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The Disunited States of Europe: The Politics of Power and Privilege, Part 1

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The corrosive effects that may occur from a spirit of political and economic nationalism were understood long before the disastrous consequences experienced as a result of them in the 20th century. In 1759, in his first book, The Theory of Moral Sentiments, Adam Smith warned against the danger residing within any strongly held nationalist feeling:

The love of our own nation often disposes us to view, with the most malignant jealousy and envy, the prosperity and aggrandizement of any other neighboring nation. Independent and neighboring nations, having no common superior to decide their disputes, all live in continual dread and suspicion of one another. Each sovereign, expecting little justice from his neighbors, is disposed to treat them with as little as he expects from them.

The regard for the laws of nations, or for those rules which independent states profess or pretend to think themselves bound to observe in their dealings with one another, is often very little more than mere pretences and profession. Each nation foresees, or imagines it foresees, its own subjugation in the increasing power and aggrandizement of any of its neighbors; and the mean principle of national prejudice is often founded upon the noble one of the love of our own country.Smith contrasted “the natural expression of the savage patriotism of a strong but coarse mind, enraged almost to madness against a foreign nation” with “the liberal expression of a more enlarged and enlightened mind, who felt no aversion to the prosperity even of an old enemy.”He said that the most perverse representation of such “savage patriotism” was the desire to weaken or prevent the material improvement of surrounding nations, under the misguided pretext that their economic well-being was a threat to the prosperity and security of one’s own country. He used France and England as examples of such twisted nationalistic sentiments, and said,

For either of them to envy the internal happiness and prosperity of the other, the cultivation of its lands, the advancement of its manufactures, the increase in its commerce, the security and number of its ports and harbors, its proficiency in all the liberal arts and sciences, is surely beneath the dignity of two such great nations. These are the real improvements of the world we live in. Mankind are benefited, human nature is ennobled by them. In such improvements each nation ought not only to endeavor itself to excel, but, from the love of mankind, to promote, instead of obstructing, the excellence of its neighbors. These are all the proper objects of national emulation, not of national prejudice or envy.

In 1758, a year before the appearance of Smith’s Theory of Moral Sentiments, his friend and fellow Scot, David Hume, published an essay, “Of the Jealousy of Trade.” Hume explained the various benefits that accrued not only to mankind as a whole but to one’s own nation, in terms of trading opportunities and commercial improvements, arising from the economic prosperity and technological advancements in other countries. This led him to conclude his essay with this famous passage:

I therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself. I am at least certain, that Great Britain, and all other nations, would flourish more, did their sovereigns and ministers adopt such enlarged and benevolent sentiments towards each other.

The sentiments of humanity and enlightened self-interest expressed by Adam Smith and David Hume were virtually forgotten during the first half of the 20th century. This change led the French philosopher Julian Benda to write a short book in 1927 entitled The Treason of the Intellectuals, which condemned those who betrayed the universal ideals of human freedom and international peace for the short-run gains of national power and military glory.

The roots of economic integration

In the midst of the 1920s and 1930s, new voices began to speak out, calling for an end to war and conflict in Europe, even as tensions intensified and finally culminated in the Second World War. Count Coudenhove-Kalergi proposed a Pan-European Union, Aristide Briand outlined in 1929 an idea for a European “common market,” and economists such as Ludwig von Mises participated as members in the European Free Trade League.But only in the postwar period did Europe start moving in the direction of actual economic integration. It began with a 1950 proposal of French Foreign Minister Robert Schuman that was implemented in 1951 as the European Coal and Steel Community, with France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg as members.

But the goal was not a free-trade zone in coal and steel. Instead, it was established as an international cartel arrangement to set production quotas, set railway rates for the shipping of coal and steel, and subsidize the unemployed in these two industries.

In 1957, it became the wider and more comprehensive European Economic Community (EEC). In 1973, Great Britain, Denmark, and Ireland joined the EEC. Greece became a member in 1981, and Spain and Portugal in 1986. Austria, Sweden, and Finland joined in 1995, bringing the membership to 15.

The stated goal of the Treaty of Rome that established the EEC was the formation of a free-trade area, with the long-term purpose of a political union to follow an integrated economic union. But in fact, the EEC enacted a series of joint interventionist policies that ran counter to the proclaimed intent of a zone of free movement of men, goods, and capital. Soon there were established a Regional Fund, a Social Fund, Competition Policy, and the Common Agricultural Policy.

