Overlooked benefits of the current EU institutional set-up

Otto Brøns-Petersen // 6 June 2023

In my opinion, we often overlook the benefits of the current EU. It is based on constitutional frameworks that, to a very large extent, meet the criteria for a good constitution – as we know them from constitutional economics.

However, these constitutional frameworks are often subject to criticism. There is talk of a “democratic deficit”, a lack of decision-making power, a lack of accountability tocitizens, and a lack of European identity. However, these can actually be seen as benefits.

Constitutional economics advocates for the highest possible degree of decentralisation (ideally extending to the individual). Firstly, by limiting centralised power. Secondly, by creating political competition, which keeps national rulers in check. Thirdly, by allowing for differences in preferences (the Tiebout mechanism).

The fact that Europe has produced some of the freest and richest societies in the world largely due to interstate competition and limitations on state power.

The justification for the EU lies in its ability to deliver public goods that have a common reach. The theory of public goods suggests that there should be different levels of political competence, determined precisely by the scope of the public goods they provide. Local road lighting should be a municipal task. Defence should be a national task (possibly in cooperation with other nations).

Similarly, there are several tasks that are best solved at an intergovernmental level. The best (but not exclusive) examples within the EU are external free trade and the free movement of goods, services, capital, and people (the EU’s four freedoms), climate policy, cross-border energy systems, mutual recognition of regulations, combating competing state aid, and a range of cross-border environmental tasks.

In the American Constitution, similar rules have been inserted to limit federal power to “enumerated powers” – i.e., a positive list. There were profound considerations underlying the drafting of the constitution, which, however, has failed to prevent a significantly greater centralisation than intended. One method used to exceed the positive list is to collect common taxes and allocate funds according to whether the states meet centrally set requirements. Formally, the states still have the power, but in reality, it has ended up in Washington.

The limitations on power in Brussels and its surroundings are, in many respects, stronger than in Washington. Unanimity is required in areas other than the EU’s core competencies. This is an incredibly important rule that ensures that redistribution policies between countries are not curtailed and “normal politics” prevented. “Normal politics” involves forming a minimal winning coalition (as Riker called it) that redistributes to itself at the expense of the losing minority. Without the unanimity rule, the usual logic dictates that citizens of wealthy countries should redistribute to poorer countries (similar to redistribution within a country’s borders). Unanimity ensures that decisions are made for the benefit of all.

In the EU, power lies to a large extent with the European Council, which consists of the heads of national governments. It is almost as if it is the “first chamber”. This also gives significant power to decentralised interests. Power is then shared with the European Commission (the executive branch), the EU Court of Justice, and the EU Parliament, which is a weak “second chamber”. Overall, the construction provides strong checks and balances.

Another important feature of the EU is that the union only has very limited resources of its own. It does not have a tax source, like the income tax, which can be increased at will. The funds come from national treasuries, which means that national governments again have control over decisions.

If we are not aware of the good aspects of EU cooperation, we risk losing them. The threat is twofold: members may drop out, as happened with Brexit, and centralisation may increase. Perhaps both at the same time.

There is a natural tendency for power to become more centralised over time, especially when crises which, real or perceived, call for greater “power”. Therefore, vigilance is required to counteract centralisation.

A key point from constitutional economics is that constitutional frameworks are more important than day-to-day politics. Once the rules of the game are established, they largely determine the outcome. However, the rules of the game are typically much more difficult to change than day-to-day politics. However, the EU is an ongoing constitutional project that we have the opportunity to influence.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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