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European Union Expansion:

A Constitutional Perspective

Dennis C. Mueller

University of Vienna

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Original intent of Jean Monnet and other founders of EU: join economically Germany, France and other European countries sufficiently closely to avoid future wars - to provide a form of public good for all of Europe. Today, we would expand the list of collective goods that can be provided more efficiently at the European level.

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Two institutional structures for accomplishing these tasks:federalist or a confederation structure.

Which is best depends upon the distribution of citizen preferences for public goods across Europe, and the characteristics of the public goods.

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I. States as Clubs: Federalism

A. The Need for Clubs

Characteristics of a public good -- joint supply and non-exclusion from benefits -- often give a geographic dimension to clubs.

Essence of a club is that it is a voluntary association of individuals to achieve some mutually beneficial goal.

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B. Optimal Club Size

Public good benefits may:

(1) grow without bound as club size expands, or

(2) eventually decline as club size expands, and may even turn negative on the margin beyond some size.

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C. The Costs of Heterogeneity underFederalism

Assume a single public good, say roads, and its citizens must decide the amount, x, to be spent on roads. Population is divided into five groups.

Group 1 favors x1 in expenditures, group 2 favors x2 and so on.

x1 < x2 < x3 < x4 < x5.

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Parties representing groups 2 and 3 form the government and choose, x* ,

x2 x* x3.

Under this assumption, x* must differ from the most preferred quantity of x of one of the groups, and most likely differs from the quantities most preferred by both groups.

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Necessity of all members of a community having to consume the same quantity of public good imposes some losses on all members.

No losses if all had same tastes.

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Three consequences follow:

(1) A second possible cost to existing members from expanding the community.

(2) Possible gains for all from free migration across communities.

(3) There is a possible advantage of a federalist structure with free migration.

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II. Confederations as Clubs

Club of nations.

To optimally represent citizen preferences we must assume that everyone within a given state has identical preferences for the public goods that the confederation provides.

Situation quite different, if preferences of citizens within each state are heterogeneous.

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Assume same five groups with most preferred quantities of x,

x1 < x2 < x3 < x4 < x5.

10 states in confederation.

In 5 parties representing groups favoring x1 and x2 form governments with narrow majorities.

In other 5 states parties favoring x3 and x4 form governments with substantial majorities.

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If populations of 5 states favoring x1 and x2 give them a slight majority in confederation's assembly, x* between x1 and x2 chosen.

With federalist structure between x3 and x4 .

Individuals who favor x5 are not represented in any of 10 governments, their preferences would receive no weight even under the unanimity rule.

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III. The Optimal Design of the State

Unanimity is not merely a hypothetical ideal when states form a super state.

Option 1. A federation with states as subunits of government within the super state. Optimal when citizens‘ preferences for public goods provided by super state are heterogeneous within separate countries which form it.Example: United States of America

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Option 2. Confederation.

Optimal when citizen preferences for public goods provided by super state are homogeneous within each member country.

Example: EU?

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Federal structure: collective decisions made by a parliament in which citizen preferences are represented through parties.

Confederation: citizen preferences represented by representatives from elected governments in each member country.

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Optimal voting rule: decision-making costs, D, and external costs of collective decisions, E.

Figure 1

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F igure 1C h o o sin g th e O p tim a l M a jo r ity

D

m * 1 .0m

E + D

E

E ,D

0

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m* differs for different types of collective decisions and different communities.

The more heterogeneous the assembly is, the longer it takes to reach a collective decision.

D-curve pivots to the left as heterogeneity increases. This change alone would imply lower optimal majorities for more heterogeneous committees.

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E pivots to the right as heterogeneity increases.

Effect on choice of voting rule from increase in heterogeneity cannot be predicted.

Combined costs associated with collective decision making rise with heterogeneity.

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IV. The Benefits and Costs ofEU Expansion

A. Benefits

Costs per person of a public good fall- satellite.

Few public goods in EU have these characteristics.

EMU? Shengen? Membership in EU not necessary.

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Spreading and preserving peace and democracy greatest benefit from EU expansion.

Harmonization of rules and regulations that make doing business in different European countries easier.

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B. Costs

1. Congestion

Trucks in Austria.

Skies and beaches of Europe.

Job markets in the rich countries.

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Draft constitution creates a new animal called the “European Union citizen.”

Does EU citizenship imply rights to citizenship in newly entered member countries? Claims on welfare systems?

The death of the welfare state in Europe as it exists today.

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2. Heterogeneity

Range of preferences over x of 15 member countries of April 30, 2004 from x1 to x5, chosen x, say, x3.

Preferred quantities of x of new members are x6, x7, and x8.Addition of new countries shifts x away from level favored by original members imposing costs upon them.

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3. Effects on the basket ofpublic goods provided

As boundaries of EU expand, number of public goods that can be optimally supplied to all member countries declines.

Expansion of EU should carry with it a contraction of work of Brussels, at least in so far as it is involved in providing public goods.

