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Mainstream, VOL LV No 38 New Delhi September 9, 2017

Trump, May and Fate of EU

Saturday 9 September 2017

by Anshuman Gupta, Vipul Sharma

Europe is, in a great measure, saved as a result of Donald Trump and his unviable and contradictory initiatives. The ultra-Right wave was on the rise with many far-Right parties gaining prominence in Europe, riding on the back of the downturn journey of the world economy and their appeal to the left-out natives, who could not capitalise on the liberal policies of globalisation, liberalisation and privatisation. Donald Trump also secured the White House sitting on the crest of the ultra-Right wave based on the politics of identity, anti- globalisation and anti-migration. The politics of ‘America first’.

However, the rising popularity of the ultra-Right parties was arrested by the controversies surrounding the initiatives of Trump’s adminis-tration. All his initiatives helped shorten the span and intensity of the frenzy of the ultra-Right movements. Its manifestations are the comprehensive victory of Emmanuel Macron, a Centrist, in France; the defeat of the ultra-Right party in Netherlands; and expected victory of Angela Markel’s party in Germany in the September election. The last blow to the ultra-Right tide was Theresa May’s party losing its majority in the snap election. Voters of Britain realised their mistakes after they analysed the real economic consequences of break-away from the common single market of Europe. Now she would negotiate Brexit with caution.

The EU was supposed to be a miracle in the economic history of the world. Though it was initiated for political reasons, its economic success cannot be underestimated. Bringing together 28 countries under common rules for the trade of final goods and services, and movement of factors of production is a commendable achievement. Out of 28 countries, 19 are tied with a single currency—the Euro. Crises in Europe in the last decade have raised many new questions about the viability of regional trading blocs. How far is integration of the economies viable? Should the entry test for new entrants in the bloc be more strict? In the time of crisis, should the bloc work like a cooperative federalism, whereby relatively better-off countries help the crisis-ridden country?

In the 1990s and early years of the 2000s, there was another set of questions being pondered over in the wake of a spurt of regional blocs, mainly as a result of prolonging the Doha Round of Negotiations, initiated in the year 2001 and still inconclusive. These questions were related to trade creation and trade diversion, and regionalism versus multilateralism. To minimise the trade diversion, a negative consequence of regional bloc for non-members, many conditions were enshrined in Article XXIV of the WTO. These included maximum tariff chargeable from the non-member countries and the time-frame for completing the process of integration. It was also proposed to have open membership in the bloc and progressively lowering inter-bloc trade barriers along with intra-bloc liberalisation. Regional trading blocs were regarded as stepping stones to globalisation.

However, the new set of questions is more serious in nature and related to the very viability of the concept of regionalism. Regarding the extent of integration of the bloc, it is a process of evolution to integrate the members’ economies into one with common monetary policy, close coordinated fiscal policies, common trade and investment policies, free movement of labour and capital, and single currency. They all mean sacrificing the sovereignty over issues relating to regulating the economy at the national level. It somehow comes in conflict with the idea of democracy, which thrives on the idea of many parties attracting the voters on the basis of their ideologies and socio-economic programmes. However, the economic integration leaves little scope for this. No or very little policy- space is left for political parties to differentiate on the basis of economic programmes. So it is a pertinent question as to how much integration is feasible to strike a balance with the democratic system. All European countries are confronting this problem. Brexit is also the direct conse-quence of it. For the sustainability of the European Union, it needs to answer this question rather soon. It has two options: either to complete the circle by further forging fiscal union and banking union, which would further squeeze the policy-space of the members or take backward steps to reform the union to give policy-space to members to accommodate their varied needs and aspirations.

Open membership to the bloc is the condition to minimise the effect of trade diversion to non-members. However, it is advisable to have stricter economic conditions rather than political considerations for their entry to avoid problems like those of the Southern European countries. The bloc should develop a mechanism whereby in the time of crisis, the better-off member-countries could help the crisis-afflicted country.

The authors belong to the University of Petroleum and Energy Studies, Dehradun.

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