Is the Market Doomed in Giscard's New Europe?

The endgame to determine the European Union's final shape is underway. It began with the publication by the Praesidium of the Convention on the Future of Europe of a draft of the first sixteen articles of the "Treaty to establish a Constitution for Europe." The text mostly replicates the structure of Convention Chairman Valery Giscard d'Estaing's "skeleton" Constitution, presented last November, and the conclusions reached by the Convention's working groups. The key word here is mostly .

Such fidelity did not hold for economics. Where markets and business are concerned, the draft text stretches the "economic governance" working group's conclusions so as to propose a centralized approach, one strongly tilted to favor social, environmental, and consumer objectives, neglecting economic freedom and the market economy.

Let's start with the sins of omission. The "values" of the Union (Article 2) include peace, justice, equality of all before the law and solidarity. All fine and noble sentiments. But no mention is made of freedom of initiative and enterprise.

Similarly, the "fundamental objectives" of the Union (Article 3) indulge in promises to promote "sustainable" growth, social cohesion and social protection, gender equality, the environment, and consumer protection. The need for a free and well-functioning market economy is not included, though this is the fundamental pre-condition for the high standards of living and social protection that the document's authors advocate so resolutely.

Moreover, the principle of "subsidiarity" is restricted to relations between member states and the Union, or "vertical" subsidiarity. But a richer alternative was available, one that would guarantee a broad right of private individuals (and their associations and organizations) to be protected from unnecessary interference by public powers. There would be a presumption against public intervention and the burden of proof on the need for it--at any level of government--would be shifted to its advocates. This "horizontal" subsidiarity would help ensure that the EU does not interfere unduly with market activity.

But more than the draft's omissions are worrying. Article 11 provides that the Union "shall have competence to coordinate the economic policies of the member states." As if this were not sufficient, Article 13 reiterates that "the Union shall coordinate the economic policies of the member states, in particular by establishing broad guidelines for these policies."

This language implies that member states will no longer be the masters of their broad policy orientations. Instead, these will be entrusted to the Union, presumably with formal Commission powers of initiative in their preparation. National parliaments are expected to surrender their powers graciously.

The crucial surprise in the draft constitution concerns social policy, previously a closed preserve of individual nations. Article 12 places it among the "shared" competences of the Union; Article 10 provides that in this case "member states shall exercise their competence only if and to the extent that the Union has not exercised it." This implies a fundamental reversal of the present approach, whereby social policies belong to member states and the Union has tightly circumscribed powers of intervention, which, in addition, can only be exercised with unanimity.

Until now, European integration worked best when it reduced the role of public (usually national) intervention, thus opening up national markets. Today, it seems, some politicians are no longer satisfied with this so-called "negative" integration. They want much wider latitude to intervene.

For example, the economic governance working group had agreed that monetary policy should be managed at Union level by an independent central bank, the ECB. Fiscal policies should be left with the member states, albeit under the constraints imposed by the EC Treaty (the coordination procedures of Article 99 and the excessive deficits procedure of Article 104).

There was no consensus on including other macroeconomic policies among the Union's "shared competences." Nor was there agreement on the proposal to grant the Euro-Group--the economic and finance ministers of the euro area--formal decision-making powers over the economic policies of EU members.

But the text tabled by the Praesidium opens their way to doing just that. We are presented with the outline of a centralized Union endowed with strong powers to coordinate economic polices and impose a common social policy. The omission of the freedom of private initiative from the values and objectives of the new Europe will influence countless court judgements, which will cause legal doctrine to become biased towards an interventionist stance.

Provisions to coordinate national economic policies are probably less of a danger because they are so vague that they could well remain a dead letter. But including social policy among the shared competences of the Union is potentially much more serious. Together with the emphasis on social values, it invites a process of harmonization of social protection. That will be disastrous for growth and employment, given the enormous and deeply rooted differences in productivity and living standards across the Union.

The good news here is that these ideas are not carved in stone. But only a broad public outcry will convince the Praesidium to scrap this disastrous approach.

Daniel Gros is Director of Research, Centre for European Policy Studies,