Social Europe

politics, economy and employment & labour

  • Projects
    • Corporate Taxation in a Globalised Era
    • US Election 2020
    • The Transformation of Work
    • The Coronavirus Crisis and the Welfare State
    • Just Transition
    • Artificial intelligence, work and society
    • What is inequality?
    • Europe 2025
    • The Crisis Of Globalisation
  • Audiovisual
    • Audio Podcast
    • Video Podcasts
    • Social Europe Talk Videos
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Shop
  • Membership
  • Ads
  • Newsletter

Where are the limits of Europe?

by Branko Milanovic on 14th May 2019 @BrankoMilan

Share on TwitterShare on FacebookShare on LinkedIn

For Branko Milanovic the limits of Europe are set by the inequality successive EU enlargements have enhanced.

limits of Europe

Branko Milanovic

We know that there is such a thing as an ‘optimal currency area’, although it is possible that the framers of the Lisbon treaty were not aware of it. The Greek crisis has popularised the concept. As the name says, it puts limits to what should (ideally) be a single currency area.

Similarly, in the 1990s, when  at one end of the European continent countries like the USSR, Czechoslovakia and Yugoslavia dissolved, with their constituent member states applying to join the European Union, a like question was asked: why would you leave one union and join another, rather than keep your full independence? One of the answers came in a 1996 article, where I argued that there was a trade-off between independence in policy-making (say, full fiscal and monetary authority) and income. Countries such as Estonia and Slovenia were quite willing to give up monetary and (to a large degree) fiscal independence, in exchange for monetary transfers and the institutional framework provided by the EU.

But this reasoning still left the question: was there a point where a country might find the cost, in terms of forgone policy discretion, too onerous and so decide to stay out (thus placing a limit to the expansion of the union)? Perhaps Switzerland and Norway are such non-EU examples.

Limiting factor

Almost nobody looked at inequality as a limiting factor in the growth of a union. Yet there at least three reasons why it may be.

First, a union with member states at very different income levels requires large transfers form the richer to the poorer to function normally.

Cutting-edge thinking straight to your inbox

"Social Europe publishes thought-provoking articles on the big political and economic issues of our time analysed from a European viewpoint. Indispensable reading!"

Polly Toynbee

Columnist for The Guardian

Thank you very much for your interest! Now please check your email to confirm your subscription.

There was an error submitting your subscription. Please try again.

Powered by ConvertKit

Secondly, a very unequal union is, by definition, composed of member states whose endowments of capital and labour are very different. Hence the optimal economic policy for a poor member may not be the same as the optimal policy for a rich member. (We find here echoes of the optimal currency area.)

Thirdly, and currently perhaps most importantly, if such a union implies freedom of movement systematic labour flows which then follow—with people moving from poorer to richer members—may be politically destabilising, if richer members are unwilling to accept migrants.

The third point may be largely responsible for ‘Brexit’. It could be argued that without the EU’s eastern enlargement there would have been no Brexit. Thus the EU, implicitly, faced a trade-off of its own: it could have the UK or eastern Europe—but not both. Through a succession of steps, and largely unaware of this choice, the EU picked the latter.

Income differences

Behind the movement of people are the underlying differences in income among countries. This is why Romania is estimated to have ‘lost’ almost 2 million of its citizens since it joined the EU. But how large are income differences within the union?


Please help us improve public policy debates


As you may know, Social Europe is an independent publisher. We aren't backed by a large publishing house or big advertising partners. For the longevity of Social Europe we depend on our loyal readers - we depend on you. You can support us by becoming a Social Europe member for less than 5 Euro per month.

Thank you very much for your support!

Become a Social Europe Member

Let us start with the most simple and most important, ignoring differences in income within countries and looking only at those between EU countries (thus in effect assuming that every person in a given member state has the mean income or per capita gross domestic product of that member state). And let us take as the measure of inequality the Gini coefficient, which ranges from 0, at full equality, to 100, when the entire income is held by one person/entity.

The results are quite striking. In 1980, when the EU was composed of only nine member states, the between-country Gini coefficient was just three points. Combining the nine members into one group added to the total EU inequality (through their differences in development) an utterly negligible quantity. More than nine tenths of EU9 inequality was due to within-country income differences (that is, income differences between poor and rich people within France, within the Netherlands and so on).

A decade later, in 1990, the between-country Gini for the now EU12 had already doubled to six points. Fast forward 14 years more and, with the eastern enlargement, the number of member states went up to 25 and the Gini yet again more than doubled to 13 points. It has increased further, but slightly (to 13.5), with the additions of Romania, Bulgaria and Croatia.

Now, the estimates of interpersonal inequality (that is, between all citizens) in the EU range between 37 and 39 Gini points. This means that one third of overall EU inequality (13.5 out of 37-39) is now systemically built in, due to the underlying differences in income among the member states.

Compare the EU28 with the US50—the United States composed of 50 members (its states). Overall US50 inequality is higher than that for the EU28: the Gini for the US is in the lower 40s, whereas the European Gini is in the mid-to-upper 30s. But only about one tenth of that inequality in the US is ‘caused’ by inequality between states while, as we have seen, a third of inequality in Europe is caused by differences in income between the member states.

Hard to fix

European inequality (which thus decomposed looks very much like Chinese inequality, similarly driven to a significant degree by provincial income differences) is much harder to fix. It requires strictly geographic transfers of purchasing power from rich to poor member states. Since the population compositions differ, this translates into transfers from (say) the Dutch to the Bulgarians. But an EU budget of 1 per cent of total GDP is laughably small for such transfers.

