Hans-Werner Sinn

Nationalökonomie & Finanzwissenschaft

Ifo Viewpoint

Ifo Viewpoint No. 142: Cameron and the question of Europe

Munich, 05 February 2013

David Cameron’s announcement that he is going to let the British people vote on the issue of EU membership via a referendum has been greeted with derision by many politicians in Brussels and Paris, as well as a few in Berlin. But this issue cannot be waved away quite that easily. Great Britain remains Europe’s most internationally well-known and influential country. Cameron’s decision will and must change Europe.

The British prime minister did not take this step out of his own volition. It was the EU itself that provoked him into doing so with its decision to introduce the Tobin tax (now called the “financial transaction tax”). Whatever you may think of this tax, whether a foolish trifle or something of uncertain purpose or benefit, it is clearly a thorn in the flesh of the British. It is grossly negligent to risk Britain’s exit from the EU just for the sake of this tax. Those who pushed the tax through, knowing very well that it would provoke Britain, have endangered the European project. Cameron gave his exit speech one day after the majority decision by EU countries to introduce the tax.

It took two attempts before Great Britain finally joined the European Community in 1973. The first attempt in 1963 failed due to a veto by France. Germany defended Britain’s accession at the time, because this was seen as a way of blocking France’s mercantilist intentions, which could only have harmed German industry. Moreover, it was clear that the EU would never be able to gain the political stature that it was seeking without Great Britain. Since then it has been one of Germany’s cardinal policies to keep Great Britain closely tied to the European project. One wonders if this has ceased to be the case.

The French Foreign Minister Fabius’s rancorous announcement that nobody would stop Britain from leaving the EU if it wanted to may be understandable. But it is hard to understand why the German Foreign Minister should join Britain’s critics by reproaching Britain of cherry-picking. Angela Merkel, with her offer to negotiate with Britain, showed far greater intelligence and caution in this instance.

In essence Cameron is right. There is something rotten in the states of the EU and the Eurozone. The concept of subsidiarity agreed upon in the Maastricht Treaty is constantly being trampled upon by the politics of the EU. The EU regulates far too many things that fall outside its remit on account of not being associated with any cross-boundary externalities. The abolition of incandescent light bulbs, the rules on the curvature of cucumbers, labour market regulations and, recently, attempts to privatise water management, which for technical reasons cannot be a competitive industry, are just a few examples from a long series of economically nonsensical abuses of the EU’s power. Moreover, in clear contradiction of the Maastricht Treaty rules, the European Central Bank is being misused to finance states with the printing press and to channel massive fiscal credit operations that, according to the ECB’s former chief economist Ottmar Issing, no longer have anything to do with monetary policy.

It is a mistake to strive towards the political union of Europe via deeper integration of the Eurozone. Key countries like Great Britain, Sweden and Poland do not belong to the Eurozone and will not join it in the foreseeable future due to the socialisation of debt in the euro area. However, they are just as much a part of Europe as Cyprus, Malta or Greece are.

Measured by voting rights in the ECB Governing Council, the geographical focus of the Eurozone lies in the Mediterranean. The Eurozone almost resembles an expanded Latin Monetary Union, like the nineteenth-century union that extended from France to Greece; the latter country declared bankruptcy three times back then. Germany must submit to the Mediterranean majority. This is clearly shown by the vain protests of Bundesbank presidents Axel Weber and Jürgen Weidmann, as well as that of the ECB’s former chief economist Jürgen Stark. Whoever wishes to achieve European integration by deepening cooperation exclusively within the Eurozone is dividing Europe and pushing Germany into the fringe.

It is time for a major rethink of Germany’s European policy. On its journey the EU has lost sight of its destination. As Cameron points out, nobody knows where all of this is taking us. Europe’s leaders are insisting that we step up the pace. But perhaps it is better to stop, pause, reflect and then return to the last signpost and try a different route.

Germany needs to take Cameron seriously and, together with Great Britain, France and other EU countries, develop a new blueprint for Europe that may bring greater peace, freedom, unity and prosperity than following its present course will.

Published under the title “Mediterrane Mehrheiten”, Wirtschaftswoche, No. 6, 4 February 2013, p. 38.

Prof. Dr. Dr. h.c. mult. Hans-Werner Sinn
Präsident a.D. des ifo Instituts