A Different Look at the EU

[Bono]

A Different Look at the EU
by Miguel Noronha

It was celebrated this year the thirtieth anniversary of Portugal's accession to the then European Economic Community. Probably, only with a certain effort will we be able to recall that in the twelve years that passed between the revolution of 1974 and 1986, we went through a convoluted revolutionary period with the ruinous nationalization of several sectors of the economy, ten governments and two IMF agreements.

In this scenario, accession to the EEU gave us an excellent opportunity to credit and stabilize the discredited institutions of the young third republic, which many regarded as a failed state. We shouldn't also forget the importance the EU had in a more recent past, in the credibilization of our macroeconomic policy.

Once remembered the greatest benefits of our "European experience", we should turn a more critical eye upon the EU. Having begun as a costums union, the community evolved into an economic union, ambitioning now a politic union. In this process, the communitary institutions were permanently growing, not always in the best way, nor producing the most desirable results.

The most documented problem is probably the endless regulations emanating from Brussels at an alarming rate. Defying the limits of imagination, European legislators seem to intent to regulate every aspect of economic activity, creating an infernal mess of red tape. In the last month of October, commissioner Günter Verheugen revealed a study estimating the costs associated to respecting union law by businesses in about 600 billion euros per year (about four times the Portuguese GDP in 2005). Aside from the purely financial cost, this bureaucracy keeps businesses from what should be their main task: creating wealth by serving their costumers.

Another problematic issue is the Common Agricultural Policy (CAP). Initially conceived to make member countries self-sufficient in agricultural products, CAP has become one of the most controverse aspects of "European construction". By artificially setting prices, the CAP doesn't allow for rationalizing the production, keeping in business countless farms without any economic viability. By keeping prices above those that would be practiced in a free market (several studies give values between 10 and 80 percent, reaching 300% in some products) investors are lead to making wrong choices thus harming the consumer's pocket. To this is added the low efficacy of fiscalization that leads to recurrent and known frauds in the utilization of given subsidies.

Still in the CAP field, several tariffs were established in order to raise the prices of imported products to the level of the produced in the community area. These tariffs, together with the subsidies to the exportation of agricultural surpluses (originated significatively by subsidies to production), configure a flagrant case of unlawful competition, not allowing many third world countries to be competitive in the only products where they actually have competitive advantages. In 2005, 49 billion euros were destined to the CAP (about 46% of the union budget), while its beneficiaries are estimated to be about 4% of the EU population.

A third point to behold are the multiple appeals for harmonization of fiscal and social policies in the EU. Aside from configuring yet another step in the worrying loss of power by the member-states, one needs to take into account the economic effects of these initiatives, which give an even greater incentive to governmental waste and penalize investment and job creation, insisting in the defense of the bankrupt "European social model", regardless of costs or long term consequences.

Regardless of the benefits for Portugal from European integration, these three issues (regulatory overload, CAP and attempts of fiscal harmonization) should deserve greater attention among us, especially as the right of option, before granted to member-states, of not entering certain community policies, is increasingly denied.