The EU and its many laws of supply and demand
It is magnificently simple to generalise about the EU, especially by those of a malign disposition. Four decades after joining the old "Common Market," it's easy to peddle myths of interfering Eurocrats to gullible Brits; France appears sniffily agnostic to Anglo-American business culture; the Danes are fiercely protective of their gold-plated welfare state; and the tiny Luxembourgian mouse roars like a tiger the moment anyone dares to mention bank secrecy.
Xenophobic nationalists in this country are not cultivating new territory. During the course of the referendum campaign expect to hear much of the perils which prostrate Poland at the mercy of foreign infidels about to occupy the fatherland, yet again.
The way to make sense of any of this is to discuss exactly what it is the country may be about to join. It is not a seamless political federation, like the USA, or a loosely organised confederation, where the primary powers reside with member states which consent to locate some activities at the centre. For sure, it is a peculiar beast, to which only the vanished Austro-Hungarian Empire may bear a passing comparison, in that so many different nationalities are living under one roof. In modern times, the EU is perversely unique.
One Union under God
Unlike the United States, whose Constitution was largely done and dusted at Philadelphia in 1776, the European Union is in a continual state of organic ferment. It emerged from war-ravaged Europe as a device to lock two historic enemies, France and Germany, within a mutual security framework. Beyond the fine words, there was a common market in coal and steel before the six founding partners got around to signing the Treaty of Rome set with those provocative opening exhortations speaking of an "ever closer union."
The original "common market" in goods and services turned step-by-step into a supranational regulatory body with clear supremacy over national law in many areas, coupled to stark political and even military ambitions. The common agricultural and fisheries policies and those which govern monopolies, competition, trade and the environment, have displaced national interests entirely. Only the right of member states to determine levels of taxation remains aloof, but even that is being eroded by decisions on VAT and the increasing influence over state budgets conferred by the euro-zone growth and stability pact.
Within 10 years, independent tax-raising (and gathering) powers will, to any degree which matters, have utterly departed. But a common foreign policy giving Europe a single voice in world affairs, already ephemeral, will be postponed indefinitely in an EU of 25 states (and eventually 30).
The more integrationist member states have always prevailed over the more nervous participants who prefer a slower pace. The direct election of the European Parliament in 1979, which instantly proceeded to amass power at the expense of the executive commission and the Council of Ministers, proved a lively element of this chemistry. Euro MPs have always strutted about the corridors of Strasbourg and Brussels proclaiming a vision of the coming "United States of Europe."
Despite achieving monetary union among 12 of the 15 member states, talk of a Euro army and a new European Constitution, the USE is not just around the corner, and nor by any means is the nation state yet dead and buried. Tell that to the French, or the Germans, and now even the Dutch, who have begun to strongly reassert their national identity after decades in the grip of Euro-passion. But the progressive transfer of powers to the centre continues inexorably, sometimes at a glacial pace, at other times with astonishing haste, as with the single currency and before that, the seamless internal market.
When the political pace occasionally went too fast and hats flew off, it became essential to define the powers of states versus the centre, namely the "principle of subsidiarity." It means national governments are left to their own devices in essentially domestic affairs, while those which demand "common action" are clearly ceded to the centre. The parallel with the disposition of powers between the federal government of the USA and the 50 component states is compelling. (But not overwhelmingly so: the founding fathers were philosopher-gentlemen in thrall to the clockwork cosmic forces described by Newton, which they wanted their new state to imitate, whereas the Europeans are just now fumbling towards a constitution).
There is a European "Supreme Court" sitting in Luxembourg. In applying the massive body of EU law, the acquis communautaire, it enjoys unchallenged supremacy over the judicial institutions of all member states. As an instance of "supremacy," the court prevails in most aspects of commercial and trading law, but not over basic criminal codes - save where a businessman appeals against a judgement on a civil matter where a commercial crime is involved, and the treaties, or a pertinent Euro law, may be invoked: for example, insider dealing or misconduct answerable according to transnational commercial law.
Surrender of sovereignty
The great body of commercial and company law transferred to the accession countries represents a fundamental reduction of national sovereignty which many businesspeople here will enthusiastically welcome as a highly desirable step towards transparent business ethics, including the proper observance of contracts. Huge chunks of the commercial code are gratifyingly doomed.
Competition and trade policy represent a huge surrender of sovereignty. The Union overrides the governments not just of member states, but also non-members, as the United States painfully discovered during collisions with the EU over air-traffic rights, steel and even bananas. No company or commercial group operating within the internal market may abuse a dominant commercial position without invoking the wrath of Brussels. The conduct of international trade is supervised by Brussels on behalf of member states.
