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The Future of the European Union

Mises Daily: Thursday, May 03, 2007 by

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On March 25, 1957, representatives from six countries in Europe signed the Treaty of Rome and established the European Economic Community. Fifty years on, 27 nations belong to the European Union. Not only has the geographical area the original EEC covered expanded, but so have the number of EU organizations, which now include the Commission, the Parliament, the Central Bank, the Council, the Court of Justice and the Court of Human Rights.
 
It is said that the union is founded on the following principle: free movement of goods, services, labor and capital — with a common vision of achieving a single market. In this article, I argue that the common vision is hindering the progress of Europe and I address arguments raised against a withdrawal from the EU.

Withdrawing from the EU will put businesses in disadvantageous positions in Europe

The EU, as a customs union, forms a free-trade area with a common external tariff policy against non-members. One common argument is that if a member state withdraws from the union, businesses in that country will suffer due to the higher tariff they will face as non-members. Indeed the EU is hostile, for example, towards textile exporters from China and Vietnam in order to protect the industry in Europe. Despite the barrier, businesses from non-members continue to enter the EU.
 
Furthermore the volume of intra-EU trade is significant. By trading, businesses and consumers in all European countries gain. Otherwise trade would not take place. Hence it is in the interest of those in a withdrawing country as well as EU member states to allow voluntary exchange and not hinder this process. Sanctions of any kind would only harm all parties involved.
 
Those in the withdrawing country can also turn the situation to their advantage. As they are no longer bound by the common external tariff policy, there is an opportunity to increase their trade with non-EU members. If the EU was truly a free trade area, individuals would be allowed to compete and interact without any restrictions of regulations and directives. Tax competition can occur so that commercial activities are encouraged.
 
For instance, companies have relocated their headquarters to Switzerland where corporate taxes are low. The EU officials are unhappy even though Switzerland is not a member state. They claim that tax competition is harmful and such practices must be censured. The EU external relations commissioner, Benita Ferro-Waldner, contends that this matter is not about tax competition, but "about the state aid undermining the level playing field necessary for partnership and trade relations between Switzerland and the EU." Whichever way this is phrased, it only amounts to envy.

Inconvenience caused to tourists and migrants

Allowing Europeans to travel without any requirement for visa within the EU is considered a great achievement. Nonetheless this implies that in the pre-EU period, Europeans were unable to travel freely. This is untrue. Furthermore, people from non-EU countries have been touring around and working in Europe for centuries.

Withdrawal will distort the market

It has been suggested that if a member that receives subsidy leaves the union, certain industries in that member state will suffer from withdrawal as it will cause market distortions. Payments towards agriculture and development account for over 40 percent of the EU budget and some argue that a withdrawal or full dismantling of the union would result in distortions in those sectors. This argument is flawed because the current subsidy payments given to sustain the agricultural sector have already created the distorted market. Without the payments, the agricultural sector in Europe will be significantly smaller. Therefore it is the current state that reflects distortion.

Member states should not enjoy benefits of the EU without facing drawbacks

Eurosceptics are criticized for wanting the advantages of being in a free-trade area and avoiding any disadvantages. As the ultimate aim is creation of a single market, the EU officials believe that member states must work together as one collective entity — and that means drawbacks must be tolerated. This is precisely what is required under an egalitarian ideology, which hinders the progress of those who are able and willing. According to EU officials, a single market will lead to an evenly developed Europe. Therefore in the name of the single market, they attempt to consolidate and harmonize differences.
 
The efforts inevitably result in confiscation from some, which is redistributed to others. The recipients would welcome this, yet discontent among those who pay is growing. This is completely the opposite of what free trade calls for. Under free trade, parties voluntarily enter into an agreement to exchange goods and services. This would only happen if it puts both parties in a better position than they would otherwise be. Both of them gain from this voluntary exchange. Otherwise they would not enter into an agreement. If force is used so that one party is compelled to give to another, this would not represent a voluntary exchange.

Conclusion

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With the egalitarian ideology at its core, the EU is heading in a direction that is opposite its original destination. The aim of the EU officials is to create a collective block and to build a high fortress around it. That block will hamper the growth of Europe. Instead of truly fostering free trade, EU regulations and directives hold back those who endeavor to progress; indeed such efforts are frowned upon. It is one thing to devise policies founded on egalitarianism but quite another to implement them as if they are based on the ideas of free exchange.

Withdrawal is often regarded as too drastic a measure. But the consequences of withdrawal will not be as devastating as they are often perceived. Reforms to make the EU organizations efficient will be a thing of perpetuity. The organizations will grow bulky every year as committees are set up to solve problems that are self-generated.
 
If a country is penalized for its withdrawal by, for instance, trade sanctions, the coercive element involved in being a member of the EU will only be highlighted. Without the drawbacks of the collective entity, Europeans can progress as individuals. A fortress is not necessary to "protect" talented, intelligent and innovative Europeans.

Yumi Kim studied law in London, where she now works in financial services. Send her mail. Comment on the blog.