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The Libertarian Case for the European Union

EU break up would lead to more nationalism and protectionism

Advocates of free markets harbor a well-justified distrust of the European Union (EU). I, for example, have spent a fair amount of time criticizing  its populist overregulationmoral hazardthe damage created by the common European currencyEU structural funds or Common Agricultural Policy. Like many, I am convinced that the EU is a deeply flawed organization and that it mostly deserves much of the criticism that it receives from pro-market circles. At a more fundamental level, I also think that institutional competition and ‘voting with one’s feet’ is important, and see the thoughtless ‘harmonization’ of legal and regulatory regimes across the continent as extremely damaging.

However, I no longer think, as I once did, that the EU is the single biggest threat to freedom and prosperity in Europe. Neither do I believe that an exit from the EU – either by the United Kingdom or some of the smaller central European states, such as my home country, Slovakia – would make these countries, or the continent as a whole, more libertarian. If a break-up were to occur, it would likely push Europe towards nationalism and protectionism, and undo some of the real benefits of European integration.

First, whatever one thinks of the EU, it has sometimes been a force for good. It would be foolish to take the free movement of goods, capital, people, and also – to a more limited extent – of services, for granted. Vicious protectionism, not free trade, has been the historical norm. The second half of the 19th century, is often cited as a counterexample, culminating in the ‘first age of globalization’. But one should not succumb to retrospective optimism – due to measures such Germany’s ‘iron and rye’ tariff of 1879 and France’s Méline tariff of 1892, fin-de-siècle Europe was no free-trade zone. Or, for a different example, think of the transitional economies of Central and Eastern Europe. Whether one likes the EU or not, the prospect of membership was clearly one of the engines of economic and political reforms that would have been otherwise very difficult.

Second, it is helpful to keep a perspective on the magnitude of the problem. The EU’s annual budget amounts to one percent of its GDP. Even the structural funds, which I recently blamed for the rise in corruption in some of the Central and Eastern European countries following their accession, are relatively modest, cumulatively accounting for some 4 percent of their GDP.

What rightly bothers the critics of the EU is not the absolute size of the spending but rather its wasteful nature. Over the period of 2014-2020 the EU is planning to spend €312 billion on agricultural subsidies. And the non-fiscal side of the EU, namely the unnecessary red tape and regulation it generates every year, is a much greater problem. This of course has to do with the lack of accountability of Brussels’ mandarins and with their belief that for every European problem there is a one-size-fits-all European solution.

These are all valid criticisms. However, it seems odd to think that the EU is acting as an external, exogenous force, dumping bad legislation on unsuspecting member states. After all, the European Council, composed of the representatives of national governments, is an integral part of the legislative process. In only a handful of areas, in which such powers have been explicitly delegated by the Council, can the European Commission (that grey, anonymous, unaccountable bureaucratic body) act alone.

Eurosceptic groups are correct to point out that much of the legislation adopted across EU countries originates in Brussels – as does a dominant part of the regulatory burden facing European businesses. However, that is a reflection both of the institutional structures – which make the adoption of bad, EU-wide legislation, more likely – but also, quite independently, of an intellectual climate which sees all human problems as amenable to improvement by legislative action, without regard for costs and benefits. It seems plausible that bad European legislation is acting in part as a substitute for bad domestic legislation. That does not make it any better, of course, but it should shed some doubt on the notion that, if it weren’t for the EU, national policymakers would be adopting significantly better policies.

The EU often acts in ways that are inimical to freedom and prosperity. But so do other political organizations, groups, and movements, and we need a sense of perspective to identify our key enemies. For one, I am much more afraid of the rise of Europe’s neo-reaction, of Vladimir Putin’s imperial ambitions in the EU’s immediate neighborhood, of the ties that connect the regime in the Kremlin with the populist nationalists within the EU, and of the damage that these can generate when in power. These are not just abstract threats. In Hungary, Viktor Orban – who wants to create a Hungarian alternative to liberal democracy, inspired by Russia and China – already nationalized the pension systempopulated the board of the central bank with his political cronies, and helped elect a former skinhead as the deputy speaker of the Hungarian Parliament.

