September 22, 2022 - 3:30pm

This week, to little fanfare, the European Commission set out an ‘emergency tool’ called the ‘Single Market Emergency Instrument’, by which it could seize control over key parts of the European economy. Effectively, this tool would allow the commission to invoke executive powers to force firms to engage in economic activities that they would not do were they left alone.

“This instrument is the opposite of a planned economy,” the Internal Market Commissioner Thierry Breton said — presumably because the plan looks very much like the first step to a planned economy. In a system of free enterprise, while government bodies can regulate companies, they cannot tell them how to undertake their business operations. The Single Market Emergency Instrument crosses that line and allows the European Commission to directly insert itself in the business operations of private companies.

The details of the plan are worrisome. Together with member states, the EU executive will be able to ‘monitor and tackle any potential threat that could trigger disruptions or shortages of key products within the EU’. Referring to the unilateral action taken by some member states during the Covid-19 pandemic, the SMEI aims to avoid shortages, supply-chain disruption and hoarding.

What constitutes a crisis is left deliberately vague, but if officials believe that one is on the horizon, they will then enter ‘vigilance phase’, which will allow the Commission to call on countries to build up strategic reserves in order to prevent shortages. After the vigilance phase, the Commission can then invoke the ‘emergency mode’ in which the Commission starts requesting detailed information on the business operations of private companies. In turn, it can then force these companies to build up excess supplies of goods that they otherwise would not need. Failure to do so could result in a €200,000 fine – although one could imagine this figure rising if the initial penalty does not provide a sufficient disincentive.

The system is set up in such a way that if bureaucrats working in the Commission get a sufficient fright from a model projecting some doomsday scenario or other, they will be able to activate their emergency powers over private industry.

So, for example, if another pandemic was thought to be on its way, this could trigger a run on medical equipment, allowing the Commission to take supplies from one country and give them to another. Or perhaps climate change is declared a crisis. The bureaucrats can then — based on their ‘modelling’ — activate emergency mode and dictate to medical product firms or food production firms to start overproducing their product and storing it. Even if the executives at these companies think that the bureaucrats’ projections are wrong, they will have to comply. These are hypothetical scenarios, of course. But it is now a possibility thanks to the introduction of the SMEI.

The Union was supposed to be one that facilitated trade and promoted peace between its members. In 2022 it is giving itself emergency powers to intervene in the business operations of private companies. Some member states will happily consent to this move, but most rational actors will probably decide that basing their economic planning — and their ability to allow free enterprise — on the prognostications of bureaucrats in Brussels is probably not in their economic interest.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics