Monday, May 30, 2005

What does France mean for accession? 

I've been thinking a good bit today about what the no vote on the EU constitution in France (and its likely rejection in the Netherlands Wednesday) means for the issue that I am concerned with, the accession of eastern European countries to the EU. I am convinced that it rather helps than harms them. Let me explain.

EU is really three parts. First, there is the holdover of the Common Market days, a customs union that permits trade to occur between EU members at more preferable terms than between the EU and non-EU trading partners. The accession seeking countries feel that trade oriented towards the west rather than the east (read: Russia) will benefit them, and that accession is the only means of getting dialogue on removing the EU's infamous trade barriers. I'm skeptical that this will happen. Agricultural policy has always protected French farmers, who were a big part of the no vote yesterday. But I doubt that the farmers were motivated to vote no because they thought the political process the EU constitution begins would cost them subsidies. If anything, it seems to me it would bring more as the tax base was expanded.

Second, there is the Euro-zone, the countries that use the new common currency. Accession countries will wish to use the euro to provide a more stable money than they offer themselves, and to reduce the "fear of floating" premium many of those countries pay. We saw this in Macedonia when I worked there in 2003: The country pays much higher rates on government debt than you might expect for a country with what appears on the outside to be a stable currency pegged to the euro. They pay this because foreign investors fear a shock from, say, ethnic fighting between Albanians and Macedonian Serbs. So Macedonian bonds don't sell well, and higher interest rates have to be paid to induce foreign investors to hold them. Getting into EU reduces that cost. Of course, it comes at the costs of a loss of your domestic currency (and the seigniorage revenue that might help finance government deficits) and with explicit constraints on your fiscal policy -- that is, unless you're Germany.

Last, leaders such as Chirac and Kohl have argued that the economic and political come together, and the EU Constitution is part of this. And in this, I think most eastern Europeans would agree with this assessment from Fistful of Euros:
The point *isn�t* that this puts all of Europe into crisis. This is not necessary. But �crisis� can only be avoided by recognising openly and clearly that something has gone wrong. The EU leaders are not carrying the EU voters with them on the constitution, and a dialogue must begin. The sooner this is recognised the better.

I don't believe this dialogue matters to the accession countries, however (remember, they don't have a say at present), both because the economic benefits are seen there as being quite strong -- which I think is an overestimation, but that's another post -- and because many may feel that even this EU constitution gives them a more stable form of government than the new, imperfect constitutions many of these countries adopted as they escaped the USSR or Warsaw Pact.

The risk is that the political leaders in Brussels will handle defeat badly. Mark Steyn notes:

...a couple of days before the first referendum, Jean-Claude Juncker, the "president" of the European Union, let French and Dutch voters know how much he values their opinion:

"If at the end of the ratification process, we do not manage to solve the problems, the countries that would have said No, would have to ask themselves the question again," "President" Juncker told the Belgian newspaper Le Soir.

Got that? You have the right to vote, but only if you give the answer your rulers want you to give. But don't worry, if you don't, we'll treat you like a particularly backward nursery school and keep asking the question until you get the answer right.

Sounds like how we vote on school bond referenda here in Minnesota.