Hungary’s Delusion of Sovereignty

On October 3, 2024, The European Commission, the E.U.’s executive branch, filed a legal complaint against the E.U. state of Hungary with the E.U.’s judicial branch—the high court of which being the European Court of Justice (ECJ). The Commission had won a case against the state and recently subtracted the amount of fine issued by the court from the federal money set to go to the state because the Hungarian government was refusing to recognize the verdict. Like Britain before it had seceded from the Union, Hungary was operating under the incorrect premise that it still enjoyed full sovereignty even though every state delegates some of its governmental sovereignty to the Union in becoming a state thereof. In the case of Hungary, the state law at issue in 2024 had in its very name the fundamental problem out of which the state’s disputes with the E.U. were emanating.

 In its written statement, the Commission describes Hungary’s “contentious act,” which “establishes the so-called Sovereignty Protection Office (SPO) to investigate people and organizations suspected of undermining the country’s ‘national sovereignty’ and ‘constitutional identity.’”[1] Assisted by the state’s secret police, the SPO could legally “collect information on individuals or groups that receive funding from abroad and are perceived to influence the democratic debate and electoral processes ‘in the interest of another state’ or ‘foreign organ,’ meaning a non-state actor.[2] Undue political influence from outside the E.U. state could presumably come from another state in the Union or from outside of it. Treating both the same involves making the dubious claim that for one state or people therein to buy political advertising or contribute to a political campaign in another state is anti-democratic.

Furthermore, that such interstate political influence somehow violates Hungary’s sovereignty ignores the fact that every state in the Union has given up some governmental sovereignty even just for qualified majority voting to be allowed at the federal level in the Parliament, the European Council, and the Council of the European Union. Only if every E.U. law, directive, and regulation required the unanimous consent of the state governments, which could legally ignore rulings by the ECJ would the Union be composed of sovereign states, such as the U.S. was under its initial Articles of Confederation from 1777 to 1789.

The claim of Hungary’s government that its sovereignty is violated by political influence from elsewhere in the Union can be answered by pointing out that the state is no longer in fact sovereign anyway because it is in a Union whose federal system rests on dual-sovereignty. Put another way, the states have consolidated politically to an extent for their common good, which includes being able to have more political weight in the world, so interstate political influence can be viewed as part of that intermingling that is actually a good thing for such a federal system. If states are too heterogenous (i.e., different), then achieving united action at the federal level is very difficult. The combined sovereignties that instantiate federal sovereignty is actually partly Hungary’s, so interstate influence does not necessarily violate Hungary’s sovereignty.

Back in February of 2024, the Commission cited “the principle of democracy, the right to private life, the protection of personal data, freedom of expression, information and association, and the presumption of innocence, among others,” as being violated by the state of Hungary presumably because they threaten the state government’s sovereignty.[3] More accurately, they may have been a threat to Viktor Orbán’s party remaining in power in Hungary. The principles of liberty and democracy that the Commission was arguing that the Hungarian government was violating can be viewed as competencies, or domains of authority, that both federal and state governmental institutions could legally act on. Put another way, the Commission was well within its rights to protect democracy at the state level. In the U.S., the executive branch had acted to protect democracy at the state level, as in enforcing civil rights with regard to the access of Black people to schools and voting. Alabama could hardly say that its sovereignty was being violated because the federal institutions had the authority to enforce democracy in the United States.

The very name of Hungary’s Sovereignty Protection Office is wrong, for the state had delegated some of its sovereignty when it joined the European Union. Just days after the Commission announced that it was taking the state of Hungary to court at the federal level (i.e., at the ECJ), the Hungarian trade minister voted no in a vote taken at the Council of the EU on whether the EU should put tarriffs on Chinese electric vehicles. Had the measure passed the Council, Hungary would have had to recognize the tarriffs as valid within the state. This alone means that Hungary had given up some governmental sovereignty when it acceded to the E.U. as a state.  As it happened, too many votes were abstentions, so there was no final vote either way. So the Commission used its exclusive authority, or competency, in commercial law and policy to enact the tarriffs.  So it is not just qualified majority voting in which the E.U.'s state governments were no longer fully sovereign states. That the E.U. has shared and exclusive competencies, or domains in which it can enact laws and regulations, means that the state governments no longer were fully sovereign. Hungary's "National Sovereignty Law" was thus not only contrary to a basic EU value (and norm), but also a misnomer that gives people the wrong idea concerning Hungary in the E.U. 

To pretend to be sovereign still, such as by ignoring a negative verdict by the ECJ, undermines the sovereignty that Hungary and the other states delegated to the Union, and thus in a way their own sovereignty too because the state governments play a significant role at the federal level not only in the European Council and the Council of the E.U., but also in nominating commissioners for the College in the Commission. In this respect, the state government of Hungary was compromising a part of its sovereignty—that which had been combined with parts of the respective sovereignties of the other states. By making interstate political influence illegal in Hungary, Orbán failed to recognize that the sovereignty at the federal-level has a legitimate interest in there being at least some interstate harmonization, and legally includes protection of the basic values of the Union, such as democracy and liberty. If as I suspect he believed that Hungary was still fully sovereign as a country, then it had no business being a state in the European Union. Britain seceded for this reason—David Cameron, as prime minister, had said that the E.U. was just one of the networks that the UK was in. Similarly, Orbán’s Sovereignty Protection Office explicitly belies or undermines Hungary’s claim to be a state in the Union of states. The Union would be better off without that internal contradiction.

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1. Jorge Liboreiro, “Brussels Takes Hungary to Court over Its Controversial ‘National Sovereignty’ Law,” Euronews.com, October 3, 2024.
2. Ibid.
3. Ibid.

