The Future of the European Project Ever closer union or just good friends?

1. The Future of the European Project Ever closer union or just good friends? Bath Royal Literary & Scientific Institution Jeremy Clegg Jean Monnet Professor of European Integration & International Business Management

2. What is the European Project? It means different things to different people • The Single Market and the Regional Trade Agreements of the EU are all about business • Security from war is about politics - war worries some • Economic Integration by making people feel part of one “big county” • Ultimately, Political Union?

3. Jean Monnet

4. The European Project – the “1950s Model”? • Idea of Jean Monnet, a senior French civil servant • Announced in the Schuman Declaration by Robert Schuman, French Foreign Minister, on 9 May 1950 • Placed Franco-West German coal and steel production under a common high authority • Political objective to strengthen Franco-German industrial cooperation – to eradicate the possibility of war

5. Why co-operate? • The surrender of sovereignty for economic gain and/or security • The economic gain vs sovereignty loss trade off - what are the options? • Security can be gained through the sacrifice of sovereignty, or through the reclamation of sovereignty.

6. Alternative models of co-operation • Functionalism – Maximum sovereignty: economic gain via cooperation in specific areas only/no deeper or political integration • Neo-functionalism: Needed when economic gain demands deeper socio-political integration via supranational institutions – advocated by Jean Monnet • Federalism: Basis for supranational treaties of the EU

7. Alternative models of co-operation But a big tension • The heads of state or government of the European Council drive the agenda – in the jargon “Liberal Intergovernmentalism” • The political dynamics of the Council determines the future shape of the EU

8. The Politics of the European Project

9. Treaty of Rome (1957)Preamble Déterminés à établir les fondements d’une union sans cesse plus étroite entre les people européens

10. Treaty of Rome (1957)Preamble “Determined to lay the foundations of an ever-closer union among the peoples of Europe” [and] “Resolved to ensure the economic and social progress of their countries by common action to eliminate the barriers which divide Europe”

11. Treaty of Rome (1957)Principles ARTICLE 1 “a EUROPEAN ECONOMIC COMMUNITY”

12. Treaty of Rome (1957)Principles ARTICLE 2 “The Community shall … establish a common market and progressively approximate the economic policies of Member States [to achieve] an accelerated raising of the standard of living and closer relations between the States belonging to it.”

13. Treaty of Rome (1957)Principles ARTICLE 3 “Elimination between Member States, of customs duties and of quantitative restrictions on the import and export of goods, and of all other measures having equivalent effect” “The establishment of a common customs tariff and of a common commercial policy towards third countries” “The abolition, as between Member States, of obstacles to freedom of movement for persons, services and capital”

14. EU Member States • Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK • Euro Area states are in blue highlighting

15. European Membership 2013 Source: Europa 2013

16. The European Project“Periodic Report” Positive • Growth of internal trade and investment • The Single Market Negative • For some members of the Euro Area – the Single Currency • Loss of social cohesion But the political objective to eradicate the possibility of war between the member states has been entirely successful, so far

17. European Union (EU)The Nobel Peace Prize 2012 Prize motivation: “for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe.” Prize share: 1/1 https://www.nobelprize.org/prizes/peace/2012/eu/facts/

18. The Future of the European Project Can economic integration be merely economic?

19. What is Economic Integration? It was – and is – a mystery, for re-invention by each generation • “Economic integration” does not have … a clear-cut meaning” (Béla Balassa, 1961b, p. 1). • “A social and economic process destroying barriers (social and economic) between the participants of economic activities” (Gunnar Myrdal in Balassa, 1961b, p. 1). • The “suppression of discrimination”

20. What is Economic Integration? The World Trade Organization (WTO) defines Economic Integration as regional trade agreements (RTAs) to accelerate free trade The General Agreement on Tariffs and Trade (GATT) (1947) Article XXIV has allowed Exceptions to the Rule of Non-discrimination for GATT/WTO member states.

21. The “Six Degrees” of Economic Integration Not a “conveyor belt” • Free Trade Area (FTA): Tariff/quota free trade internally, individual trade policy with the rest of the world • Customs Union (CU) • Common Market (CM) • Single Market (SM) • Economic & Monetary Union (EMU) • Political Union/Full Economic Integration (PolU) (e.g., USA) Adapted from: Béla Balassa (1961a & b) But what is going on within each of these “Six Degrees”?

22. The character of economic integration FTA CU CM SM EMU PolU Tariff-free trade in goods: √ √ √ √ √ √ Common external tariff/ trade policy : √ √ √ √ √ Free internal movement of capital & labour: √ √ √ √ Regulatory alignment, reduction/removal of NTBs (benefits services): √ √ √ Harmonization of internal economic policies: √ √ Political & social integration: √

23. Overlapping integration EEA = EFTA 3 excl. Switzerland

24. The choice of type of Integration • A Free trade agreement (FTA) is a form of Economic Integration! • Even the hardest of Brexiters have no problem with a free trade agreement as a form of regional economic integration. • FTAs are a “Commercial Arrangement”, do not “pool sovereignty”, but they make it hard to trade in services • Problem for the UK is that the Single Market – based on regulation – is now more important because of services • Even EFTA participates in the Single Market!

