The Deficiencies and Weaknesses of the EU and the EMS

March 10th, 2015 → 4:42 pm @

Bookmark this on Google Bookmarks
Share on StumbleUpon
Bookmark this on Delicious
Bookmark this on Digg

I have referred again before to the deficiencies and weaknesses that this grandiose undertaking for a peaceful unification of Europe, which some visionary leaders conceived in the 1950’s, has displayed so far. It was not an easy task in view of Europe’s history, a long series of conflicts and wars among its nations and even internal struggles in various countries. It was not easy, not only because of historical reasons, but also because of differences in size and the level of development of each Country. Here we will limit ourselves only to economic matters and especially how the efforts to create a unified European market worked against the less developed Members and in favour of the more developed ones. I am afraid that, unless additional mechanisms to help Member-Countries facing problems of adjustment to the new set up are put in place, first the EMS will break down and the EU itself will not become a viable economic and hence political entity. In what follows I will deal, as examples, with some matters which have to do with Cyprus and which we face ever since the harmonization with the European acquis communautaire has started.

The EU system has not paid and it is not paying attention to the specific needs or weaknesses of Member-States. In the case of Cyprus, for instance, I consider it unacceptable that half-occupied Cyprus with its huge problems caused by the invasion and the displacement of so many people from their homes and businesses should have continued contributing to the EU budget more that it receives, i.e. to be a net contributor until today. I also would like to refer to the fact that ever since its accession Cyprus is obliged to accept, especially after the enlargement, all EU workers wishing to work here without considering the small size of the labour market and the unemployment situation in Cyprus, as it happened in the case of Malta. It is about time we should raise these issues with our partners in the EU and asked for appropriate changes.

The mechanisms and criteria adopted by the EU ever since its establishment were cut and tailored to fit basically the rich Members. Especially now in the period of economic crisis they have benefitted and continue to benefit these Countries, whereas not only they do not serve the idea of unification but on the contrary push towards the opposite direction, disintegration. The abrupt and unqualified abolition of all restrictions regarding movement of people, products and capital at the beginning of the 1990’s and a little later the adoption by most countries of the euro favoured simply the exporting and rich European Countries. What happened to the less developed Countries reminded me of what the Prime Minister of Greece Constantinos Karamanlis said at the beginning of the 1980’s when Greece acceded to the European Economic Community: ‘I’ve thrown you into the sea and whoever knows how to swim will be saved’. At the end only the developed Countries of the North and some am-phi-dexterous individuals and companies knew how to swim in these waters.

The transition from the EEC to the EU at the beginning of the 1990’s coincided with the UN Agreement for the liberalization of international trade. I don’t know whether this was just incidental. The developed Countries took advantage of these openings in two ways: they increased their exports and at the same time they solved another of their problems, the lack of cheap labour to continue or increase their production in the labour intensive sectors. In many cases firms from these countries either established branches in developing countries or sold their technology to them, something that allowed them, among other, to concentrate on research and development at home. Despite the efforts to transfer some Cypriot industrial activities to nearby countries where labour cost was not more than20% of that in Cyprus at the time, the task was not completed because of lack of support and the limitations imposed by the EEC.

In addition, in order to facilitate their exporting activities, especially to the less developed European countries, the developed European countries set in motion their financial mechanisms with attractive terms, increasing, thus, the dependence of these countries on them and leading them to huge debts. In many cases indeed their large companies have used illegal practices such as briberies under the counter for the supply of military and other equipment. It is not surprising that the Southern European Countries at the time of the crisis were found with enormous debts which started the tsunami of austerity. No signs of helping them to reactivate their economies were displayed by the EU so as to avoid going deeper and deeper to more desperate situations. Only very recently some EU Officials started talking about the need for reactivation and growth!

Unfortunately, the EU/EMS institutions did not react again decisively. The protection that supposedly was to be provided in case a Member-Country deviated from the rules of the game was not provided. It was only in the case of the developed Countries (Germany, France) that they were allowed to exceed the Maastricht norms. Various relevant EU Committees are acting like a court ready to punish those deviating from the rules and not to serve the idea of unification. This happened in March 2013 in the case of the Cyprus banks when the shareholders and depositors were forced to shoulder the mistakes of the supervising Authorities here and in Frankfurt. Another recent example is the closure of the Cyprus Airways by the European Committee on Competition. They closed down a very crucial entity for Cyprus, an Island depending so much on air transport for tourism, exports and imports. They have not taken into consideration the special circumstances under which Cyprus Airways was working: The very costly and destructive flying restrictions imposed upon them by Turkey ever since the invasion and the fact that the company had started from zero in 1974 having lost the main part of its fleet and other assets. As for their bad management, which we all condemn, there could have been an emergency programme for restructuring and improvements as it happened with the Government and its finances. Nobody ever thought of closing down the Government!

The delayed antidotes that both the EU (ESM, Junker’s investment plan) and the European Central Bank (ELA/QE) are working out to help the Member-Countries, that for various reasons fall behind, should have been helpful and not punitive for their people. The aim should have been the reactivation of the economy of the Countries and, with concrete plans, the rectification of all causes that lead to this bad situation, including the functioning of the EU and the EMU themselves.

Dr Iacovos Aristidou

Comments are closed.