E.U. Trade Negotiations with a Former State: The Paradigm of Britain

The paradigm used by a former state can undermine any negotiations between it and a federal government. Even the reference to a federal government, if contrary to such a paradigm, can subtly undercut relations. The typical focus on the matters to be negotiated, such as new trade relations, easily miss the negative impact of a biased paradigm that is more based in Euroskeptic states’ rights (i.e., anti-federalism) that on the actual relation being between a former state and the European Union.

In 1964, even before the E.U. came into effect in 1993, the European Court of Justice (ECJ) handed down a landmark decision in Costa v. ENEL declaring E.U. law superior over state law, and the ECJ supreme in interpreting E.U. law, including its basic law (which acts as a constitution). The E.U. saw the federal-level sovereignty expand into two “pillars” besides the renamed EEC. Even so, while in office as prime minister of the British state, David Cameron referred to the E.U. federal system as instead one of the networks to which Britain happens to belong. A network, such as NATO, does not hold any sovereignty. A network is not a federal system, and yet the E.U. is a federal system of dual sovereignty (i.e., held both by the state governments and the federal government, or “institutions”). Nor is a “bloc” a federal system, and yet even after secession British government officials (and their media) steadfastly used the loose term in spite of the fact that the E.U. covers more than trade and even economic policy and has legislative, executive, and judicial branches, as is typical for a government. Even remaining states have perpetuated the misleading term. Deutsche Welle, based in the state of Germany, notes in one article that without a trade deal, “the UK could face a so-called cliff-edge scenario which would effectively cut trade with the bloc.”[1] Cambridge Dictionary defines bloc as “a group of countries or people that have similar political interests.” Incredibly, even though the E.U. even at its inception included two non-economic “pillars,” the dictionary lists as one example, “The European Union is a powerful trading/trade bloc.” So too, were the former Eastern/Communist bloc countries even though they had not formed a federal government and they were not even republics (i.e., states) in the former U.S.S.R.

So the Truman Doctrine of the U.S., which pledged that the U.S. would help any country in the Americas resist the encroachments of communism rendered all the countries in the Americas a bloc due to the common political interest. So too, Western European countries constituted a bloc in having a shared political interest opposing the communist bloc in Eastern Europe (as well as the U.S.S.R.).  To apply the term bloc to a federal system undermines it because the term reduces it (of any sovereignty) into a mere common political interest.

Even just in thinking of the E.U. as a bloc, the British trade negotiators in 2020 were understating the status of the political union and ignoring its portion of sovereignty over its remaining states and in relations with governments around the world, including that of the UK. Even while it was an E.U. state, the UK government bristled at the reality that the federal institutions held some sovereignty in the federal system (the states holding the rest, as is the case in the U.S.)—yes, as in the case of the United States. Perhaps this comparison is precisely why the British government has intractably held onto the fiction that the E.U. is a mere bloc rather than a federal system with, yes, a federal government.

In the Deutsche Welle article, Michael Clauss, an official with the German government, warns that it is not possible for Britain to have “full sovereignty and at the same time full access to the EU’s internal market” in a trade deal with the European Union.[2] I submit that as a state, the UK wanted just that, and thus butted heads with the political/governmental reality that E.U. states were semi-sovereign as they had ceded some governmental sovereignty to the federal governmental institutions (i.e., government). Even in refusing to refer to a federal government, using institutions instead, officials of state governments generally have tried to deny that the E.U.’s executive, legislative, and judicial branches together constitute a government, as if basic law had not been established and judicially interpreted by the E.U.’s highest court. No federal government, no federal governmental sovereignty. Of course, even a collection of institutions at the E.U. level could have sovereignty; even the voting system of qualified majority voting means that a state government could find itself having to implement an E.U. directive.  

The refusal to admit that the E.U. has some governmental sovereignty even in carrying on trade negotiations has left it open for Euroskeptics to refer to the E.U. as an international organization akin to NATO or the UN, neither of which have a government or sovereignty. The British government officials can say that the former state can enjoy full sovereignty yet still have full trading benefits. 

Yet in spite of the qualitative differences between the UK and international organizations, the world, including former and current E.U. states, accepted the convenient analogy of “Brexit” to a divorce. The Deutsche Welle article, for example, observes, “Brexit supporters in the UK have grown frustrated with delays that have been plaguing the divorce proceedings since the Brexit referendum in June 2016.”[3] A divorce implies to commensurate parties, but it breaches logic to say that a state in a federal system is equivalent to the whole instead of the other parts thereof. Don’t tell Kant, but ideology can warp even logic and facts of reason. 

Does secession render a state equivalent to a union of states? 

We are supposed to believe that an international organization without its own sovereignty and a nation-state got a divorce, and, furthermore, that the nation-state can nonetheless expect to continue to get trading benefits that members get. A sovereign government can expect to get such results in negotiating with a mere international organization, and yet the divorce analogy implies that the two parties are equivalent (even though a state is not equivalent to a union of such states, or even former states). That the media in Europe and elsewhere (e.g., The New York Times) have allowed themselves to be manipulated by such twisted, self-serving ideological “logic,” which belies the strength of the E.U., suggests that the stamp of officialdom can be without a viable foundation.

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1. “Germany Urges UK to Be ‘More Realistic’ on Brexit,” DW.com, June 4, 2020 (accessed same day).

2. Ibid.

3. Ibid.

Brexit as a Contribution to Political Development

Britain’s secession from the E.U. was, I submit, based on a reaction within the state against it having given up some of its sovereignty to the European Union. The American states too were originally (i.e., from 1776) fully sovereign until they gave up some limited (i.e., enumerated) sovereignty to the federal level in 1789. In 1861, South Carolina, like Britain, also sought to secede based on the view that too much sovereignty had been transferred. Unlike the UK, however, SC (and then the other seceding states) resorted to force. Although the process of Britain’s secession was arduous, I submit that South Carolina and federal officials had been excessively rigid. Even though the “dual sovereignty” of the European and American federal systems is perpetual, only the E.U. allows for peaceful secession. This evinces a step forward in the political development of federalism. Both a federal union and a strongly anti-federalist state are better off with secession being possible, especially if the process is peaceful. Europe deserves to be congratulated, and America would do well in taking a lesson in order to benefit from the advance. Peaceful secession can be done in a federal system of dual (i.e., federal and state) sovereignty.

