Geoff Cutmore - Morning Thoughts

Celebrating the Grand Alliance

We are on the verge of marking the 50th anniversary of the European Union -- taking as its birth the Treaty of Rome -- and politicians will spend this weekend in Berlin toasting the treaty.

Never mind that an FT/Harris poll has just revealed 44% of citizens think life has got worse since their country joined the club. Admittedly, the poll was only conducted in the EU's 5 largest countries, but the statistic that just 25% of Europeans asked felt life in their country had improved will make the celebrations feel a little flat.

One wonders if European advocates of the EU have ever taken on board the phrase coined by Clinton strategist James Carville, "it's the economy, stupid." Ironically, it appears to be EU expansion and the challenge of controlling low-cost labor from the newer entrants that is focusing minds on the 'benefits' of a single European market. The single market worked when it seemed to offer preservation of wealth levels enjoyed in core Europe. Globalization and its effects even within the borders of the union are shaking up the consensus (if it truly existed) that all citizens will prosper from membership.

The Trouble with France

Nowhere is that threat to current livelihoods more real than in founder member France. The country that was at the heart of this alliance of European powers is now one of the slowest growing. Among the 13 powers that have gone on to be part of the currency union, France is looking the sickest. 

It must be especially galling for the Gaullists that the EU's newest arrivals are shaking up the cozy protectionism of French unions and farmers. Cheaper workers from the East are making a nonsense of the 35-hour working week. Even worse for Paris, Germany so long tagged with the sobriquet of 'sick man' appears to be turning the corner. The citizens of the Federation could have done without the VAT hike delivered at the beginning of this year, but the signs are encouraging.

Corporate Germany has got on with restructuring and there is an emerging realism about the competitive threat from lower-cost centers in the East which are trying to move up the value chain.

A New-Look EU

Any alliance of states must be based on an alignment of interests to remain in place. When the goal was a political and economic buttress against Russia and the Warsaw pact countries, with an umbrella of American nuclear power, the European Economic Community made sense. It was made up of countries whose citizens had had similar wartime experiences, were culturally homogonous and had similar living standards. That cannot be said of the EU as it exists today.

The union is now at 27 members and stretches from the Atlantic coast to the Russian border. It is a very different looking animal compared to the alliance of 6 powers built on closer economic integration signed into being in 1957.

As the champagne is uncorked this weekend the politicians should think less about revisiting the debate on the constitution, but instead look at the real barriers to European competitiveness. Politicians don't create dynamic economies, they create the conditions for entrepreneurs to thrive. If anyone is listening, now is the time for bold decisions to be taken in core Europe.

This 50th anniversary doesn't have to be a stopping off point on the EU's gradual decline in relevance. It doesn't have to be a high water mark. Instead it could be a reinvigoration of the grand alliance -- but that can only happen if the politicians step up.

All week we are running interview with business leaders, politicians and analysts on the EU's future. Enjoy. 

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