reforming their dysfunctional legislature, and the new government’s opponents are already calling for new elections. Meanwhile, major Italian banks are nearing the crisis point; Rome has already agreed to a $21 billion bailout of one institution.
The EU has never looked less united. The theory was that the strongest and best-managed nations on the continent, places like Germany and the Netherlands, would – through leadership and financial support – raise the standards of government, and ultimately the standards of living, in Europe’s less-advanced nations. Instead, the opposite seems to be happening; Europe is stagnating and the EU is drifting toward the lowest common denominator of governance.
The British decided that they want to be British, not “European.” A lot of other people in a lot of other countries are apt to reach the same conclusion shortly. If the movement gets big enough, the EU in its current form does not have much of a future.
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