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In Edgar Allan Poe’s 1841 short story ‘A Descent into the Maelstrom’, a fisherman tells the narrator how he once ended up in an enormous whirlpool near the Lofoten Islands (Norway), which engulfed his boat and the crew, even as he miraculously escaped. To become the natural phenomenon that is a maelstrom, in a rough sea thousands of smaller and overlapping vortices  can coalesce into a massive whirlpool of up to 1.5 Kilometres in diameter, from which there is normally no escape.

We might find parallels between this story and the situation in which the European Union currently finds itself: surrounded by choppy global seas, plagued by multiple problems from the Global Financial Crisis until the fallouts of the Russian aggression against Ukraine, and with fresh adversities lying ahead (energy, inflation, high public debt). Indeed: ‘When sorrows come they come not single spies, But in battalions’ (Shakespear, Hamlet).  All of these sorrows are beginning to merge into a large disaster, which a German commentator has described as a ‘fateful moment’ – that is, a moment of the utmost danger. Following on from the turning point in history (or Zeitenwende in German) of Russia’s aggression in Ukraine, there is now a turning point in global, supra-national and national politics.

A turn to a sovereign EU means a turn to a democratic EU

We know from previous turning points in history that they normally give rise to a new global order in political, as well as economic terms: witness the collapse of the Soviet Union and the socialist system 1989-1992. Now again, the EU has to find its place in an approaching new order. Its contours are not yet well defined, but one thing does seem to be clear: a Union that seeks to safeguard the welfare and individual rights of its citizens and to defend its own democratic character needs sovereignty – not perhaps in every field of politics, but certainly in the important ones – if it is to become more resilient in the face of the present and coming crises. Thus, the current turning point requires substantial reform of the EU architecture.

But treaty revisions are something of a hot potato for the political leaders of the EU and for many of their advisers in the main think tanks – even though the broader academic community has for many years been discussing the deficiencies of the EU architecture. In a nutshell: the European Council and the Council of Ministers are the ultimate decision-making bodies, but they represent the specific interests of their members’ countries. The European Commission executes their decisions using formalised procedures and rules and is, therefore, merely a technocratic body. The European Parliament has only a bit part to play: it does not possess the legislative initiative and exclusive budget rights that the parliament of a nation state enjoys. Moreover, voting rights in the European Council and the Council of Ministers are weighted; and given the possibility of veto on sensitive matters, a single national government can block substantial reforms in European affairs – including the abolition of the right of veto itself.

Democratic reforms would equip the EU with what French President Emmanuel Macron probably had in mind when he called for the creation of a new ‘European sovereignty’, without clarifying what he actually meant by that. In fact, greater sovereignty would make the EU economically and politically stronger when dealing with the aggravating systemic rivalry with autocratic regimes and when addressing the fallout of global crises. In order to reach sovereignty, the primary guide  to EU reforms should not be a dethronement of politics (using the famous phrase of Friedrich August von Hayek in outlining his neoliberal vision of an supra-national order), but rather a re-enthronement of politics, aimed at the democratic control of EU decisions and the replacement of mere technocratic governance in those policy fields that should belong among the EU’s future competences. Democratic changes would elevate the status of the European Parliament to that of a body with the customary rights of a parliament with respect to European affairs, such as external economic relations, the single market, or elements of defence and security policy. From the economic point of view, it would also be desirable to upgrade the role of European fiscal policies by a central capacity, as this could become a powerful partner for the (hitherto detached) European Central Bank (ECB). Greater democratic control would include giving the European Parliament the right to select and deselect the president of the Commission and the directorate of the ECB, as well as ensuring abolition of the right of veto by EU member countries. All these reforms would require treaty changes. But unfortunately, they are a ‘non-topic’ in official EU statements.

Conference on the Future of Europe: greater transparency instead of greater democracy

A recent example of how the issue of reform is treated as a hot potato is the Conference on the Future of Europe. Launched by the European Commission. It was a first attempt by the Commission – often accused of being a technocratic body that lacks transparency – to demonstrate its willingness to get in touch with the broad audience of people. In June 2022, the Commission published the outcome of the conference, explicitly referencing ‘democracy’, but as usual contained in long, densely written documents.[1]

The problem with canvassing the public at large in this way is how to consolidate the great diversity of thousands of proposals from individual citizens, in order to obtain a consistent and practicable reform concept. The first filter set by the Commission was the selection of conference participants; the second filter was the selection of nine overarching topics.[2] And here, the Commission chose to filter the proposals according to its own technocratic competences: its focus  was on greater transparency, while the need for democratic control – as voiced by the public over many years and as requested by just a handful of the (carefully sifted) conference participants – was ignored. In the Commission’s view,  ignoring the topics of democratic control and treaty changes was justifiable, since it is the European Council, and not the Commission, that is responsible for taking steps towards substantial reforms. However, transparency is a function of democratic control: when that is lacking, sooner or later the bureaucracy will revert to operating in secret. Therefore, the Commission’s view on the future of the Union remains very limited.

The European momentum

Most Europeans still dream the European dream: they feel European, even though nationalist parties are in government in some member countries. The summer 2022 Standard Eurobarometer survey showed increased confidence of citizens in the EU, following the Russian attack on Ukraine, Macron’s repeat victory in the French presidential election, and the Brexit hangover in the UK.  The democratic ideal is proving increasingly attractive – not only in Europe, but also in countries with an authoritarian regime. Indeed, the momentum exists for a Zeitenwende.

In his keynote speech to this institute’s 2018 spring seminar, the Bulgarian political scientist Ivan Krastev made it clear that if it is to be carried through, this momentum will rely on the capabilities, the ambitions and the fortunes of the leading European politicians – not on the technocratic Commission. Muddling through would be the worst possible option. In a time of deep crisis, sticking to the same old policies and rules would merely create uncertainty, and probably, lead into a maelstrom of multiple crises. Now is the time for responsible leaders and substantial reform.