The Regional Fund was set up for EEC investment planning across the member countries under the presumption that those regions with levels of industrial development below the most advanced areas were deserving of special financial assistance to ensure a more rapid rate of economic development.

The Social Fund of the EEC was established to coordinate with the member nations various income-maintenance and redistributionist policies under the presumption that workers are unable to plan against the hazards of changing market conditions that may leave them temporarily unemployed, or require them to retrain in a dynamic labor market, or anticipate their financial requirements in old age. In other words, this was the EEC’s reinforcement of the presumptions and policies of the welfare states in the member countries. Competition Policy by the EEC served to institutionalize across the member countries regulatory rules concerning the pricing and marketing of goods and services that in fact prevented actual competitive forces from fully operating. The regulatory rules also limited the size of firms and market share, corporate mergers and divestitures, and the conditions under which member governments could subsidize selected companies and industries in the name of essential national goals.

Finally, the Common Agricultural Policy (CAP) was established under the rationale of smoothing out the supply and prices of agricultural commodities in the face of fluctuations in the natural conditions of farm production and the international marketing of foodstuffs. In reality it became the most expensive and irrational of the EEC’s economic policies, one that continues today and eats up 50 percent of all the expenditures made by the European Union. Farmers throughout the Community have been guaranteed minimum prices, shielded from agricultural competition from outside the European Union, and paid vast sums for leaving portions of their land unused.

The European Union

In 1992, the European Economic Community became the European Union (EU), with the additional goals of a single European market, a common foreign and security policy, and initiation of the first steps leading to a single European Union currency — the Euro.With the creation of the EU, the array of nontariff barriers to trade was to be eliminated. These included customs and border controls; discriminatory health and safety standards making the importation of certain goods from neighboring member nations more difficult; regulatory requirements concerning the form and content of manufacturing that hindered the sale of goods between countries; discriminatory bidding processes for government contracts; and regulations covering banking, financial, and insurance services and intellectual property that prevented open competition by firms across member nation borders.

The Euro came into formal existence and use on January 1, 1999. Until 2002 it does not exist as an actual, physical currency. Instead, it serves for now as a unit of account and as “virtual” money in that financial accounts and transactions are created and debited in terms of it.

The traditional currencies of Europe — the German mark, the French franc, the Italian lira, et cetera — still circulate and are used in physical exchanges, but each of them is fixed in value in terms of the Euro. They will become “history” in 2002, collector’s items of national monies of a bygone era. And there is now in place a European Central Bank that is responsible for the monetary management and planning of the new European monetary regime.

A politically imposed money

The Euro is a politically imposed money, highly valued by the French political establishment (though certainly not only by the French) as a new “super-state” currency. It is to rival and beat the United States dollar on the international currency and exchange markets as the dominant and preferred monetary unit of the world. Then Europe (and especially the French) can have their revenge for having had to accept American political and economic domination for the past half-century. The Euro is meant to be an essential ingredient in helping to make the 21st century “the European century,” in place of “the American century” that will be made to leave the stage of history.During the first two years of its existence, the Euro lost 20 percent of its original par value against the dollar.

Now on the European Union’s agenda is its expansion east. Most of the former Soviet bloc countries in Eastern Europe — Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria, and Slovenia — have applied for membership, as have the three Baltic republics of Estonia, Latvia, and Lithuania, which had been part of the Soviet Union until 1991. In addition, Turkey and Cyprus have stated their desire to be included in the EU.

In December 2000 the European Union members met in Nice, France, for a meeting meant to set the rules and conditions for the EU’s incorporation of these additional applicants for membership. When accomplished, this new Europe will be a political and economic entity stretching, west to east, from the Atlantic Ocean to the borders of Russia, Iran, and Iraq, and, north to south, from the Arctic Circle to the Mediterranean Sea.

The 21st century seems to hold out the hope and dream of many during the last 250 years: the end of nationalistic and militaristic rivalries and conflicts among the nations of Europe. With the political, economic, and monetary unification of most the European countries, peace, free trade, and prosperity appear ready to triumph.

Yet it is not the ideals of Adam Smith and David Hume and other friends of freedom that are being espoused and implemented in the attempt by European political leaders to achieve a United States of Europe. Indeed, the Nice conference in December demonstrated the extent to which the politics of the interventionist-welfare state stand in the way of a Europe finally secure in peace, freedom, and prosperity.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).