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Looking Back and West: Lessons for Europe’s Future

By Barry Eichengreen

The rise of populist movements reflects a desire for democratic control in an age where governments find their hands tied by international institutions and markets. Can the European Union find a new compromise between federalism and Euroscepticism? Could the United States offer examples on how to achieve a strong, unified structure that allows for political and social differences within it? With European elections in the background, we spoke to economist Barry Eichengreen about propositions to turn the populist tide and his vision for a multi-speed Europe.

Green European Journal: In the run-up to the EU elections, the centre-right bloc in the European Parliament, the European People’s Party (EPP), seems to have tried to take a clearer stance against populism and has suspended Hungarian Prime Minister Viktor Orbán’s Fidesz party. What took them so long?

Barry Eichengreen: Better late than never. Brussels has been slow to realise the gravity of the populist threat, but it is not too late. Anti-EU parties on the Left and especially the Right probably will not get a majority in the European Parliament between them. And the proponents of European integration still have an articulate case for why the EU is a progressive institution and can tap into deep and abiding support for it.

The starting point is to explain that solutions for Europe’s pressing economic and social problems can only really be implemented at the EU level. This is particularly important for the Greens, as climate change is something that cannot be adequately addressed only at the national level. Carbon emissions spill across borders and the incentive to invest in clean technologies is lower when your economic competitors are not doing likewise.

The EPP nurtured Orbán for years and provided him with some kind of legitimacy. Do Orbán and his allies have a chance to set up their own group in the European Parliament and block what the pro-EU parties are doing?

But is it inevitable that these right-wing nationalists will gain political support going forward? I don’t think so. The proponents of the European Union, as opposed to nationalism, need to better argue that the EU can address concerns about lagging income growth and rising inequality. They also need to stress that the EU is the only level at which collective security can be ensured – especially now the United States is no longer a reliable ally. Europe needs to secure its own borders and be a force for peace in its own neighbourhood. No one European country is large enough or has a tradition of foreign policy effective and forceful enough to do so alone.

The leaders of the EPP used to argue that keeping Orbán in their ranks prevented him from doing something overly destructive, which turned out not to be true. Is containment within  a mainstream group a solution against populism?

There have been instances in which radical populist movements have been absorbed and their politics have been moderated by including them in a larger political body. In the United States in the 1890s, William Jennings Bryan ran as the presidential candidate for not just the Populist Party but also the Democratic Party, which did moderate the populist platform for a while. Bryan did not win however, and the Southern populists were subsequently taken over by racist politicians.

The proponents of the European Union, as opposed to nationalism, need to better argue that the EU can address concerns about lagging income growth and rising inequality.

So there’s no guarantee that this strategy can work in the long run and parties can damage their own stature by being associated with politicians hostile to a free press and an independent judiciary.

What useful historical examples for how to curb populism are there?

Oswald Mosley in the United Kingdom in the 1930s is one such case. Mosley was an authoritarian fascist who sought to capitalise on the dissatisfaction sown by the Great Depression but whose appeal ultimately proved limited. A combination of the dole (welfare payments) for the unemployed and sustained economic recovery once the UK left the gold standard in 1931 were enough to maintain support for the mainstream parties – in practice mainly the Conservatives – in the face of this threat.

In The Populist Temptation you set out some steps that the EU could take to curb populism. One is the reform of the European institutions to allow different subsets of member states to vote on different issues. For example, only Schengen Area members would vote on matters relating to Schengen. Wouldn’t some countries end up as second- or third-class members of the EU?

European parliamentarians would vote on the issues that their governments and voters had opted to participate in. My idea is a Europe of a number of overlapping clubs, where countries can choose to opt in or opt out of a given subject.

To join the euro, a country has to satisfy certain prerequisites. The same is true of Schengen: agreeing to share information and secure their own borders. One can imagine similar arrangements for a wider variety of agreements. As for voting, it makes perfect sense that if you agree to pay those costs and join the club, then you should have a say in its governance. If you choose not to, then you do not. Brexit is a peculiar example of the opposite. The United Kingdom is intent on leaving the European Union, yet it is going to participate in the EU elections. The UK is voting to send representatives to help govern an arrangement that it presumably will no longer be a member of, creating problems all around.

An agreement by all European countries to move in a particular direction does not imply that they need to do exactly the same thing.

Shouldn’t the EU then help the countries that did not manage to join the euro already, despite their wishes, to do so?

