Wales in a two circle Europe

According to the pundits, Britain is not going through a ‘constitutional moment’ and is not about do so. For the foreseeable future, they conclude sagely, there is no chance of a comprehensive change in the constitutional architecture of the United Kingdom. More small-scale, piecemeal changes can be expected, but a constitutional Big Bang of the sort Charter 88 once dreamed of is for the birds. And what is true of Britain is, by definition, true of Wales.

I am not so sure. Two crucial developments have called the pundits’ conventional wisdom into question. The first is the SNP’s staggering success in the recent elections to the Scottish Parliament; the second is the current crisis of the Eurozone. Whatever may be true of England, Scotland is most certainly approaching a constitutional moment of some sort, and no matter what happens the rest of Britain, including Wales, is bound to be affected.

It is now virtually certain that the Scottish Government will hold a referendum on independence before the end of the current UK Parliament, and only slightly less likely that the Scottish people will be able to vote, not just on full-scale independence, but on ‘independence lite’ or ‘devolution max’ – in other words on fiscal autonomy within the United Kingdom. If the Scots vote for full-scale independence, the constitution of the rest of Great Britain will be up for grabs, with results that no one can foresee. But even if they reject full-scale independence and settle for independence-lite, the structure of the British state will be transformed – far more drastically than it was by the devolution statutes of the 1990s. Less obviously, a vote for the status quo would be equally portentous. It would be a vote against more powers, not just for Scotland, but for Wales and Northern Ireland too.

The long-term constitutional implications of the crisis of the Eurozone are harder to read, but they, too, are likely to be more portentous than most people on the British side of the English Channel yet realise. Built into the very structure of the Euro was a deadly flaw. Monetary union without fiscal union was always a nonsense. As far back as mid-1970s, when what is now the EU was still the European Community, the authoritative MacDougall Report showed that monetary union would be unfeasible over the long term without fiscal transfers from the more to the less advanced and competitive parts of the Community. This is what happens more or less automatically in modern nation-states by way of the national budget. I suspect that Helmut Kohl, the chief political architect of the Euro, knew this perfectly well. He didn’t say so because he didn’t want to frighten the horses, and thought monetary union would in any case evolve into fiscal union as time went on.

Unfortunately, he didn’t anticipate the heady boom of the late 1990s and early 2000s, or the frenzied euphoria that accompanied it. While the boom lasted, complacency reigned. Everyone (notably including the British political class) thought the cycle of boom and bust, which has been intrinsic to capitalism for more than 400 years, had miraculously come to an end. The Eurozone seemed to be in robust health, and it would have seemed indelicate to point to its in-built flaw.

Then came the crash and the flaw was exposed. Another flaw came into view as well: the yawning economic and fiscal gulf between weaker, largely Mediterranean countries on the southern periphery of the EU, and the stronger, more competitive heartland. Whatever may be in doubt about the current crisis, it is clear that it won’t be resolved without significant transfers from the richer heartland to the poorer periphery. And in a crisis when everyone feels poorer and more vulnerable, voters in the heartland jib at that suggestion.

That is where we are now. Assuming Europe’s rulers don’t want to plunge the continent, and perhaps the world, into a crisis of mammoth proportions, they have two choices. The first is a two-circle Europe, with a much more tightly integrated inner circle and a less integrated outer one. The tight inner circle would consist of the original ‘Six’, minus Italy, but plus Austria, probably Poland and conceivably the Czech Republic and even Spain. There, the always inherent political logic of monetary union would finally prevail. Fiscal union would accompany monetary union; for all practical purposes so would political union.

The loose outer circle would consist of the rest of the current EU. Moderate euro-sceptics in the outer-circle countries would probably rejoice at first. They would look forward to a future of continent-wide free trade without tiresome Brussels rules or supranational institutions. But the rejoicing would not last. The tight inner circle would necessarily determine the fate of the entire internal market, including the loose outer circle. To protect themselves outer-circle countries would almost certainly engage in competitive devaluations and resort to de facto protectionism. An impoverished, resentful and fragmented group of countries in Europe’s periphery would contemplate a tight group of rich neighbours across a gulf of jealousy and incomprehension. In the outer circle, the dynamic of the European project would go into reverse. The miracle of 60 years of peace in what had previously been a blood-soaked continent would be in jeopardy. It would be an unmitigated tragedy for the whole of Europe, and perhaps the world.

The other choice is to use the opportunity created by the second most shattering crisis in the history of capitalism to launch a European New Deal, based on the principles of solidarity and justice, covering the entire territory of the enlarged EU. It would be designed to combat the deepening depression through an enlarged European budget, on Keynesian lines, and to replace the depression-fostering fiscal orthodoxy that now reigns almost everywhere. At the moment, all the main European capitals are dominated by latter-day incarnations of Herbert Hoover. It’s time for European Franklin Roosevelts to take over.

Sceptics will say this is impossible. Sceptics thought the American New Deal was impossible before it got going. Sceptics in Europe thought the same before Monnet and Schuman launched their plan for what became the Coal and Steel Community and later the Economic Community. Such a New Deal offers the only real opportunity to create a social Europe able to counter the toxic mix of euro-scepticism and racism that now threatens to tear the Union apart.

It would obviously necessitate fiscal union, governed and legitimised by democratic institutions in place of the technocratic ones that run the EU at present. That, in turn, would involve a giant step towards European federalism in place of the present uneasy half way house between federalism and confederalism. Probably the UK would stay out.

The great question is what the non-English nations of the Kingdom would do. Would they allow England to exclude them from the European destiny to which their histories and cultures entitle them? Or would they embrace Europe and escape from the decaying hulk known as the British state? These questions are not on the political agenda now, but the odds are that they will sooner or later reach it. It is time they figured in the conversations of all the nations of the Britannic Isles.