What a state

This week’s State of the Union address by European Commission President Juncker contained an admission that the EU faces an existential crisis. As he put it, “it is as if there is almost no intersection between the EU and its national capitals anymore.” Whatever people may think of Juncker – and there are many who do not hold him in high regard – his analysis of what ails Europe was spot on. His comment that “we Europeans can never accept Polish workers being harassed, beaten up or even murdered on the streets of Harlow” was a justified dig at the apparent rise in xenophobia and racism on the streets of Britain in the wake of the EU referendum, where figures show a significant increase of late.

Yet I could not help thinking that his plan of action was an appeal to the high minded ideals which drove the EU forward in better times, with its calls for solidarity and tolerance, rather than any significant change in direction. Whilst I am convinced of the ideals which Juncker espoused, there are many millions who are not, and I am not sure that he devoted enough thought to the issue of why people are not buying into his ideal. Part of the problem stems from the fact that many nations have little time for the political union aspects of the project, and see it more as an economic enterprise. That is certainly true of the Brits and is probably also true of the 13 nations which joined after 2004. And I would argue that economics is the EU’s weak spot.

Even today, the EU spends almost 40% of its budget on agriculture. Admittedly that is a long way short of the 73% in 1985, but it has been a consistent source of annoyance to countries such as the UK which have a much more efficient farming sector than many other EU nations. The good news is that the EU is reducing its real outlays on this sector but I am not convinced that it is an industry which deserves the priority which Juncker gave it in his speech. More worrying is that free movement of labour is a policy whose implications were not fully thought through. It was the issue at the heart of the UK referendum campaign and it is not too far from the surface in countries such as France.

Moreover, the EU has also not fully got to grips with taxation policy. Indeed, it has invested huge amounts of political capital in the single currency project, yet allows individual countries to set their own tax levels without any form of transfer equalisation. This resulted in the bizarre situation whereby Ireland, which had engaged in a form of corporate tax competition, effectively declared insolvency in 2010 and had to rely on other EMU members for a bailout on punitive terms. The madness of EU tax policy was compounded by the European Commission's recent decision to force Apple to pay €13bn of back taxes to the Irish government, which neither asked for nor wants the money. As Juncker put it, “The level of taxation in a country like Ireland is not our issue. Ireland has the sovereign right to set the tax level wherever it wants. But it is not right that one company can evade taxes that could have gone to Irish families and businesses, hospitals and schools.” That is one view. Nigel Farage put it differently: “if you think the EU’s Apple judgement was bad, you ain’t seen nothing yet.  When the EU destroys your corporate tax regime, you will realise, you are better off out of the EU’s failing political union.”

But the EU’s biggest failing is its failure to understand that in its current incarnation, the single currency is fundamentally flawed. According to Juncker, “Being European, for most of us, also means the euro. During the global financial crisis, the euro stayed strong and protected us from even worse instability.” Really? I suspect the Greeks might think differently given that their economy is in not merely suffering a recession but depression. A weaker currency would actually help alleviate some of the strains facing some of the EU nations (fortunately, the ECB recognises this). But Juncker was right about one thing: “Mario Draghi … is making a stronger contribution to jobs and growth than many of our Member States.”

I regret the UK’s decision to leave the EU. But in the face of an existential crisis which is seeing the bloc split into three distinct regions (northern, southern and eastern for ease of geographical exposition), each with its own issues, we are going to need more than warm words to get all members pulling in the right direction.