One may say that the choice between Orban or Putin on the one hand and Jean-Claude Juncker on the other is a false one. Indeed, I have argued that the current anti-EU populism is largely a response to the heavy-handed policies and catastrophic response of European leaders to the financial crisis of 2008, which led to a six-year recession in Greece. The continent needs a compelling intellectual alternative to the way the EU is being currently run, taking into account the importance of institutional competition and trying to limit the arbitrary powers exercised by unelected bureaucrats (or sham parliamentary bodies). However, such an alternative is not going to come from Europe’s populist Right. In the meantime, taking the prevailing intellectual climate as a given, we may still face the unpleasant choice between virulent nationalism and a flawed EU.

One reason why it is not easy to pin down the real counterfactual to EU membership comes from a famous paper by Richard Lipsey and Kelvin Lancaster, outlining the idea of the ‘second-best’, published in 1956 in Review of Economic Studies. Its idea, in simple terms, is that in a world with multiple distortions, it is far from obvious that removing one such distortion in isolation (say EU membership) will move us closer to the desired state of affairs as it is possible that the other distortions (say, petty nationalism) might then become ‘binding’.

If this sounds too general, consider what the likely dynamics of an EU breakup might look like. First, it is fairly unlikely that it would come primarily from the hands of the pro-market critics of the EU, such as Richard Sulik in Slovakia or the Alternative for Germany – who are not even arguing for an exit – but rather from the hands of politicians like Marine Le PenGeert Wilders or Orban, who aptly combine Eurosceptic rhetoric (which may or may not sound libertarian) with an embrace of nationalism and anti-immigration scaremongering.

Given the salience of immigration, it is difficult to imagine that a break-up of the EU would preserve the free movement of people across Europe. It would also likely result in a wave of protectionism and disruption to intra-European commerce. The possibility of a sudden dismantling of EU rules and regulations would be the perfect opportunity for lobbyists and rent-seekers in European countries to come forward and plead for special privileges, subsidies, tariffs, or quotas to shield them from European competition.

True, all of this is just speculation. Maybe the break-up would be perfectly amicable, like in the case of Czechoslovakia in 1992, resulting in a free, economically integrated continent simply liberated of the burden of Brussels’ bureaucracy. Perhaps the individual countries would be able to get off the Euro without triggering a major financial crisis. But maybe not. Let’s keep in mind that the pro-market Eurosceptics do not get to choose the kind of break-up they want. So if there is a sizeable risk that things take an ugly turn, how wise is it to try to become a cheerleader for dismantling the EU?

Europe’s economic and political problems – and the dangerous populist response that they elicit – are largely self-inflicted. There is also a downside risk in continuing with business as usual. But instead of feeding the fantasy of a better life outside of the EU, it is more practical to try to convince our fellow Europeans that the EU needs to shift its focus away from wasteful spending and overregulation toward providing genuine Europe-wide public goods: common market, free movement of people, goods, capital, and a real market in services. To get out of its present crisis and to prevent new ones, the EU needs to learn to manage the common currency and prevent chronic fiscal irresponsibility of its member states. And after Russia’s war against Ukraine, there is also a strong case for a common European foreign and security policy, instead of a simple reliance on America’s willingness to police the neighborhood.

The continent clearly needs a massive, 1970s-style deregulation, as well as stronger institutional safeguards against the unchecked growth of economically destructive rules in the future. Such safeguards may include the strengthening of the role of the European Council and returning to unanimity voting on significant matters of economic policy.

Unless more Europeans become convinced of the virtues of free markets and limited government, it is far from obvious that the EU will succeed in addressing these issues. Yet, in that case, it is equally unlikely that exit would generate an outcome appealing to libertarians.  However that may be, it is worth keeping in mind that, for all the flaws in the design and execution of the European project, Europeans have been enjoying a historically unparalleled period of peace, prosperity, and freedom. It would be a shame if it all came to an end.

Photo Credit: EU

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  • The Late P Brooks||

    Har dee fucking har.

  • tarran||

    Economic integration is great, and political union is terrible.

  • Dances-with-Trolls||

    This is not a libertarian case, it is a Utilitarian case.

  • NL_||

    If there's a mixture of policies bundled together, it's reasonable for a libertarian to ask whether their retention or repeal would better serve human freedom. It's not anti-libertarian to also ask the practical question of what path most increases philosophically-informed freedom.

