Why France and The Netherlands said “No”

The emphatic Dutch “No” may have raised the French “No” to the status of a gathering “people’s revolt”. The fascinating prospect is that it may come to be regarded as the first major popular revolt in the West against the American - or Anglo-Saxon - macroeconomic model.

When Charles de Gaulle vetoed British entry he gave expression to the view that European Union was a French concept in the pursuit of which France should have a dominating role. France wanted to ensure that the union would be an association of sovereign member countries rather than a supranational union in which sovereign nation-states would lose their identity and their individual authority and power. With de Gaulle’s departure, the French agreed to admit Britain and others in 1973 and over the years membership increased from the original 6 to 15.

A crucial objective of the French concept of union had been to neutralise Germany and enlarge French power through its control of a European Union. The objective in relation to Germany was already achieved with “the six”, so every additional member in the union only meant that France’s power within the European communities became diluted. Although French opposition to expanding membership declined, it did not disappear, and the expansion to 25 - and the decision to allow Turkish membership - could be seen as completely diluting French control and authority. It is in light of this that France’s reservations about the continuing expansion of membership and the passing of supranational power to this membership can be understood.

But that does not seem to have been the reason for the French “No” in the recent referendum. The established “political classes” and the media generally supported a “Yes” vote. So we have to probe more deeply for the reasons behind this dramatic rejection of the proposed EU constitution by the French and the Dutch.

The Dutch have been one of the most fervent supporters of the European Union: they were an unqualified advocate of British entry and of expansion of the membership of the union from 6 to 15. So their swing to a “No” was especially surprising. But an examination of the state of their economy and the effect the EU has had on it will reveal the causes for the “No” vote.

Until recently the Dutch model of macroeconomic management combined high levels of employment with high levels of growth. High fixed-capital investment, high productivity and high levels of production for domestic and export purposes were maintained in an environment of low inflation, low interest rates, a welfare system that was among the most sophisticated in the world and even a generous program of assistance to the developing countries.

In recent years, much of this has changed. The Dutch economy has slumped into slow growth and high unemployment partly because of and certainly since Maastricht, the single currency and the advocacy of “reform” towards an American model.

It is important to understand how the changing role of the EU, from a conglomeration of states forming a preferential trading bloc to a supranational power imposing fiscal regulations on its members, led to its rejection by the French and the Dutch.

When the Treaty of Rome came into effect in 1958, and for many years afterwards, the European Economic Community was essentially a grouping of sovereign states with a Common External Tariff (CET), giving generally modest tariffs and quantitative protection to industry, and a Common Agricultural Policy (CAP) to protect national as well as community agriculture. Economic and monetary policy stayed with each of the sovereign states: each had its own budget and its own central bank.

Over the years there was some accretion of power to Brussels and the erosion of power of the national capitals. However, in terms of economic policy, the main activities were in the area of trade policy and the CAP, both of which offered protection to national economies. The CAP provided especially formidable protection for community farmers including price support, subsidies and total prohibition of some farm imports.

With the adoption of the Maastricht Treaty, however, this all changed. The change in name to the European Union and the introduction of the single currency gave practical and formidable effect to this change. Maastricht and the single currency moved economic and monetary policy firmly from the national capitals to Brussels. Institutionally, a European Central Bank (ECB) was set up which took over the authority for monetary policy from the national central banks.

This must be seen in the context that, in the last 3 decades of the 20th century, manipulation of interest rates has become overwhelmingly the main instrument of macroeconomic management whether in the US, Japan, Germany, France, Australia, New Zealand or elsewhere. Hikes or cuts in interest rates have become the principal and the most visible, powerful and immediately effective instrument of macroeconomic management.

With the establishment of the ECB, this instrument - and this power - passed from the national capitals to the centre. This in itself was revolutionary. The ECB was required to keep inflation within certain limits. In addition, rules of harmonisation set limits for budget deficits and national governments were required to adhere to those limits - something that they have recently tended to breach.

These developments transformed the European communities from a preferential trading bloc into something approaching economic union: a big step away from a political federation but with the component nation-states diminished by loss of their most important economic-management power.

Another vital consideration for the rejection of the proposed EU constitution was the vision of a united Europe after World War II, motivated by several reasons. One of those reasons, especially after 1947, was to keep western Europe firmly in the non-communist camp which was by no means assured after the War. Powerful communist movements existed, especially in Italy and France, and “socialist” parties and governments followed economic policies of intervention and direct participation in mixed economies.

Although overt support for these policies diminished with the collapse of Soviet communism, spiritual support for them remained strong. This persisted even while the economies were being “reformed” to conform more to the American and Anglo-Saxon model of free markets, privatisation and the rest.

In this regard, Europeans had some special difficulties with the reforms, such as the reunification of Germany. Maastricht and the single currency put them in a straitjacket while at the same time they were required to let their economies run free.

This was an impossible combination. The wonder is that governments, in particular such governments as the Social-Democratic Schroeder Government, have persisted for so long in trying to introduce “reform” policies which have made policies of growth and employment more and more difficult. Whatever the support at the level of the “political classes” - and of mainstream economists - the support of the ordinary man and woman in the street has become more and more reluctant.

The reason that they have had popular support so far - however reluctant - is because the “reforms” are modelled on a US style economy which has continued to be represented and widely regarded as a high growth, high productivity economy in relation to the sagging European Union one: although there are grave weaknesses in the US economic model. Those weaknesses, however, have not yet been revealed in their true nature or to their true extent. So the key question now is whether the popular support these countries have been able to maintain has now become so shaky that it has virtually disappeared.

It may be that the people’s “No” in France and The Netherlands is in fact a people’s revolt - a formidable expression of direct democracy - against the mainstream economic and monetary policies that have dominated the thinking of virtually all political parties and political “classes” in the West, especially in the last two decades. Those policies have created a variety of economic as well as political and strategic instabilities. Those at the bottom and even in the middle of the economic pile have suffered most from inequalities, unemployment, declining real wages, lower or static levels of living and uncertainty about their future. The people’s “No” might well be a loud call to the “political classes” to return to economic and social responsibility, to attend to the needs of the ordinary people and not just to the greed of a self styled elite.

Essentially, it could be a people’s revolt which, if its warning is not heeded, might lead to direct action outside the processes and procedures of traditional democratic institutions.