The greatest force of all this Brussels legislative engineering is to create a "level playing surface," the expression for distortion-free trade inside the Union, and to prevent protectionism from threatening the common market in goods, services and trade. Ninety per cent of all EU lawmaking is concerned with harmonisation, everything from medicines and motor cars to steam boilers and sauces. And yes, there is a standard European condom, just as there is a specification for a perfect cucumber.
Here's a useful illustration of how far this goes: unless approved by Brussels, financial sweeteners or other inducements to non-EU companies to invest in Poland can be ruled illegal, just as all such arrangements inside the Union are subject to similar controls.
The draconian powers of the competition directorate include the right to raid suspect companies and their offices without notice, seize documents and computers, and levy enormous fines for misconduct, for offences such as market and price-fixing, organising cartels, or other illegal acts to put rivals out of business or to cheat consumers. Strikingly similar to trust-busting arrangements in the USA.
Unless overridden at Luxembourg, the EU commission's decisions in anticompetition matters are final. One can see that in several areas, the country risks confrontation in sensitive areas, such as telecommunications, energy, sugar production and possibly some financial services such as insurance. It would not be excessively surprising if the independent pension funds, their patience with the incompetence of ZUS finally exhausted, resort to Luxembourg for satisfaction. Elements of the national IT industry present tempting targets for Brussels scrutiny, along with repressive government controls over the media, especially broadcasting. Were Poland now a member state, the mire around PZU would long since have attracted Brussels intervention. And there are aspects of the Elektrim affair which may yet beckon EU judgement. Blatant abuse of public procurement procedures should keep the watchdogs busy.
Henceforth, the government must be extremely cautious in dispensing subsidies - for example, to the steel industry, beyond permitted arrangements - or risk a charge of "distorting the market," or by favouring a state or state-influenced company over an entirely private one in the same market. Decisions of industry regulators may be overridden if they are judged anticompetitive, with telecoms again suggesting friction. Several rulings involving TPSA's actions with regard to competitors appear questionable. As an example where "subsidiarity" lapses, competition judgements can be applied to activities which are exclusively domestic, unless there is a specific exemption.
Agriculture will end up to the largest extent managed by Brussels, together with fisheries. Inevitably, the EU will take the stick for the progressive elimination of unremunerative farming and environmentally unsound slaughterhouses and dairies because politicians lack the courage to admit this would happen anyway. This process of wholesale blame transferal has already started. There will be more of the same when the enormous fiscal impact of complying with EU ordinances on cleaning up the environment strikes home, although to the population, the consequences will be entirely beneficial, including cleaner water to drink and fresher air to breathe in the cities, safer food, workplaces and transport, and righting inadequate access facilities for the handicapped, not to mention tackling the horrendous fire risks posed by socialist-era housing blocks.
An absolute beast
The EU is an essentially political beast and much less bureaucratically intrusive than detractors insist. Post-enlargement, the Brussels civil service will top no more than about 10,000, hardly detectable compared with the teeming legions of government pen pushers scratching uselessly away in Warsaw. Decisions are often by fudge or compromise, the old Irish phrase "horse-trading," summoning up the delightful image of a market in Killarney on Saturday morning, comes happily to mind. States - France frustrating an internal free market in energy, Italy arging about foreign exchange laws, the Greeks disagreeing with just about anything - can be recalcitrant to enforce the rules, but the steamroller always prevails in the end. The erosion of sovereignty in so many areas has failed to ruin anyone. The massive expansion of consumer choice and competition benefits all, and has so far detracted from that monstrous affront against consumers - the CAP - in the overall trade-off to be part of a general consensus. For example, that one may now proceed about a large part of Europe minus a passport is regarded by a great many citizens as a distinct enhancement of their individual sovereignty versus the state.
Welcome to the EU
The złoty is destined for a museum; a handful of (exquisitely rumunerated) Polish civil servants in Brussels will enjoy enormous influence over the government at home; national judges must nod to their peers in Luxembourg; it will become more interesting to see who preens themselves in Strasbourg rather than the Sejm. The judiciary will receive
a convulsive shock, terminal for many of the present participants when subjected to the reality that justice is just as readily available outside the country, which in terms of appeals to the non-EU Human Rights Court at Strasbourg, is a process already moving at a galloping pace.
