Fate of the European Union: Lessons for Arabs in politics and economy

Opinion Sunday 24/July/2016 15:43 PM
By: Times News Service
Fate of the European Union: Lessons for Arabs in politics and economy

Recent global events remind us yet again of the strong correlation between economic and political relations. In the absence of tangible economic results, political coalitions and unified bodies hold little meaning. In essence, ties between countries are similar to emotional bonds between human beings. A link between two individuals can be greatly influenced by their surrounding environment.
Initial indications of tension among the EU countries appeared shortly after the 2008 global financial crisis. This tension became more palpable once the crisis divided the continent into a wealthy minority and a poor, unstable majority. Although Britain created history of sorts by opting out of the European Union, the remaining member countries have limited choices and are entering a deeper crisis that will be increasingly difficult to resolve.
The first political and economic lesson that we as Arabs - seeking economic unity and integration and keen to establish a common Arab financial market and unified currency - need to learn from the EU experience is that it is unwise to establish a union on troubled grounds. Potential member countries have to strengthen their individual economies and become as politically stable as possible before entering into a region-wide agreement.
We must be conscious of the fact that the establishment of the European Union did not significantly boost the national economies of its individual member countries. Nor did it salvage the troubled global economy. In fact, it actually worsened the European and global crises.
The crisis of the late 1960s was a transitional point in developing a new global economy that later regressed into a speculative capital system. The transformation from a productive capital system to a speculative capital system resulted in recurrent collapses, such as the breakdown of Asian markets in the mid-1990s, the fall of IT equities at the beginning of the third millennium, and the 2008 global financial crisis that witnessed unprecedented price hikes on commodities, stocks, real estate and essential services, in addition to surging unemployment and hunger levels.
Productive sectors used to dominate the global economy up until the 1970s. Banks provided productive sectors with cash levied from depositors. The state was the sole entity that controlled financial markets, set interest rates and decided what could or could not be done.
It is clear to us now that the repercussions of the latest global financial crisis are still taking a toll - the latest political casualty is Britain’s exit from the European Union.
A second lesson that Arabs can take away from the EU story is that development must be a primary objective despite a financially troubled global environment.
The economic disparities among European countries that have further deepened following the global financial crisis, prove beyond doubt that European markets had enjoyed at best a fragile state of prosperity in the past couple of years. The social structure in the continent collapsed owing to the radical shift of wealth from the state and society to multinational corporations - leading to a receding middle class that accounts for a mere 10 per cent of society over just seven years. Only a small fraction of this middle class had the means to rise to a higher level, while the vast majority simply moved farther down the socio-economic ladder.
The third lesson we can draw from this experience has to do with social injustice – because it is now abundantly clear that the European Union was established on unfair foundations.
The European unity actually commenced with strong companies acquiring weaker ones - this meant by default that companies in Western Europe acquired plants and farms in Eastern Europe. Also, a large number of farmers and blue collar workers from Romania, Poland, Slovakia, Bulgaria and other Eastern European countries moved to Western Europe to replace migrants from former French and British colonies - who were then barred from entering Europe.
Such movement caused widespread discrimination against the new East European migrants who were also blamed for financial crises - a critical factor that led to the recent Brexit vote.
However, we must not conclude that a union will necessarily lead to the problems it did in Europe. Our region has a social structure that is unlike that of Europe - Arabs are culturally more similar than Europeans and our economies are still in the pre-financial globalisation stage. These economies are more inclined to fair integration rather than acquisition.
Our economic systems are not entirely liberal since the state continues to play an essential role in defining the path of development, its tools and plans. The capacities of large corporations are bound by the national public interest. Furthermore, economic unity is an urgent need in our region since most of our national markets import and consume products from abroad. We are more inclined to stimulate production to address gaps in market demand rather than use it as a means to compete.
There is no doubt that the European Union has proved to be an extremely useful case study. However, we must keep in mind factors unique to our regional context that will weigh significantly in the event of an Arab economic coalition.

- The author is the Chairman of National Bank of Oman, Executive Chairman of Investcorp and an International Advisor to the Brookings Instituition. All the views and opinions expressed in the article are solely those of the author and do not reflect those of Times of Oman.