In the concluding chapter of his new book New Old World, Perry Anderson asks the question: what exactly is the EU for? What benefits are supposed to be result of this project of increasing political and economic integration?

Citing past notions, he refers to the initial ‘heroic phase of European integration’ that assured peace for Europe to the West of the Iron curtain, and which bound France and Germany into a common framework. Prosperity for the initial six members state would be assured by the creation of a semi-continental market.

It was also supposed to bring security to the wider European population:

“Security in both senses, national and social, by the elimination of any risk of another round of war between the two leading states of the region, and the provision of faster growth, higher living standards and more welfare protection”.

Accepting the understanding that peace in Europe had as much to do with the ‘imperial order of pax americana then a sense of local endeavour’, Anderson asks about the promise of economic growth as the European project enters its later, perhaps more pragmatic phase of further integration.

Pointing to a 2008 study called The Economic Impact of European Integration by Barry Eichengreen
Andrea Boltho, two authors who consider themselves favourably disposed towards integration, Anderson says:

“The increment to overall growth yielded by the common market was, historically speaking, quite modest, because of the similarity in output structures of the assorted national economies. The most careful study estimates that, taking together the creation of the Common market, the passage of the Single European Act, and the introduction of Monetary Union, the net addition to GDP growth in the EU has been, over half a century, perhaps some 5 percent, not an overwhelming figure.” (P 520 New Old World. Verso 2009)

The study itself is available online, and in it Eichengreen and Boltho say that in putting the study together they follow economic historians like Robert Fogel (1964) in attempting to fully specify the counterfactual. The counterfactuals are effectively a series of calculated ‘what if’s’ - for example, trying to calculate as accurately as possible what would the economic impact be in the Euro area if EMU had not been put in place?

Putting the study in the context of previous work on the EU they say:

“We also seek to counter the triumphalist bias in previous accounts of the European integration process (accounts written by individuals “present at the creation” in particular) by seeing how far we can push the hypothesis that little would have differed economically in the absence of the European Union. It is our hypothesis that the EU did matter for the development of the European economy and the rise in European living standards. By seeing how far we can push the argument that it didn’t - and adopting assumptions that work to minimize its effects - we are biasing our procedures against our preferred conclusions.”

So what is their conclusion?

“The overall verdict is thus only mildly positive. The single currency has undoubtedly provided greater financial stability to those member countries that were in the past prone to high inflation and rapidly depreciating exchange rates. It has also helped create a large capital market which has almost certainly reduced the cost of raising money to both governments and companies. It has, in addition, led to somewhat faster trade integration than would otherwise have occurred and it may also have spurred some regulatory reforms that might not have been adopted in its absence, though the evidence in this area is more mixed. None of these changes, however, is likely to have had much more than a very small effect on the area’s growth rate or even level of output.

The bottom line is that the growth effects stemming from the exchange rate efforts (the EMS and EMU) were limited, although for EMU the jury is still out. The same was not true, however, for trade integration. Here both the Common Market and the SMP may well have boosted output in the EU by more than might have been expected on the strength of the trade liberalization that was occurring in the world at large at the time. Rough orders of magnitude might suggest that EU GDP is some 5 percent higher today than it would otherwise have been. Thus, we find for the impact of the EU on European incomes roughly the same thing that Fogel found for the impact of the railways on U.S. incomes. Whether these are large or small numbers is ultimately for the reader to judge.”

It is interesting reading this now in light of recent events in Ireland, Spain and Greece and the EU‘s reaction to the crisis. Writing in the Financial Times on Monday two economists from the Breugel think-tank in Brussels argue that Greece should call in the IMF. A shameful outcome, suggests Michael Burke, in his post on the FT article in Progressive Economy:

“The possibility of an IMF intervention ought to be shameful for the architects of Europe’s fiscal and monetary arrangements, since the Euro was touted as an instrument that would protect the economies of Europe from speculative pressures. ‘European Solidarity’ has proved a mirage. Worse, leading EU institutions have played their part in Greece’s difficulties.”

Their part is that the ECB intends to tighten quality requirements back to pre-crisis levels for bonds pledged as collateral by the end of 2010. This risks, the economists say:

“…excluding Greek bonds from repurchase agreement operations. This, and Greece’s inability so far to present a credible fiscal plan, explains the alarm in financial markets.”

Even Goldman Sach’s think this is crazy, and say that the move means that a rating agency is determining Greece’s eligibility:

“The unthinkable — that the ECB would not accept sovereign securities from a member as collateral — has become a measurable risk, and one exclusively controlled by Moody’s,” Nielsen said. Moody’s is now the “de factor decision maker on Greek eligibility.”

A paranoid person would suspect that they are using Moody’s as a proxy to punish an SD government that may not, unlike the Irish government be amenable to their flavour of fiscal consolidation.

Indeed, considering the situation which the new Social Democratic government found itself after winning the election after decades of conservative rule the EU commission also has to take some responsibility for the sloppy figures the previous government provided.

Again as Michael Burke mentions:

“The new government has bemoaned the endemic corruption in Greek society, including government bodies, and its effect on reducing tax revenues. Perhaps the Commission could provide greater assistance as tax collectors than as macroeconomic advisers, or even auditors.”

And is this ultimately what EU economic integration have provided us with? Not a means of protection for the citizens of Europe against financial stability or providing the prospect of further prosperity, but fiscally conservative guardians of capital who, no matter what the level of social unrest - and distress - their economic policies impose, can leave the PIIGS to wallow in their own, or in the case of the citizens, their elites mess.

Because, at the end it all comes down to politics. As the Breugel duo put it:

“But at core the matter is really political. How would the EU react to anger in the streets of Athens?”

It’s a strange question. Should it prepare itself to deal with the anger, which it still has the power to prevent, or should it behave to ensure that it doesn’t come to that? I suppose we might know that if we knew exactly what greater European integration is for.