ECONOMICS ECONOMIC RESEARCH June 23, 216 No. 632 Towards a European Union "à la carte"? The debate in the United Kingdom on a Brexit and the debates in different European countries on the respective role of Europe and national decisionmaking bodies may suggest that the likely institutional development in the European Union is a development towards an "EU à la carte". This would be an organisation where "enhanced cooperation" would gain importance. Groups of countries representing only a part of the EU would form around certain issues (as is the case currently, for example, with the tax on financial transactions). For example, some EU countries would cooperate in the areas of: Military; Energy and infrastructures; Climate; Immigration; Industry (Airbus, etc.); Tax coordination; Monetary policy (euro), obviously. There would therefore be as many different circles of countries as there are issues, while the European Union as a whole would exist only in a few areas: security, trade, agriculture, competition. Author: Patrick Artus The advantage of this institutional organisation would be flexibility, lack of constraints (no EU country would be forced to cooperate with the others in the areas where it does not want to cooperate), and acceptability by public opinion. It would also have serious drawbacks: impossibility for non- Europeans to understand Europe; competition and lack of coordination from countries that do not participate in enhanced cooperation, opportunism (with countries choosing the enhanced cooperation they do or do not want to participate in according to their selfish national advantage).
The rejection of the "monolithic" Europe The debates on Europe s role in the United Kingdom and in many European countries show the rejection of a "monolithic" Europe where the rules are the same for all. In negotiations with the European Union, David Cameron has obtained freedom for the United Kingdom to keep its own tax and social rules, to not apply the European financial rules if they undermine the City s interests, rules for free movement of persons, etc. A growing number of voices complain about the European Commission s interventionism in all areas. So we see the prospect opening up: Europe à la carte, where each country chooses to cooperate with other European countries and to apply a group of rules only in the areas where it would like to do so. Towards an increase in "enhanced cooperation" The European treaties enable European Union countries to use "enhanced cooperation", i.e. to join other countries, but not all, in certain areas. A rejection of European interventionism would therefore lead to an increase in enhanced cooperation: groups of different countries, which differ from one issue to another would form around certain issues and areas. The countries would freely choose with which other countries they would cooperate or not on each issue. In what areas (this is currently the case for the tax on financial transactions) could enhanced cooperation groups form? It could be in the following areas: Military, with two countries (the United Kingdom and France) that maintain an international military intervention capacity (Chart 1); Energy, whereas energy policies are currently very different (halt to nuclear power in Germany, partial halt to nuclear power in France, development of nuclear power in the United Kingdom, etc., Table 1); Climate: some countries (such as France) may, for example, want to move faster to set a price on CO 2 ; Immigration (we have just seen the refusal to receive refugees in the United Kingdom, Central Europe, Austria, etc.); Industry (based on the example of Airbus); Tax coordination, while there is currently no coordination (Table 2 shows tax rates on profits, Chart 2 companies social contribution rates); Monetary policy, obviously, with the euro-zone countries and the others. We here have to keep in mind that if a country is not in the euro zone, there is no reason to coordinate its fiscal and competitiveness policies, etc. with those of the other countries, as the adjustment takes place through this country s interest rates or exchange rate. The United Kingdom, for example, is completely free to have a large fiscal deficit (Chart 3A) and a large external deficit (Chart 3B). Flash 216 632-2
