The economist Roger Bootle insists his new book, "The Trouble With Europe", is "not motivated by any sort of animus against Europe" and that it's not an artefact of standard-issue euroscepticism. But Bootle does argue in it that "the EU is a malfunctioning construct for today's world—and even more so for tomorrow's. It needs either to undergo fundamental reform or to break up."
As we approach the elections for the European Parliament, I thought it'd be a good time to talk to Bootle about why he thinks the European Union isn't working and whether Britain would be better off outside it.
JD: As you take pains at the beginning of the book to make clear, this is not straightforwardly a eurosceptic book—at least not in the familiar, accepted sense. But you are sceptical about the future of the European project as currently constituted aren’t you?
RB: If you ask me, “Would the world have been a better place if the European Union had not been there?”, I think I would say, “No, it would not be a better place.” And that’s very different from what most eurosceptics would say, I think.
You write that the European Union, in its current form, stands between Europe and “success”. What counts as “success” here?
I was thinking at that point in the book primarily about economics, but in the end, of course, there are close connections between the economics and the politics. One of the reasons I would like to see Europe, in a broad sense, economically successful is that I think thereby it would be a greater influence in the world. But what’s happened more recently is that Europe’s influence has diminished quite strongly. It is utterly dependent in a number of ways on the United States. It has adopted a supine attitude on foreign policy issues and, as things currently stand, it looks as if it won’t fare any better against East Asia over the next twenty years.
You examine two kinds of defects in the European Union: political and economic. Let’s take the political ones first. The first political problem, you say, is an identity crisis. Are you arguing that there’s a fundamental unclarity, not just in the character of the institutions of the EU, but in the very idea of Europe itself? Is Europe a civilisational idea or is it merely a geographical category in which contiguity or proximity are sufficient grounds for membership or accession?
Exactly. I think at the start the leaders of Europe didn’t need to contend with these issues because the original “Six” were a very small part of Europe as a whole. Of course, the Cold War and the Berlin Wall effectively shut [the countries in Eastern Europe] out. I suspect that they couldn’t imagine that the Eastern Bloc would collapse in the way that it eventually did. When it did, what then comes into focus is this question of what the limits are to Europe. Should it include North Africa? Does it include Israel, for instance? The litmus test in all this, it seems to me, is Turkey. I think Turkey provides the test in the sense that the sort of European Union we should want is one in which we’re happy to have Turkey as a member. But I don’t think that’s the sort of Union we’ve got at the moment. To keep Turkey out, or else to admit it as a second-class member, is for geopolitical reasons dangerous.
Another political problem is the so-called “democratic deficit” in the institutions of the EU. This is one of the causes, wouldn’t you say, of the rise of populist discontent across Europe? There are other reasons for it, of course, but the idea that Europe is being run by an unaccountable elite is a very powerful weapon in the populists’ rhetorical arsenal isn’t it?
I think with some justification. The fact of the matter is that the European Parliament is, if not entirely supine, then at the very least not an especially powerful institution—as against the European Commission and Council. You’ve only got to look at the participation rates in the European elections to see what little legitimacy MEPs have. Then there’s the question of the boundaries of constituencies for the European Parliament. If we were anywhere near becoming really European, then we wouldn’t have constituency boundaries drawn the way they are—they would stretch across national borders and there would also be genuine pan-European parties instead of these funny associations of different parties. So we really are in the infancy of [European] political development. Now, you could say that this is inevitable with an outfit that is still so young and that maybe those problems will be overcome later. One of my points is that, quite simply, the wretched thing has become much too big, even before you think about letting in other countries.
You seem to think that the democratic deficit is a particular problem for Britain, with what you describe as its deep-seated democratic traditions.
I think that’s right. Other countries don’t seem to have the same degree of intolerance for diktat from some sort of elite group. But I think that does run deeply against the grain of the British tradition.
Would you say that what we in the UK call “euroscepticism” is growing in influence across Europe? And I don’t mean only in the sort of non-mainstream populist movements that we’ve talked about, but also among European policy elites?
The honest answer to that is, I’m not sure. But I do policy elites are becoming more aware of the EU's failings. But I don’t detect any sense that they think that the institution of the EU itself is at the root of the continent’s problems.
So they wouldn’t acknowledge the kinds of deep institutional problems that you describe in this book?
I don’t think they’d see them as fatal. They might recognise them, but I don’t think they see them as getting to the very heart of what the EU is all about. In many ways, I think the euro is the crucible in which many of these issues will be played out. To keep it together in the medium term there are going to have be some absolutely huge institutional changes which will set the course for the EU. There clearly is a lot of frustration with the euro, not just on the street, but among the elites across Europe. And that could be the catalyst for a more fundamental rethinking of the EU itself.
