Written by David Blake

 

This article was first published in ‘Briefings for Brexit’ and we re-publish with their kind permission.

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As part of its plan to create a European empire to block anyone competing against it, the EU has become a global bully when it does not get its way. I discuss some examples and their implications for the UK post-Brexit.

The EU’s imperial ambition: to prevent global competition challenging the ‘European Project’

The European Union has created the illusion that it is simultaneously both a worker’s paradise – given the social protections it guarantees to its workers – and a capitalist’s heaven – given how effectively businesses can lobby Brussels to raise barriers against imports from outside the EU. It does this by throwing a protective wall around the EU economy – in the form of the tariff and non-tariff barriers of the Customs Union (CU) and the regulatory barriers of the Single Market (SM).

As a result, European consumers are paying more for the goods and services they buy than if they could purchase these at world prices, e.g., 17% more for food. The ‘European Project’ would collapse if its internal contradictions were fully recognised. A simple illustration of the contradictions is that while British businesses and unions frequently have a confrontational relationship with each other, both the CBI and TUC believe it is ‘essential’ for the UK to remain in the CU and SM after Brexit.

The EU has decided that the best way to continue protecting the project is to restrict any global competition that it faces – and it has set itself up an empire to achieve this. European citizens need to be protected against ‘inferior’ products and services from the rest of the world (e.g., chlorinated chicken) – and those who provide them need to be closely ‘controlled’.

Switzerland – the EU’s first colony

In a recent Briefing for Brexit, I discussed how the EU is trying to bring Switzerland under its legal and regulatory control by forcing it to accept ‘dynamic alignment’ with EU rules on migration, social security, and key areas of economic policy in perpetuity – plus final arbitration by the European Court of Justice.

Sounds familiar? They are precisely the same disastrous terms that we would face if we ratified the draft Withdrawal Agreement and Political Declaration.

Because of Switzerland’s refusal to be bullied in this way, it is being systematically denied access to the SM – and EU citizens are being blocked from doing business with the Swiss. The EU has just suspended the trading of Swiss shares on its stock exchanges and it is threatening to withdraw mutual recognition for exports of medical equipment. Switzerland is also being closed out of the EU’s economic, transport and energy system until it backs down.

This is all part of a plan for the EU to turn itself into a controlling empire. This was made very clear by Guy Verhofstadt MEP – chair of the European Parliament’s Brexit Steering Group and a former Prime Minister of Belgium –  in a speech at the London School of Economics on 28 September 2017: ‘The world of tomorrow is a world of empires, and only a united Europe will play a role of significance’.

The EU likes to refer to the control it seeks to exert as nothing more innocuous than ensuring a ‘level playing field’. But, in truth, this is just the public face of a deeply mercantilist mindset – and masks an unwillingness and indeed an inability to compete internationally. I explained the reasons for this in my Briefings for Brexit report on the origins of the European Economic Community.

At the heart of the European Project is a strong dislike of Anglo-Saxon/liberal-capitalist economics, preferring instead ‘state economic leadership’ over heavily regulated private sector companies which are expected to operate as efficiently as possible using the latest available technologies. Here are some more examples of the EU flexing its imperial muscles in order to restrict global competition.

Withdrawing ‘equivalence’

The EU has just withdrawn SM access rights to countries as far apart as Canada, Brazil, Singapore, Argentina and Australia – again because, like Switzerland, they refused to do what they were told.

As reported in the Financial Times, the case involves the regulation of credit rating agencies (CRAs). The EU has unilaterally decided that these countries no longer regulate these agencies to the EU’s satisfaction and has withdrawn ‘equivalence status’ from them, meaning that European banks are no longer able to use CRAs based in these countries to help set their regulatory capital requirements. The concern was that those CRAs might say things unhelpful to the European Project – even though correct.

Equivalence is a regulatory regime where the EU recognises that the regulatory standards of another country are ‘equivalent’ to those of the EU which then gives that country permission to provide services to European customers.  However, the EU can withdraw equivalence without notice or explanation.

The European Project came under severe threat in the 2011-12 Eurozone sovereign debt crisis, when the EU claims that CRAs, like Standard & Poor and Moody, intensified the crisis in 2012 by downgrading member states, such as Greece and Portugal, at a critical time.

This angered the EU.  Since it didn’t like the message, it decided to shoot the messenger.  In 2013, it passed a law which restricts when such downgrades can take place and also establishes ownership rules for CRAs that are intended to prevent what it considered to be conflicts of interest.  This meant that a CRA had to set up a unit in the EU, thereby giving the EU more control, through a procedure known as ‘endorsement’.

Now CRAs are not faultless – they made a significant contribution to the global banking crisis in 2007-08 through their mis-rating of subprime mortgage debt – and they need to be appropriately regulated, but this has to be done at a global level to avoid regional inconsistencies and regulatory arbitrage. Other countries did not agree with the EU’s approach and this led to the EU withdrawing equivalence.

 

(Part II will be published here tomorrow)

 

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