Commentary: How to Build a Better EU Constitution

The framers must leave room for competition inside a united Europe

By John Rossant

When former French President Valery Giscard d'Estaing took charge of drafting a constitution for the European Union 15 months ago, it looked like an exercise doomed to failure. Here, after all, was one of Europe's haughtiest old-school politicians overseeing an unwieldy body of 105 delegates. Their bimonthly meetings in Brussels seemed to yield little common ground. Then, early this year, Europe was split by the U.S.-led war in Iraq. How could the bickering conventioneers possibly attain the goal of making Europe more democratic, transparent, and efficient?

Well, what do you know. In a marathon of last-minute negotiating, cajoling, and dealmaking, Giscard has managed to produce a draft constitution on deadline, just in time to present it at a European Union summit on June 20 in the northern Greek city of Thessaloniki. No, it's not perfect. At 224 pages, it is one of the wordiest Magna Cartas in history, and it sometimes descends into gobbledygook, citing, for instance, "the principle of conferral" -- whatever that is. Further changes are likely when Europe's governments rake over the draft later this year. And since most countries need to hold referendums to approve the draft, the constitution is unlikely even to take effect before 2006.

Still, it is a milestone in Europe's quest for an "ever closer union," the goal pledged by the EU's six founding members 46 years ago. On a practical level, the draft vastly simplifies the EU's often-Byzantine decision-making procedures. It more clearly defines relations between various EU institutions, such as the European Commission and the European Parliament. By doing away with national vetoes on questions ranging from immigration to farm subsidies, it prevents individual nations from single-handedly obstructing reform. That's even more important now, with 10 nations from Eastern Europe set to join the EU. And the constitution definitively states that EU law takes precedence over national law. "Worthy of the word 'historic"' is how German Foreign Minister Joschka Fischer described the draft text.

Why isn't this more of a feel-good moment? Because it looks as if all the work to unify Europe isn't translating into growth and jobs. If France and Germany cannot or will not loosen their labor rules and lower taxes, who cares if veto powers are circumscribed in the councils of Brussels?

Yet there is a way the framers of the constitution could set the stage for an economic renaissance. Not by changing the minds of those officials most wedded to Europe's big welfare states -- that's well-nigh impossible. Instead, the constitutionalists, when they pen their final document, should take care to allow plenty of room for competition inside an expanded EU.

Ireland, Spain, Finland, and Britain exhibit more robust growth and greater entrepreneurial drive than the old core of France and Germany and display little inclination to succumb to their dirigiste policies. All have been battling for more flexible, competitive rules within Europe.

Then there's the dynamic East. "Poland, Hungary, Slovakia, and the Czech Republic are growing like crazy," says Claude M. Leglise, vice-president of Intel Capital, the tech giant's venture-capital arm. Those growth economies will soon be members of the constitutional club, providing their own kind of fiscal competition with France, Germany, and Italy. In Estonia, for example, companies pay no taxes, while individuals are subject to a flat income tax rate of just 26% -- likely to be pared back even further in the coming years. It is already easier to set up a company in Lithuania than just about anywhere in the EU.

The Easterners want their reforms noticed -- and wouldn't mind if France and Germany copied them. "We will make a difference in Brussels," says Wanda Rapaczynski, chairman of Agora, Poland's largest media group. "We have more energy, and after living under communism, we value freedom and free markets and will promote them vigorously." If the new constitution doesn't quench that passion, the framers will have done their job.

Regional chief Rossant covers European politics from Paris.

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