Crisis of the European Union

Václav Klaus, president of the Czech Republic, in a Hillsdale College-sponsored cruise event, spoke about the roots of the current economic problems facing the European Union (EU), as well as its significance to Americans.

Coming from the oppression of Soviet communism, Klaus praised the Marshall Plan and how it revitalized a war-torn, post-World War Two Europe through its economic policies. It eliminated and weakened special-interest coalitions along with pressure groups, but he questioned what happened to the post-World War Two successes. He places the blame at the feet of the EU itself, considering the European integration on one hand and the evolution of the European social and economic system on the other.

First, the European integration’s root problem is that integration of the entire continent is mostly accepted as “an exclusively positive, progressive and politically correct project.” Klaus pointed out that today it is assumed that the weakening of nations and becoming absorbed into a supranational organization like the EU is “a movement in the right direction.” Instead of continuing the successful policy to liberalize, allow movement of people, goods and services across borders, removing barriers to trade and other aspects of life, European integration is becoming increasingly centralized. Klaus regretfully stated that in the rush to unify Europe under a single government, “It was forgotten that states are the only institutions where real democracy is possible.” His country of Czech Republic only joined the EU to reassert “its place among European democracies,” and EU membership was the only option afforded them.

He continued to explain that the European monetary union is a core root problem of the current crisis, along with the centralization of the Europe’s governments. He cited the Maastricht Treaty of 1991 as the problem, which first suggested EU centralization. As a result of the treaty, the euro was introduced as the standard currency and has not successfully accomplished its purposes: “accelerate economic growth, reduce inflation, and protect member states against external economic disruptions or so-called exogenous shocks.” Instead, the trade imbalances and state budget imbalances have grown, not shrunk, and have created more problems than solutions. Klaus clarified the issue further, that the idea behind the euro was “essentially wrong” in that it actually created “huge economic problems and lead inevitably to an undemocratic centralization of Europe.” It seemed easy at first, but as Klaus noted, the common monetary area imploded when problems arose. But, he stated that he did not see the collapse of the euro due to the heavy investment and political capital in the currency.

Klaus’ second point, of the change in the economic and social system, has derailed economic growth. The “generous social benefits”, coupled with what he termed “weakened motivation, shortened working hours, prolonged years of study, lowered retirement ages, diminished the supply of labor,” has resulted in slow economic growth. Instead of continuing liberalization efforts, a massive regulation of states in the EU has appeared, weakening and restricting businesses, freedom, democracy, as well as free market principles of competitiveness, entrepreneurship and efficiency. Economic freedom has taken a back seat to European paternalism, where Europeans defend their social freedoms but not their economic freedoms.

Klaus labels the crisis as a structural problem that cannot be easily outgrown. He warned those in attendance that the US is catching up to the EU in similar aspects, and to learn from Europe’s mistakes in order to avoid repeating them.

Spencer Irvine is a research assistant at Accuracy in Academia.

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