Saturday, 17 October 2015

EU: loosen or shift?

Britain needs to stay in the EU. Otherwise, politically, the EU will be crippled as a great power, and Britain will be too small to stand on its own; economically, the single market will fall apart, making European consumers worse off.

So, why do some want to leave? One reason is that the EU is partly a free market, partly a social democratic club. Social democracy, at least in its unreformed version, means overregulated markets and an unaffordable welfare state. The results are high unemployment, low growth, ever more debt and the prospect of Europe growing poorer and more irrelevant.

This is the problem facing David Cameron as he renegotiates the relationship, ahead of the UK referendum on "Brexit". There are two possible solutions.

One solution is: loosen up! If we renationalise powers from Brussels, individual countries can go their own way. Britain can go the sensible free-market liberal way, and other countries can do things differently if they want.

The other solution is to shift. If we persuade Brussels and Europe to move rightward, then we get what we want. All of Europe then moves in a free-market direction.

Loosening up sounds attractive and libertarian. Why should we impose our views on the whole continent, rather than simply requesting more freedom for ourselves?

But, loosening is the wrong path and shifting is the right one.

There is no such thing as "just" a single market. If you want freedom to trade, you have to stop countries imposing bad regulations to protect their national firms (who lobby the local politicians). Otherwise free trade across borders is just a meaningless idea.

We do need some regulation, though. So, we need European regulation, even if it sometimes is too heavy. Any sensible businessman would rather face one set of tough regulations than fifteen sets of light ones, all different. If we want to trade across Europe, we do need "ever closer union".

The biggest example of this is banking. A single market for investment could make Europe much wealthier. A single currency is a huge help for this. (Even though it has had devastating consequences in the short run – yes, the last ten years are the "short run"!) But a single currency requires transfers to help out poorer countries, which in turn requires a lot of political centralization and a bigger EU budget.

Also, imposing our views on the rest of Europe will make Europe better off. Nobody benefits from Italy's and France's "freedom" to be burdened with out-of-date regulations that keep unemployment high. We should make the case for them to move. That will make their societies better. Their well-being benefits us. David Cameron should persuade the whole flotilla of Europe to steer rightward, not sail off on his own.