Unity and integration
14 May, 2016, 12:00 am
THIS week, the EU observed May 9 as Europe Day.
Sixty-six years ago on May 9, 1950, the French Foreign Minister Robert Schuman, pleaded to fellow nations in the continent to unite and open a new chapter of peace and tranquility.
The statement, known as Schuman Declaration, is considered a milestone for reaching Franco-German rapprochement after the end of World War II.
No doubt, it was also in response to a new, common threat posed by the emergence of the totalitarian state: the former Soviet Union.
The Schuman Declaration was followed by several milestones: European Coal and Steel Community in 1950, European Economic Community in 1957 and European Free Trade Association in 1960.
Institutional mechanisms for facilitating free mobility of capital and labour were also put in place under the Single European Act of 1987.
A single market for goods and services as well as labour and capital was born in 1992.
There were parallel efforts towards monetary integration. The European Monetary System was introduced in 1979 for creating an area of exchange rate stability between various member countries.
Soon it was realised, the exchange rate mechanism (EMS) requires convergence in economic cyclical movements.
If Germany wanted to fight inflation, it had to raise its interest rate.
For exchange rate stability, others including Britain, had to raise their interest rate too.
That was not agreed to as Britain was undergoing recession. Britain left EMS, but did not quit the common market.
Single economic space
For introducing a single currency zone within EU countries, convergence criteria were prescribed: (i) inflation of not more than 1.5 percentage points above the average rate of the three EU member states with the lowest inflation over the previous year; (ii) budget deficit at or below 3 per cent of GDP; (iii) public debt not exceeding 60 per cent of GDP.
On January 1, 1999, the single currency zone was launched with 11-member countries.
Britain opted out. The 11 were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Greece, which was the 12th country, was not admitted until 2001, as it did not make the grade.
The Eurozone has 19-member countries out of 28-member countries of the EU.
Nine members are outside Eurozone. Britain and Denmark are permanent opt outs from the euro.
Remaining seven will eventually adopt the euro. The EU (area: 1.7 million square miles; population: 506 million with 28-member nations; total GDP: $US18.9 trillion ($F39tn); per capita GDP: $US37,300 ($F77,000) did well until 2009, which saw the global recession spreading.
It exposed the weaknesses of the monetary union (one currency, one central bank and one interest rate) unless accompanied by fiscal union.
Each had its own fiscal policy with no control on spending by any central authority.
Fiscal excesses with huge public debt landed Greece and other members who liberally used the euro membership card, led to erosion of confidence in euro.
That brings us to consider whether a currency union should also be a political union.
We have two examples, with a single currency: The US (area: 3.8 million sq.miles; population: 322 million; total GDP: $US18.3tn ($F38tn); per capita GDP: $US57,000 ($F119,000); and India (area: 2.9 sq.km; population: 1.2 billion; total GDP: $US2.0tn ($F4tn); and per capita GDP: $US1582 ($F3307). Both are federations of states.
Their constitutions enable federal transfers to states in crises including natural disasters and financial distress.
EU lacks mechanism of the kind a political union has. In the absence of fiscal integration, EU has no transfer mechanisms to help members in distress.
While referring to existential threat faced by EU, Ambassador Andrew Jacobs, the Head of EU Delegation based in Suva says that EU is at risk when “Europeans behave as part-time Europeans”, indicating those EU members who got themselves and EU into financial trouble, did not observe fiscal discipline, despite the Maastricht criteria.
There is another existential threat: the British Referendum scheduled in June on “stay in or exit EU”.
Having permanently opted out of euro, Britain’s pro-exit group feels it has had enough of EU problems.
Referring to “Brexit”, Fintan O’Toole wrote in Irish Times that European unity was “at its strongest when on brink of abyss”.
He recalled past threats over centuries which enabled Europe drawing energy from the proximity of catastrophes of various kinds.
They include times when the Turks were at the gates of Vienna.
The question then is: Will Britain’s “yes vote to stay in” save EU?
Lessons for Pacific Islands
Regional economic integration continues as an elusive goal since the intergovernmental organisation, Pacific Island Forum (the Forum) was established in 1971.
It received a boost when the euro was launched on January 1, 1999, just as it inspired several such moves in Latin America and Africa.
Regional free trade agreements were signed in 2001. They included Pacific Island countries Trade Agreement (PICTA) between 14 Forum member countries, excluding Australia and New Zealand (ANZ) for free trade by 2011; and Pacific Agreement on Closer Economic Co-operation (PACER) for free trade in goods and services by 2015 between all Forum members.
They came to be overlapped with a quick move by EU for replacing the then lapsing Cotonou Agreement with Economic Partnership Agreement (EPA) on regional basis.
The apparent rivalry between EU and ANZ was affecting the progress.
In the meanwhile, Forum Leaders adopted a Pacific plan in their annual meeting in PNG in 2005. One of the four pillars was regional integration.
Fiji’s military coup of 2006 totally changed the situation.
Sanctions imposed by ANZ against Fiji and its suspension of the country from the forum, isolated Fiji. Melanesian countries (Fiji, PNG, Solomon Islands and Vanuatu) set up a rival organisation under the name of Pacific Island Development Forum.
Simultaneously, sub-regional co-operation received bigger attention. The Melanesian Spearhead Group (MSG) which was dormant for a while was revived.
Considerable progress was achieved in the next six years, with greater volume of trade.
In the meanwhile, the forum without Fiji went ahead to review in 2013 the Pacific plan implementation since 2005.
It concluded that although Pacific plan document of 2005 was relevant, it needed to be recast.
A new Framework for Pacific Regionalism was put in place for identifying issues of importance to promote collective action.
Accordingly, the Forum invited submissions. A total of 68 submissions were received.
They ranged from establishing a Pacific TV Channel to Advancing Pacific Consensus for Disarmament.
Nowhere issues relating to economic integration were mentioned.
Forum leaders at their meeting in Pohnpei in September 2016 are expected to choose issues from the list for intensive study.
Regional integration has taken a back seat.
No wonder, EU Ambassador’s message did not refer to any integration effort in the Pacific region.
It is apparent we have neither visionary leaders of the calibre of technocrats Schuman or Jean Monnet, nor a politician such as Winston Churchill, who called for a “US of Europe”.
Of course, there is no external threat of the kind Europe faced 66 years ago.
So why bother about regional integration?
* Professor Jayaraman teaches at FNU, Nasinu campus.
His website: www.tkjayaraman.com.