A European Constitution should Limit Brussels’ Power

The Eurozone has set a dangerous precedent. At the same time as, some policy makers are patting themselves on the back after avoiding a messy Greek default, others realize the consequences, and are considering constitutional reforms, to shut Pandora’s Box.

Greek politicians have more often than not chosen to default — such as in 1983, 1985 and 1998 or to devalue their currency. Yet again they have been relieved from their debt and given an extra tranche of IMF and Eurozone aid for their troubles. If the spineless Greek politicians can get this kind of charity, I do not expect Ireland or Portugal to feel inclined to stick too their current arrangement with their creditors.

Only foolish politicians could ignore the gaping hole in the current arrangements, in which rogue governments are able to free-ride on the credibility of the rest. The proposed solutions seems to focus on more fiscal unity and more power in Brussels. Yet the true solution is a constitution limiting the power in Brussels and allowing individual states to create more flexible economies that are able to compete in a global economy instead of adhering to petty central regulation.

As I have illustrated in an earlier article European central planning can not work, because the right information is not present at the European level. The EU should have just three roles:

1. Promote free-trade:The main role of EU should be to promote free-trade among its members. Free-trade increases the size of the cake, yet also has losers. Where Germany may be comparatively better at making cars than Italy. Italians may be comparatively better at producing espresso machines. Workers at Fiat and Krups may well loose out, workers at Volkswagen and Bialetti win. It is important for the EU allow workers to move between countries to where their labour is valued highest. To ensure mobility and true free-trade European citizens should, not only be able to settle and work in any other EU country, but also be able set up bank accounts and join any social insurance scheme. This would create competition between social insurers and regulators.
2. Enforce equality before the law: This means that law in each individual state are the same for all EU citizens within that state. Within every state, state laws and regulations apply. This applicability must be equal for every EU citizen. In this case an overarching authority is appropriate.
3. Foreign Policy: Personally I am not in favour of trade sanctions. I believe trade is the best way to create peace. Yet if we want to impose sanctions or promote a certain foreign policy objective, this cannot be done by some states within the free-trade area whilst the others do not. This would not only make foreign policy ineffective, but distort the real terms of trade within the Union.

What about fiscal rules? I think this is a completely separate issue from the European Union. In the past a Greek government would print money and devalue the Drachma to pay-off its debts. In the Eurozone members will need to obey the rules of the club. Policy makers should find the best way to enforce these rules. In the EU countries should compete to find their most productive methods.