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“Inner” and “outer cores” in EU?

Instead of a single club of 25 or more countries, it might be optimal to divide EU into several smaller clubs – a British Isles-Scandinavian club, a Mediterranean club, a central European club.

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4. The optimal voting rule

12 recent entrants differ greatly from previous 15. Increase in heterogeneity in EU shifts both E and D curves upward in Figure 1 raising total costs of collective decision making in the EU.

Effect on size of optimal majority ambiguous.

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Why so much concern with lowering required majority?

Decision-making costs fall entirely on members of the Council and Commission.

Rise in external costs of collective decision making falls largely on EU citizens.

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V. The Nature of Heterogeneous Preferences

A. Tastes

Maximum speed limit.

B. Income

Addition of poorer countries can be expected to shift EU-wide public goods towards lower provision of quantity and quality.

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C. Ideology

Communists versus economic liberals.

Stop-go economic policies in Britain during the 1960s.

Red Brigades and other left-wing terrorist groups during the 1970s.

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D. Race

Race most conspicuous of all heterogeneities that divide people.

Although US is most prominent country that has been troubled by racial problems, it is not alone. I can think of no country in the world with a non-negligible black minority in which blacks have achieved economic equality with whites.

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E. Religion

Trouble spots of the world over the last decade – Israel, Iraq, Afghanistan, Kosovo, India, Bosnia, Northern Ireland.

Religion is a common factor.

Religious clashes not always between Islam and Christianity, nor do they always involve Islam.

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F. Culture

Typical European family – typical Romani family

Basques

G. Language

Belgium, Basques, Catalans

Corsicans

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H. Sexual Orientation

I. Commentary

Conventional view: group loyalties and animosities are learned prejudices.Can be unlearned.

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Evolutionary psychology: group loyalties and animosities may be partly genetically determined. Increase survival chances in hunter/gatherer tribes.

Race, language, religion are good group identifiers.

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VI. The Nature of the Costs of Heterogeneity

If continual expansion of EU leads to greater degrees of heterogeneity in citizen preferences for EU-wide public goods, expansion is likely to erode perceived benefits from the EU, unless these costs are offset by other benefits from expansion.

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Some other forms of heterogeneity also impose real costs on citizens.

Language

Religion

Many of the costs of heterogeneity are not real costs, but psychological costs.

Racial differences give rise to a psychological externality.

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Homosexuality

Mere thought that two people are having a homosexual relationship in private may give rise to a psychological externality.

Common way to eliminate negative externality is to prohibit action that causes it.

Homosexual acts in public

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Blacks frequenting certain places frequented by whites

Head scarves

When such externalities exist, one group must suffer losses for the benefit of the other group, whatever the community decides with respect to the action. Only way to avoid these costs is to separate the two groups by a great enough distance so that the externality disappears.

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VII. The Costs of Heterogeneityin the European Union

Article 21 of the Charter of Rights:“Any discrimination based on any ground such as ... [17 criteria] ... shall be prohibited.”

Article 21 annunciates liberal ideal of racial, sexual, religious, etc. equality shared by liberals in Europe and around the globe.

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If an article in a constitution could eliminate racial prejudice, then racial inequality in the US would have vanished long ago.

If people perceive psychological externalities from some of the differences among people enumerated in Article 21, then there will be costs from having and increasing heterogeneities within the European Union.

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France 50 years ago and today.

March 11th, 2004 in Spain

July, 2005, London

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Increasing alienation from those in government in last 30/40 years.

Preference heterogeneity has increased. (Gay rights, abortion, environment, animal rights).

Government is perceived as not satisfying preferences of citizens.

Increased heterogeneity may enhance political alienation.

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VIII. European Union Expansion: With or Without Immigration?

Primary benefits from EU have come through elimination of wars between its members.

Preservation of peace and democracy in exiting member countries, and their spread to new members are most likely benefits from expansion, along with the economic benefits of an ever expanding common market.

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These gains can be realized without requiring that the citizens of one member country be free to immigrate to and take up residence in another member country.

To date migration among member countries has been modest, and has not been a cause of much concern.

Differences in income between new members and existing 15 are great.

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Restrictions on immigration rights in Austria and Germany.

Other differences between new and old members are not great.

Looking further east, potential dangers from further expansion and liberal migration loom larger – Turkey.

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Benefits to EU from admitting Turkey could be great.

1. Role up the red carpet.

2. Extend red carpet, continue to allow free migration, and hope that all EU citizens become as enlightened and tolerant as the people who drafted the Charter and the constitution.

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3. Continual expansion to include countries, which meet the criteria of being liberal democracies with well-functioning market economies, but allow each member country to define its own criteria for residency, employment and citizenship.

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Option 3 would allow the EU to gradually expand across all of Europe and into the Middle East, eventually absorbing perhaps Israel, Russia and its former satellites, if they could eventually meet the criteria for entry.

Option 3 resembles dream of Woodrow Wilson and others for the League of Nations, and of others who have dreamed of a “world government.”