Europe has to defend what it has achieved so far

By Mark Mazower – July 31, 2016

Financial Times

Now that the sound and fury of the Brexit debate have subsided, it is time to ask what the result means for Europe. British voters have given their country the toughest challenge it has faced in decades. But the challenge is Europe’s, too.

The UK referendum result was, immigration aside, a vote against the huge institutional changes that have transformed the nature of democratic governance across Europe in the past 30 years. In the 1970s, most countries had planning ministries, nationalised utilities and transport industries and foreign exchange controls. Minimising unemployment mattered more than unfettering finance.

This was obviously the case in communist eastern Europe, but it was characteristic of the managed capitalist economies in western Europe too. European integration provided a thin carapace of co-operation on top of what were still largely autonomous national economies. It was an arrangement that gave considerable power to parliaments while central banks played a secondary role.
Today this seems like a lost world. Over the decades, privatisation rolled back public sector power. So did financial deregulation and the abandoning of exchange controls. Economists can argue about the effects of all this on wealth generation. But, if there is one thing we have learnt in the past few months, it is that economics is not what counts.

The very parliaments and voters who pushed through reforms at the end of the 20th century are now worrying about what this means in terms of basic sovereignty.
It was certainly not the EU alone that was behind these shifts. The US pushed hard for liberalisation of exchange controls. Bodies such as the International Monetary Fund spread the new orthodoxy, but shifts of power within the union accelerated the trend.

Germany’s emergence as the dominant member state left its imprint on European institutions and the creation of the euro shifted power towards central banks. And it was the reunification of Germany that more than anything explained the drive for greater integration between Maastricht treaty in 1992 and the treaty of Lisbon, which came into force in 2009…

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