Colossus

by Niall Ferguson

  In some respects, it should be emphasized, the EU already has a quasi-federal character. This is most obvious in the legal sphere. EU legislation now accounts for around half of all new legislation in Europe.27 Article I-10 of the constitution simply reiterates—though it perhaps also reinforces—what has long been an established principle—namely, that EU law is superior to national law. Europe already has a Convention of Human Rights, which is upheld by the autonomous Court of Human Rights in Strasbourg. However, the constitution includes a new Charter of Fundamental Rights, which it would fall to the European Court of Justice to interpret, thus enhancing the standing of that court (which is based in Luxembourg) as Europe’s Supreme Court. The constitution also proposes the creation of a new category of cross-border crimes, which would become the purview of a European prosecutor, thus extending the EU’s competence into the field of criminal law.

  If only on paper, the European Union also has many of the political institutions that one would expect a federation to have: not only a Supreme Court but also what the Germans would call a Bundesrat (the Council of Ministers, representing the governments of the member states), a Parliament, a central bank and a permanent bureaucracy. The principal institutional changes envisaged by the constitution treaty are partly designed to give this protofederation not just legal but actual personality. Thus the presidency of the quarterly European Council (of heads of state) will no longer be held successively by all the member states for six-month periods; it will be held by one individual, elected by the members of the council, for up to five years. The president of the European Commission, by contrast, will be nominated by the European Council but will require a majority in the European Parliament to be confirmed in office. Which post will emerge as the dominant one? Almost certainly the latter, given the much more frequent meetings of the commission. There will also be a single commissioner to play the part of foreign minister, a role currently and confusingly performed by two separate people.

  However, the most implicitly federal clauses of the constitution are those that spell out the respective competences of the EU, its member states and their regions and localities. Only a limited number of spheres of policy—thirty-four, to be exact—have up until now been subject to the weighted system known as qualified majority voting on the EU Council of Ministers. Decisions in other fields have required unanimity; in other words, they have been subject to veto by as few as one of the member states. The constitution does not eliminate the national veto, but it confines its use to decisions concerning foreign policy, defense and taxation. Qualified majority voting would now apply in seventy areas, including immigration and social policy. In perhaps its most sweeping articles, the constitution asserts EU competence not only over foreign and defense policy but over the “coordination of the economic and employment policies of the member states” (Articles 1–11 and 1–14) as well as over “common commercial policy” (Article I-12). It also authorizes the EU to raise whatever funds it regards as “necessary to attain its objectives and carry through its policies” (Article I-53). The sops to national sovereignty—the principle of conferral” and “the principle of subsidiarity”—seem rather nebulous by comparison with this bald assertion of fiscal power. Crucially, the right to propose EU legislation would remain the monopoly of the commission. According to one assessment, the extension and modification of qualified majority voting on the Council of Ministers would significantly increase the chances of draft bills’ becoming directives.28

  For all these reasons, there is at least a prima facie case that the European Union would become, in practice, something close to a federal United States of Europe, were the new constitution to be accepted by its members.

  CULTURE

  There is little doubt (indeed it is almost a cliché) that Europe’s political culture is becoming more self-consciously different from—and hostile to—the United States. A 2003 survey by the Pew Research Center shows that substantial majorities in France, Spain, Italy and Germany now favor a more independent (less American-influenced) European foreign policy (see table 9).29 This is undoubtedly a consequence of widespread public disapproval of the American-led war against Iraq. In 1999–2000 no fewer than 83 percent of Britons surveyed had a “favorable” view of the United States; by March 2003 the figure had fallen to 48 percent. In France over the same period the pro-American proportion halved, from 62 to 31 percent. In Italy it went from three-quarters to a third; in Germany from more than three-quarters to barely a quarter; in Spain from half to just 14 percent.30 The brief duration of the war and the postwar revelations about the viciousness of Saddam Hussein’s regime have brought a partial but not a complete reversal of these trends.31

  Nor is this the only evidence of a divergence of political cultures. Assumptions still commonly made by Americans about the fundamental unity of “Western civilization” look increasingly questionable in view of Europe’s precipitously declining religiosity (see table 10). In the Netherlands, Britain, Germany, Sweden and Denmark fewer than one in ten of the population now attend church at least once a month, a dramatic decline since the 1960s. Only in Catholic Italy and Ireland does more than a third of the population worship on a monthly basis or more often.32 In the Gallup Millennium Survey of religious attitudes (conducted in 1999), 49 percent of Danes, 52 percent of Norwegians and 55 percent of Swedes said that God did not matter to them at all. In North America, by comparison, 82 percent of respondents said that God was “very important” to them. Nor is this a peculiarity of Western (or “old”) Europe. According to Gallup, 48 percent of people living in Western Europe almost never go to church; the figure for Eastern Europe is just a little lower at 44 percent. Six out of ten North Americans believe in God as a person, but the ratio in Eastern Europe is just four out of ten. Nearly two-thirds of Czechs regard God as not mattering at all in their lives—a higher proportion even than in Sweden.

