EU referendum: Can the European project succeed? Using an M&A template, the chances of success are very small indeed
In the ongoing EU debate, both sides make a persuasive case. Remainers are right to say that the EU has helped to liberalise trade, at least within Europe itself. Outers are right to say that the EU is openly working to transform Europe from a community of nations to a federation of regions.
Those who remain undecided have to ask a more fundamental question: can the plan set out in 1957 to work towards the political integration of much of the European continent actually succeed?
A form of enforced European union has been sought from Roman times through to the twentieth century, but there is no precedent to guide the process of a peaceful political integration project on a continental scale.
As the EU’s founding father Jean Monnet said: support for the EU requires an act of faith – but sceptics prefer to put their trust in reason and evidence.
There are bookshelves of evidence about the pros and cons of integrating Europe, none of it conclusive one way or another. However, a great deal has been written in the parallel field of corporate mergers and acquisitions. Drawing lessons from M&As can help us form a judgement about the EU’s prospects as, conceptually, both the EU and M&As are about integrating systems, cultures, process, governance, synergies, and objectives.
Historically, successful mergers have attributes we see time and time again.
First, the goal must be clear, realistic and properly communicated to interested parties such as the board, shareholders, bond holders, suppliers and staff.
Second, the strategy must be actionable and focused. A company’s resources in time and capital are finite, so it will have to choose between mutually exclusive options such as scale, depth, or sectoral diversity to deliver on the chosen strategy.
Third, the target must be accurately identified and evaluated, the purchase must be executed at the right price, and the post-merger integration process must be diligently and speedily executed for the combined entity to be worth more than the sum of the original parts.
The transformed corporate will find its universe changed in five broad areas: company, industry, strategy, financial and personal.
Finally, the merger must take place in propitious circumstances. Unforeseen events can easily derail the best laid plans. As Napoleon Bonaparte – who had his own ideas about European integration – might have said: it might be better to be lucky than to be good.
Applying this structure to the EU project, the reader will be struck by an overwhelming sense of unease. Indeed, not one of the points required for a successful merger seem to apply to the EU integration process; quite the opposite.
The goals of the EU have still not been communicated clearly. This is due to the reality of Europe. It is a mosaic of states with a strong sense of individual identity, rooted in language, culture and geography. To be acceptable to all, EU institutions were, from their inception, forced to disguise their ambitions, misname processes and remain vague. There were few instances of consensus for tangible outcomes, in particular if goals could be kicked into a theoretical semi-distant future.
Rather than choose one strategy, the EU is simultaneously engaged on three broad strategic fronts: enlargement, political, financial and monetary integration in depth and, finally, an unwitting diversification effort, targeting countries such as Bulgaria and Romania that are politically and economically materially different from the EU mean.
Unlike a corporate merger, the EU finds itself working on an integration project between 28 different nations over three dimensions, increasing the complexities and the risks of failure exponentially.
In addition, the absorption of new nations has happened at a quickening pace. From 1957, it took around 30 years for the EU to double in size to 12 nations. It then took 10 years for it to more than double in size again to 25 by 2004, and by 2013 the EU contained 28 very different nations. Whilst this expansion was occurring, monetary union was also attempted. The integration process, as a result, struck out in all directions. Inevitably, with so many moving targets and no specific goal, the post-merger process lacked practical, deliverable objectives.
This complexity was further magnified by the change that EU expansion itself brought. From 1992 to 2007, the EU expanded one thousand miles eastwards to Russia’s borders; simultaneously, it ballooned south to the Black Sea. Now Turkey’s application is being taken increasingly seriously, which would give the EU contiguous borders with Syria, Iran, Iraq, Armenia and Georgia.
Such a border transformation has inevitably changed the geopolitics of the region, but just as promised gains through integration and economies of scale rarely emerge in the corporate world, the promised gains to GDP performance, employment and stability did not materialise at a European level. Indeed, quite the opposite. EU GDP fell by three per cent between 2008 and 2015. In the same period, the US grew by 20 per cent.
One of the noticeable differences between the corporate world and the EU seems to be in the ability to react to adversity. A corporate can divest, spin-off or enter joint-venture agreements with competitors. A failed strategy can be re-calibrated, changed or dropped.
The EU, however, seems unable to change course. In 1957, it set its eyes on the political integration of Europe. In 2016, it continues pursuing this goal heedless of the human cost, rigid, intractable and unresponsive to new realities.
Can the European project succeed? Using a mergers and acquisition template, it would seem that the chances of success are very small indeed, and voters who remain neutral on the subject should consider the high price of failure if we remain party to it.