Volume 3, Number 84
30 September 2003

Is the European Union a Good Model for Globalization?

Dear Friends,

Robin and I have just returned from a cruise across Europe. At first we intended to go from the North Sea to the Black Sea, but the Danube did not cooperate with enough water, so we were forced to stop at Budapest. As compensation, the cruise company gave us a cruise down the Rhone, from Lyon to the Mediterranean. Since we were in the main countries of the European Union, I offered to give lectures on both cruises. This is what I said:

Let's get over the organizations quickly and then consider whether the EU is a good model for globalization.

When I was in living in France in 1948, and working also in Germany, the idea of a United States of Europe was on the tip of many tongues. Since 1948, this union has come about (sort of) through several treaties. With fifteen members, the European Union has five main bodies:

  1. the Council of Ministers, or ultimate authority, consisting of the prime ministers of member countries, which rarely meets;
  2. the European Commission, the executive organ which conducts all the business;
  3. the Parliament, which passes laws that may supersede national laws of member countries (EU countries vote in Parliament according  to population; France and Germany bicker over this);
  4. the Court, which judges cases in which governments disagree on laws of the EU; it does not try common criminals like Milosevich; and
  5. the Central Bank, which monitors the common currency, the euro, just as the Federal Reserve in the US monitors inflation of the dollar.

It is not necessary to belong to the common currency group (the euro), however; three EU countries (UK, Sweden, and Denmark) still use their national currencies.

In 1948, every time I crossed the border from France to Germany, I had to have my passport stamped and declare how much currency I was carrying.  Upon my return, the currency I was carrying could not exceed the amount I brought in, minus exchanges at the banks with official certificates. Nobody bothered to count it, but counting was always a threat. Now that is all over with. Anyone, citizen of the EU or foreigner, may cross borders freely. Two years ago, while driving from Luxembourg into Germany, I could not wake up the German immigration agent, who sat behind a glass window. So I just drove on.

Upon entry into the EU, you present your passport once. Then you can visit any country in the EU freely.

With miniscule exceptions, goods produced in one country may be freely sold in another. No one inspects them as they cross borders any more than goods are inspected going from Ohio into Indiana. This rule stems from historical experience. Countries with the fewest barriers to foreign trade are the most prosperous and have the greatest success in ending poverty. This same is so in current history: those countries that have opened their borders to free trade and investment have brought their poor out of poverty more than those that have not. Probable reason: they permit entrepreneurship as no "regulating" country does.

Also, a citizen of any EU country may work in any other.

Finance flows freely in the euro area. EU citizens invest in other countries, sending their capital to where it is most effective.

So, what are the problems? The first lies in agricultural subsidies. The EU spends over half its budget subsidizing its farmers. These subsidies have caused European farm exports to outcompete those of less developed countries (LDCs) in world trade. The LDCs have complained that farm exports are their principal means of financing economic development, much more so than foreign aid. The United States is also a chief offender, and rich-country refusal to change these policies made agriculture a principal reason for the failure of World Trade Organization talks at Cancún, Mexico. Protesters should aim their ire at European and American governments. To protest the WTO is like shooting the messenger.

The second problem is that member countries have not given up sovereignty. The Parliament may pass laws (such as equal rights for women) but can enforce them only by kicking the offending country out of the union. To do so would break up the union, and no one wants to do that. Therefore, in general, countries have honored laws passed by the European parliament as superior to those of their own legislature.

The third is that sovereign governments often do all they legally can to inhibit mergers and other agreements by which their major industries might pass into foreign control. France is a particular offender. The French government does not want French banks and telecommunications companies to merge with, say, German or Spanish, so it puts barricades in the way (such as bureaucratic permissions), short of violating EU laws.

But the main problem lies in money. Money is created by banks. Whenever you borrow from a bank, new money is created; when you repay the loan, money is extinguished. (For an explanation, study Econ 101.) In the United States, the Federal Reserve controls the interest rate (cost of borrowing) to see that not too much money is created (to cause inflation). Banks in any country in the euro area may create euros simply by lending, and they often lend to governments.

Governments may wish to borrow new money to combat depression (Keynesian economics). Right now there is depression in France and Germany, but prosperity in Ireland and Spain. So, should the European central bank lower interest rates to spur on France and Germany, or raise them to control inflation in Ireland and Spain? It doesn't know, and much controversy reigns.

