The European Union: A Cautionary Tale

Britain’s decision to leave the European Union is a lesson in moderation. The story of the Continental bloc began with the 1952 creation of the Coal and Steel Community, a common market for coal, steel and iron ore that encompassed France, Italy, West Germany, Belgium, the Netherlands and Luxembourg. Despite its modest beginnings, the organization oozed with ambition. As Winston Churchill put it in 1946, “We must build a kind of United States of Europe.” The fervor that accompanied his call was understandable; Europe had been devastated by two World Wars, and nobody wanted to see that horrible history repeated. The Continent’s attention, therefore, had to be shifted away from military matters and toward the common goal of economic prosperity.

Europe’s core powers remained fixated on the idea of building an “ever closer union,” moving beyond the foundation of the modern common market in 1992 to establish a monetary union a decade later, all the while holding out hope that they could someday create a political federation of European states. For the United Kingdom, however, this was too much to bear; it saw the dangers of institutionalizing away its sovereignty and preferred instead to stick to the virtues of market integration. London’s concerns were only reinforced as the European Union expanded eastward, drawing scrutiny to the principle of the free movement of people. Considering the United Kingdom had always carefully held itself back from the bloc by refusing eurozone membership, it was only natural that it should also be the first to head for the exit when Europe’s biggest powers tried to present ever-deeper integration as the answer to the union’s existential crisis. After all, from the British perspective it was the overzealousness of the European Union’s goals that got the bloc into its current predicament in the first place. A majority of British voters concluded that it would be better to bail out now than be stuck with a burden of Continental proportions later.

Now that the United Kingdom has made its choice, it will negotiate a new precedent in Europe, maintaining most of the benefits of the common market while placing tight restrictions on immigration. Euroskeptic forces across the Continent, in kind, will take note and make their own demands. Nations will reassert their interests, members will reclaim their powers and like-minded countries will band together, returning Europe to its more fragmented — and arguably more natural — former self.

Analysis

Europe’s experience should give ambitious economic unions elsewhere in the world pause. As we reflected on the European case study, we traced the evolution of six other regional blocs — Mercosur, the Gulf Cooperation Council (GCC), the Association of Southeast Asian Nations (ASEAN), the East African Community, the Eurasian Economic Union and the North American Free Trade Agreement (NAFTA) — assessing the geopolitical forces that first drew them together and the underlying constraints that will ultimately keep their integrationist appetites in check.

More often than not, the spectrum of integration among states begins with free trade agreements, which can then be upgraded to customs unions with common external tariffs and common markets that enable the free flow of labor, goods, services and capital. From there, blocs can evolve into more extreme forms of integration, such as monetary unions or political federations. Of the regional organizations that we covered, most tend to fall somewhere on the earlier part of the spectrum, hitting walls as they contend with the thornier aspects of merging into common markets and beyond.

The motives behind the formation of these blocs, however, vary widely. In Southeast Asia, a grouping of small states dwarfed by their larger and more powerful neighbors strives to find strength in numbers by negotiating as a single economic unit. Meanwhile, in Eurasia, a regional hegemon uses an economic alliance to extend its sphere of influence; South America, on the other hand, has used its bloc to balance two local powers against each other. Economic unions can be great enablers, as East Africa has found in its attempts to overcome arbitrary colonial boundaries and unlock the Great Lakes region’s full potential. But once the benefits of these blocs expire they can become more straitjacket than life jacket, as Mercosur has discovered in its inability to break out of its own rules and seek growth in new markets.

Security: A Source of Confusion or Collaboration

To simplify matters and keep members focused on mutual economic gain, regional blocs tend to keep economic integration efforts separate from security cooperation, which can entail everything from sharing intelligence and pooling military resources to full-blown binding alliances. Even so, security issues can bleed into and, at times, undermine the unity of regional blocs when surrounding geopolitical pressures mount. The United States, Japan and India, for example, may try to work with ASEAN to counterbalance Chinese naval encroachment, only to find the bloc riddled with divisions over how to manage tension with Beijing. Though all sides rely on economic connections to mitigate the frictions among them, the Philippines, Vietnam and Indonesia will invariably face resistance from more insulated continental states such as Laos and Cambodia, which want — and can afford — to avoid confrontation altogether.

Then again, security, rather than economic integration, is the glue that holds the GCC together. The Middle Eastern bloc tries to compensate for the inadequacies of its individual members’ militaries by combining forces against their chief geopolitical adversary, Iran. But as the oil-dependent Gulf states try to diversify their economies for their own survival, competition — over everything from port traffic to hosting financial services — threatens to escalate as each vies for the coveted status of the region’s best host for global business.

Geography: The Ties That Bind or Break

The European Union has taught us to beware of expansion. Newcomers can distract from the goals of core members, create new problems along the way and drag the bloc into unwanted political disputes. The fall of the Soviet Union and the European Union’s 2004 enlargement, which absorbed much of Central and Eastern Europe, gave rise to a host of new budgetary and immigration concerns for its original members. The bigger the bloc, the more difficult it becomes to articulate a coherent foreign policy. France and Italy, for example, are far more willing to patch things up with Russia than listen to Eastern and Central European pleas to keep sanctions in place and send more troops to Russia’s doorstep. Meanwhile, Mercosur would rather cancel its meetings than be bogged down in the political baggage of a newcomer like Venezuela as its turn to chair the bloc comes around. And Vietnam, fed up with having to water down ASEAN’s positions to appease the organization’s newer and more cautious members, is trying to overhaul the bloc’s voting structure so it no longer has to deal with the frustrations of unanimous decision-making.

Clearly, geography can divide as much as it can unite. Europe’s interests are fundamentally split between north and south and east and west, making it exceedingly difficult for a wealthy northern country like Germany to make sacrifices to ease the plight of a southern Mediterranean state like Greece. ASEAN, for its part, will continue to be divided between maritime nations on the front lines with China and those that are able to hunker down in the interior. And though the Great Lakes are the geographic center of the East African Community, the more distant Tanzania will continue to resent Kenyan and Ugandan dominance of the bloc from afar.

Nevertheless, NAFTA shows how geography can complement economic integration in powerful ways. Its three members occupy an area more than double the size of Europe, and a naturally integrated network of rivers overlaying arable land lies at the heart of the North American continent, generating a mass of economic power that fuels the states around it. With two oceans buffering it, North America has a high degree of insulation and easy access to trade with partners in the Atlantic and Pacific basins. Of course, NAFTA has its challenges as well, especially when it comes to regulating immigration and ensuring the fair distribution of opportunities and resources across the continent. But NAFTA is not trying to overreach in its goals either, a lesson that ASEAN seems to be quite cognizant of as its members debate whether deeper integration will do more harm than good. Others, such as the East African Community, are earnestly trying to forge ahead, reaching toward a political federation in spite of the obstacles in their way. There are many good reasons for countries to band together in the name of economic gain, political influence and security. But the ambitions of such unions will inevitably be checked by the limits to each nation’s willingness to sacrifice sovereignty for the sake of its neighbors.

Stratfor