  TABLE 9. PUBLIC VIEWS OF THE U.S.-EUROPEAN ALLIANCE, 2003

  Source: Pew Global Attitudes Project, “Views of a Changing World,” June 2003.

  TABLE 10. A TALE OF TWO CIVILIZATIONS? RELIGIOUS ATTITUDES IN NORTH AMERICA AND EUROPE

  Source: Gallup International.

  The corollary of this widening transatlantic cultural rift is a growing European self-consciousness. Only one in ten Europeans now regards EU membership as an unequivocally “bad thing.” Even in Euroskeptical Britain, the proportion of people in this camp has fallen from 34 percent in 1973 to just 21 percent today. Nearly half of Europeans want the EU to play a bigger role in their lives in five years’ time. And almost a third of Europeans surveyed in 2002 saw the EU as standing for “a stronger say in world affairs.”33

  EXTERNAL RELATIONS

  Finally, we should not underestimate the European Union’s potential power on the international stage. Although there is no question that the European countries lag far behind the United States in terms of arms technology, their military capability is far from negligible. The U.S. defense budget is nearly double the combined defense budgets of the fifteen EU members.34 In financial terms, the American contribution to NATO exceeds that of the EU members of NATO by around 30 percent.35 But that still makes the EU countries’ combined military expenditures substantially more than those of Russia, Japan or China. Indeed, in terms of crude manpower, the EU countries are now ahead of the United States (around 1.8 million to 1.5 million service personnel) and second only to China, which has around 2.5 million. Of course, Europe’s armies are less well trained and much less well equipped than America’s; only a tiny fraction of enlisted men can be regarded as “combat-effective.” But there is an obvious and important role for European troops that does not require them to possess the full range of American weapons technology: as peacekeepers in the growing number of “postconflict situations.” In the years 2000 and 2001 around seven times as many troops from EU countries took part in United Nations peacekeeping operations as troops from the United States.36

  The European Union countries also outs
trip the United States significantly in terms of aid to developing countries. If official aid budgets are adjusted to take account of a variety of relevant factors, it emerges that the combined aid budgets of the EU members are nearly three times larger.37 When these indicators are combined with a variety of others—openness to international trade, investment in developing countries, openness to legal immigration and adoption of “responsible” environmental practices—the United States ranked an ignominious twentieth out of twenty-one developed economies in its “commitment to development.”38 It is not without importance that fifteen of the nineteen countries ranked ahead of the United States are members of the European Union.

  Of course, the Europeans’ commitment to development needs to be attributed to the altruism of national governments rather than to the EU itself. Nevertheless, the fact that the EU’s member states do so much more than the United States in these fields must have some geopolitical implications. Moreover, the EU is playing an increasing role in its own right through the commission’s Humanitarian Office, the European Agency for Reconstruction and the European Bank for Reconstruction and Development. It is not without significance that in UN-occupied Kosovo the Banking and Payments Authority and the Central Fiscal Authority are under EU control; indeed, the province now has the euro as its official currency.39

  Recent global surveys have tended to focus on the increasingly negative attitudes of people in developing countries toward the United States. It seems likely that their attitudes toward the European Union are more positive. Whatever “soft power” means, the EU seems intent on accumulating it.

  For all these reasons, it does not seem irrational for the United States to consider the European Union a potential, if not yet an actual, rival.

  CONTRA

  Yet there is another side to this balance sheet, which tends to be ignored by those who would posit a nascent transatlantic competition, if not antagonism. When the debit side of the European Union’s account is examined, it becomes clear that Americans have little, if anything, to worry about. Far from being a rival empire in the making, the introverted character of the EU suggests that it is better understood as an “impire,” an entity that directs most of its efforts toward the preservation of its own inner equilibrium rather than toward the exercise of power beyond its borders.