Although several possible rationales were put forward both for South Carolina (and the other confederate states) and the United Kingdom seceding from their respective empire-level unions, I contend that in both cases the enormous distance and thus tension between confederalism (i.e., the states retaining sovereignty) and modern federalism (i.e., dual sovereignty was the root cause. In both cases, the belief that the federal level had too much governmental sovereignty at the expense of that of the states was in play. In both cases, moreover, the respective unions were seen as confederations. In the case of SC, this belief supported the argument that a state could justifiably secede. In the case of the UK, Prime Minister David Cameron referred to the E.U. to an association and Britain as a member. This view is utterly incompatible with the E.U.s basic law due to the feature of dual sovereignty. Joining an international organization as a member does not involve any transfer of the member’s governmental sovereignty.

Not even the European Economic Community, the predecessor of the E.U., was an international organization because sovereignty was split. In Flaminio v. E.N.E.L. (1964), the European Court of Justice stated, “By contrast with ordinary international treaties, the EEC treaty has created its own legal system which, on the entry into force of the treaty, became an integral part of the legal systems of the member states and which their courts are bound to apply.”[1] Even the superiority of the ECJ over state supreme courts involves a transfer of sovereignty because a state cannot overrule the ECJ; the state is bound rather than at liberty in this respect and has thus lost some sovereignty. Interestingly, the Court nonetheless refers to the EEC as founded by an international treaty, though not an “ordinary” one. Dual sovereignty characterizes modern federalism, which began with the American constitution, so not even confederalism, wherein the states retain full sovereignty, is sufficient to characterize the EEC (not to mention the E.U.)! The reference to a EEC non-ordinary treaty is thus problematic.

I suspect that the gravitas of nationalism may explain the Court’s odd legal invention of a non-ordinary international treaty wherein sovereignty is split within an overarching legal system (i.e., modern federalism). I am reminded of a line from The Euthyphro, a Socratic dialogue. Euthyphro suddenly remembers that he has an appointment as soon as he realizes that he has lost the debate. Socrates quips, “Oh Euthyphro, you are a rascal!” Rather than own up to the fact that international treaties do not split sovereignty within an overarching legal system, the Court stated that the EEC international treaty was not ordinary, and yet the ruling explicitly affirms: The transfer by the states from their domestic legal system to the Community legal system of the rights and obligations arising under the treaty carries with it a permanent limitation of their sovereign rights.[2] In fact, the EEC could exercise direct effect in obligating the residents of a state without the state’s involvement.

The E.U. shifted even more sovereignty from the states to the federal level and continued direct effect, and expanded the federal governmental institutions to include a parliament and an executive branch (with a president), so the case that the E.U. federal system includes dual or split governmental sovereignty is even stronger. Even so, David Cameron referred to the Union as one of the international organizations to which Britain happens to belong. Even the Court ruling about the EEC would challenge such a characterization, albeit in a vague way.

I submit that enough of the residents of the E.U. state of Britain viewed the E.U. as an international organization and thus as having an illegitimate claim to any sovereignty that secession was good both for the state and the Union. Put another way, the state’s predominant notion of what the E.U. was conflicted violently with what the E.U. actually was at the time: a federal system characterized by dual sovereignty (i.e., modern federalism—not even confederalism!). A real difference of opinion on something is can be understood as a deep fault-line, and thus as destabilizing at best. A house divided so fundamentally does not stand much of chance in the long term. Therefore, it was to tremendous benefit both to the E.U. and its most wayward state that the secession was not only allowed, but also accomplished peacefully. The arduous process, in other words, was well worth all the headaches. The American case demonstrates that resorting to force can go terribly wrong.

1. Flaminio Costa v. E.N.E.L., Summary, Case 6-64, 15 July 1964.

2. Ibid.

The British Pound Reacts to Secession

When the E.U. state of Britain held a vote in 2016 on whether to secede from the union, the British currency plummeted. On the day of the December 2019 statewide election in the U.K., that currency initially jumped and held on the day after as official results confirmed that the conservatives had won a majority and thus would be able to see the secession through. I submit that uncertainty itself was a major factor in both swings, and that the market put too much emphasis on the matter of uncertainty at the expense of the substantive economic effects of secession.

According to The New York Times, the British pound plummeted after the referendum vote in 2016 due to “agitation over the economic and financial disruption that seemed to lie ahead.”[1] Such disruption would be an interim matter, rather than ongoing, because a new equilibrium would doubtless take hold. The agitation was thus about change, and more specifically about the uncertainty that is in any change. Alternatively, the drop in the currency could have been to analysts having determined that the British economy would not be as strong after the change. In other words, the drop could have been prompted by analyses of the new equilibrium more so than the uncertainty during the change. I submit that such a rationale would have been better, for it would have reflected economic fundamentals rather than merely an aversion to change.

The state’s general election in December 2019 took place after a long period of governmental stalemate on the matter of secession. Prime Minister Boris Johnson had secured an agreement with federal officials on a secession plan, but his own state legislature balked. The achievement of an outright majority in the House of Commons in the election meant that Johnson’s plan could finally be passed. The high probability of secession taking place at the end of the next month (and with a trade deal) removed the uncertainty concerning even whether the state would secede. According to Lee Hardman at MUFG, the election outcome “gives you more clarity over the direction of Brexit.”[2] Clarity, rather than how the state’s economy would be post-secession, involves a decrease of uncertainty.

