10.1 Large Market

Distance is no longer an obstacle to world trade and as a result it is increasing rapidly. The quality and price of products and services are compared on a global scale and must therefore be competitive. However, bureaucratic hurdles continue to stand in the way of competitiveness and should be reduced if at all possible. At the very least they should be similar across the globe so that one provider is not favored over another. This applies to custom duties, licensing regulations, rules for competition, etc. Prosperity in a region is best served if its products can be sold all over the world without the constraints of extraneous regulations—i.e. only price and quality should be compared.Footnote 1

The easiest thing to do is to create a single large market, which is what Europe did. Whoever works there can deliver throughout the market, free from bureaucratic restrictions. Those who do not belong to this market have to fill out customs forms and obtain approval for their products both in their own country and in the countries to which they deliver, etc. As a result, these products are correspondingly more expensive and less competitive.

Wherever there is a large open market, there must be uniform market rules and, of course, these must be accepted by all market participants. Whereas previously there were two or three political levels (municipal, state/regional, national) that had the authority to independently regulate numerous issues, there is now an additional political level, which is above the nation state and creates the rules for the large market.

The supranational level must also negotiate rules governing economic relations with other markets (Europe/USA/China). It carries more weight than each individual country and contributes to the international standardization of regulations, which is in everyone’s interest. Numerous different trade agreements such as are still in force today weaken the regulations, create confusion, and worsen the competitiveness of those who have to consider domestic political situations (e.g. agriculture) when negotiating trade agreements at the expense of others who can negotiate freely.

10.2 Peace Project

The European Union does not limit itself to the rules of the free market. It is not just an economic union; it is also a peace project that was created to prevent the catastrophe of war within its territory. And that is why the roots of the union run deep and additional regions are included. As a citizen of a country which is not part of the union, I can observe the union from the outside. And I have a positive feeling about the European Union and think it has achieved a great deal. However, there is one aspect of it that I will allow myself to criticize. I do not recognize a strategy that identifies which tasks should be dealt with on the supranational level and which should not. Rules concerning the assumption of tasks are missing—rules that would make the Union more successful.

10.3 Exclusive Responsibilities of the EU

The following areas should be under the sole jurisdiction of the EU:

  • the Customs Union

  • the rules of competition for the domestic market

  • the monetary policy for Member States whose currency is the euro

  • the conservation of marine biological resources under a common fisheries policy.

  • common trade policies

  • the establishment of international agreements.

Moreover, there are numerous tasks involving shared responsibility between the EU and member nations or with coordinating or supporting responsibilities of the EU. These additional responsibilities were assumed through numerous contracts between EU countries as the topic arose. From an outsider’s perspective, these tasks were assumed without a plan or a concept. As a result, the EU is also involved in certain aspects of social policy, in agriculture and fisheries, in environmental policy, in consumer protection, in transport regarding trans-European networks, in energy, in security and in the area of law, in public health, in research, technological development and space, and in the areas of developmental cooperation and humanitarian aid. The EU also adopts measures to coordinate labor policy and it can take measures to coordinate social policies with regard to a common foreign and security policy.

This list is not exhaustive. However, it does give the impression that the EU is involved in numerous activities without a strategic goal. In the following pages I will outline the principles that should be taken into consideration when assuming new tasks.

10.4 Subsidiarity Principle

Although the subsidiarity principle is mandatory in the EU,Footnote 2 is it consistently observed?

Whenever possible, responsibilities and tasks belong at the lowest possible political level. People feel good if they can make decisions at a local level based on their peculiarities and needs. As a result, they are not “ruled from above”. Countries with decentralized governments give their citizens a sense of having a direct say in issues that are most important to them. After all, it is most often local issues that are discussed by people, and which should, therefore, be decided locally.

Some European countries have a centralized government. This is because at one time in their history, an autocratic prince seized power (for example, in France, the Sun King, Louis IV, summoned regional princes to Versailles to keep them under his control). These princes were more concerned with maintaining their own centralized power than with working toward the good of the people. As a result, even today, decisions for all of France are made in Paris. For example, a permit to build a large building in the French territory just outside of Geneva, Switzerland would be granted from Paris rather than by the local authorities. However, a few hundred meters across the border in Switzerland, such a permit would be granted to the community by Canton Geneva. Italy is another example of centralized government. Permits to build new streets come from Rome, and it often takes months to receive an answer. A centralized system lacks efficiency and is too far removed from the people affected.

Is it really the case that all of the areas listed above as belonging to the jurisdiction of the EU can only be dealt with by the EU? And does the EU consistently reject tasks that should be dealt with at a lower political level?