  AGING POPULATIONS

  Europe is getting old. The median age in Germany will rise from forty today to forty-seven by 2050; the median age in France from twenty-eight to forty-five; the median age in Hungary from thirty-eight to fifty. (America too is aging, of course, but not so fast. In the next fifty years the median age in the United States will rise from thirty-five today to forty.) The implications are sobering. According to the European Commission, the rising dependency ratio could reduce annual growth by up to three-quarters of a percentage point by 2040—no insignificant reduction in view of the EU’s recent low rate of growth (see below).40 That calculation may even understate the problem. According to estimates of the generational imbalances in the fiscal systems of the world’s economies, the majority of EU members urgently need to increase taxation or to cut government transfers if they are to avoid imposing unprecedented peacetime tax burdens on the next generation. In the case of Austria, Finland and the Netherlands, cuts in government transfers would need to be of the order of 20 percent to achieve generational balance.41 It is no coincidence that wrangles about pensions currently take up so much of the time of German and French politicians. The reforms needed to avert a collapse of the European states’ welfare systems require immediate sacrifices by powerful vested interests.

  ECONOMIC PERFORMANCE

  Ever since the 1940s European integration has consistently been marketed to voters in terms of its economic benefits. The coincidence of the first wave of European integration and the Wirtschaftswunder of the 1950s and 1960s seemed to bear this out, though the causal relationship between the two was actually quite weak.42 Recently, however, the claim that integration enhances growth has become much more obviously implausible. No one could dispute that the Single European Act (1986) and the Maastricht Treaty (1992) increased the integration of the West European economy. Nontariff barriers to trade in goods and services have been significantly reduced. The creation of a single currency has, if nothing else, made it much easier to compare prices across the borders of twelve out of the fifteen EU states. Yet Europe’s economic performance since these measures came into force has been disappointing, to say the least. Between 1950 and 1973 the average annual growth rate of per capita GDP in Western Europe (broadly defined) was 4.1 percent. Between 1973 and 1998 it slumped to 1.8 percent. In the latter period there was no significant difference between the growth experienced by the “first wave” members of European Economic Community, the new members that joined after 1973 and the nonmembers.43 What is especially striking is the poor performance of the countries that have participated in monetary union since 1999. According to the International Monetary Fund, the “output gap” widened in all the Eurozone economies between 2000 and 2003 and currently lies somewhere between –2 and –3.5 percent of GDP.44

  By comparison, the American economy has fared better. In every year but one in the last decade (that year was 2001) the annual growth rate of the EU economy has been below that of the U.S. economy.45 The real growth rate of U.S. GDP averaged approximately 3.6 percent per annum between 1995 and 2001, according to the Organization for Economic Cooperation and Development. The figure for the EU was a meager 2.1 percent. Between 1970 and 1983 unemployment in Europe was consistently lower than in the United States. Now it is substantially higher. In the second half of the 1990s EU unemployment rose above 10 percent, while U.S. unemployment fell below 5 percent. Even in the past three years of American job losses, European unemployment has remained between two and three percentage points above the American rate. In seven out of fifteen EU countries, unemployment was in excess of 7 percent in 2002.46 Nowhere is this underperformance more striking than in Germany, formerly the pride and the powerhouse of the European economy. Since 1996 the German economy has been, in the words of the Economist, the “sick man of Europe,” with an average growth rate of just 1.1 percent, half the Eurozone average.47 Nor is relief in sight. German unemployment stood at 4.5 million in mid-2003 (10.6 percent of the workforce); the economy contracted by 0.2 percent in both the first and the second quarters of 2003.

  Finally, European productivity growth may have been more rapid than American for most of the postwar period, but in the last seven years the tables have been turned. According to the Conference Board, American GDP per hour worked grew at an average annual rate of just under 2 percent in the period 1995–2002, whereas for the EU the figure was closer to 1.2 percent. Only one EU country—Ireland—achieved higher productivity growth than the United States.48

  EUROPE’S “LEISURE PREFERENCE”

  Europe’s poor economic performance despite measures designed to enhance economic integration begs the obvious question why? One widely held explanation is that Europe’s labor market is insufficiently flexible, not just because of the obvious linguistic barriers but also because of regulations introduced over the years in response to the demands of trade unions.

  A recent study by the International Monetary Fund considered the evidence from the period 1960 and 1998 and asked a simple question: What would the effect on European unemployment be if the EU labor market were Americanized? To be precise, the study envisaged:

  Increasing the participation rate (the proportion of the population in the labor force),

  reducing the replacement rate (the ratio of benefits to past earn-ings),

  reducing employment protection,

  reducing the tax rate on labor (introducing fiscal reforms to eliminate poverty traps),

  weakening trade unions, and

  decentralizing wage bargaining (where nationwide collective agreements demonstrably cause big differentials in regional unemployment rates).

  Table 11 summarizes the projected
short-, medium- and long-term impacts of three of these policies. Its message is clear: Only by doing all three would European unemployment come down to American levels—and that only in the “long term.” This suggests that labor market reform is bound to be difficult. Very radical changes are necessary, but the payoffs would be slow to manifest themselves.