ZEW President Wolfgang Franz on Europe

This article appeared in the July/August edition of the ZEWnews.

Europe

Recent events, including French and Dutch rejecting the European constitution and the UK government shelving plans to hold a referendum, have been met with considerable dismay among EU policy-makers, prompting them to investigate the root of the problem. There is, however, no need for prophecies of doom or rash political decisions, such as the recent proposal to establish a Franco-German union within the European Union as a means of protectionism.

What has become evident from the Dutch and, more markedly, from the French vote is that reservations surrounding referendums are indeed justified. According to political observers, the rejection of the treaty was, at least in France, to a great extent driven by voters who saw the referendum as an opportunity to “punish” their government. In other words: referendums are associated with considerable risks, since voters can use their ballots to vote on other areas of policy. At the very least, their decision might be influenced by factors that are irrelevant to the subject of the referendum, as has been observed on several occasions in referendums in other countries. The German government would therefore be well advised to continue to avoid instruments like referendums.

One explanation for the rejection of the treaty that has been put forward repeatedly is voters’ “disenchantment with Europe”, caused not least by the “regulatory mania of the Brussels bureaucrats”. The EU thus becomes a fairly easy scapegoat. But, of course, it’s not that straight-forward. The majority of the severely, though not unjustly, criticised regulations of the EU Commission originate from requests from Member States, who are in turn trying to satisfy the demands of local interest groups. So before putting the blame on the European Commission, we should put our own houses in order first. This could be combined with a stronger emphasis on the principle of subsidiarity. There is no need to standardise absolutely everything; instead, we could trust that an optimal solution will emerge as a result of the competition between institutional regulations.

Another equally important reason for the rejection of the treaty is the “fear of globalisation” which has gripped many Europeans, and which has been exacerbated by various lobbying groups, some of them operating here in Germany, fanning the flames. Nevertheless, these concerns should be taken seriously. If we look back on economic history, it becomes clear that moves towards globalisation in the past centuries have failed because of interest groups who took advantage of the concerns of the general public in order to make political capital out of the situation.

In this regard, it is necessary to provide the public with the relevant information on the benefits of globally integrated markets in an easily understandable way and without glossing over the fact that some people will lose out as a result of globalisation. There have always been losers of globalisation; this is not an issue that has arisen recently with the opening of Polish butcher shops in Germany. The decline of the textile industry in the Swabian Jura and the footwear industry in Rhineland-Palatine are proof of this development. There must be incentives in the form of temporary aid schemes for those who are likely to lose out to globalisation so they can diversify into other profession – in so far as that is possible. Otherwise, social security systems have to come into play.

But in any case, protectionism is not the right answer. We should therefore examine very closely what the French Prime Minister meant by the Franco-German union that has recently entered the public debate. Both countries have come under suspicion of resorting to anticompetitive practices on a number of occasions – whether in the form of legislation on the posting of workers or the naming of “national champions”. Such a union within the EU as a protectionist stronghold against international competition over business locations is the last thing we need. Maybe these concerns are unfounded – and I hope they are.