The alternative solution is to let people migrate. This is what the EU has done, with political consequences which are obvious today.

We can then legitimately ask: are there limits to EU enlargement—limits imposed by the higher inequality arising from the accession of new and poorer members? If Turkey alone joined, the underlying Gini of a new union would be 17 points. If the western Balkans’ four candidate members joined as well, it would rise further to 17.5. This underlying inequality, which is not subject to domestic or EU-wide economic policies (the latter because the EU budget is so small), would then represent close to half of the overall inequality among 615 million citizens of the union.

It would be an unmanageable union.

This is why the EU should not continue with its unsustainable policy, which seems to offer candidate countries potential membership at the end a very long (or, rather, interminable) tunnel. That policy leads only to frustration on both sides. The EU should look at things as they are and create a new category of countries which will not be members for any realistic period of time.

Perhaps it could wait until such potential members become richer on their own, which means the EU should by all means encourage greater Chinese investment and involvement in those countries—the opposite of what it is doing now. Or perhaps it could wait until convergence of incomes within EU members and lower all-EU inequality permits another round of enlargement—which is unlikely to happen before the second half of this century.

This article is a joint publication by Social Europe and IPS-Journal

Share on TwitterShare on FacebookShare on LinkedIn
Home ・ Politics ・ Where are the limits of Europe?

Filed Under: Politics

About Branko Milanovic

Branko Milanovic is a Serbian-American economist. A development and inequality specialist, he is visiting presidential professor at the Graduate Center of City University of New York (CUNY) and an affiliated senior scholar at the Luxembourg Income Study (LIS). He was formerly lead economist in the World Bank's research department.

Partner Ads

Most Popular Posts

decarbonisation,energy transition Europe’s decarbonisation challenge? ‘Wir schaffen das’ Adam Tooze
integrated review Lost an empire, not found a role Paul Mason
Uber v Aslam,UK Supreme Court Putting the brakes on the spread of indecent work Ruth Dukes and Wolfgang Streeck
debt cancellation,cancellation of debt,ECB Cancelling a debt we already own has a false allure Anne-Laure Delatte, Michel Husson, Benjamin Lemoine, Éric Monnet, Raul Sampognaro, Bruno Tinel and Sébastien Villemot
horizontal inequalities,vertical inequalities Fissures that tear us apart and pressures that weigh us all down Kate Pickett

Other Social Europe Publications

RE No. 12: Why No Economic Democracy in Sweden?
US election 2020
Corporate taxation in a globalised era
The transformation of work
The coronavirus crisis and the welfare state

Foundation for European Progressive Studies Advertisement

#Care4Care!

It took us a global pandemic to realise that we depend on care. Despite all the clapping from the balconies, care workers continue to work in precarious and vulnerable conditions. Women, who represent 70% of the care workforce, continue to suffer from a severe lack of recognition for both their paid and unpaid care work. It’s time for a care revolution! It’s time to #Care4Care! The Foundation for European Progressive Studies (FEPS), together with the Friedrich-Ebert-Stiftung (FES), has been intensively working since 2019 to monitor the EU gender equality policy agenda through a progressive lens focusing particularly on its care dimensions.


FIND OUT MORE HERE

Social Europe Publishing book

With a pandemic raging, for those countries most affected by Brexit the end of the transition could not come at a worse time. Yet, might the UK's withdrawal be a blessing in disguise? With its biggest veto player gone, might the European Pillar of Social Rights take centre stage? This book brings together leading experts in European politics and policy to examine social citizenship rights across the European continent in the wake of Brexit. Will member states see an enhanced social Europe or a race to the bottom?

'This book correctly emphasises the need to place the future of social rights in Europe front and centre in the post-Brexit debate, to move on from the economistic bias that has obscured our vision of a progressive social Europe.' Michael D Higgins, president of Ireland


MORE INFO

Hans Böckler Stiftung Advertisement

Renewing labour relations in the German meat industry: an end to 'organised irresponsibility'?

Over the course of 2020, repeated outbreaks of Covid-19 in a number of large German meat-processing plants led to renewed public concern about the longstanding labour abuses in this industry. New legislation providing for enhanced inspection on health and safety, together with a ban on contract work and limitations on the use of temporary agency employees, holds out the prospect of a profound change in employment practices and labour relations in the meat industry. Changes in the law are not sufficient, on their own, to ensure decent working conditions, however. There is also a need to re-establish the previously high level of collective-bargaining coverage in the industry, underpinned by an industry-wide collective agreement extended by law to cover the entire sector.


FREE DOWNLOAD

ETUI advertisement

Social protection during the pandemic: freelancers in the creative industries

This working paper identifies some key areas of policy intervention for advancing socially sustainable and fair solutions for freelancers working in the creative industries, who are among those who have suffered the most from the economic fallout of the Covid-19 pandemic. In particular, the authors focus on those who work entirely on their own account, without employees (ie the ‘solo self-employed’), and who undertake project- or task-based work on a fixed-term basis.


DOWNLOAD HERE

Eurofound advertisement

Industrial relations: developments 2015-2019

Eurofound has monitored and analysed developments in industrial relations systems at EU level and in EU member states for over 40 years. This new flagship report provides an overview of developments in industrial relations and social dialogue in the years immediately prior to the Covid-19 outbreak. Findings are placed in the context of the key developments in EU policy affecting employment, working conditions and social policy, and linked to the work done by social partners—as well as public authorities—at European and national levels.


CLICK FOR MORE INFO

About Social Europe

Our Mission

Article Submission

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Find Social Europe Content

Search Social Europe

Project Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

.EU Web Awards