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1. Optimum Political Area

Nobel Prize Winner in Economics, Robert Mundell, defined the Optimum Currency Area (OCA) as an area where it is efficient to have a common currency. Optimum Currency Area is an area where production factors are mobile, i.e. labor force can move smoothly and wages are flexible. If an area is not such a homogenous economy, it will be better to let the currencies separate and not to implement a single currency. Some economists say the EU is homogenous enough to be considered a Mundellian OCA, while others say it is not, and the system of different currencies with flexible exchange rates would be more advantageous.

Nevertheless I do not want to discuss this indeed interesting issue. I would like to paraphrase Mundell’s concept of the Optimum Currency Area and ask another question – whether Europe is an "Optimum Political Area".

Let us define Optimum Political Area (OPA) as a geographical area where the distribution function of income of its regions is uniform. In such an area there are not regions with significant differences in average income. On the other hand, if two regions differ significantly in the levels of wealth, they will be OPAs only if both parts constitute two separate jurisdictions – the independent states or the self-governed states within a confederation. Besides the income uniformity, other factors of homogeneity, such as common language, are important. Usually, one-nation states are optimum political areas.

In an area that is not an OPA, as I will show further, common political decision-making might result in conflicts.

2. Systemic change of political power as the cause of the increased redistribution

As we can see from Chart 1, since the beginning of the century the governmental redistribution, measured as the rate of government expenditures to GDP, has increased. This development could be explained as the result of the systemic change of political power in European states, when the systems of general equal vote were established.

Chart 1

Increasing redistribution of wealth during the existence of general equal vote

The situation where votes are equal while levels of wealth are different gives the poor the power to vote for the policies that are in favor of the poor and financed by the rich. A democratic system of political power of this kind incorporates redistribution.

Chart 2

Left-Right distribution of income in a society

The poorer part of the population tends to vote for the projects that take money from the richer part. Right wing parties usually promote lower taxes and lower subsidies, because they believe that a big redistribution 1) is unjust and immoral and 2) causes inefficiency. The big redistribution in European countries might be the cause of the fact that they still fall behind the U.S. economy. If the right wing parties argue against the redistribution of wealth within a nation, they should argue even more against the redistribution among nations.

3. Redistribution among nations tends to result in conflicts

The redistribution within an OPA does not lead to serious conflicts because the rich are not concentrated in one region and therefore they cannot separate and create a new independent state. They have not the power to stop the redistribution; they only can keep it at a sustainable level.

If the poor and the rich live in different regions, there will be a tension and the richer part of the population will feel that they are the worse for the rest. The split of former Czechoslovakia, the tension between the West and the East part of Germany, or the tension between Flanders and Valons in Belgium may serve as examples. You may find other examples in different countries of Europe.

A nation subsidizing another in a state, will either want to control or to leave the state – subordination or separation are the only possibilities. International redistribution of wealth contains a latent conflict and is potentially dangerous.

4. Europe is not an Optimum Political Area

Different countries of Europe have different levels of national income. This might lead to a big redistribution and/or to conflicts. The poor nations will support projects (such as Common Agriculture Policy, structural subsidies and common social policy) in their favor, financed by the richer nations. They will support bigger common expenditures, bigger common taxes and the per-GDP-contributions to common budget.

Chart 3

Left-Right distribution of GDP among European countries

The richer countries can put up with that for some time. But sooner or later their voters will consider this unjust and they might want to vote for stopping the money transfers to the poorer countries. But once in a politically integrated Europe, they will be always voted down. Then they will call for separation. They will not be allowed to leave the Union. They will start to fight with non-political weapons. Can you imagine any worse problem then the separatism of those who do not wish to share a state with the majority?

I am afraid that the political integration of Europe paves the road to hell.

5. The Alternative – Europe as a free economic zone and a confederation of the independent nations

Is there any alternative to the political integration of Europe? The would-be EU members from central and Eastern Europe are pushed to accept EU legislation in exchange for the vague promises of future subsidies or under the threat of the potential trade barriers by the Fortress Europe. Such process of integration is not based on common values and interests. It rather resembles bribery and blackmail. It is an old Bismarckian method of carrot and stick. Yes, there is an alternative: free trade, less bureaucracy, and an efficient cooperation in common interests.

The EU should let the people of the different nations of Europe trade and cooperate. It should not protect the borders against goods or it will have to protect them against migrants. If goods cannot move, people will move, and conflicts will arise. Free trade is the best way to enhance the peace and the riches among the nations of Europe.

The concept of Identity is related to the things of which we can say we belong to them. People identify themselves with their home, their family, their country, their language and culture, their values, with their nation. But they can hardly identify themselves with a system that takes money away from them and gives it to someone else who neither shares the same language nor interests. The integrated Europe can hardly unite the people; it rather will divide them – into the winners and the losers.

The European Union still has a chance to be a peaceful and prosperous area. But it must be a confederation of independent national states rather than a political body with the power to impose taxes and to subsidize.

If Europe were a confederation of independent states, people of different nations could identify with it. They could identify with common values, history and common interests.

Petr Mach

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