Let's stay with the euro. Do you think the problems that the Eurozone has encountered over the past three years were sown right at the beginning, when the single currency was first being conceived? And should those problems—the lack of fiscal union, for example—have been obvious when the euro was launched?
I think they were obvious—so obvious that even uncommitted economists, not eurosceptics, wrote about them. There was a report published in 1977 by the great economist Sir Donald MacDougall which made many of these very points. I think there was also a considerable amount of naivety—I don’t quite know why, because the people involved were certainly clever enough—about the sources of instability. The Maastricht treaty talks entirely about restrictions on the public sector, on public borrowing and public debt. The underlying assumption seems to be that if you make sure the public sector behaves itself, you’re not going to have a problem with the private sector. Whereas what we discovered was that in Spain and Ireland, in particular, we got a private sector credit boom. The public finances [there] were perfectly OK. What we got was a plain, old-fashioned private sector credit boom and then a property bubble. That caused the economy then to collapse and brought with it a deterioration in the public finances. I think it’s extraordinary that that’s not there in the Maastricht treaty or in any of the discussions that led to monetary union.
With regards to the point about fiscal union, it’s well known that there was a difference between the German approach and the French approach. The German idea was that you get everything else right first and then monetary union is the last thing to slot into place. The French approach was that you can’t do that because it would take too long. You’ve got to do the currency first and precisely because it requires these other kinds of union, it will force you, through crises, to adopt them. Now, I always had much more sympathy for the German approach. And superficially, looking at the history of the euro, you could say that it has been borne out. But the trouble is we don’t yet know. It’s a bit like Zhou En Lai and the French Revolution—it’s too early to say. The French view could yet turn out to be right. Out of the crisis of the last few years could come the institutions that bind it all together.
Do you detect the hand of Germany, then, in the emphasis on controlling the public finances?
Yes. Though I don’t think you’d usually think of the Germans as unaware of the dangers of some sort of private sector problem, particularly one associated with bank finance. It may well be that this is a reflection of recent German history. Since the war, Germany has not really gone through the credit-fuelled cycles associated with property bubbles that have been the norm in Britain and some other countries.
You do say in the book that you don’t think the euro will survive in its current guise and that, on balance, this would be a good thing. There’s a political judgement and an economic one implied there. Let’s take the political one first. Why, in your view, is a breakup of the Eurozone likely?
I find it very difficult to see how some of the countries can get out of the position they’re in and still remain in the eurozone. I’m actually less concerned about Greece—not because its position isn’t dire; it is dire. But it’s small. So I could imagine some sort of fudge that involved writing off large amounts of Greek debt, recapitalising Greek banks and so on. So I could imagine how that could be dealt with. The country that has worried me all along is Italy. Although the debt ratio there is lower than Greece, it’s not that much lower, the size of the country and the size of the debt market is so much bigger—Italy’s the third biggest government bond market in the world. And although the recession has been nothing like as serious in Italy as it has been in Greece, it’s been quite long-lived, and there aren’t that many signs of revival. I think it’s difficult to see the political institutions coming together to drive through the reforms necessary to make a fundamental difference. So Italy is my favourite candidate for peeling off [from the euro] at some stage or other.
The final part of the book is devoted to the question of “reform or dissolution”. You’re arguing that the only reform to the EU worth attempting is what you call “fundamental reform”. Tinkering around the edges, you say, is not going to cut it. And fundamental reform includes reforms that will significantly limit harmonisation. And you envisage a wholesale transfer of powers back to member states. That sounds to me like the sort of thing the UK government has been arguing for in recent months.
Yes, it does. And on that score I wouldn’t disagree massively with much of what David Cameron has said. The difference lies in what one might think is likely to happen. For example, I don’t think it’s likely that other EU members are going to concede much of that sort of agenda. And then the question arises, if they don’t concede, what are you going to do? Cameron and his allies have made it pretty clear that in the event that we try and don’t get reform, he’s still going to campaign to stay in the EU. At that point, I would be on the side of coming out. My book is arguing that life outside the EU might not be a bed of roses, particularly not at first, but nor is it a path to disaster either. There are a number of reasons for thinking we’d do pretty well. But if we don’t get the sort of institutional structures that make us comfortable, then we shouldn’t feel wary of striking out on our own. Equally, this is not a Nigel Farage-type argument—I’m not saying, “A plague on all your houses, let’s pull out immediately.” I think we have to try first to reform the EU along the lines we want.