2,2 2, 1,8 1,6 Chart 1 Military spending (as % of nominal GDP) United Kingdom Germany France Spain Italy 2,2 2, 1,8 1,6 12 1 Chart 2 Companies social contributions (as % of nominal GDP) Germany France Spain Italy Ireland Portugal Poland Slovakia 12 1 1,4 1,4 8 8 1,2 1,2 1, 1,,8,8 Source: Eurostat,6,6 2 3 4 5 6 7 8 9 1 11 12 13 14 6 6 4 Sources: Datastream, Eurostat, Natixis 4 2 2 2 3 4 5 6 7 8 9 1 11 12 13 14 15 Chart 3A United Kingdom: Fiscal deficit (as % of nominal GDP) 1 Chart 3B United Kingdom: Current-account balance (as % of nominal GDP) 1-1 -1-3 -3-8 -8 Sources: Datastream, Natixis forecasts -1-1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16-5 Sources: Datastream, ONS, Natixis -7 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16-5 -7 Table 1 France: Structure of electricity sources (as %) Fossil energy Nuclear Hydro Geothermal/Wind/Solar/Other 22 9.55 78.8 12.22.15 23 1.27 77.93 11.62.17 24 1. 78.1 11.79.21 25 11.7 78.41 1.24.27 26 9.88 78.43 11.2.49 27 1.38 77.6 11.73.83 28 9.91 76.45 12.53 1.12 29 9.82 76.44 12.7 1.67 21 1.29 75.33 12.35 2.3 211 9.25 78.87 9.16 2.72 212 9.5 75.1 11.81 3.69 213 8.49 73.79 13.77 3.95 214 6.4 77.36 12.25 4.35 215 7.42 77.15 1.66 4.77 216 9.5 73.13 11.5 5.87 Sources: IEA (OECD), Natixis Flash 216 632-3
Germany: Structure of electricity sources (as %) Fossil energy Nuclear Hydro Geothermal/Wind/Solar/Other 22 63.53 28.49 5.3 2.95 23 64.79 27.56 4.26 3.39 24 63.32 27.42 4.75 4.51 25 63.91 26.58 4.58 4.94 26 63.41 26.67 4.35 5.57 27 66.7 22.26 4.49 7.18 28 64.46 23.48 4.38 7.68 29 64.24 22.92 4.44 8.4 21 64.31 22.45 4.61 8.63 211 66.11 17.52 4.3 12.33 212 66.7 15.88 4.65 13.4 213 65.58 15.4 4.77 14.25 214 63.74 15.84 4.35 16.7 215 6.83 14.16 4.3 2.98 216 6.81 13.65 4.2 21.51 Sources: IEA (OECD), Natixis United Kingdom: Structure of electricity sources (as %) Fossil energy Nuclear Hydro Geothermal/Wind/Solar/Other 22 75.74 21.96 1.96.34 23 76.55 21.57 1.54.34 24 77.95 19.58 1.94.52 25 77.4 19.87 1.95.77 26 78.29 18.41 2.17 1.13 27 81.2 15.28 2.32 1.38 28 82.84 12.84 2.43 1.89 29 77.27 17.7 2.45 2.58 21 79.95 15.4 1.83 2.81 211 75.13 17.97 2.44 4.47 212 72.89 18.69 2.35 6.6 213 69.99 18.94 2.2 8.88 214 68.11 18.28 2.68 1.94 215 61.1 2.91 2.79 15.29 216 61.12 18.46 3.45 16.97 Sources: IEA (OECD), Natixis Table 2 Euro-zone countries: Maximum tax rate on corporate earnings (216) Germany 3.2 France 38. Spain 28. Italy 31.4 Netherlands 25. Belgium 34. Austria 25. Finland 2. Portugal 29.5 Greece 29. Ireland 12.5 Slovakia 22. Slovenia 17. Luxembourg 29.2 Estonia 2. Latvia 15. Lithuania 15. Malta 35. Cyprus 12.5 Sources: Eurostat, European Commission, Natixis Conclusion: Is this a desirable institutional development? We believe the European Union will develop towards a "European Union à la carte". Groups of EU countries of different sizes and with different members according to the issues will cooperate (form an "enhanced cooperation" group) on certain issues, while other countries will remain outside the cooperation. All countries will be able to choose on what issues, in what areas, and with which other countries they will cooperate. Flash 216 632-4
The European Union will only deal with the major areas where it will speak with one voice: trade, agriculture, competition. Is this a positive or negative development? It gives the European Union flexibility: the member countries get involved only in areas where they desire; it meets the requirements of public opinion to reduce the European Commission s centralisation and interventionism; it lets Europe concentrate on a few key issues (security, trade); But it will disrupt the European Union; there will be as many Europes as there are areas; the countries that do not participate in enhanced cooperation can conduct policies creating competition biases; the rest of the world will find it difficult to understand Europe. Flash 216 632-5
Flash 216 632-6