The “European Coal and Steel Community” rose from the ashes of World War II. With encouragement from the U.S., the leaders of Belgium, France, Italy, Luxembourg, the Netherlands and West Germany formed the organization to reduce trade barriers, encourage job-creating investment and bolster political stability — all with an eye toward avoiding future armed conflicts.
It was a major success. The 1951 coal and steel agreement led to the 1957 Treaty of Rome, which established the European Economic Community (E.E.C.) customs union.
Unfortunately, it didn’t stop there. The relatively modest enterprise set into motion 60 years ago ultimately morphed into the European Union — an increasingly undemocratic megastate that is simultaneously bankrupting and enervating its citizens.
Those who launched the E.E.C. — visionaries including Jean Monnet, Robert Schuman, Konrad Adenauer and Ludwig Erhard — would be horrified at today’s E.U. welfare state.
Consider Erhard, chief architect of the “German economic miracle.” As West Germany’s economics minister, he cut tax rates and ended post-war price controls and rationing. The economy surged. Henry Wallich observed that the “spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life.” More than six decades later, the boom is still going strong.
Erhard embraced the Freiburg School of economic thought, summarized in The Concise Encyclopedia of Economics as “a heavy dose of free markets, slight government redistribution through the tax system, and antitrust laws to prevent monopoly.”
Compare that to the views of José Manuel Barroso, a one-time Maoist and current president of the European Commission. As Daniel Hannan, a European Parliament member for the U.K. and rising conservative star, has noted, Barroso’s rescue plan for the Eurozone always seems to boil down to “more debt, more spending, more intervention, more integration — more, indeed, of all the things that created the mess in the first place.”
Greater consolidation of power by Brussels-based bureaucrats is a hallmark of the E.U., one that has grown steadily more pronounced as it has expanded. Those unelected overseers led the cheers in 1999, when 17 of the 27 E.U. countries launched the new currency. Fatally flawed from the outset, the new “Eurozone” was a monetary union but not a fiscal one. And true fiscal discipline often vanished.
For example, the Maastricht Agreement, which established the euro, stipulates that E.U. member countries may not incur budget deficits greater than 3% of GDP. This rule was flouted routinely — even by Germany, at times.
Unlike the carefully constrained supply of new, post-war Deutschmarks, which Erhard pegged to German prices, the one-size-fits-all-economies euro was initially fixed at rates of exchange to the currencies it replaced. Considering the track records of some of those currencies, the rates were wildly unrealistic — especially in the southern tier. Those country-by-country differences in prices, productivity and balance sheets sowed the seeds of the euro’s destruction right from the start.
Over time, the reality of this “two-tier” Eurozone became apparent. All E.U. countries have huge government sectors providing “European welfare-state” benefits. But the “core” countries have economies that are relatively more productive, financially strong and competitive. And the “core” governments are less imprudent than their less productive, more profligate neighbors on the southern “periphery” such as Spain, Portugal and Greece.
So what would Ludwig Erhard do if confronted with the mess that “E.U.-topian” policies have wrought? The same thing he did in the 1950s. He would trust people and markets. He would tell today’s visionaries in Brussels that their efforts to forge an E.U. megastate — through their creation of the Eurozone and their top-down, interventionist government by technical elites — will never work.
To return to global competitiveness and innovation, Europe needs more entrepreneurship, individual freedom and self-determination — not supra-nationalism and big government. As the impatient Erhard once said, “Don’t just sit there; undo something.”
James Roberts is a research fellow in the Center for International Trade and Economics at The Heritage Foundation.