You consider three possible eventualities: fiscal and political union; the breakup of the euro; and the UK leaving. Your position, if I’ve understood you correctly, seems to be the following: fundamental reform is desirable and the UK should play a major role in trying to make it happen. But although such reform is desirable, it’s not likely. Therefore, we should countenance leaving the EU. And if we did, the consequences are unlikely to be as dire as many would have us think.
Absolutely. And many of those consequences would actually be extremely good.
Such as?
A reduction in the burden of regulation for a start. The questions that are relevant here are: what sort of trade relationship we could get with the EU—and I expect we’d be able to get a pretty good trade relationship with the EU. To what extent will we be able to cut back on the burden of regulation? And I think the answer is: quite considerably, outside the single market. Here’s a big difference between my position and those who say we need to be in the single market at all costs. I think that’s profoundly wrong and that we should be outside the single market. We should strike a free trade agreement with the EU. There’s also the question of our concept of what our place in the world is. What we should be looking out for is this point about Europe looking as though it’s in relative decline, and the world becoming a much more exciting and dynamic place than it was when the Treaty of Rome was signed—or when Britain decided to join. Much of our future, therefore, could lie in being connected with other parts of the world.
But of course one argument for staying in is that Britain has more influence in than out. You don’t think that’s right?
It’s not a ridiculous argument, but it depends how much influence we have in [the EU]. The answer is: not necessarily a great deal. There are so many instances in which our voice is over-ruled. And of course since the EU got a lot of bigger, our proportionate share of the vote, and in general our influence, has been diminished. It does depend also on how effective countries are outside blocs of this size. And the evidence seems to be that they are pretty effective. A whole series of countries around the world are able to negotiate free trade agreements with much larger entities.
Many British business leaders, at least those who bother to make their views public, oppose exit from the EU. Why do you think that is?
First of all, it’s because businessmen are notoriously bad economic thinkers. Second, by their very nature they’re extremely conservative with a small “c”. I used to work for the CBI, by the way. Now, I don’t want to speak ill of the dead, but if you look at the various things the CBI has said over the years, it’s deeply depressing. They are a pretty good indicator of what you should precisely not do. I was active in the campaign to keep Britain out of the euro. So many of the business figures who are now urging us to stay in the EU were urging us to join the euro and were saying that all sorts of disastrous things would happen if we stayed out. Including, by the way, the idea that the City of London would suffer some sort of massive decline if we stayed outside the euro. That always struck me as complete nonsense.
Roger Bootle's "The Trouble With Europe" is published by Nicholas Brealey Publishing (£18.99)
As we approach the elections for the European Parliament, I thought it'd be a good time to talk to Bootle about why he thinks the European Union isn't working and whether Britain would be better off outside it.
JD: As you take pains at the beginning of the book to make clear, this is not straightforwardly a eurosceptic book—at least not in the familiar, accepted sense. But you are sceptical about the future of the European project as currently constituted aren’t you?
RB: If you ask me, “Would the world have been a better place if the European Union had not been there?”, I think I would say, “No, it would not be a better place.” And that’s very different from what most eurosceptics would say, I think.
You write that the European Union, in its current form, stands between Europe and “success”. What counts as “success” here?
I was thinking at that point in the book primarily about economics, but in the end, of course, there are close connections between the economics and the politics. One of the reasons I would like to see Europe, in a broad sense, economically successful is that I think thereby it would be a greater influence in the world. But what’s happened more recently is that Europe’s influence has diminished quite strongly. It is utterly dependent in a number of ways on the United States. It has adopted a supine attitude on foreign policy issues and, as things currently stand, it looks as if it won’t fare any better against East Asia over the next twenty years.
You examine two kinds of defects in the European Union: political and economic. Let’s take the political ones first. The first political problem, you say, is an identity crisis. Are you arguing that there’s a fundamental unclarity, not just in the character of the institutions of the EU, but in the very idea of Europe itself? Is Europe a civilisational idea or is it merely a geographical category in which contiguity or proximity are sufficient grounds for membership or accession?
Exactly. I think at the start the leaders of Europe didn’t need to contend with these issues because the original “Six” were a very small part of Europe as a whole. Of course, the Cold War and the Berlin Wall effectively shut [the countries in Eastern Europe] out. I suspect that they couldn’t imagine that the Eastern Bloc would collapse in the way that it eventually did. When it did, what then comes into focus is this question of what the limits are to Europe. Should it include North Africa? Does it include Israel, for instance? The litmus test in all this, it seems to me, is Turkey. I think Turkey provides the test in the sense that the sort of European Union we should want is one in which we’re happy to have Turkey as a member. But I don’t think that’s the sort of Union we’ve got at the moment. To keep Turkey out, or else to admit it as a second-class member, is for geopolitical reasons dangerous.