To be sure, the governmental stalemate and the related uncertainty had been difficult on British businesses. Some even moved their headquarters to other states. That Johnson would be able to push his secession deal through his legislature means that the market could anticipate even less uncertainty. So it makes sense that the decrease in uncertainty would be a factor in the currency markets. Even so, what about how the state’s economy would be like after the transition? That the UK would secede with a deal suggested that the state’s economy would not only suffer less uncertainty, but also be stronger, with continuing trade with the E.U.’s states. How would the UK economy look? This, I submit, is what the currency markets could (and should) have reflected to a significant degree relative to the matter of uncertainty and transition.

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1. Amie Tsang and Matt Phillips, “Brexit Once Meant a Weaker British Pound, But Not Anymore,” The New York Times, December 12, 2019.

2. Ibid.

Anticipating a Recession: Economic and Political Indicators in the E.U.

Anticipation in August, 2019, at least among bond purchasers on Wall Street, of an impending recession in 2020 had at least in part to do with the E.U. In particular, a large state, Germany, had a disappointing second quarter in terms of contracting economic output, and the increasing prospect of Britain seceding from the Union was thought to result in the E.U. economy turning recessionary. I contend that both of these baleful indicators were over-emphasized. Additionally, adding the increasing political polarization in the E.U. as another contributor to an upcoming recession would be too much.

Germany’s economy contracted just 0.1% from the 0.4% growth rate of the first quarter.[1] Placing such emphasis on a change from 0.4 to 0.3 might strike some people as being petty. Yet Carsten Brzeski, chief economist in Germany of the Dutch bank ING said at the time, “Today’s GDP report definitely marks the end of a golden decade for the German economy.”[2] A 0.1% change ends a golden decade. How fragile golden decades must be!

To be sure, “industrial output for June dropped over 5% compared to the previous year. And the ZEW indicator of economic sentiment for August plunged sharply, hitting its lowest level since December 2011.”[3] Brzeski pointed to increased uncertainty from a large state seceding from the E.U. and the U.S.-China trade negotiations as the main culprit. Whereas the British economy would likely be negatively affected in the scenario of secession without coordination, the argument that the E.U. economy would contract as a result is more tenuous. Even if the British economy of a fully sovereign U.K. were to falter, the E.U. economy, being, like that of the U.S., made up of state economies, would hopefully be able to absorb interruptions in trade with Britain. Moreover, the empire-scale of the E.U. (and U.S.) is, as a cluster, much larger than the state-scale of political entities within the empire-scale union.[4]  Baleful economic predictions in 2019 for the E.U. post-secession may have been exaggerated in part due to conflating the two political scales. References to Britain’s “divorce” from the E.U. serve as perfect examples of the category-mistake. No, Virginia, the U.K. is not another E.U.; rather, pre-secession Britain was/is a political sub-unit in the E.U., whose laws and court (ECJ) trump(ed) British law and courts.

The pre-secession trend of business moving from the state of the U.K. to other states may suggest that the E.U. economy would actually benefit from a “no deal” secession. Furthermore, the E.U. trades with other countries, so disruption in trade with a former state could be viewed relatively and thus seen as less baleful for the Union than some economic forecasters were predicting in 2019.

More crucial to the E.U., and less to its economy, were “insurgent movements from the anticapitalist far-left to the nativist far-right,” which have “made inroads” amid “eroding public confidence in mainstream conservative and social-democratic parties that for decades” had dominated at the state level.[5] Although it is tempting to label all this as political instability, the political institutions have funneled even parties like the 5 Star party, which came out of anti-corruption protests, into the nitty-gritty of coalition talks.

Even the political tensions in 2018 between the state government of Italy and the federal E.U. level, which “upset investors in Italian bonds and banks, hurting the flow of credit,” and the collapse of the governing coalition in 2019, which drive some investors into bonds, were not economic crises for the E.U. economy as a whole. Politically, however, Matteo Salvini of the League Party in Italy, could already be viewed as potentially damaging the E.U. federal system. He “challenged” the E.U. law on fiscal discipline for state governments, accusing the states of Germany and France of hypocritically getting away with exceeding the limits on state debt and deficits while the E.U. imposed austerity on the Italian government. His complaint was valid enough. On August 20, 2019, he repeated he would defy federal authorities on the tax-increase (rather than a decrease!) part of the austerity fiscal-discipline federal mandate.

In the early 1830’s, U.S. President Andrew Jackson was forced to deal with South Carolina’s Nullification Acts, which stipulated that the state government could defy federal law regarding laws that the state deems are detrimental to South Carolina. Jackson was aware that a federal system in which governmental sovereignty is split, as in the U.S. and E.U., cannot long survive when even just one state government can decide to defy federal law. So the political uncertainty regarding the growing power of the political extremes in the E.U. has primarily political implications. To put the economics before the political in such a case represents yet another over-statement of the economic. Politics does not reduce to economics. Although the former can obviously affect the latter, one of the domains should not be put foremost in the domain of the other. My thinking on political uncertainty is that its economic effects tend to be overstated. Even in political terms, political institutions have shown a remarkable ability to funnel, or normalize, what was once raw political conflict.

Related: Skip Worden, Essays on the E.U. Political Economy: Federalism and the Debt Crisis. Available at Amazon.

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[1] Julia Horowitz, “German Economy Shrinks as ‘Golden Decade’ Comes to an End,” CNN.com, August 14, 2019.

[2] Ibid.

[3] Ibid.

[4] Skip Worden, British Colonies Forge an American Empire: A Basis for Trans-Atlantic Comparisons. Available at Amazon.

[5] Marcus Walker, “Italy’s Government Collapse Sets Up a Power Struggle,” The Wall Street Journal, August 21, 2019.