In the United States, such a condition would be accommodated by the free flow of resources from state to state. If there is a depression in Texas and prosperity in New York, investment and jobs will flow from New York to Texas (where wages would be lower), to equalize the situation. But in Europe, Germans who want to take jobs in England must speak English and live with new customs and behavior. Even though free flows are permitted, these flows are more sticky than in the United States.

Another problem is that of the welfare state. Welfare states are those that command more vacations and better treatment of workers, and pay higher government pensions, etc. These states have generally demanded so much in taxes that businesses move abroad. Although Britain has a health plan to rival the Continent, in other ways it is much less a welfare state. That is (economists believe) why wages are higher in Britain, and Britain is more prosperous than France and Germany. Either you pay "wages" in welfare benefits or you pay them in cash. Workers seem to prefer cash, although their unions fight for benefits on the mistaken belief that they are free. (An old economic expression: "There's no such thing as a free lunch.")

The EU has "solved" that problem by requiring (by treaty) that no member state may incur debt of more than 3% of its gross domestic product. Since France and Germany must borrow to finance their welfare states, they are now pushing the 3% limit and may have exceeded it. To avoid kicking them out of the union, enforcement of this limit is lax; "it all depends on what you mean by debt."

The EU has been subsidizing its poorer members, such as Greece and Ireland. But as the countries prosper, the subsidy is reduced or eliminated. Ireland is facing that "calamity" right now.

Another problem is the ten new states (of eastern Europe) that will join the EU within the next year or so. Under what rules should they come in? Should they have the same votes as current members? Also, it has been decided to phase in their agricultural subsidies slowly. Otherwise, Poland would break the bank.

The EU is now writing a constitution for a "country" of many sovereign nations. Whereas the U.S. constitution consists of the basic core of government structure, drafts of the European constitution contain clauses that in the United States would be matters for legislation, such as prescribed vacations, limits to work hours, factory safety, and so on. Fine work if you can get it, but these are ideas that change over time. A constitution ought to be the basic eternal, with as few amendments as possible.

Still one more problem is that of immigration. Just as Latin Americans try to crash into the United States, so Africans and Middle Easterners try to enter Europe. As in America, many Europeans resent this, thinking their jobs are threatened. Mostly, immigrants want to go to England because of its better work conditions and higher wages, but — despite free passage rules — the British try to prevent this. Recently an immigrant camp in France, close to the entrance to the chunnel, was closed because of British protests to France.

All these are problems that would affect the wider world of globalization. So how will we handle them? I won't tell you, because I don't know.

Sincerely your friend,

Jack Powelson

Readers' Comments

Excellent article on the EU. I really enjoyed the information and its clarity of explanation, and I like that you left the inferences to globalization up to the reader. Crafty!

— Carol Conzelman, Fulbright Scholar, Cochabamba, Bolivia.

Good luck.  I hope Quakers will become, once again, a place where those that realize the complexities and intricacies of progress can grow and feel whole!!!

— Jean Weston, Cornwall (NY) Friends Meeting.

I've learned a bit about the European Union since I've arrived. I also have no idea what the European Union can do about its problems, but here are some of my experiences... maybe you can make some sense of them. I've visited Poland twice, and while we also drove past the sleeping agent on the way from Germany to Poland, we spent three hours being searched on the way back. My being an American made it difficult, but the fact that a guard heard my host father speak fluent Polish even harder. While in Poland, we shopped, everything about 1/3 what it cost in Germany, and paid in Euros, despite the fact that Poland doesn't use them yet.

— Kelsey Dow, Brandenburg, Germany

Old prejudices die hard, don't they? — Jack


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Publisher and Editorial Board

Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board:

  • Chuck Fager, Director, Quaker House, Fayetteville, NC
  • Virginia Flagg, San Diego (CA) Friends Meeting
  • Valerie Ireland, Boulder (CO) Friends Meeting.
  • Asa Janney, Herndon (VA) Meeting.
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor
  • Norval Reece, Newtown (PA) Friends Meeting.
  • J.D. von Pischke, a Friend from Reston, VA.
  • John Spears, Princeton (NJ) Friends Meeting
  • Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

Members of the Editorial Board receive Letters a week in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

Copyright © 2003 by John P. Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

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