    In that vein, libertarians can appreciate the liberty-enhancing effects of Substantive Due Process or the Privileges and/or Immunities clauses, even though both of them give greater power to the central government to overrule the subsidiary authorities.

  • John||

    Unless more Europeans become convinced of the virtues of free markets and limited government, it is far from obvious that the EU will succeed in addressing these issues.

    Since the EU is profoundly anti-democratic, I don't see how European voters embracing de-regulation is going to matter. I can't think of a single instance where centralized governance by "top men" has ever resulted in anything other than regulation and reduced freedom.

    The thing that will de-regulate Europe is killing the EU is making the regulated socialist hell holes compete with one or two countries who embrace freedom. The resulting flow of capital will make the socialist economies unsustainable that much quicker. This is why socialists love things like the EU and other quasi multinational forms of government; it allows them to prevent other countries from embracing freedom and attracting capital. If the whole world is socialist, there is nowhere for the capital to go.

    Only a really naive fool or a liar would claim the EU is good for freedom.

  • Vulgar Madman||

    How can you have freedom without an all powerful state, that regulates everything under the sun?

  • JWatts||

    "The continent clearly needs a massive, 1970s-style deregulation, as well as stronger institutional safeguards against the unchecked growth of economically destructive rules in the future."

    The principle complaint I have against the EU is the massive bureaucracy that continuously generates regulations with little regard for there over all long term costs. Brussels will smother the European economy over time and the back lash from a moribund economy and high unemployment rate is likely to be far worse than would be the case without the EU.

    Pro-EU proponents see the EU becoming a continent of little German economies. I see the EU becoming a continent of little French economies without the nuclear power.

  • John||

    Exactly. Why would a bureaucracy ever agree to stop regulating?

  • Dances-with-Trolls||

    Population decline is going to kill the EU and the socialist model one way or the other.

  • C. S. P. Schofield||

    The continent clearly needs a massive high colonic. The nozzle should go in at Brussels, but Paris would do...

  • DJF||

    """free movement of people, goods, capital"''

    It takes a lot of government to create the illusion of free movement

    A true market would have all sorts of rules, restrictions and costs in the movement of people, goods and capital. Some would be minimal, some would be large depending on what the individuals involved decides.

  • Malkavian||

    I could make similar argument for USSR - integrated supply chains and freedom of movement within Soviet Block were the advantages of the Union, but Soviet bureaucracy certainly wasn't. In the end though, most countries (with possible exception of Ukraine and a few smaller ones), ended up better without it.

  • John||

    And for the entire eastern block. I doubt Poland and the rest of Eastern Europe really want to rejoin the old Warsaw Pact. But hey what about all of those open markets and integrated supply chains?

  • Bill Dalasio||

    Except Rohac doesn't seem to be addressing the actual Euroskeptic argument. From what I've read, the point they argue is that political union, a common currency, or "harmonized" policies are in no real way necessary for the advantages he's talking about. Why buy into all of those things when withdrawal would probably allow for the old Common Market terms?

  • John||

    The US doesn't have political union or a common currency with Canada or Mexico. Yet, that didn't prevent NAFTA, which is all this article is really touting.

  • John||

    The US doesn't have political union or a common currency with Canada or Mexico. Yet, that didn't prevent NAFTA, which is all this article is really touting.

  • NL_||

    The argument is that dismantling the EU is unlikely to result in something like a 28-country EFTA. And of course, EFTA is very similar to EU membership in terms of costs and regulations and the four freedoms - so dismantling the EU would fundamentally recast or just shatter EFTA/EEA.

  • The Immaculate Trouser||

    This is ridiculous. The EU is strangling commerce, engineering bailouts on a mass scale, and killing more reasonable monetary policies across the Eurozone. Free migration and free trade are not worth the price exacted by the bureaucrats in Brussels, and the only place where increased tensions exist absent the EU is in the mind of the organization's puffed-up functionaries. European integration started prior to the EU and is the result of post-war trends rather than a singular, relatively recent organization.

  • Lord Humungus||

    Free migration and free trade are not worth the price exacted by the bureaucrats in Brussels

    It does if one is a Cosmotarian.

  • Free Society||

    Smaller political units are more favorable to liberty than large units. Decentralized polities are more favorable to the centralized ones. The EU bureaucracy is particularly harmful to liberty.

