The European Union should review its strategy

The importance of the EU is increasing, but its continuity is threatened by the actions and behaviours of its own leaders

Picture EU article

By Dirk Verburg

European cooperation is now more important now than ever

To state the obvious: we are living in a VUCA world, a world that is Volatile, Uncertain, Complex and Ambiguous. The world order as we know it seems to be threatened by multiple problems, including (in arbitrary order): the nuclear ambitions of North Korea, the geo-political ambitions of China, wavering loyalty of the current US president regarding NATO, Climate Change, the Refugee crisis, the rise of populism in Western Democracies and Muslim extremism, to name but a few.

Given the nature and scale of these challenges, European countries have a far better chance to achieve a successful outcome if they deal with these challenges jointly, rather than individually.

EU politicians are ignoring warning signals about the lack of support of the EU by their voters

At the same time, the support and sympathy for the EU from its own inhabitants is limited. Depending on which survey you look at, the percentage of the population of the member states supporting the EU is somewhere between 51-62% (*).

Reasons for the lack of support include the costs of the EU, the way the EU deals with specific topics, such as the economic crisis, the migration crisis and social dumping(employers using migrant workers from other EU states to lower their labor costs), but most of all the transfer of authority from national governments to the EU (Federalism).

Currently there does not seem to be a third way possible between moving to a federalist EU (as advocated by e.g. Verhofstadt), or abandoning the EU altogether (Brexit). However most EU citizens want their countries to remain members of the EU, but the overwhelming majority does not want to transfer more power to the EU.

A false sense of security?

The opinion of voters regarding this trend to federalization certainly contributed to Brexit. A number of pro-EU politicians were afraid that other countries would follow, however, one year after Brexit, these politicians are relieved. The Dutch and French elections in 2017 have not resulted in absolute majorities of anti-EU politicians and their parties.

The danger, however, is that this may lead to complacency, and a false sense of security about the way their citizens feel about the EU.

A couple of facts:

  • Norbert Hofer, the right wing presidential candidate in Austria who was in favor of reducing the role of the EU, received 46.2% of the votes in the presidential elections in 2016
  • Marine Le Pen won just below 34% of the votes in the 2017 French elections
  • All over Europe, anti-EU populist parties are being established and are becoming a factor in national politics

Since none of these candidates or parties achieved an absolute majority, pro-EU politicians claim a victory for the EU. This means however that they are ignoring a significant (and growing) minority of their constituents. History has shown that this is not without risks, given the number of examples when powerful minorities plunged their countries into political instability or even dictatorships.

The business model of the EU seems flawed

Although it is obviously impossible to compare the performance of public organizations with private businesses on a 1:1 basis, it is nevertheless interesting to make such a comparison.

  • Strategy – In business terms the EU strategy can be described as ‘Big is beautiful’. Just like an old-fashioned conglomerate such as ITT (International Telephone and Telegraph) in the last century, the EU wants to expand, both in terms of geography, as well as in ‘product range’ (e.g. the creation of a European defence). Furthermore, pro-EU politicians have a tendency to plead for more transfer of power to the EU if their initiatives do not work out. A case in point is the Euro, where design flaws were already clear from the start, and where pro-EU politicians now advocate for more integration to address the issues, rather than admitting that they never should have opted for a common currency in the first place.
  • General And Administrative Expense (G&A) – Any company knows the importance of managing its General And Administrative Expense (G&A) costs. Not the EU. The total annual G&A costs of the EU Parliament alone are Euro 1.9 Bn. Part of these are caused by the fact that several times a year the complete Parliament is moved from Brussels (Belgium) to Strasbourg (France). This move alone is already costing Euro 114 M on a yearly basis.
  • Voice of the customer – For companies, customers are the very reasons for their existence. Because they realize customers ‘vote with their feet’, they pay close attention to customer satisfaction. Although the popularity of the EU is low – 53% of the EU citizens say they don’t feel heard at the EU level and 50% thinks the EU is moving in the wrong direction (certainly no positive ‘Net Promoter Score’ here) – EU officials do not seem to feel a need to listen to the concerns of their citizens. On the contrary, with the exception of the UK, the signals of elections and outcomes of referenda about the EU (e.g. in France and the Netherlands) are systematically ignored.