Not all of the countries that are in the European Union have to also be in the euro or the Schengen agreement. Not all of Europe needs to push in the direction of deeper integration. In some cases, integration in one area requires integration in another. All members of the single market need to work together on border security. But there are also other areas like monetary policy, where Denmark and Sweden have remained outside and run their own currency without creating problems for themselves or for others.

But what about the new member states that were found not ready to join the euro?

Time will tell. Poland and Hungary do not seem particularly anxious to join the euro area. Poland is a relatively large, relatively successful economy that has been outside the euro area for quite a while now, under a variety of different governments. If it wanted to, it could join quickly. But it prefers to stay where it is.

You argue that responsibility over fiscal policy should be fully restored to the national level so that the Eurozone members can enforce their no-bailout rules. What about better sharing the risks through having an actual bailout rule or introducing eurobonds?

Europe’s current fiscal arrangements are not workable and only cause political problems. Hence the question is whether to move toward more centralisation with eurobonds and a bigger European Union budget, or to decentralise and return more control over fiscal policy to the national governments. I favour returning control over fiscal policy to national governments because, first, different countries have very different views about what an appropriately sized public sector is, as well as what level of deficits and debt is acceptable. Second, one country’s fiscal policy has relatively weak effects outside its borders, contrary to what one sometimes hears.

It follows that there would be minimal costs from returning fiscal control to the national level. If Italy runs an irresponsible fiscal policy, Italy suffers the consequences. End of story. Spillovers are relatively modest, so there no first-order reason for other countries to interfere.  You only stoke popular nationalist resentment by taking away control of fiscal policy from national parliaments. In other areas where spillovers are stronger and tastes are more similar, you might want to integrate further. A good example of that would be banking and finance, where cross-border contagion is intense. That’s why Europe has correctly moved toward a single supervisor for the big banks.

Four years ago, Germany’s then-Minister of Economic Affairs and Energy Sigmar Gabriel and the former French Minister for Economy, Industry and Digital Affairs (now President) Emmanuel Macron made a joint appeal for structural and institutional reforms to be combined with “consistent, though not necessarily equal, minimum wages, and a harmonised corporate tax”. Is that feasible?

Having an economic efficiency aspect as well as a social inclusion and equity aspect would be the right agenda; the question is what would be the role for the EU in advancing it. Is the idea that other countries pressure ‘laggards’ to accelerate the pace of reform? Or that legislation will be forced down their throats through directives published by the European Commission, raising the danger of a populist backlash?

In the United States, the Bill of Rights applies to the residents of all 50 states. But it is still interpreted and applied differently across states.

There is also the danger that reform is too uniform. In other words, even if the minimum wage should be raised in all European countries because the chance of creating unemployment is minimal while the benefits for low-waged workers are considerable, that still does not mean that every European country should have the same percentage increase or the same minimum wage. Different states in the United States have very different minimum wages. The minimum wage in California is about double what it is in some southern US states, something that reflects different economic conditions. An agreement by all European countries to move in a particular direction does not imply that they need to do exactly the same thing.

The EU is not only about economics, it is also a community of values. How should we think about different understandings of European values within the EU?

In the United States, the Bill of Rights applies to the residents of all 50 states. But it is still interpreted and applied differently across states. To take one example, women’s reproductive rights differ across states. When there are significant disputes about its application, the Supreme Court adjudicates, and states ultimately have to comply with its rulings. This is how I see the EU: EU law, the acquis communautaire, applies to all member states, and when there are disagreements over application and interpretation, the European Court of Justice is the ultimate authority.

EU policy on refugees is very divisive. Countries such as the Czech Republic, Slovakia, Poland, and Hungary do not want any refugees in their countries. How can a European solution be found?

Refugee resettlement and assimilation has to be undertaken collectively at the EU level. Otherwise, if one member state erects a razor-wire fence on its border, all the refugees enter through another. A proliferation of razor-wire fences would mean no common refugee policy at all.

Countries that do not take their share of refugees should have to pay a financial transfer to their neighbours or into the EU budget to relieve themselves of that burden. This is similar to the issue of the environment: some European countries feel less strongly about environmentalism and carbon emissions than others. And if they pollute more, they should be made to pay more carbon taxes. There should be the equivalent of a tax for those countries that refuse, for whatever reason, to take their proportionate share of refugees. In the end, this obligation is part of the acquis communautaire, which includes among its central values human rights.

I hope that this is a problem that will solve itself over time, insofar as opposition to taking in refugees comes from countries with the least experience of refugees coming from Africa, the Middle East, and Afghanistan. With greater familiarity will come less phobia and more willingness to be part of the solution. Or so one can hope.

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Looking Back and West: Lessons for Europe’s Future

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