    All of this is empirically validated theory. Your arguments about what the EU could be or will be are just wishful thinking that flies in the face of it's demonstrated behaviors and ambitions.

    Unless more Europeans become convinced of the virtues of free markets and limited government, it is far from obvious that the EU will succeed in addressing these issues. Yet, in that case, it is equally unlikely that exit would generate an outcome appealing to libertarians

    Smaller units will force their governments to yield to markets. Large states with big internal markets can spread externalized costs among more people more easily. Small polities with smaller internal markets to plunder, don't have the same ability. If Lichtenstein up and decided to impose tremendous tariffs and trade restrictions it's people would become instantly destitute, larger countries with similar policies would experience a diminished standard of living but it would be survivable for the people and their government for an extended period of time.

  • Mark22||

    The EU is about as anti-libertarian as you can get: it is a gigantic government bureaucracy that mandates most of the laws and regulations Europeans have to comply with, without even much democratic oversight or input. The single currency has resulted in a slight increase in economic freedom in some areas, at the cost of a huge loss of freedom in others.

    The EU may be an antidote to protectionism and ethnic violence. It may also represent an incremental improvement over even more corrupt forms of government in some member states. But none of that makes it in any way, shape, or form "libertarian". The EU is really just an extension primarily of German paternalism, the modern version of the Zollverein. The EU is about as libertarian as Bismarck's Prussia.

  • DWC||

    Oh good, another "...libertarian case for...
    I can't wait for "The Libertarian Case for Hillary"
    or maybe "The libertarian Case For Soy Bean Subsidies."

  • entropy_factor||

    this is where the open borders argument leads- erosion of sovereignty. And a libertarian case for the EU- a large, centralized political mechanism to rule over very diverse groups of people in one fashion?

    Sorry man, not buying it.

  • NL_||

    "Sovereignty" in the state context is just another word for "assholes with guns telling you what to do."

  • Mark22||

    The continent clearly needs a massive, 1970s-style deregulation, as well as stronger institutional safeguards against the unchecked growth of economically destructive rules in the future.

    That's not going to happen in the EU. The only group of people who would benefit from that are... the people, and they don't have much say in what the EU does. They also don't know that it would benefit them, because their state run media tell them otherwise.

    For all the politically powerful special interests, from big corporations and public/private media companies to "churches" and "labor unions", the current system works just fine, and they are going to fight tooth and nail to keep it the way it is.

  • Lord Humungus||

  • FreeRadical||

    The only reason to keep the EU around is to watch Nigel Farage make those smug fucks squirm in their seats for a few minutes.

    I'm thinking that's not really enough of a reason.

  • HolgerDanske||

    The EU started out as a free trade agreement, championed by Classical Liberals and derided by the Progressive Socialists for its free market benefits.

    The moment it became a hot seat of political power and over regulation the Classical Liberals bailed, and the Progressive Socialists embraced the upward political mobility it presented to them beyond their native governments.

    The bureaucracy is astonishing, and those who love to rule and regulate are having a field day with their new toy. They made rules about how crooked cucumbers can be, or the specifics of olive oil packaging.

    That is the Libertarian case against the EU. There is no way to roll it back to the free trade, free movement of labor association it started out as.

  • FreeRadical||

    Thus, a classical liberal should never, ever, support or help the creation of a large, centralized, and remote bureaucracy to enable "free market" benefits.

  • Invisible Finger||

    I stopped reading at "However, I no longer think."

  • ace_m82||

    The best thing one could say about the EU is that it has integrated Europe to such an extent that it has prevented WWIII.

    The worst thing one could say about the EU is that it will cause the economic collapse that causes WWIII.

  • AD-RtR/OS!||

    Sounds like a Marxist talking where everything is determined by economics.
    WW-3 will happen whether or not the 'Common Market' collapses, because it will be caused by demography and greed, not any economic system.

  • AD-RtR/OS!||

    Whatever happened to the importance of 'self determination'?
    If individual countries wish to escape the domination of unelected bureaucrats in Brussels, they should have that option.

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  • LibIntOrg||

    Thanks for the article. Continental integration with secession/autonomy protections is indeed the long-standing policy of the Libertarian civic movement.

    For info on actual people using voluntary Libertarian tools on similar and other issues worldwide, please see the non-partisan Libertarian International Organization @ http://www.Libertarian-International.org ... ...

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