Misconceptions of the E.U. Budget

Could it be that at least some of the British voters who were in favor of secession from the E.U. held misconceptions of the federal budget? If so, perhaps the antagonism was unduly harsh in the referendum.  
So many misconceptions have existed regarding the E.U.’s budget that the European Commission published a “myth-buster” page on its web-site in 2013. As against the claim that the E.U.’s budget was enormous, for example, the Commission pointed out that the 2011 budget was about €140 billion, while the combined budgets of the 27 states were €6.3 trillion. In fact, the E.U.’s budget was less than that of the budgets of medium-sized states, such as Austria and Belgium. Whereas the E.U. budget represented about 1% of the E.U.’s GDP (the total value of all goods and services produced in the E.U.), the typical state’s budget was 44% of the state’s GDP. Relative to economic activity, the E.U. budget was not enormous, the Commission concluded.
In terms of the growth of the E.U. budget, the Commission pointed out that between 2000 and 2010, the state budgets had increased by 62% while the E.U. budget had increased by only 37 percent. Lest it be argued that the state budgets had been more democratically determined, the European Parliament, the members of which are directly elected by E.U. citizens, must approve the E.U. budget.
Regarding the misconception that most of the E.U. budget went to administration, the Commission pointed out that administrative expenses amounted to less than 6% of the total 2011 E.U. budget, with salaries accounting for half of that 6 percent. More than 94% of the budget, according to the Commission, “goes to citizens, regions, cities, farmers and businesses.” In this regard, the federal spending was not much different than state spending. In fact, state and local officials typically selected the E.U.-sponsored projects best suited to the officials’ respective areas.
Lastly, regarding the misconception that most of the E.U. budget has gone to farmers, direct aid to farmers and market-related programs was just 30% of the budget in 2011, and rural development spending was only 11 percent. For perspective, around 70% of the EC’s budget in 1985 was spent on agriculture. Put another way, the E.U. had diversified, hence reaching more citizens.

Source:

“Myths and Facts,” E.U. Commission.

Secession E.U.-Style: Beyond the Economic Implications

Financial markets place bets on political outcomes, such as how or even whether the E.U. state of Britain would secede from the Union. Leading up to the March, 29, 2019 secession date, the shifting odds moved stock, bond and foreign exchange markets, especially given the instability in the state government in general and more particularly on reaching a deal with the federal government in Brussels on just how the state would secede. Of course, the political magnitude of a state seceding from a Union such as the E.U. or U.S. is not captured by how markets anticipate the risks. To reduce secession to the end of a trade treaty does the secession and the Union itself a grave injustice. More generally, political changes do not reduce to their economic anticipations or effects. Nor is it wise to assess the political viability of future political events by the economic assessments in financial markets.

On January 16, 2019, for example, Capital Economics, a research group in London, placed a 70% probability that Britain would find a way to “fudge and delay” its secession past the deadline, as per the E.U., Article 50, of March 29, 2019.[1] To investors, the implications that the British pound would probably rise and the stocks would likely surge are of value. This does not capture, however, the political downside of a government dealing with such an important matter by “fudge and delay.” In other words, what such a way of handling something as important as seceding from a union in which the states are semi-sovereign means in terms of governance is not captured by the 70% projected likelihood.

March 29, 2019 remained “a meaningful deadline” even as British “lawmakers were unable to agree on a course of action.”[2] This reflects terribly not just on that government, but democracy itself. The establishment of an ordered means by which a state could secede from the E.U. represents a significant advance over the U.S., which has left states with one option—secession by force. Yet the British government mishandled the matter of seceding from the E.U. after the state invoked the secession process at the federal level. This undermined the E.U.’s prudent advance over the U.S. in introducing a flexible constitutional (or "basic law") way for states to secede without the need to resort to force.

The probability of somewhere below 20% but above zero that the secession would occur without any negotiated agreement represents a more dire economic prospect. In November, 2018, the Bank of England projected “a major shock that could subtract more than 10 percent from Britain’s gross domestic product” from this low-probability outcome.[3] Yet even such a remarkable economic effect on the state would not capture the severity of the political failure. Secession from a union is not just ending a trade treaty; much more than the economic aspect is involved. At the very least, the failure of the negotiations between the state and federal government would point to a major weakness in the E.U.’s Article 50, and thus to a political need to alter it. In short, secession should not depend on the vagaries of negotiation. After all, it had broken down between U.S. President Lincoln and the state of South Carolina in 1861. 
Another possible scenario facing Britain before the March deadline was that the state would not secede after all. "Goldman placed a 40 percent probability on the chance that Britain, in the end, would not leave the European Union at all, which would be accomplished through another referendum repudiating the original vote."[4] Because the original referendum had been billed as the decision point on the question, to go back on that decision just because it was difficult for the British government to implement betrays democracy itself, for the people had spoken with the understanding that it would be final. To say, "Oh, actually it wasn't" would be bad form. That the people had spoken, each side playing by the same rule (i.e., the question would be settled by that referendum), is something that government officials and legislators should--from a democratic standpoint--have fully respected from the day of the referendum. That the losing side on the question would set up another referendum would undermine democracy because even those decisions billed as determinative could not be taken as such. Goldman's 40% probability can thus be read as saying something about democracy in Britain and democracy itself, and we can't get this merely from the way the announcement of the 40% probability affected financial markets and individual investors. 

See Essays on the E.U. Political Economy and Two Federal Empires, both available at Amazon.

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1. Jeff Sommer, “Governments Malfunction and the Markets Place Their Bets,” The New York Times, January 25, 2019.

2. Ibid.

3. Ibid.
4. Ibid.

The Strength of the Euro Bespeaks Normalcy for the E.U.

As 2018 was beginning its climb in the northern hemisphere toward eventually warmer days, the prospect for the E.U. through and after the secession of one of its largest states was perhaps brighter than commonly thought at the time. When the days are short, it is perhaps all too easy to be pessimistic. Signs of strength in the euro implicitly sent the message in January  of 2018 that the E.U. would be just fine without its foremost euro-skeptic state.