This means that, in business terms, the EU could be described as a business which pursues expansion for its own sake, has unnecessarily high overhead costs and has a leadership team that does not pay attention to the opinion of its customers.

What now?

Although the EU does not operate in the private sector and hence there are no market forces that would force the EU to collapse, different internal and external forces could make it only a matter of time before the EU implodes…with very negative economic and political consequences for its citizens.

Its current strategy of striving to increase federalism and a common currency (if necessary in a multi-speed mode) seems to be leading the EU from (near) crisis to (near) crisis: the Euro crisis in Greece, where last minute a Grexit was avoided, Brexit, a near miss in France, a last minute solution for a Spanish banking crisis in the making, fears over the consequences for the Euro and the EU of the upcoming Italian elections, etc. With this strategy the occurrence of a next real crisis (like Brexit) seems to be more a question of ‘when’, than a question of ‘if’.

What should the EU do if it was a business? There are a number of business books and biographies that provide a range of inspiring stories of business leaders that successfully turn failing companies around. In most of these stories these business leaders do four things:

  1. Business – Define which business the company is in (in which market do they want to operate)
  2. Portfolio – On this basis review the portfolio of products and services to select the products and services which fit the chosen business
  3. Structure – Streamline the governance and internal organization to deliver the selected products and services as effective and efficient as possible
  4. Stakeholders – Engage the stakeholders throughout the process

If the EU would take its cue from this approach, it probably should start to review what business it should be in. Should it be in the business of being a mechanism for member states to serve their common interests and wealth, in the business of becoming a federalist political entity for its own sake, or a combination of both?

Answering this question should lead to a review of the portfolio of the ‘products and services’ the EU offers (e.g. a common currency), which in turn should lead to a review of the shape and size of the organization (governance, institutions, headcount and budget)

The EU should not conduct this review in splendid isolation, but in a dialogue with its citizens. This will require significant effort, because the current ‘debate’ (or lack thereof) around the EU has the following characteristics:

  • Polarized – The current debate is polarized in an unhealthy manner. People who express doubts or criticism regarding federalist trends in the EU tend to be branded as ‘xenophobes’ and ‘populists’, whilst on the other hand of the spectrum politicians who are pro-EU are described as naïve or self-serving ‘Europhiles’. At this moment the debate looks like a chess game where a draw is inevitable, but the players keep moving their pieces around anyway. This is hardly a climate where a constructive exchange of thoughts and ideas could lead to a ‘third way’ between federalism and exit(s).
  • Bad PR – On the 4 point Stigma Spectrum developed by Matt Nixon to analyse the reputation of organizations, the reputation of the EU would probably feature somewhere between a medium and a high stigma. In this context national politicians do not do the EU any favors. Examples include French and Dutch politicians who blame the EU for taking decisions in which they were fully involved, Greek politicians who blame the economic crisis in their country on the EU and British politicians who framed the EU in a negative manner prior to the Brexit referendum.

Can the leadership of the EU implement these changes?

The question presents itself whether the EU can reinvent itself. Unfortunately the prospects for this look rather bleak. The main reason for this is the ‘principal agent’ problem, which describes that, in certain circumstances, agents will act in their own best interests and against the interest of their principals.

According to prof. Gerald E. Caiden, who wrote a very interesting article about governance in the public sector: ‘…all organizations put their self-interest first’ and ‘…have a vested interest in perpetuating their existence, divesting funds, expanding staff … although they may be performing badly and they may have even outlived their contribution to society.’ He recommends a ‘thorough reckoning off all organizations that have no competitors and do not have to face a competitive market’.

For the sake of the EU and in the interest of all EU citizens, let’s hope we will see national politicians in the EU that have the courage and clout to dare to propose and implement such a ‘thorough reckoning’.

(*) Surveys used:

Originally published June 15, 2017 on LinkedIn

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