The EU's federalists now face their greatest test

Britain may be on the sidelines, but it could still help to shape the future of a looser trading zone.

Published: 16th September 2016 07:54 AM  |   Last Updated: 16th September 2016 09:21 AM   |  A+A-

It was a common gripe in Brussels before June 23. The EU, everyone understood, was at a standstill. Everything was mired in a timetable ruled by two eras: before the referendum and after the referendum.

If only the problem child, Britain, would get its stupid vote out of the way, the officials fulminated, the EU could get on with the really important work. And what is this important work? As we heard in Jean-Claude Juncker's grandly titled "State of the European Union" address to the European Parliament on Wednesday, it consists of a laundry list of economic reforms and, more boldly, the beginnings of a serious attempt to found a European army and border control force.

Mr Juncker now has his chance to push for further EU integration, but even without Britain in the way, his success is in question. As he recognises, the EU's federalists are facing an existential test. They have to prove Brussels's usefulness or they will be forced into a pragmatic retreat (or worse, a disorderly break-up of the union). Their problem is that the EU doesn't actually have the power to solve the region's biggest problems.

European countries desperately need to improve their competitiveness, shore up their security and work out how to deal with an enormous influx of refugees. The EU itself can do none of these things without more power. It can't force France to stand up to its militant unions. It cannot police its borderless internal zone without a powerful border control. That is why all of Mr Juncker's proposed solutions have one feature in common: they rely on handing more power to the centre in Brussels, running directly against the wave of nationalism sweeping across the Continent.

Mr Juncker is pioneering what he calls a "political" approach, or what might be more accurately described as "EU populism". This agenda involves cracking down on tax avoidance, taking out euros 500 billion of EU-level debt to fund investments, handing out targeted agricultural subsidies, pushing for higher steel tariffs and, just for fun, funding free Wi-Fi in the plazas of "every European village".

Unfortunately, when the EU tries to do populism, it risks stepping on the banana skin of national sovereignty. Take, for example, the EU's recent decision to fine Apple euros 13 billion for what it deemed an "anti-competitive" tax agreement struck between the Silicon Valley giant and Irish tax authorities.

The ruling demands that the money, an amount equivalent to Ireland's entire annual health budget, be paid over to Irish taxpayers in a move calculated to show that the EU stands up for the little guy against evil corporate power. This is popular on the Irish Left, for sure, but how did Ireland's centre-Right government react? By furiously denouncing the decision as a power grab over national tax policy and vowing to appeal it.

In some cases where EU law has already been improved, governments are afraid of implementing it. A slew of new European banking regulations introduced after the crisis were meant to do away with public bail-outs forever. But when Italy's banks teetered in July, the new rules went out of the window and Italian Prime Minister Matteo Renzi reached for the public purse. Meanwhile, in eastern Europe, Right-wing leaders in Poland and Hungary are openly defying EU norms respecting the rule of law and demanding treaty change to roll back Brussels's power - while holding on to their EU development grants tightly.

It's in Britain's interests for Europe to become a stable continent where necessary decisions are taken efficiently. If Mr Juncker is thwarted, there is another way this could happen, which would be to Britain's greater advantage. A recent paper written by five wonks and promoted by Bruegel, a federalist Brussels think tank, argues that the EU must accept that not every European nation wants to become part of a superstate. Those nations that aren't keen on the idea should not be shut out, it says, but should be allowed to form a huge, regional market that trades freely with the EU while rejecting political union.

Mr Juncker will try and fail to force his federalist agenda on all of the EU's members, so Britain should step in with an alternative proposal: let the core EU countries pursue their superstate dream, but let the rest of us trade freely in a larger, non-federal zone.

After all, it was the UK that instigated the creation of the single market. It was Britain that has pushed in recent years for a capital market union, a review of the EU's many burdensome regulations and for the signing of more trade deals.

In other words, Britain has much to offer its European neighbours. When the EU shows it can't deliver, even with the British "problem child" out of the way, it will open up an opportunity to try a different approach. The UK must be ready.

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