The first month of 2018 witnessed negative interest rates both for the euro and the yen, and stronger economic growth for the E.U. and Japan. Interestingly, however, the two currencies were heading in opposite directions as markets protected that interest rates would rise quicker in the E.U. than in Japan. In 2017, the euro had rallied by 14% against the dollar, while the yen had been up by only 2 percent. Against a bloc of trade-weighted international currencies, the yen had actually declined.[1]

The normalization of the E.U.’s context, and the E.U. itself, even as a large state was in the midst of seceding from the Union, can be inferred from the euro’s relative strength. “What we clearly have is that the expectation for normalization is giving the euro a boost, and that’s part of what’s moving the currency,” said Andreas Koenig of Amundi. Normalization is not a word that most Europeans would have probably been using at the time. Britain was still holding that it could avoid a hard border in Ireland and yet leave the single market and the customs union, as well as have diverging regulations. At the federal level was the expectation that the state’s intent on ending the free movement of E.U. citizens in and out of an independent Britain as no longer being subject to the ECJ, the E.U.’s Supreme Court would “point to a free-trade agreement little more comprehensive than those with South Korea or Canada.”[2] With the E.U. and one of its states holding such divergent expectations still in the dawn of 2018, normalcy is a word that people then likely were not applying for the E.U. for the year and indeed the next several to come.

Yet the secession of a state whose government had not only resisted transferring more governmental sovereignty to the federal level, but also wanted some back and even viewed the E.U. itself eschew as a network or mere trading “bloc,” could even then be reckoned as a good thing for the Union because a stronger, more internally aligned one would come out without even such a large state at the UK. For a house divided cannot long stand, and at the very least the vast majority of any political society, even a federal one, should agree on the basics of what the society is.

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[1] Mike Bird, “Euro and Yen Tell Different Tales on Negative Rates,” The Wall Street Journal, January 22, 2018.

[2] “Now for the Difficult Bit,” The Economist, January 13, 2018.

Spain’s Government: Measuring the Will of the People

“’No government in the world’ could tolerate the threatening of its unity,” said Mariano Rajoy, the prime minister of the E.U. state of Spain after a week of protests pro and con on whether the region of Catalonia should secede from the state.[1] On October 1, 2017, the region had held a referendum on the question in spite of the efforts of the state police to stop the vote. Ninety percent of the 40% of the region’s residents voted in favor of breaking off from Spain, but the active presence of the police means that the results could not be taken as an accurate reading of what the population of Catalan wanted.

I contend that the state government should have permitted the referendum because democracy itself depends on a people’s self-determination. In intimidating the vote, the state government inhibited a result that could be taken as the people’s will. The respective sizes of the political protests could not be taken as indicative; neither could pronouncements by Catalan or state officials either way. Sergi Miquel, a Catalan lawmaker, insisted that the turnout would have been much higher had the police not acted violently against potential and actual voters, but we cannot surmise how that turnout would have voted. He had an interest in portraying the averted turnout as pro-secession, while the state’s prime minister had an interest in portraying the Catalan people as pro-Spain. Only a fair and open referendum could have revealed what the region’s people wanted, and democracy itself prizes the will of the people even above a government’s political and territorial interests.

That Spain is an E.U. state mitigated what was on the line (i.e., the significance of secession), assuming that Catalan would be a state too. Generally speaking, being part of the same federal system would mean that Catalan and Spain would be part of the same political system and thus have some laws and regulations in common. One of the prime benefits of federalism is that such commonality coexists with differences that reflect different cultures and self-identifications of peoples. People in Texas are both Texans and Americans. So too, Catalan people would be both Catalans and Europeans; Spaniards are of course Europeans as well. In other words, both Catalans and Spaniards would be E.U. citizens even if the region were to secede and become an E.U. state, and this track would mitigate the significance of secession. It follows that the state’s drastic efforts to violently curtail the referendum can be seen as excessive, as well as being at the expense of democracy. It may be that government officials generally are inclined to lose perspective and resort to force because they can. I submit that force in a democracy should be a last resort, especially when the use interferes with taking the measure of the will of the people.

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[1] Patrick Kingsley and Jason Horowitz, “Amid Catalan Crisis, Thousands Hold Rallies in Madrid and Barcelona,” The New York Times, October 7, 2017.

See also: Essays on the E.U. Political Economy

The Flemish and Walloons: Worlds Apart?

I contend that the cultural differences between the Flemish and Walloons within Belgium have been exaggerated to such an extent that the state government of Belgium has been paralyzed and solutions have eluded the Belgians. Reducing the fear-induced swelling of the admittedly real differences within Belgium may therefore facilitate relief from the paralysis. In other words, the added perspective from viewing the cultural differences as less traumatic can help the Flemish and Walloons to either live together or, ironically, be able to separate. That’s right—a more realistic assessment of the differences can actually facilitate the separation of Belgium into two (or three) E.U. states (or Flanders joining the Netherlands and Wallonia joining France—and the German-speaking area joining Germany). Exaggerating differences can snuff out consideration of such alternatives and enable continued paralysis.

To be sure, distinctions can indeed be made between the Flemish and Walloons; we can’t simply assume that the overall Belgian (or European) identity relegates the regional distinctions. "I am Flemish first, Belgian second," says Pascal Francois of Aalst.  Another Flemish man says, “it’s a toss-up when I’m in Belgium.” Even though I am a citizen of the U.S. rather than the E.U., I can relate.

I regard myself as a Midwesterner first, Illinoisan second. Being a Midwesterner essentially means to me having imbued the intrinsic down-to-earth culture of my native region of Illinois, which, as mostly rural with only a medium-sized city as its de facto capital, is distinct from Chicagoland (which is less Midwestern than the other regions). To be sure, “the Midwest” is a broad area in mid North America that transcends political categories. The label goes far beyond geographic connotation, for “the Midwest” stands for a certain “home-grown” (rather than foreign) culture wherein honesty (and bluntness), prudence, populism, and humility (and stubbornism) are particularly valued. The Midwest is known as “the heartland” because of these ethical virtues. In Illinois at least, being a Midwesterner can be readily identified with one's specific region because the cultural values are more immediate than the political identification associated with being an Illinoisan. So being a Midwesterner is to being Flemish as being an Illinoisan is to being Belgian. So too, being an American is as being a European, even if the emphasis differs. Ideally, a federal system proffers political expression to each of these respective identities. Unfortunately, fear and the related intransigence (or stubbornness) can block full expression of one or more of the levels of cultural identification.

