Europe Was Going Too Far

Alberto Alesina, Romain Wacziarg, 22 June 2008



On June 12, the Irish people dealt yet another blow to European political integration. While many European leaders and commentators despair at the Irish rejection of the Lisbon Treaty, they should see it as an opportunity to reflect upon what is wrong with the process of European political integration. They missed such an opportunity after the rejection of the Constitution and instead tried to bypass the will of the people by adopting without referenda essentially the same provisions. Unlike previous efforts to integrate Europe economically, the movement toward political integration has proceeded in a haphazard way, without serious intellectual underpinnings and often in contradiction with the wishes and aspirations of the people of Europe. The chickens are now coming home to roost.

Benefits of economic integration

Economic integration provides a myriad of benefits. Economically integrated areas tend to feature less violent conflict, and avoiding future wars was a central underpinning of European economic integration from its early days. The large market that comes with economic integration fosters competition and boosts incomes. Europeans proceeded systematically with economic integration – starting with a French-German agreement on steel and coal, progressively moving to free trade in goods in a slowly expanding economic community. The process culminated with the Single European Act of 1985, removing barriers to the free flow of services, people and capital. This was a successful, well-thought out and generally popular process. 

Sure enough, it is not all done – for instance the service sector needs much deeper liberalization and integration. Yet it is clear that the people of Europe have had no qualms with economic integration.

Resistance to political integration

Not so with the process of political integration, whereby specific policy prerogatives are transferred from nation states to European institutions. Political integration is associated with the adoption of common policies and centralization that worries citizens attached to their own national identities and preferences.   This process started early in the history of the European community with the common agricultural policy (CAP), a costly and distortive scheme constantly in need of reform – or rather in need of scrapping altogether. More recently, efforts have turned to centralizing policies that are traditionally of the purview of nation states – defence, foreign policy, educational policies, social policies, and taxation – by setting up institutions that carry them out instead of nation states. The Lisbon Agenda of 2000 for instance laid down detailed social goals that each country should follow including provisions like the number of toddlers that should be in public preschool programs.

Sources of bias towards excessive political integration

Policy prerogatives are often transferred (or not) to Brussels, not according to sound political economy principles, but according to political feasibility and bargaining between nation states, through a process that favours excessive integration. Small countries are overrepresented in the institutions of the EU, and small countries have tended to favour more political integration (Ireland’s recent vote notwithstanding), giving the EU a strongly integrationist slant. Moreover, the EU Commission has strong agenda-setting power, creating yet another bias towards excessive political integration. Exchanges of favours between member states across policy areas (logrolling), such as the original deal that gave France the CAP in exchange for trade liberalization, also facilitate the transfer of policies that should remain the purview of nation states. EU institutions are designed so that Europe goes too far.

Costs and benefits of centralisation

Basic economics and basic common sense tells us that transferring policy prerogatives to a centralized authority makes sense only if the benefit exceeds the cost.

·      The cost of centralization is mainly that uniform policies are imposed on heterogeneous populations.

·      The benefit is that centralization can facilitate internalizing cross-national spillovers.

For instance, a common fisheries policy can help minimize the problem of over-fishing. Common enforcement of intellectual property rights can avoid countries free-riding on others' intellectual creations. In other cases, the rationale is much less compelling, as in the case of a common educational, cultural and social policies.

In the case of defence, there is an arguably superior alternative (NATO) to efforts to create Europe's own defence capability. NATO extends well beyond the borders of Europe, and therefore provides a much more efficient way of sharing the costs of common defence, most of which are borne by the United States. Do Europeans really want to start paying these costs?

Some reform is needed

The governing rules of an EU of 27 countries need some reforms. But the problem is that the electorates in France and Holland with the Constitution, and now the Irish with the Lisbon Treaty, view these reforms as a way of forcing them to abandon national policy prerogatives to the benefit of EU institutions. Better rules of government (a good thing) are associated with fear of their misuse (excessive centralization). This needs not be the case, but in practice it is, so the electorate puts obstacles to the process. The Dutch feared (correctly or in correctly) having to abandon their well-liked welfare state. The Irish feared having to raise corporate taxes. The French fear having to adopt hated Anglo-Saxon liberalism, and Central and Eastern European countries fear having to adopt a welfare state viewed being unaffordable.

Decide what Europe should be all about

Rather than forcing more political integration down the throats of Europeans, European leaders should stop for a second and decide what Europe should be all about. We think it should be about deep economic integration and the coordination of policies with clearly identifiable cross-national externalities. Nothing more, nothing less.

Until this is clarified, European electorates will be confused, fear the “Eurocrats” and vote no. Their scepticism may ultimately threaten to reverse the hard-fought progress that has been made on the front of economic integration.

In the days since the Irish referendum there has been a veritable flurry of proposals designed to rescue the Treaty of Lisbon – from allowing the Irish to opt out of certain provisions, to threatening to recreate the EU minus Ireland. Daniel Gros has proposed such a scheme in a recent article in Vox. This is the wrong way to go.

The makers of the European Union need to dispense with schemes designed to bypass the will of the people and need instead to fundamentally rethink the goals and processes of political integration. Political union will not be achieved without the assent of Europeans.

In a 1999 article, we expanded on these points. See Alesina, Alberto and Romain Wacziarg (1999). “Is Europe Going Too Far?”, Carnegie-Rochester Conference Series on Public Policy, vol. 51, no. 1, December 1999, pp.1-42

Topics: EU institutions
Tags: Irish no, Lisbon Treaty

Nathaniel Ropes Professor of Political Economy, Harvard University; and Research Fellow, CEPR

Romain Wacziarg

Professor of Economics, Anderson School of Management, UCLA; and Research Fellow, CEPR