Of course, this new orrery of 25 member states will inevitably assume a different character from the one forged by the present, tighter crew, which to the largest extent share a long story of common experiences, by no means all of them virtuous. There is something of a leap in the dark about what is coming. Enlargement might be compared to placing a wet log on a roaring fire. The flames at first ebb but shortly burst out with renewed vigour. The restoration of democracy in what used to be called eastern Europe has bitterly disappointed many of its citizens, and that is why the majority of Polish would-be voters shun the polling stations. The sense of securing a stake in that warm bath of "western" European prosperity, and ultimately those alluring social freedoms, is likely to prove irresistible: but from the perspective of a nation shut off from the complexities of the world for so long, it will likely be a close call.
Next week: how consumerism is coming to Poland. And are homegrown companies ready for it?
GAINERS
- Top white-collar professions: lawyers, accountants, auditors, HR experts, the new breed of homegrown CEOs and CFOs, plus myriads of consultants
- The complete media spectrum from printed and broadcast word to advertising agencies
- The private medical sector
- Low-pay, low-skill retail "MacJobs," undemanding but an expanding resource. Rag-trade fashion will boom
- Car manufacturing, maintenance, sales and leasing
- All insurance services
- Road haulage, particularly long haul. Road building and repair
- Air transport, travel agencies, hotels, tourism
- Those with science, R&D, IT and multilingual skills. Expect a brain drain of the brightest
- Real estate services, construction, especially in the provinces
- Factories exporting components
- Environmental services and engineering
- Politicians (especially those anywhere near the EU).
LOSERS
- "Smokestack" industries: coal, coke, steel, shipbuilding, trains
- Small farmers and suppliers, many retail activities in remote areas, road haulage firms with small fleets. Meat and dairy processing operations which fail EU regulations
- Corner shops everywhere, victims of higher wages and rents
- Manufacturers which left it too late to match EU standards. Firms which neglected exports for a "safe" home market
- Government employees swept from jobs by IT
- Anyone working where there is a strong union presence
- Employees in foreign-controlled strategic companies (such as TPSA) where improving productivity will be the priority. Social contracts with unions will be torn up, regardless of the consequences
- Anyone lacking higher education and language skills
- Most of the economy on the eastern borders, which lack transport links, are burdened with a low skill base, are far from markets and have poor housing will see an implosion of farming
- The homegrown entertainment industry, especially film-making and music recording
- The post office and ports
- Anyone caught in the low-income trap: pensioners, government employees and the unskilled
- Any enterprise open to sophisticated foreign competition
- The Catholic Church
Xenophobic nationalists in this country are not cultivating new territory. During the course of the referendum campaign expect to hear much of the perils which prostrate Poland at the mercy of foreign infidels about to occupy the fatherland, yet again.
The way to make sense of any of this is to discuss exactly what it is the country may be about to join. It is not a seamless political federation, like the USA, or a loosely organised confederation, where the primary powers reside with member states which consent to locate some activities at the centre. For sure, it is a peculiar beast, to which only the vanished Austro-Hungarian Empire may bear a passing comparison, in that so many different nationalities are living under one roof. In modern times, the EU is perversely unique.
One Union under God
Unlike the United States, whose Constitution was largely done and dusted at Philadelphia in 1776, the European Union is in a continual state of organic ferment. It emerged from war-ravaged Europe as a device to lock two historic enemies, France and Germany, within a mutual security framework. Beyond the fine words, there was a common market in coal and steel before the six founding partners got around to signing the Treaty of Rome set with those provocative opening exhortations speaking of an "ever closer union."
The original "common market" in goods and services turned step-by-step into a supranational regulatory body with clear supremacy over national law in many areas, coupled to stark political and even military ambitions. The common agricultural and fisheries policies and those which govern monopolies, competition, trade and the environment, have displaced national interests entirely. Only the right of member states to determine levels of taxation remains aloof, but even that is being eroded by decisions on VAT and the increasing influence over state budgets conferred by the euro-zone growth and stability pact.
Within 10 years, independent tax-raising (and gathering) powers will, to any degree which matters, have utterly departed. But a common foreign policy giving Europe a single voice in world affairs, already ephemeral, will be postponed indefinitely in an EU of 25 states (and eventually 30).
The more integrationist member states have always prevailed over the more nervous participants who prefer a slower pace. The direct election of the European Parliament in 1979, which instantly proceeded to amass power at the expense of the executive commission and the Council of Ministers, proved a lively element of this chemistry. Euro MPs have always strutted about the corridors of Strasbourg and Brussels proclaiming a vision of the coming "United States of Europe."
