TCS Daily

The Essential Austrian

By Simon Taylor - February 6, 2006 12:00 AM

Now that Austria has the six month rotating presidency of the EU, effectively controlling the agenda until the end of June, the names of several famous Austrians are being invoked in the effort to revolve the EU's current crisis of confidence. Last week Chancellor Wolfgang Schüssel hosted a "Sound of Europe" event in Salzburg to discuss Europe's identity, using the 250th anniversary of Mozart's birth as an example of someone who would have enjoyed the freedoms provided by the Europe of today.

Others have asked whether the theories of Viennese psychoanalyst Sigmund Freud would be more appropriate in helping the EU deal with its trauma, repression and denial. But it is the name of possibly the most relevant Austrian, that of economist and philosopher Friedrich A. Hayek, which is most conspicuously absent from the debate.

This is ironic because the European Union in 2006 looks very much like Hayek's vision of a unified Europe. In an article published in 1939 called "The Economics of Interstate Federalism", Hayek foresaw that economic forces would drive integration as countries removed their internal barriers to trade. This is very like how the EU's single market developed. He also predicted that, over time, as supranational organizations grew bigger, it would be more difficult for governments to intervene in the economy as their national interests increasingly diverged. This spelled good news for businesses, which could take advantage of a growing market free of internal obstacles to trade and achieve greater economies of scale.

Hayek's vision comes pretty close to the current situation the Union is in, especially after enlarging to take in ten mainly former Communist countries in 2004. That process has increased the diversity of views within the Union but has definitely shifted the balance away from the statism and corporatism of old members like France, Germany and Italy towards the free-market-oriented new members from central and eastern Europe. We have already seen tensions between the old and new member states over jobs. The new countries are putting pressure on Germany and Austria to open up their labor markets to their citizens but the old countries are refusing. There are other examples, including a dispute between Swedish trade unions and a Latvian company over wage bargaining practices which keep out workers from the new member states who would work for less money. These tensions will continue to grow but will make the EU more competitive through pressure on wages and other business costs.

However it is the success of the EU, as Hayek predicted, of exerting pressure to remove barriers to trade and investment within its territory and boosting competitiveness that has led in part to growing political hostility to the Union's project. In France opposition to the Constitution was mainly among left-wing voters. What motivated their vote against the Constitution was a desire to reject the workings of a European Union which was trying to open up the French economy to liberalization and erode social protection. The recent enlargement raised the specter of the "Polish plumber" who would steal French tradesmen's jobs.

It is an exaggeration to say that the European Union finds itself in crisis. It needs to fine-tune its decision-making processes to deal with the next planned expansion to take in Romania and Bulgaria (and later Croatia). It also needs to take steps to ensure its political coherence. The Constitution contained measures to achieve this such as the creation of a European foreign minister and having a President of the Council (made up of EU governments) for up to five years rather than changing every six months.

But the rejection of the Constitution in France and the Netherlands has made it harder for European political elites to see they can continue with further integration in the face of rising public hostility. This is the challenge that the Austrian Presidency is trying to find an answer to during its term of office.

That answer will require determined political leadership and a willingness to be frank about the benefits of European Union membership in terms of a large single market and greater opportunities for investment, employment and wealth creation. Attitudes in France will be critical because for decades the parts of the French public have been misled into thinking that they are living in a "social Europe" where their salaries and welfare benefits will be maintained.

Nicolas Sarkozy, the man most likely to replace Jacques Chirac as French president in 2007, has, by French standards, liberal economic views. One of his key advisors, David Martinon., even wrote his thesis about Hayek. Nevertheless, you will not hear European political leaders admitting that the EU they have created closely resembles Hayek's vision. However true that may be, leaders believe that being honest in the face of rising hostility to the European project would only make matters worse.

Simon Taylor is Political Correspondent for specialist EU affairs agency, Europe Information Service.


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