25. How Financial Services firms respond to Economic Dis-integration Currently, 67% of UK (non-insurance) financial services supplied to the EU are cross-border exports* Post-Brexit UK based financial services exporters face EU market access barriers, mostly of a regulatory nature 25

26. How Financial Services firms respond Short version of the long story (1) For UK firms, UK cross-border exports to the EU will be replaced firms setting up subsidiaries within the EU (2) For non-EU firms with UK bases, exports from the UK will drop as these firms move their base to other EU countries The questions are (i) which business areas (ii) how much? The barriers facing UK firms wanting to export to the EU vary greatly by sector, under WTO rules, and an FTA is unlikely to be much better. 26

27. How Financial Services firms respond The UK will be out of the Single Market, which is all about services If the UK moves to FTA/WTO preferences, then the reductions in annual UK financial services cross-border exports to the EU are estimated as: 59% in financial services (excl. insurance and pension services)* 19% in insurance and pension services* 27

28. The EU External Dimension • The EU has in place some 36 trade agreements with 88 countries, which covers 9 trade blocs • 48 agreements (countries basis) partly in place • 25 pending • 5 being updated • 21 being negotiated including the EU-China investment agreement (since 2013) http://ec.europa.eu/trade/policy/countries-and-regions/negotiations-and-agreements/#_in-place

29. Size of EU: Population (2015) Source: UN Stats (2016) (US, Japan), Eurostat (2016) (EU25, EU28) ‘*’ : average geometric growth rate for the last ten years

30. SIZE OF EU: 2015 GDP at constant market prices (Source: OECD) Source: OECD (2016)

31. EU-28 tradeingoods, 2017 share of total tradeSource: Eurostat

32. The Politics of the European Project • As a Jean Monnet Professor, I must be a “Europhile” • I prepared by talking to the leader of the European Conservatives and Reformists Group in the European Parliament • A British Conservative politician

34. Dr Syed Kamall MEP

35. The Politics of the European Project • EPP – Group of the European People's Party (Christian Democrats) {217} • S&D – Group of the Progressive Alliance of Socialists and Democrats in the European Parliament {186} • ECR – European Conservatives and Reformists Group {75} • ALDE – Group of the Alliance of Liberals and Democrats for Europe [Liberal Group] {68} • Greens/EFA – Group of the Greens/European Free Alliance {52} • GUE/NGL – Confederal Group of the European United Left - Nordic Green Left [“Communists”] {52}

36. The Politics of the European Project All broadly in favour of Political Integration • EPP, S&D, ALDE, Greens/EFA, GUE/NGL Not in favour of Political Integration • ECR ALDE favourable to a “United States of Europe”

37. The Politics of the European Project But does this represent the view of electors in the Member States of the EU? Possibly not President Macron said to Andrew Marr in January 2018, that if there was referendum on the EU in France, in a “similar context” that the people would likely vote to leave

38. The Politics of the European Project • The leader of the ECR Group claims that no-one can tell him where political integration ends • And that in the UK, all politicians have played down the political dimension to European Integration • Is he right?

39. The Politics of the European Project As a new MEP, in 2005 Dr Kamall attended a “Reflection Debate” by the EPP on the referendum rejection by French and Dutch voters of the European Constitution Treaty The Group Leader was Hans-Gert Pöttering, a German conservative politician (Christian Democratic Union, centre right & pro-integration party, the party of Angela Merkel), later President of the European Parliament (2007-9)

40. The Politics of the European Project Mr Pöttering’s opening words were: “Nothing must be allowed to get in the way of the European Project” “Nothing must be allowed to get in the way of European Political Integration”

41. The Politics of the European Project • When Dr Kamall queried this with his EPP colleagues they told him he was “mad”. • Dr Kamall says: “We have never been entirely honest with our people about the political dimensions to the EU”

42. The Politics of the European Project What about the “Nation States”? • They sit on the European Council –the heads of state and government, who give overall political direction to the EU. • Many of the newer states to join the EU oppose political integration, but have a small collective voice

43. EU electorates’attitudes to Political Integration Either • Pro-EU/broadly pro-Political Integration Or • Anti-EU “Let’s blow the whole thing up!”

44. Attitudes to Political Integration If you are a Eurosceptic • You see a slow irresistible creep –– towards Political Union • E.g., the foreign ministry of the EU – The European External Action Service, complete with High Representative, and EU ambassadors (Treaty of Lisbon, 2009) • Open discussion now of an EU Army

45. Attitudes to Political Integration –the EU countries Pro-EU and the European Project • Countries that have a specific political agenda • Franco-German Axis – the French want to tie the Germans in • Countries that get more out of the EU budget than they put in

46. Attitudes to Political Integration –the EU countries Also pro-EU • Belgium, Netherlands and Luxembourg are the original integrators, forming BeNeLux customs union in 1948, and economic union in 1960 • But Netherlands twice voted No to EU referendum issues

47. Attitudes to Political Integration –the EU countries Also pro-EU • Many countries would stay in the EU as they cannot survive on their own • Fear of Russia – Baltic states – want a strong Common Foreign and Security Policy (CFSP) worry about Russia stirring up ethnic minority Russians

48. Attitudes to Political Integration –the EU countries Anti-EU pressure • Those feeling immigration into the EU has been badly handled • Euro Crisis • Greece, also because of austerity

49. Conclusion • Overall, EU countries now see how difficult it is to leave the EU – because of the UK! • To get further integration benefits, it is necessary to dig deeper into the social agenda • EU can do more right now to reduce social and income inequality within the Member States • The EU should accelerate curbing the excesses of multinationals, e.g., aggressive tax avoidance, and return economic benefits to the people

50. Conclusion • Pursue more FTAs around the world • Develop a shared agenda to respond appropriately to the emerging economies – only the EU with its large internal market can do this • Win the battle for people’s hearts and minds, and ward off a nationalist backlash • Perhaps this is what is really meant by “Ever Closer Union”