Despite achieving monetary union among 12 of the 15 member states, talk of a Euro army and a new European Constitution, the USE is not just around the corner, and nor by any means is the nation state yet dead and buried. Tell that to the French, or the Germans, and now even the Dutch, who have begun to strongly reassert their national identity after decades in the grip of Euro-passion. But the progressive transfer of powers to the centre continues inexorably, sometimes at a glacial pace, at other times with astonishing haste, as with the single currency and before that, the seamless internal market.
When the political pace occasionally went too fast and hats flew off, it became essential to define the powers of states versus the centre, namely the "principle of subsidiarity." It means national governments are left to their own devices in essentially domestic affairs, while those which demand "common action" are clearly ceded to the centre. The parallel with the disposition of powers between the federal government of the USA and the 50 component states is compelling. (But not overwhelmingly so: the founding fathers were philosopher-gentlemen in thrall to the clockwork cosmic forces described by Newton, which they wanted their new state to imitate, whereas the Europeans are just now fumbling towards a constitution).
There is a European "Supreme Court" sitting in Luxembourg. In applying the massive body of EU law, the acquis communautaire, it enjoys unchallenged supremacy over the judicial institutions of all member states. As an instance of "supremacy," the court prevails in most aspects of commercial and trading law, but not over basic criminal codes - save where a businessman appeals against a judgement on a civil matter where a commercial crime is involved, and the treaties, or a pertinent Euro law, may be invoked: for example, insider dealing or misconduct answerable according to transnational commercial law.
Surrender of sovereignty
The great body of commercial and company law transferred to the accession countries represents a fundamental reduction of national sovereignty which many businesspeople here will enthusiastically welcome as a highly desirable step towards transparent business ethics, including the proper observance of contracts. Huge chunks of the commercial code are gratifyingly doomed.
Competition and trade policy represent a huge surrender of sovereignty. The Union overrides the governments not just of member states, but also non-members, as the United States painfully discovered during collisions with the EU over air-traffic rights, steel and even bananas. No company or commercial group operating within the internal market may abuse a dominant commercial position without invoking the wrath of Brussels. The conduct of international trade is supervised by Brussels on behalf of member states.
The greatest force of all this Brussels legislative engineering is to create a "level playing surface," the expression for distortion-free trade inside the Union, and to prevent protectionism from threatening the common market in goods, services and trade. Ninety per cent of all EU lawmaking is concerned with harmonisation, everything from medicines and motor cars to steam boilers and sauces. And yes, there is a standard European condom, just as there is a specification for a perfect cucumber.
Here's a useful illustration of how far this goes: unless approved by Brussels, financial sweeteners or other inducements to non-EU companies to invest in Poland can be ruled illegal, just as all such arrangements inside the Union are subject to similar controls.
The draconian powers of the competition directorate include the right to raid suspect companies and their offices without notice, seize documents and computers, and levy enormous fines for misconduct, for offences such as market and price-fixing, organising cartels, or other illegal acts to put rivals out of business or to cheat consumers. Strikingly similar to trust-busting arrangements in the USA.
Unless overridden at Luxembourg, the EU commission's decisions in anticompetition matters are final. One can see that in several areas, the country risks confrontation in sensitive areas, such as telecommunications, energy, sugar production and possibly some financial services such as insurance. It would not be excessively surprising if the independent pension funds, their patience with the incompetence of ZUS finally exhausted, resort to Luxembourg for satisfaction. Elements of the national IT industry present tempting targets for Brussels scrutiny, along with repressive government controls over the media, especially broadcasting. Were Poland now a member state, the mire around PZU would long since have attracted Brussels intervention. And there are aspects of the Elektrim affair which may yet beckon EU judgement. Blatant abuse of public procurement procedures should keep the watchdogs busy.
Henceforth, the government must be extremely cautious in dispensing subsidies - for example, to the steel industry, beyond permitted arrangements - or risk a charge of "distorting the market," or by favouring a state or state-influenced company over an entirely private one in the same market. Decisions of industry regulators may be overridden if they are judged anticompetitive, with telecoms again suggesting friction. Several rulings involving TPSA's actions with regard to competitors appear questionable. As an example where "subsidiarity" lapses, competition judgements can be applied to activities which are exclusively domestic, unless there is a specific exemption.
