In Europe, Size Does Matter

This article was co-authored with Frédéric Jollien.

Whoever takes a look at a map of Europe will notice the unmistakable difference in size when it comes to countries. The old continent is sprinkled with nations the size of Rhode Island. However, despite passing unnoticed in a geography class, those small countries have been mentioned in economics: they tend to have smaller governments and are economically more performant as a result.

For young Europeans in the 21st century, it’s difficult to imagine the historical reality of Europe other than in terms of today’s homogeneous nations, but European nation-states are a novelty in the history of the Old Continent. If the mosaic of European countries is impressive to a foreigner by its variety, it is only a pale reflection of what it was in previous centuries.

The European countries of today are the result of centuries of war and conquest of power over minorities. The formation of nation-states has often had to create processes of homogenization that destroy important cultural differences in order to establish the authority of their governments. Many find it hard to realize that the kingdoms of France, Spain, England, or the German Empire, which gave birth to the modern nations we know today, were not natural groupings of a quantity of ethnic groups, cultures, and religions, but states created through wars.

As Europe was infinitely more culturally complex, there were also many more different states than today. In Medieval times, Germany, the Netherlands, and Italy were divided into thousands of independents states and autonomous cities. These regions and small states were more free-market oriented, open to other cultures, and less protectionist than their bigger neighbors. For example, city-states around the Baltic Sea had trade agreements for more than 300 years. It was also in the independent cities of today’s Italy that we saw vast progress in the ideas and economic development that brought the Renaissance period.

While European politicians are calling for political unity to counter the great foreign nations in a so-called “economic war,” history teaches us that the multiplicity of states does not lead to isolation or economic downturn. Just like today, the small nations of history were threatened by the greed of their powerful neighbors. But, by providing Europe with the most innovative ideas of their time and thriving at high speed, these small states were immensely successful, to the degree that they did not suffer comparison with the powerful French or Spanish monarchies.

The European Union Despises the Querulous and Small

After the Second World War, Europe entered an era in which politicians argued for peace through trade. French foreign minister Robert Schuman suggested free trade on coal and steel. What became the European Community for Coal and Steel later extended to the European Communities (EC): economic agreements saying that as long as countries trade with each other, they will be less incentivized to wage war.

However, with the creation of the European Union in 1992, a political structure that seeks to collectivize power wherever it can was born. The political institution that is the European Commission counts 28 members whose sole ability to introduce legislation to the European Parliament extends to all domains. The issues the Commission meddles in today range from transport to the environment, trade to “neighborhood policy,” food and safety to agriculture. Vice-chairman of the commission Frans Timmermans is even in charge of a department called “Better Regulation.”

Nothing could be more off-putting to a political structure built to regulate and expand than small countries advocating for smaller government and competition. In practice, France and Germany are directing the union while small countries are either bullied into submission or crushed by majority voting. The latest example of the latter is the new EU Firearms Directive, through which Brussels is cracking down on gun ownership despite countries like Poland and the Czech Republic opposing the measure.

Whoever would pretend that “rules and regulations would be just the same if the member states would be in charge individually” would be guided by a large misapprehension. For example, the island of Malta in the Mediterranean Sea is 122 square miles large (making it 20 times smaller than Delaware) and governed by a parliament of 67 members. The Maltese GDP is €8.4 billion. The European Union’s expenditure on administrative costs is a total of €10 billion. The EU employs thousands of bureaucrats to draft new regulations for people they will never meet and whose countries are increasingly fed up with the avalanche of overtly ineffective lawmaking that is dumped on them.

The European Union and the advantageous nature of small countries are vehemently antithetical. In fact, Brussels’ elite makes little secret of the fact that it holds them in contempt. Many Eurocrats repeatedly bring up the issue of tax harmonization under order to crush European tax competition sparked by low-tax countries like Ireland or Cyprus. There is no reconciliation between keeping a small government nation-state while simultaneously preserving a big government organization which seeks to collectivize as muchas muchas muchand as much as it can.

EU: The Alien Institution in Europe

The European Union, by its desire to homogenize legal practices, tends to reduce what makes Europe’s strength: its variety. Politicians see different taxation and legislation as threats to European peace when they should rather be seeing them as the main tool for improving institutions by experimenting with different forms of governance.

In contrast, non-member Switzerland, with its 26 sovereign states and each with its own tax system in addition to the central government, cultivates tax competition within its own borders. Respecting the regional differences and cultures present within it, Switzerland represents this complexity and European variety and proves that competition from political institutions is not a brake on prosperity.

Instead of recognizing the full sovereignty of each nation and its varieties, the European Union tends more and more to shape them in a direction of uniformity. Pro-EU politicians appeal to the good faith and cooperation of national politicians, but they do not understand the change in dynamics these homogenizing agreements introduce to Europe.

Switzerland, having refused to enter the European Union in 1992, proved empirically that it is possible to have institutional variety, local independence, solid peace, and economic prosperity – even though it was predicted to be a long agony. By the variety of its institutions and culture and by its attachment to their independence, Switzerland was perhaps too European to join the European Union.

Seeking to break the protectionist barriers between the nations, the European Union started with good intentions. The free flow of ideas and goods effectively facilitates economic improvement and is a guardian of peace and harmony among the people of Europe. Unfortunately, instead of moving towards free recognition of legislation, the European Union has often preferred to regain power and create a superior organization to homogenize legal practices. Though this helps to improve trade relations, it has destroyed institutional competition to improve political practices while reducing the freedom of individual nations and increasing the anger of the peoples subjected.

Europe should regain its political identity, inspired by the models of small countries. Let the different nations manage themselves and cultivate this spirit of difference to bring out the best solutions. We can live together peacefully in the acceptance of our differences and cultivate freedom of trade in the mutual recognition of the various laws that result.

Furthermore, we should stop treating secessionist movements with contempt. In fact, the fragmentation of states by popular demand should even be encouraged. If you care about democracy and the liberty of the people, you should see any rapprochement between the decision makers and the people as a good thing. While bureaucrats in obscure Brussels offices write decrees that are rarely read by elected officials, Swiss village communities meet to decide on the height of their own taxation. It is not surprising that Swiss confidence in their institutions far exceeds that of European citizens towards their own.

One cannot boast about loving the European variety and homogenizing its institutions at the same time. However, we can enjoy openness and free markets while preserving political independence.

Small countries prove today just as much as they did centuries ago: small is beautiful.


This article was first published by the Foundation for Economic Education.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

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