Posted 2/12/2022

[1] https://ec.europa.eu/info/strategy/priorities-2019-2024/new-push-european-democracy/conference-future-europe_en#documents

[2] https://ec.europa.eu/info/sites/default/files/annex_0.pdf

HERE ABOUT MY RESEARCH

Published 2022: Keynes vs. Kalecki: Risk and uncertainty in their theories of the rate of interest

Review of Keynesian Economics (10), Issue 1, 46-62. Download info: https://mail.one.com/h.gabrisch@wile-institute.eu/INBOX/1/, US$ 35. - The article is a shortened and revised version of my 2021 wiiw working paper No. 192 . Download:  https://www.wiiw.ac.at/

This study attempts to identify uncertainty in the long-term rate of interest based on the controversial interest rate theories of Keynes and Kalecki. While Keynes stated that the future of the rate of interest is uncertain because it is numerically incalculable, Kalecki was convinced that it could be predicted. The theories are empirically tested using GARCH-in-mean (MGARCH) models without and with restrictions assigned to six globally leading financial markets. The obtained results support rather Keynes’s case – the long-term rate of interest is a nonergodic financial phenomenon. Analyses of the relation between the interest rate and macroeconomic variables without interest uncertainty are thus seriously incomplete.

Published 2021: Die prekäre alte Normalität der EU und die Notwendigkeit zur Reform (in German language)

Wirtschaftsdienst - Jahrg. 101 (2021), Heft 10, S. 814-820.

Die EU befindet sich seit 2008 im Krisenmodus. Die Sehnsucht nach der alten Normalität ist das große politische Ziel, aber eine Rückkehr zum Status quo ante wäre nicht wirklich wünschenswert. Leider besitzt die europäische Politik kein Konzept für die Zukunft der Union nach der Covid-Pandemie. Das könnte sich als existenzielles Problem für die Union in ihrer derzeitigen Gestalt erweisen, Der Artikel analysiert den inneren Zusammenhang der verschiedenen Krisen seit 2008, die Felder für eine Reform der Architektur der Union in den zentralen Feldern Fiskal- und Geldpolitik, warnt vor weiteren Krisen und vor einer Marginalisierung der Union im globalen Maßstab.

Download info: https://www.wirtschaftsdienst.eu/pdf-download/jahr/2021/heft/10/beitrag/die-prekaere-alte-normalitaet-der-eu-und-die-notwendigkeit-zur-reform.html - free access.

Published 2021: "Elements, origins and future of Great Transformations: Eastern Europe and global capitalism": Economic and Labour Relations Review (ELRR), https://doi.org/10.1177%2F1035304620911123. The article is available as 'Online First'.

https://journals.sagepub.com/eprint/XCJUQKR7MAWIDHDJTNAD/full

The article is fully accessible to all users at libraries and institutions that have purchased a license.

This essay analyses the relationship of two ‘Great Transformations’: the first from socialism to capitalism, more specifically in Eastern Europe in the 1990s, and the second from regulated to unregulated capitalism in the global economy since the 1980s, with respect to their common origins, elements and social results. Applying Karl Polanyi’s double-movement concept, it is concluded that these two, in essence neoliberal, transformations have led to societies being deeply divided economically, socially and culturally. Moreover, the self-protection of transformation losers is generating adverse political outcomes on a global scale. For both reasons, the outcomes of neoliberal transformations are jeopardising also the viability of the European Union, which was initially built on the basis of a regulated capitalism. The future of the global economy and also of the European Union depends on how the conflicts between the deepening of unregulated globalisation, national sovereignty and democratic politics can be solved.

Published 2021:  The long-run properties of the Kaldor-Verdoorn law: a bounds test approach to a panel of Central and East European (CEE) countries. Empirica, (), 1-21. DOI: 10.1007/s10663-019-09467-0.The article is available as 'Online First'.

http://link.springer.com/article/10.1007/s10663-019-09467-0.

It is fully accessible to all users at libraries and institutions that have purchased a SpringerLink license. An expanded version can be find as .Narodowy Bank Polski, NBP Working Paper No. 318. Download: http://www.nbp.pl/publikacje/materialy_i_studia/318_en.pdf

This study attempts to identify the short- and long-run components of the Kaldor-Verdoorn (KV) law. The law claims that demand dynamics drive productivity dynamics. The claim is tested with a panel of ten Central and Eastern-European countries, where productivity and demand growth have been slowing since 2004/2006 and where fears of an end of convergent growth are spreading. Meanwhile, the gradual slowing of output and productivity growth applies not only to the region considered, but it is also a global phenomenon that is occurring despite remarkable technical progress and that is referred to as the productivity puzzle. However, this puzzle would be solved in light of the KV law. To test for its long-term properties, panel cointegration models with autoregressive distributed lags (ARDL) are applied. Our results confirm the law for the region; slower productivity growth is not due to ‘adverse technological progress’ but to weakening external and domestic demand, which might block the implementation of product and process innovations. A longer and slightly different version can be obtained as NBP Working Paper No. 318 (see below).

See also:  From the socialist command to a capitalist market economy – the case for an active state. In: European Journal of Economics and Economic Policy - Intervention. Special issue on the Economics of Kazimierzmierz Łaski (1921 - 2015), volume 16, issue 3. 

Kazimierz Łaski belonged to the group of economists who particularly clearly and convincingly criticized the application of neoliberal doctrines to the transition of socialist countries into market economies. His analysis of the transition agendas was deeply rooted in the Kaleckian tradition of reasoning and brought him much respect but also fierce opposition in the international arena. In answering the why and how of his work, this article will summarize his contributions to the economics and politics of transition.