Agriculture will end up to the largest extent managed by Brussels, together with fisheries. Inevitably, the EU will take the stick for the progressive elimination of unremunerative farming and environmentally unsound slaughterhouses and dairies because politicians lack the courage to admit this would happen anyway. This process of wholesale blame transferal has already started. There will be more of the same when the enormous fiscal impact of complying with EU ordinances on cleaning up the environment strikes home, although to the population, the consequences will be entirely beneficial, including cleaner water to drink and fresher air to breathe in the cities, safer food, workplaces and transport, and righting inadequate access facilities for the handicapped, not to mention tackling the horrendous fire risks posed by socialist-era housing blocks.
An absolute beast
The EU is an essentially political beast and much less bureaucratically intrusive than detractors insist. Post-enlargement, the Brussels civil service will top no more than about 10,000, hardly detectable compared with the teeming legions of government pen pushers scratching uselessly away in Warsaw. Decisions are often by fudge or compromise, the old Irish phrase "horse-trading," summoning up the delightful image of a market in Killarney on Saturday morning, comes happily to mind. States - France frustrating an internal free market in energy, Italy arging about foreign exchange laws, the Greeks disagreeing with just about anything - can be recalcitrant to enforce the rules, but the steamroller always prevails in the end. The erosion of sovereignty in so many areas has failed to ruin anyone. The massive expansion of consumer choice and competition benefits all, and has so far detracted from that monstrous affront against consumers - the CAP - in the overall trade-off to be part of a general consensus. For example, that one may now proceed about a large part of Europe minus a passport is regarded by a great many citizens as a distinct enhancement of their individual sovereignty versus the state.
Welcome to the EU
The złoty is destined for a museum; a handful of (exquisitely rumunerated) Polish civil servants in Brussels will enjoy enormous influence over the government at home; national judges must nod to their peers in Luxembourg; it will become more interesting to see who preens themselves in Strasbourg rather than the Sejm. The judiciary will receive
a convulsive shock, terminal for many of the present participants when subjected to the reality that justice is just as readily available outside the country, which in terms of appeals to the non-EU Human Rights Court at Strasbourg, is a process already moving at a galloping pace.
Of course, this new orrery of 25 member states will inevitably assume a different character from the one forged by the present, tighter crew, which to the largest extent share a long story of common experiences, by no means all of them virtuous. There is something of a leap in the dark about what is coming. Enlargement might be compared to placing a wet log on a roaring fire. The flames at first ebb but shortly burst out with renewed vigour. The restoration of democracy in what used to be called eastern Europe has bitterly disappointed many of its citizens, and that is why the majority of Polish would-be voters shun the polling stations. The sense of securing a stake in that warm bath of "western" European prosperity, and ultimately those alluring social freedoms, is likely to prove irresistible: but from the perspective of a nation shut off from the complexities of the world for so long, it will likely be a close call.
Next week: how consumerism is coming to Poland. And are homegrown companies ready for it?
GAINERS
- Top white-collar professions: lawyers, accountants, auditors, HR experts, the new breed of homegrown CEOs and CFOs, plus myriads of consultants
- The complete media spectrum from printed and broadcast word to advertising agencies
- The private medical sector
- Low-pay, low-skill retail "MacJobs," undemanding but an expanding resource. Rag-trade fashion will boom
- Car manufacturing, maintenance, sales and leasing
- All insurance services
- Road haulage, particularly long haul. Road building and repair
- Air transport, travel agencies, hotels, tourism
- Those with science, R&D, IT and multilingual skills. Expect a brain drain of the brightest
- Real estate services, construction, especially in the provinces
- Factories exporting components
- Environmental services and engineering
- Politicians (especially those anywhere near the EU).
LOSERS
- "Smokestack" industries: coal, coke, steel, shipbuilding, trains
- Small farmers and suppliers, many retail activities in remote areas, road haulage firms with small fleets. Meat and dairy processing operations which fail EU regulations
- Corner shops everywhere, victims of higher wages and rents
- Manufacturers which left it too late to match EU standards. Firms which neglected exports for a "safe" home market
- Government employees swept from jobs by IT
- Anyone working where there is a strong union presence
- Employees in foreign-controlled strategic companies (such as TPSA) where improving productivity will be the priority. Social contracts with unions will be torn up, regardless of the consequences
- Anyone lacking higher education and language skills
- Most of the economy on the eastern borders, which lack transport links, are burdened with a low skill base, are far from markets and have poor housing will see an implosion of farming
- The homegrown entertainment industry, especially film-making and music recording
- The post office and ports
- Anyone caught in the low-income trap: pensioners, government employees and the unskilled
- Any enterprise open to sophisticated foreign competition
- The Catholic Church
