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Bringing the UK into Europe’s economic core

The EU’s core countries these days, besides the original six founders, are the 15 member states that make up the European Monetary Union (EMU). They have converging economies and coordinated monetary and fiscal policies. The big outsider is the UK.

British EMU membership remains very desirable. If the EU is to progress beyond the limits of a common economic and monetary policy and develop a defense and security policy along with a common foreign policy, the UK must be on board. Exchange-rate fluctuations between the pound and the euro disturb market forces among member states, and at times even have a negative impact in London. In the long run, the UK risks serious isolation if the euro zone starts to exert even greater power.

But other European countries must also understand British arguments in favor of the UK maintaining its own currency, given London’s importance as an international financial center as well as its privileged relations with more than 50 Commonwealth countries. The euro zone should therefore offer the UK an honorable compromise in which Britain would be allowed to become a full member of the EMU and take a seat in all of its institutions like the European Central Bank (ECB) and the ministerial Eurogroup, while also being able to keep the pound in its relations with third countries.

The euro would, however, have to be accepted as legal tender in the UK, alongside the pound, and in the commonwealth countries, and this would demand close cooperation between the Bank of England and the ECB. Such a compromise would increase the EMU’s weight both inside and outside Europe.

THE ‘SATURN MODEL’

A Europe built around such a core corresponds to what I call a “Saturn model,” with a huge planet in the middle, surrounded by rings, converging sooner or later in the center. The outer circles are the transition countries, while the rings around the center would be EU countries that still refuse to join the EMU, or do not yet fulfill all the conditions, like Romania and Bulgaria, or eventually the western Balkan countries and Turkey.

The Saturn model puts the present fierce debate on enlargement and the borders of Europe into a totally different context, because the core countries would no longer find themselves being asked to accept a Europe divided into different classes of member states. The positioning of EU countries on the rings around the core would be transitory, with the aim being to facilitate overall convergence.

Given the impact of globalization and the direct challenge to the EU implied by competition from countries like China and India, the European economy needs to become more innovative. Economic and social reform policies throughout Europe would be strengthened if the EU authorities were able to coordinate them, and EU enlargement, together with the further development of its internal market of almost half a billion consumers, could powerfully stimulate economic activity. The accession of Spain and Portugal was a vivid example of that in the 1980s, and it is an argument that should be considered with respect to such a populous country as Turkey.

Europe has been unifying gradually for 50 years now and we can reasonably look forward to further inter-continental cooperation and integration, not least because of scientific and technological developments. At the same time, we can expect a growing Atlantic community as successive rounds of trade liberalization make it easier to develop a free-trade area between the EU and the US.

FIRST STEP

Europe’s own experience has taught us that a customs union must be the first step, and that sooner or later the more intense economic cooperation that a customs union imposes will compel its members to establish an economic community that has all the characteristics of a unified internal market. But, of course, this can only function smoothly if exchange-rate fluctuations between its members’ currencies have been eliminated. Although an Atlantic Monetary Union (between the US and the EU) is a long-term prospect, it should be considered as a grand design for the future.

Europe’s leaders and their voting publics now have a choice between the Europe of the past and of the future. The Europe of the past began with the Schuman Plan, which sowed the seeds of today’s EU, and concluded when the Cold War ended. It was an era of integration based on the heroic drive to reconcile post-war Germany and France and establish a Pax Europea, as well as the threatened expansion of the Soviet Union.

But after the implosion of communism, the situation in Europe was more or less reversed: The defensive demarcation of borders has been replaced by the removal of frontiers across the Continent. However, while French General Charles de Gaulle once spoke of a Europe stretching from the Atlantic to the Urals, defining Europe in purely geographical terms omits other criteria of what it means to “belong” to Europe.

Instead, the vocation of Europe in the course of the 21st century should be to become the lever of inter-continental convergence and unification. Europe must be reinvented for this purpose, and broadening the EMU’s reach is the place to start.



Mark Eyskens is a former Belgian prime minister.

Copyright: Project Syndicate/Europe’s World
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