In the case of giving political expression to regional identification in Illinois, fear of change has gotten in the way. For example, the Illinois Senate could represent the regions (i.e., clusters of four or five counties), hence facilitating their expression. Given how much the regions differ, the result has been a deficit in political identification within Illinois. Because the republic is quite heterogeneous (including linguistically, which, by the way, by no means exhausts the ways in which cultures can differ), I did not grow up identifying myself as an Illinoisan. In fact, the regions in Southern Illinois have more than once attempted to secede from Illinois due to economic, political and cultural differences—mainly from Chicago (whose culture is foreign even from the vantage-point of the two other regions in Northern Illinois). In my late twenties, I visited Southern Illinois once from the North. Even though I am not from the Chicago region, I felt at the time how strange it was that the place was “Illinois.” You’re not Illinois, I thought to myself, this place is different and far away. The people talk differently. Unfortunately, I did not have a regional political identity on which to rest this intuitive reaction of semi-foreignness. Perhaps the Walloons feel a semi-foreignness when they are visiting Flanders (and so too, the Flemish, when visiting Wallonia), though in their case, unlike mine, regional political identification can fortify the regional cultural bases of “home.”

In short, I can understand why a Belgian might identify as Flemish or a Walloon first and want to give political expression to it, given the cultural diversity within Belgium. Such identification is not a bad thing in itself. Of course, whereas there are regional dialects (and some unique vocabularies) in Illinois, Flanders and Wallonia enjoy different languages—indeed it can even be said that these regions enjoy standing for Dutch and French, respectively. Even as language is a major point of difference between the two regions, this basis can indeed be exaggerated, playing on the generalized fear by emphasizing the standing for over simple enjoyment. Il est facile de craindre.

For example, The Telegraph reported in 2010 that “Pascal Smet, the schools minister for Flanders, has horrified [the Walloons] by suggesting that Flemish children, who are Dutch speakers, should learn English as their second language, rather than the French spoken by two fifths of their countrymen in Wallonia.” While being horrified constitutes an over-reaction, Pascal Smet must have known in 2010 that he had “picked a broader fight” under the reasonable rationale that English should be learned because it is becoming the common language of the E.U. "I note that the engine of European integration is sputtering. One reason is that we do not speak the same tongue, hence my plea for a common European language," he said according to The Telegraph.

Of course, Smet could have satisfied his purpose by proposing that English and French be taught to the Flemish kids. His needless insensitivity alone can be seen to have inexorably fomented an exaggerated response. According to The Telegraph, “Smets proposal that children in Flanders can dispense with French [has] deeply angered Belgian Walloons already fearful over their fate and Belgium's future after Flemish separatists won the largest share of the vote in elections.” In other words, even sensible proposals involving the languages can escalate, fueled by the more generalized fear in the context of mistrust.

In short, already-stark differences existing between the Flemish and Walloons are easily exaggerated, creating a self-fulfilling prophesy of separateness wherein people have a knee-jerk tendency to over-react. This can be seen as well where the Flemish and Walloons come into close contact. At least in the short run, integration can provoke flash-points.

According to the BBC, “Flemish defensiveness is at its sharpest near Brussels. The capital, which used to have a Dutch-speaking majority until the early 20th Century, is now overwhelmingly francophone. Its population is spreading outward in search of greenery and cheaper homes - a move that many in the Flemish suburbs find threatening. Liederkerke, a traditionally working-class town 15 miles (25km) west of Brussels, is one of many suburbs that have seen an influx of both rich expatriates and African immigrants.” It is strange that Walloons from the south of the state would be compared to expats and African immigrants.

The cultural differences within Belgium should not be construed as though they were a microcosm of cultural differences within the E.U. or even internationally. For example, the BBC avers that the “cultural divide between Europe's Germanic north and Latin south has run through the middle of Belgium since the Roman Empire.” However, Flanders is not exactly Bavaria, nor is Wallonia populated by Spaniards and Sicilians. That is to say, perspective ought to be maintained in assessing the extent of the cultural differences within a small E.U. state. Let’s not get carried away.

                                               BBC

Of course, as I suggest above, cultural differences do indeed exist between the Flemish and Walloons. Among the relevant factors, economic differences have fueled the continued salience of the regional identities—indeed, in exaggerating them as well. Luc De Bruyckere, chairman of the Ghent-based food group Ter Beke and vice-president of FEB, Belgium's main employers' federation, for example, “points out that Flanders has a very tight labour market, while Wallonia is suffering from 17% unemployment.” Remi Vermeiren, a former chairman of the banking giant KBC, contends that Flemish people "believe more in a market economy" than Walloons. However, I have met Flemish who have stressed the European socio-political virtue of solidarity (which is virtually absent from the American political lexicon).

Therefore, I suspect that the economic ideological differences between the Flemish and Walloons are overstated. It is not as though the Flemish have adopted Sarah Palin’s view of capitalism while the Walloons have adopted a command-and-control economy akin to that of the defunct Soviet Union.

Furthermore, economic disparities have fomented prejudice, which has the effect of exaggerating cultural differences and inhibiting viable solutions. According to the BBC, “Flanders indeed has wealth, a hard-working population, and beautiful, world-famous cities - like Bruges, Ghent and Antwerp. Many there are asking why their taxes should prop up what they regard as a lagging, mismanaged region.” Are the Walloons really not “hard-working” and not able to manage themselves? Such assumptions do not necessarily follow from economic differences. More likely, regions differ economically because their dominant industries are different and perform differently. Even so, Roger Vandervoorde, 65, a retired sales director, for example, told the BBC, “Walloons should be responsible for what they do.” Prejudice drips off this statement, reflecting more on his state of mind than any lack of responsibility among the Walloons. Besides exaggerating cultural differences, such prejudice can impact political recommendations and reactions, which have in turn have exaggerated the differences.

