Government and Institutions

Is the EU constitutionally flawed?

It is well-known that Churchill supported the concept of a union of nations on continental Europe. Less well-known is the fact that F. A. Hayek – the inspiration for many free market economists – was in favour of this kind of supranational governmental arrangement at the European level too. This might come as a surprise to those who view a support for free-markets and support Brexit as going hand-in-hand.

Unfortunately, the EU that we have today has not developed as liberal thinkers would have hoped. As with all governmental systems – including the US – there is a tendency towards centralisation. It is difficult to avoid that drift to centralisation when the supranational power has responsibility for regulating trade and commerce between states.

Once such power is ceded, as it was through the Single Market Act, almost any legislation can be justified at the central level on the grounds that it has some impact on trade and commerce. The regulation of banking, insurance, labour markets and so on are all becoming centralised at the EU level with seriously problematic consequences.

Whether this was the intention of the founding fathers is difficult to know, but it certainly was not the intention of those economic liberals who supported some form of European government.

This growth of regulation at the EU level undermines the freedom of movement of services and capital by making business more difficult; it loads costs onto consumers; and it creates a layer of regulation administered by people who are totally unaccountable to the people.

How can these problems be overcome?

Firstly, the unanimity principle is important in any federal arrangement. If a trans-national entity becomes too big to require unanimous agreement to exercise power at the centre, a very large majority should be required. But, in the EU, the principle of “Qualified Majority Voting” has been diluted over time so that smaller and smaller majorities are needed for the EU to exercise power over the heads of member states.

Secondly, the principle of subsidiarity from Catholic social teaching needs to be heeded. This is written into the EU constitution but in such a way that it is meaningless – and certainly rarely takes precedence in the European Court of Justice. The principle of subsidiarity was defined in Quadragesimo Anno as follows:

“Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do. For every social activity ought of its very nature to furnish help to the members of the body social, and never destroy and absorb them.”

The EU should not just be centralising powers because it believes it can do things better than member states (after all, the central authority will always believe it can do things better). Powers should only be centralised if member states cannot exercise the relevant function.

The EU should restrain its horizons. It should restrain member states from preventing the free movement of capital, labour, services and goods and not be active in a positive way. The EU should not be active in regulating economic activity. It should only do those things that member states cannot do and which member states cede to the EU by unanimity or a huge majority.

This requires a re-writing of the EU constitution – a re-writing that is probably unachievable.

It is said that Catholic social teaching inspired the founding of the EU’s predecessors. Maybe so, but getting constitutions wrong has serious consequences. In this case, the EU has ignored a key plank of Catholic social teaching and the consequences have certainly been serious.

Prof Philip Booth is the IEA’s Editorial and Programme Director and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham.

This article was first published by Reimagining Europe.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.