Another political problem is the so-called “democratic deficit” in the institutions of the EU. This is one of the causes, wouldn’t you say, of the rise of populist discontent across Europe? There are other reasons for it, of course, but the idea that Europe is being run by an unaccountable elite is a very powerful weapon in the populists’ rhetorical arsenal isn’t it?
I think with some justification. The fact of the matter is that the European Parliament is, if not entirely supine, then at the very least not an especially powerful institution—as against the European Commission and Council. You’ve only got to look at the participation rates in the European elections to see what little legitimacy MEPs have. Then there’s the question of the boundaries of constituencies for the European Parliament. If we were anywhere near becoming really European, then we wouldn’t have constituency boundaries drawn the way they are—they would stretch across national borders and there would also be genuine pan-European parties instead of these funny associations of different parties. So we really are in the infancy of [European] political development. Now, you could say that this is inevitable with an outfit that is still so young and that maybe those problems will be overcome later. One of my points is that, quite simply, the wretched thing has become much too big, even before you think about letting in other countries.
You seem to think that the democratic deficit is a particular problem for Britain, with what you describe as its deep-seated democratic traditions.
I think that’s right. Other countries don’t seem to have the same degree of intolerance for diktat from some sort of elite group. But I think that does run deeply against the grain of the British tradition.
Would you say that what we in the UK call “euroscepticism” is growing in influence across Europe? And I don’t mean only in the sort of non-mainstream populist movements that we’ve talked about, but also among European policy elites?
The honest answer to that is, I’m not sure. But I do policy elites are becoming more aware of the EU's failings. But I don’t detect any sense that they think that the institution of the EU itself is at the root of the continent’s problems.
So they wouldn’t acknowledge the kinds of deep institutional problems that you describe in this book?
I don’t think they’d see them as fatal. They might recognise them, but I don’t think they see them as getting to the very heart of what the EU is all about. In many ways, I think the euro is the crucible in which many of these issues will be played out. To keep it together in the medium term there are going to have be some absolutely huge institutional changes which will set the course for the EU. There clearly is a lot of frustration with the euro, not just on the street, but among the elites across Europe. And that could be the catalyst for a more fundamental rethinking of the EU itself.
Let's stay with the euro. Do you think the problems that the Eurozone has encountered over the past three years were sown right at the beginning, when the single currency was first being conceived? And should those problems—the lack of fiscal union, for example—have been obvious when the euro was launched?
I think they were obvious—so obvious that even uncommitted economists, not eurosceptics, wrote about them. There was a report published in 1977 by the great economist Sir Donald MacDougall which made many of these very points. I think there was also a considerable amount of naivety—I don’t quite know why, because the people involved were certainly clever enough—about the sources of instability. The Maastricht treaty talks entirely about restrictions on the public sector, on public borrowing and public debt. The underlying assumption seems to be that if you make sure the public sector behaves itself, you’re not going to have a problem with the private sector. Whereas what we discovered was that in Spain and Ireland, in particular, we got a private sector credit boom. The public finances [there] were perfectly OK. What we got was a plain, old-fashioned private sector credit boom and then a property bubble. That caused the economy then to collapse and brought with it a deterioration in the public finances. I think it’s extraordinary that that’s not there in the Maastricht treaty or in any of the discussions that led to monetary union.
With regards to the point about fiscal union, it’s well known that there was a difference between the German approach and the French approach. The German idea was that you get everything else right first and then monetary union is the last thing to slot into place. The French approach was that you can’t do that because it would take too long. You’ve got to do the currency first and precisely because it requires these other kinds of union, it will force you, through crises, to adopt them. Now, I always had much more sympathy for the German approach. And superficially, looking at the history of the euro, you could say that it has been borne out. But the trouble is we don’t yet know. It’s a bit like Zhou En Lai and the French Revolution—it’s too early to say. The French view could yet turn out to be right. Out of the crisis of the last few years could come the institutions that bind it all together.
Do you detect the hand of Germany, then, in the emphasis on controlling the public finances?
Yes. Though I don’t think you’d usually think of the Germans as unaware of the dangers of some sort of private sector problem, particularly one associated with bank finance. It may well be that this is a reflection of recent German history. Since the war, Germany has not really gone through the credit-fuelled cycles associated with property bubbles that have been the norm in Britain and some other countries.
You do say in the book that you don’t think the euro will survive in its current guise and that, on balance, this would be a good thing. There’s a political judgement and an economic one implied there. Let’s take the political one first. Why, in your view, is a breakup of the Eurozone likely?