According to the BBC, “resurgent Flemish pride is based on much deeper forces than just material wealth.” Specifically, “The sense of Flemish identity is all the more acute as it was suppressed by the French-speaking elites that ran Belgium after the 1830 revolution. The constitution was written in French. A Dutch version, written a century later, was not given equal legal force until 1967. As the Dutch-speaking majority demanded recognition, it was mainly pressing claims against the Belgian state.” Accordingly, “a wide majority in Flanders reject Flemish separatism. Most people just want more autonomy within the Belgian state.” This autonomy can be read as a reaction from having felt oppressed (or a fear of potential oppression in the future).

The generalized fear interlarding the Flemish is evident in the following observation from the BBC: “Wallonia may be poorer, but it is part of the 200m-strong francophone community. The Flemish are not standing on the shoulders of a friendly giant next door - and can be irked by Walloon cultural self-assurance.” Lest such fear be given too much leeway, the Flemish might recognize that Flemish conservatives have been dominating the Belgian state government of late and that both Belgium and France are states in the European Union. The ECJ, for example, is fully capable of restraining an imperialistic France intervening in Belgium on behalf of the Walloons.

Similarly, a generalized fear has interlarded the Walloons too. This can be seen in the Walloons’ reaction to Vandervoorde’s claim (perhaps made on the basis of his prejudice), “The best would be a confederation, with each part responsible for itself and only a few small matters handled federally.” Perhaps reacting subconsciously to the prejudice in addition to the proposal itself, “the Walloons are digging in their heels. They regard confederation as secession in all but name, and insist on keeping tax and welfare policies at federal level." The Walloons’ political reaction, in other words, may not simply be a desire for continued redistribution. At root, the fear might be that of being rejected. Such emotional/political fear need not exaggerate the perception of cultural differences or natural reactions to them.

Federalism, and even separation, can be natural reactions to real cultural differences. De Bruykere has a point in urging, “We have to organise ourselves in such a way that the different problems can be answered. One size fits all is not a solution.” While this dictum pertains especially to empire-scale unions such as the E.U. and U.S., it can also apply to heterogeneous states such as Belgium and Illinois. Just as the Chicago region ought not dominate the other regions of Illinois, Flanders ought not dominate Wallonia. That the two republics are themselves states in empire-level federal systems can be expected to relegate the “shock” thought to ensue from the partitioning of either Belgium or Illinois.

Even as prejudice can exaggerate the salience of extant cultural differences, being in an overarching federal system can be an asset in dealing with them. Belgium being a state in the E.U. can take some of the pressure off the Belgian government by having a more activist E.U. presence in the state (e.g., dealing directly with Flanders and Wallonia). Alternatively, the E.U. can facilitate Belgium in reconfiguring into two states or in splitting off into the Netherlands and France. Accordingly, Belgians, whether Flemish or Walloon, can afford to take a breath and gain sufficient perspective to stop clutching in fear to what has been at the very least a rather uncomfortable status quo.

Sources:

BBC News, “Rich Flanders Seeks More Autonomy,” September 30, 2008.

Bruno Waterfield, “Flemish-Speaking Belgian Minister Wants English To Be Europe’s ‘Common Language’,” The Telegraph, September 27, 2010.

Related Essay: "On the Belgium Stalemate: The E.U. to the Rescue?"

Essays on the E.U. Political Economy: Federalism and the Debt Crisis

The collection of essays comprising The E.U. Political Economy looks broadly at the E.U.'s federal system, with particular attention to the states, including the matter of "Brexit," which refers to the secession of Britain from the Union. The text then turns more narrowly to the government-debt and banking crisis that occurred in the wake of the financial crisis of 2008. The backdrop of federalism is meant to convey the point that weaknesses in that political system hampered the E.U.'s handing of its states and banks that were in trouble with debt. Lastly, several essays are presented on some more general aspects of the E.U.'s political economy. Rather than being heavily theory-oriented, the essays draw on contemporaneous news reports to quote from practitioners from business and government.

Essays on the E.U. Political Economy is available at Amazon.

Perspective on the European Union

At the signing of the Rome Declaration at the 60^th anniversary of the Treaty of Rome, which established the European Community on March 25, 1957, E.U. leaders expressed their intention to further strengthening the federal Union. Even as “regional conflicts, terrorism, growing migratory pressures, protectionism and social and economic inequalities,” as well as Britain’s upcoming secession provided a sense of pessimism, Jean-Claude Juncker, president of the European Commission, the E.U.’s executive branch, said, “Let us not lose perspective.”[1] I submit that this advice was at the time very important.

The complete essay is at Essays on Two Federal Empires.

E.U. leaders in Rome to sign the Rome Declaration (source: NYT)

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[1] James Kanter and Elisabetta Povoledo, “E.U. Leaders Sign Rome Declaration and Proclaim a ‘Common Future’ (Minus Britain),” The New York Times March 25, 2017.

Holding Back the E.U.: What Is It?

In addressing the E.U. Parliament in February, 2017, Canada’s prime minister, Justin Tradeau, claimed that the E.U. “is a truly remarkable achievement and an unprecedented model for peaceful cooperation.”[1] The only problem with the compliment is that it is not true. The U.S. is the precedent, as it was formed as an alliance in part to stave off war between its member states.

The complete essay is at Essays on Two Federal Empires.

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1. James Kanter, “Trudeau, Praising the E.U., Doesn’t Mention ‘Brexit’ or Trump,” The New York Times, February 16, 2017.