When classifying tasks, the EU must consider the subsidiarity principle first. In so doing it would be placing the well-being of its citizens in all regions first. This would alleviate problems such as those in the Catalans, the Basque region, and in South Tyrol (which has meanwhile been resolved), as well as in many other regions.

10.5 Competition Between the Systems

A good economic environment helps to maintain overall competitiveness. The environment is established by policies, whereby the principle of subsidiarity means that numerous autonomous municipalities, regions, and states compete for the tasks that fall within their jurisdiction.

The principle of subsidiarity leads to competition among political units, in other words: competition between systems.

If every political responsibility is delegated as far down the line as possible, and each political unit decides autonomously which solution is best for an issue, it is not just a matter of being citizen-focused; it also promotes competition between political units. They compare their bureaucracies and adopt good practices from others. As a result, with time, the best solution to a problem prevails, which leads to a culture based on optimized solutions.

Even different tax rates compete with each other; they ensure that overall tax rates do not grow excessively.Footnote 3 Competition between different sets of building regulations, different employment conditions, and different health care costs ensure that the best solution stands out and prevails.

Competition between systems promotes the development of administratively optimal solutions and thus prosperity.

On an international level, competition between systems led to the downfall of communism in Eastern Europe. It was defeated by the free market economy of the West. It can be assumed that despite censorship and disinformation, modern communication methods, which mercilessly reveal the successes or failures of society, will prevent the permanent restriction of freedoms by dictators. Competition between systems will keep this from happening.

This conflict often plays out between those who are hardworking and those who are more easygoing. The former are in favor of competition in a free market society, while the latter strive to exclude competition. The former are decentralists and support the principle of subsidiarity (federalists), while the latter are centralists and support unified solutions (cartelists). Centralists must use force when implementing their statist solutions because these solutions also limit freedoms. However, society sets limits on coercion. The methods used during the inquisition of the Middle Ages or the gulag from the communist era are no longer tolerated. Criminal law prevents them. Therefore, there will always be groups that reject and avoid centralized solutions. The convenience of preventing competition will never last in a democratic society. At some point, the success seen in the better system will cause the other systems to restructure.

The principle of subsidiarity and the decentralization of power are one of the mainstays of prosperity. We must therefore resolutely oppose harmonization. The highest political level must not be increasingly given more responsibility.

In addition, it is important to focus on the overall picture rather than getting lost in details. It is impossible to establish absolute fairness with laws. Moreover, state intervention in the interest of small groups requires administration and increases bureaucracy. The government ratio rises. Those workers who generate the gross national product decrease in proportion to those who work as unproductive administrators. This too contributes to a reduction in prosperity.

Social groups that apply political pressure to gain privileges for themselves will one day realize that such advantages are not guaranteed to last. Even if government intervention initially helps achieve these goals, the wheel of history will continue to turn. Every plan becomes outdated. And when this happens, a new cascade of intervention begins to flow. Some will call for further measures to ensure the privileges they have gained. Others will once again try to undermine regulations by coming up with new ideas to get a piece of the pie. This in turn leads to calls for even stricter laws. In many cases only rigorous and disproportionate methods such as criminalization will help. Criminal law becomes a tool to safeguard special interests.Footnote 4 This downward spiral led to the police state among communists.

10.6 Excessive Bureaucracy

As the European Union incorporates concepts and seemingly acquires random new responsibilities, we might get the impression that its centralized bureaucracy is overflowing. If the correct “degree of curvature” for bananas is decreed by bureaucrats working from the centralized headquarters, then something has gone wrong with the allocation of responsibilities. Unfortunately, bureaucracy in Brussels leaves the impression that it is far too large and lacks democratic controls. As a result, many people are suspicious of the EU.

10.7 Core Responsibilities Have Not Been Delegated

In addition to organizing the economic market in Europe, the core responsibilities which belong to the supranational level include foreign policy and security policy (external defense and internal border control as well as the coordination of police investigations; on the other hand, police in general are a local responsibility). However, it is precisely these tasks that Europe finds difficult to delegate to the supranational authorities. Politicians from the nation states still have much too great a claim to power.

10.8 Currency

A central currency strengthens the economic area and is preferable to many different national currencies. It is necessary to ensure that the region is not affected by the strong currencies of other larger economic areas and that it is not susceptible to blackmail by them.

