Rajkamal Rao

The EU has become a complete mess

Rajkamal Rao | Updated on May 09, 2019

Europe’s welfare state model is falling apart

On May 23, the European Union will hold elections to its sprawling parliament when 751 members are voted into office from around the 28-state union.

But not all is well within the EU, especially in France, a founding member. The country’s liberal policies of high taxes and a no-borders approach to migration have run into an unlikely new opponent: French citizens. For nearly six months now, the country has been torn apart by the so-called Yellow Vest protests.

Like its fellow Scandinavian member-states, France is proud of its cradle-to-grave benefits system. The work week is just 35 hours long, the lowest in the industrialised world. An hour worked after that is considered overtime. It is illegal for employers to expect workers to respond to emails and phone calls at the end of the workday. The French are guaranteed six weeks of vacation a year.

It’s almost impossible to fire a worker. Under the “one day worked, one day covered” rule, employees are entitled to up to 36 months of unemployment coverage if they are forced out of a job. The compensation can be as high as 57 per cent of a person’s wages which must include any bonuses earned. Employees must take maternity and paternity leave. Healthcare is free to all in France.

One would expect that in such a blissful environment, the working class would be ecstatic. Yet it is the working class which is behind the huge Yellow Vest protests.

In France, the marginal income tax rate on people making just €27,000 a year is a whopping 30 per cent. This is your standard bank employee, government staffer or factory worker. VAT taxes are a flat 20 per cent on everything that is consumed, with obvious reductions for food items.

With taxes taking such a big bite, a New York Times report said that most rural families run out of money by the third week of most months. They raise chickens and animals in their yards so that these could be slaughtered to put food on the table for the remaining days of the month. This is hardly the picture that we get when we think about France. The country only triggers images of the serene Seine, the pristine beaches of the French Riviera, the majestic Alps and the wineries of Bordeaux.

The EU has struggled to function as each member state has its own form of government, lower and upper houses of parliament, chief executive, capital, flag, constitution, language, and fiscal policy of taxing and spending. Yet it is governed by a single monetary policy and currency.

To make it all work, each state is supposed to strictly follow the Bloc’s unbending rules about everything, from trade to migration, to employment laws, and the environment. The bureaucrats in Brussels wield enormous power to manage the unwieldy union but delays, frustration, and gridlock are common.

Take Brexit. The EU’s Article 50 is just 250 words long and defines how a member state can leave the EU. Nearly three years after the Brexit vote, a dysfunctional House of Commons in London and an equally dysfunctional EU Parliament have been unable to negotiate an exit.

So, this month, the UK will actually be voting in the EU Parliamentary elections as a full member while also wanting to honour a democratic referendum to leave the union.

Yes, this is the mighty EU today reminding the world that excessive centralised control come at a huge cost. Indian political parties should recognise that copying the EU model would forever stymie growth, raise deficits and bankrupt India, a chilling prospect for the world’s fastest-growing economy.

The writer is Managing Director, Rao Advisors LLC, US

Published on May 09, 2019

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