I find it very difficult to see how some of the countries can get out of the position they’re in and still remain in the eurozone. I’m actually less concerned about Greece—not because its position isn’t dire; it is dire. But it’s small. So I could imagine some sort of fudge that involved writing off large amounts of Greek debt, recapitalising Greek banks and so on. So I could imagine how that could be dealt with. The country that has worried me all along is Italy. Although the debt ratio there is lower than Greece, it’s not that much lower, the size of the country and the size of the debt market is so much bigger—Italy’s the third biggest government bond market in the world. And although the recession has been nothing like as serious in Italy as it has been in Greece, it’s been quite long-lived, and there aren’t that many signs of revival. I think it’s difficult to see the political institutions coming together to drive through the reforms necessary to make a fundamental difference. So Italy is my favourite candidate for peeling off [from the euro] at some stage or other.
The final part of the book is devoted to the question of “reform or dissolution”. You’re arguing that the only reform to the EU worth attempting is what you call “fundamental reform”. Tinkering around the edges, you say, is not going to cut it. And fundamental reform includes reforms that will significantly limit harmonisation. And you envisage a wholesale transfer of powers back to member states. That sounds to me like the sort of thing the UK government has been arguing for in recent months.
Yes, it does. And on that score I wouldn’t disagree massively with much of what David Cameron has said. The difference lies in what one might think is likely to happen. For example, I don’t think it’s likely that other EU members are going to concede much of that sort of agenda. And then the question arises, if they don’t concede, what are you going to do? Cameron and his allies have made it pretty clear that in the event that we try and don’t get reform, he’s still going to campaign to stay in the EU. At that point, I would be on the side of coming out. My book is arguing that life outside the EU might not be a bed of roses, particularly not at first, but nor is it a path to disaster either. There are a number of reasons for thinking we’d do pretty well. But if we don’t get the sort of institutional structures that make us comfortable, then we shouldn’t feel wary of striking out on our own. Equally, this is not a Nigel Farage-type argument—I’m not saying, “A plague on all your houses, let’s pull out immediately.” I think we have to try first to reform the EU along the lines we want.
You consider three possible eventualities: fiscal and political union; the breakup of the euro; and the UK leaving. Your position, if I’ve understood you correctly, seems to be the following: fundamental reform is desirable and the UK should play a major role in trying to make it happen. But although such reform is desirable, it’s not likely. Therefore, we should countenance leaving the EU. And if we did, the consequences are unlikely to be as dire as many would have us think.
Absolutely. And many of those consequences would actually be extremely good.
Such as?
A reduction in the burden of regulation for a start. The questions that are relevant here are: what sort of trade relationship we could get with the EU—and I expect we’d be able to get a pretty good trade relationship with the EU. To what extent will we be able to cut back on the burden of regulation? And I think the answer is: quite considerably, outside the single market. Here’s a big difference between my position and those who say we need to be in the single market at all costs. I think that’s profoundly wrong and that we should be outside the single market. We should strike a free trade agreement with the EU. There’s also the question of our concept of what our place in the world is. What we should be looking out for is this point about Europe looking as though it’s in relative decline, and the world becoming a much more exciting and dynamic place than it was when the Treaty of Rome was signed—or when Britain decided to join. Much of our future, therefore, could lie in being connected with other parts of the world.
But of course one argument for staying in is that Britain has more influence in than out. You don’t think that’s right?
It’s not a ridiculous argument, but it depends how much influence we have in [the EU]. The answer is: not necessarily a great deal. There are so many instances in which our voice is over-ruled. And of course since the EU got a lot of bigger, our proportionate share of the vote, and in general our influence, has been diminished. It does depend also on how effective countries are outside blocs of this size. And the evidence seems to be that they are pretty effective. A whole series of countries around the world are able to negotiate free trade agreements with much larger entities.
Many British business leaders, at least those who bother to make their views public, oppose exit from the EU. Why do you think that is?
First of all, it’s because businessmen are notoriously bad economic thinkers. Second, by their very nature they’re extremely conservative with a small “c”. I used to work for the CBI, by the way. Now, I don’t want to speak ill of the dead, but if you look at the various things the CBI has said over the years, it’s deeply depressing. They are a pretty good indicator of what you should precisely not do. I was active in the campaign to keep Britain out of the euro. So many of the business figures who are now urging us to stay in the EU were urging us to join the euro and were saying that all sorts of disastrous things would happen if we stayed out. Including, by the way, the idea that the City of London would suffer some sort of massive decline if we stayed outside the euro. That always struck me as complete nonsense.
Roger Bootle's "The Trouble With Europe" is published by Nicholas Brealey Publishing (£18.99)
