Opinion

Hugo Dixon

EU leaders need to kickstart reform

By Hugo Dixon
May 26, 2014

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

When European Union leaders dine in Brussels on May 27, conversation is likely to revolve around three Ps: the poll, the priorities and the people.

Many of those sitting around the table, notably France’s François Hollande and Britain’s David Cameron, received a drubbing in the European Parliament elections. They will be reflecting on the rise of euroscepticism in many EU countries and the appropriate forms of response.

There are basically four main options: stick with the status quo; push for further European integration; unravel some of the integration that has already been achieved; and reform the EU to boost competitiveness.

The main underlying source of disenchantment is the recession still gripping some parts of the EU. Given the high level of unemployment, particularly among the young, and the likely slow pace of economic recovery, maintaining the status quo is an option that can be quickly ruled out.

Some leaders hanker over deeper economic integration within the euro zone – as if they were infants clinging to a security blanket. But it is hard to see how ideas like pooling debts and appointing a euro zone finance minister will create jobs and growth. It is even harder to see how governments could secure democratic legitimacy for further centralisation of power – given both the rise of euroscepticism and the hardship caused by their last big integration project, the creation of the euro.

What then about unravelling some of the integration that has already occurred? Decentralising power would speak directly to a prime concern of some eurosceptics: that the EU is meddling in things best left to nation states.

There is justification in these complaints. But what exactly should be decentralised? A popular demand from some sections of the electorate is to roll back the free movement of people within the EU. But this would be a terrible mistake, as well as being far from universally popular.

Free movement of people is one of the EU principles that prevented the economic crisis getting worse. People have emigrated from poor and crisis-struck countries to places that are generating jobs, such as Germany and Britain. Last year, for example, 727,000 people moved to Germany from the rest of the EU and 201,000 moved to the UK.

While there won’t be a consensus built around curbing free movement of people, it may be possible there’s agreement to combat so-called “benefit tourism”. This is more of a political than an economic priority since the number of people crossing borders to claim welfare is pretty small. But politicians in countries such as Germany, the UK and the Netherlands want to tighten the rules.

In contrast, a determined assault on red tape is an important economic priority. The EU has to back out of policy areas best left to nation states. That’s not just because such interference is unpopular or because it imposes unnecessary costs on the economy. It’s also because the EU gets distracted doing things it shouldn’t be doing and then fails to do properly the things it should focus on.

Prioritisation is about more than choosing what to do. It is also about choosing what not to do. The EU’s leaders need to keep this in front of their minds when they think about the five-year mandate they wish to give the next European Commission which will take office in January 2015.

The priority should be to boost the EU’s competitiveness. The main things to focus on include completing the single market, especially in services where it is currently patchy; signing free trade deals with the United States, Japan and China; and building a modern financial system based more on capital markets than banks – because banks are deleveraging and won’t be able to finance jobs and growth on their own.

Reaching consensus on such an agenda will be hard but not impossible. After all, Britain, Scandinavian countries and Eastern European states are traditionally in favour of markets; Germany is lecturing others on the importance of competitiveness; and many crisis-hit countries have been forced to embrace market reforms whether they like it or not. France is the one big country that won’t like this agenda. But even its objection to pro-market reforms is weakening.

If the EU leaders can agree on their priorities, there will still be the question of the third “P”: the people. Who will implement the agenda? The EU needs a crack team to run the European Commission. Too often, in the past, the Commission President and the other Commissioners have been second-rate politicians.

Neither of the current frontrunners for the Presidency – the centre-right’s Jean-Claude Juncker and the centre-left’s Martin Schulz – is inspiring. One or other of these so-called Spitzenkandidats might be fine if the EU needed the status quo. They might be OK if the EU needed another integration drive, as both are federalists. But neither is suited to the task of decentralising power and boosting competitiveness.

The choice of a new Commission President is likely to provoke a clash between the EU’s leaders and the newly-elected European Parliament, as both have a role in the selection. The parliament is likely to back one of the Spitzenkandidats, while some leaders such as Britain’s David Cameron don’t like either. Cameron is right. The leaders should reject both frontrunners and propose somebody with international stature like Christine Lagarde, the International Monetary Fund’s boss, or Pascal Lamy, until recently head of the World Trade Organisation. The EU needs to achieve a lot. It should aim high.

Hugo Dixon is the author of The In/Out Question: Why Britain should stay in the EU and fight to make it better

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