However, this does not mean that debts should also be centralized (socialized). The task of the central bank is to ensure a stable currency. If municipalities, regional governments, or nations want to incur debts in the common currency, they should be allowed to do so. However, they should have to look for creditors who will give them loans, and they must negotiate the terms of these loans themselves. If they are in a strong financial position, they will receive a low interest rate on the money. If, however, there is a financial risk involved, they will either not receive money or will only be able to secure it at a high rate of interest. Should a creditor suffer a loss, the government borrowing the money must bear the burden on its own. There is no legal basis for a joint obligation with the other members of the community.

While it is true that joint and several liability for euro debts has not (yet) been introduced, southern Europeans are pushing this issue forward. When the sovereign debt in Greece was being restructured, the impression was given that joint and several liability already existed. At the time, the debt had to be restructured primarily because many European investors (pension funds, banks, etc. from France and Germany) had bought Greek government bonds without checking the creditworthiness of the borrower. This would have resulted in enormous financial difficulties for the creditors had Greece become insolvent. In effect, the socialization of debt was introduced through the back door to save these creditors. Rather than relying on the de facto joint and several liability of Europeans, it would be justified to require anyone buying government bonds to check the creditworthiness of the debtors, and then to bear any losses themselves.

I will now present both a negative and a positive example:

Italy has a massively oversized government, which devours around 60% of its GDP. This government is expensive and despite excessively high taxes, the private sector can barely bear the costs. When the country had its own currency (the lira), the government was financed by the Italian Central Bank, which issued new money each year. This led to a high rate of inflation. The value of money saved in the bank decreased annually. Those with savings accounts were financing the oversized government. With the introduction of the euro it was no longer possible to issue more money. However, interest rates in the Eurozone were so low that it was possible to finance the government by incurring more debt. It was only when the debts had become much too high that this was no longer possible. The heavily indebted Italian government, with a debt of roughly 135% of GDP,Footnote 5 is now demanding permission to incur additional debt, which is in breach of EU regulations. Borrowing money is easier than actually restructuring the government. After all, with a view to reelection it is better to make demands on Europe than it is to clean house.

Today, the European Central Bank supports member states by issuing new money and buying an unbelievable number of billions of euros worth of government bonds (from Italy?) each month so that national budgets can be financed. Europe should not be financing countries with oversized and inefficient budgets with government bonds, thereby discouraging necessary restructuring. Rather it should encourage restructuring by requiring creditors to take responsibility for checking the creditworthiness of states. The election of an Italian as head of the ECB did indeed lead to the rescue of such states by means of a zero or negative interest rate policy. Even a low interest rate would have had unacceptable consequences for overly indebted countries. Italy would have shared a fate similar to that of Argentina, a country that has repeatedly become insolvent in recent decades. Moreover, by putting this unbelievable number of billions of euros worth of government bonds on the market after they had been purchased, the ECB has promoted the de facto socialization of debt, in that customers who bought government bonds from them must now be protected.

The European states that are financially well-structured are being bled dry because of this policy. Saving is no longer worth their while. Their pension schemes, funds, etc. are suffering enormously. Why don’t these countries defend themselves more vigorously?

The next example comes from my home country. When a municipality in the Canton of Valais (Leukerbad) could no longer pay its debts and became insolvent, both the Canton and the Confederation refused to help reduce the burden of debt. Even liability claims by a creditor stating that the canton had neglected its supervisory duties were rejected by the courts. The municipality was placed under supervision and had to undergo major restructuring and raise taxes. The municipality’s creditors (funds, private pension funds, and private individuals) bore the losses themselves. As a result, investors now check the creditworthiness of communities and demand interest rates reflecting the amount of risk involved. Neither the Swiss government nor Swiss currency suffered any damage due to Leukerbad’s insolvency.

It is not the ECB’s job to finance the governments of member states. Its main responsibility is to ensure a stable currency. This does not include issuing billions to buy government bonds as this only discourages the long overdue restructuring of these states.Footnote 6

10.9 External Impressions

Europe is the strongest economic region on earth. However, this region does not live up to its political strength. Therefore, in summary, I would like to make the following points about Europe:

  • The European Union does not pay sufficient attention to the principle requiring responsibility be given to the lowest possible political level (the principle of subsidiarity). This applies to all issues—including the levying of taxes or the assumption of debt;

  • All too often, the highest level of government intervenes, creating an oversized bureaucracy;

  • This gives the impression of “government from above” with little democratic legitimacy;

  • However, important responsibilities that should have been assigned to the highest level of government (defense, foreign policy) because the lower levels of government are not able to carry them out have not been assigned to this level. Nations continue to cling to their power in this area. Only trade policy with the associated areas (customs, competition policy, etc.) has been objectively assigned to the European level.

This leaves the impression that there is no coherent strategy to develop the European Union.