The European Constitution and the Economy

         by Theodoros K. Pelagidis, Professor of Economics, University of Piraeus


The increasing Euro-skepticism as it appears in particular in view of the results of the referenda

in France and Netherlands regarding the European Constitution, constitutes, this time, a wake-up

call for policy-makers in the EU and its member states. In the meantime, on top of the rather

disappointing economic achievements of Europe during the last 15 years at least, there is

now the added pressure of the competition coming from Asia shaking the serene and

stereotyped life of most Europeans, since direct and indirect wages are increasingly being

threatened by the unprecedented fluidity and uncertainty of globalization. The “Union Treaty”

might constitute in this way, most unfortunately, the opportunity the European citizens were

waiting for so as to express their discontent regarding the unfavorable economic situation. This,

of course, does not mean that the “Union Treaty” is in itself satisfactory enough, at least in the

eyes of an economist.


Since, as the Father of the American Constitution J. Madison writes, “the societies of people are not

societies of angels”, the existence of a (federal) government is essential.  In other words, you need

to have a set of institutions allowing the harmonious coexistence of people and groups. The

exploitation of “foreign economies” and of “scale economies”, the production of common public

benefits and in general any activity in which there are common preferences of the separate member

states, constitute a privileged field of federal governmental action. Example: it is clearly more

cost-effective to offer the public benefit of defense and of foreign policy on a federal level, rather

than in a local, regional or national level, since the per capita spending is clearly lower in the “federal”

case, and the citizens enjoy, therefore, additional economic prosperity from resource conservation.

Unfortunately, however, very little progress has been achieved in this area in the EU, with the result

that European citizens have no tangible benefits.

Other federal fields of action are the exercising of monetary policy and the European Central Bank, as

well as the Common Market and the regulations of the Competitions Policy. In these cases, the EU is

clearly successful, the democratic deficit, however, as regards the reports of the ECB in the European

Parliament, as well as its hardcore monetary logic have cushioned the results to a great degree.


The criteria, therefore, of competence allocation on a federal level are the existence of scale and

externalities economies. If, as regards the second one, the influences of local, regional or national

policies are disseminated on an international level (interdependence influences), then the competences

should be “concentrated” for efficiency reasons on a federal level, accompanied, however, by strong

institutions of “democratic representation”.


On the contrary, there are areas in which the differences in institutions, practices and mentalities

between member states are huge. In this case, the unification cost is high and the decisions should be

basically taken by the member states or according to regions or local societies. A characteristic

example is fiscal policy, for which, unfortunately, the EU invented the indiscriminate implementation for

all, of the totally arbitrary Maastricht Treaty as well as of the incomprehensible Stability Pact. These

separate Treaties have already collapsed, causing economic stagnation and strong resentment on the

part of European citizens.


To the aforementioned elements aggravating the climate against the “Treaty”, we have the confusion

resulting from legal, regulatory and executive competences included in the Treaty, competences that

are allocated in an exceptionally complicated way among national and communal bodies, without any

clarifications on the responsibility of each institution or whether the member states or the European

bodies will make the final decisions. As a result, the whole decision-making process is rather vague

and ineffective in many areas, since the burden falls on the “institutional power equilibrium”, while,

of course, it is very difficult for the European citizens to comprehend and legitimize these procedures.

For many, this fact explains the relative indifference of the Press regarding the European Constitution.


The same thing, of course, did not happen when the famous “Federation Texts” by Hamilton,

Madison and Jay, in support of the case for the American Constitution, in which the objectives and

great benefits resulting from a federal government were clearly and lucidly explained. The support

offered for the case of federalization by these amazing texts is exemplary (and incidentally, they

should be read by all Europeans).  They analyze the economic and political benefits resulting from

the sharing of expenditure on ‘defense and foreign policy’ and from the production of other federal

public benefits in areas such as regulatory legislation, a just state with the rights of property and

democratic freedoms, control mechanisms and institutional federal instruments which guarantee

the smooth functioning of the domestic market and of a unified currency without any national or

regional violations.


Constitutional fathers for Europe with a commensurate political caliber and vision are being sought.


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