From friend of Alhambra, Brian Cronin:
Cards on the table: I consider myself a euroskeptic. You may already have gathered that if you’ve read enough of these essays. Having lived in the UK when Britain decided to join itself to the European Union in 1973 and seeing after that the creeping effects of what that meant for ten years before immigrating to the United States in 1983, I think I am entitled to a strong opinion on the subject. I have not lived in the UK for nearly 30 years and you could say that my views are therefore frozen in time and I will accept that, but the whole idea that Britain needed to tie itself to continental Europe at the expense of the Commonwealth in order to prosper was not convincing to me then and it isn’t now.
Regular readers will also have gathered by now that I like to bring in a movie metaphor every now and then. I think one that fits the debacle going on in Europe right now and quite well is that of the runaway train. A rather over-the-top movie of the same name appeared in 1985 with Jon Voight as an escaped convict from an Alaskan prison on a speeding train with no brakes, no engineer at the controls and only one inevitable outcome. In fact, if you really put your mind to it, you could come up with any number of appropriate movie metaphors for the mess currently unfolding before our eyes in Europe. But the runaway train will do nicely. First, though, we need some perspective.
The Lisbon Treaty of 2007 reformed and amended the Maastricht Treaty of 1992. There was a need to do so because of the expansion of members and the desire to put a proper constitution in place. It was finally ratified after a lot of haggling in 2009 and set about strengthening the institutions of the EU. Its stated objectives were the promotion of peace and wellbeing for its citizens, freedom, security and justice without internal frontiers, sustainable development based on balanced economic growth, social justice, a highly competitive social market economy aimed at full employment, social progress, worker protection, greater integration and a free single market and so on. All well and good, and all noble goals.
Concurrent with all the political jawboning was the implementation of economic and monetary union, and the eventual introduction of the common currency, the euro, the symbol of all that integration. For some, including the UK, that was just a little too much togetherness and they opted out. As the years rolled on since its introduction in 1999, the euro has generally maintained its strength against the US dollar but cracks have started to appear. A country’s exchange rate is the expression of the strength or weakness of its economy compared to another country’s economy. You can argue that the euro was strong because the dollar was weak for reasons we know all too clearly and not because the eurozone was a riproaring success economically and politically.
Countries which should never have been allowed to join in the first place did so after the membership criteria were fudged because a political idea was deemed more important than an economic one. The whole edifice is now almost to breaking point. It is a curious fact, and often stated, that the free countries of western Europe were eager to tie themselves together for their own benefit (and to prevent Germany from ever gaining the upper hand again) whereas the countries of the former Soviet bloc could not wait to be free of the tyranny of the Russian bear. Yet they too want to tie themselves to the European Union though some of them are nowhere near ready. And Germany is once again the dominant partner, the anchor of the union.
At some point, member nations must begin to ask themselves if they are they getting all they wanted out of the union, whether it’s working for them the way it was supposed to. Professor Tom Lehrer, Harvard mathematician and humorist, once said that life is like a sewer. What you get out of it depends on what you put into it.
Put that another way and in scientific terms: an experiment is a success or it is not if you have ‘failure standards’. If such and such happens, it is a success, if it doesn’t, then it’s not. Concrete guidelines that will dictate whether what you hoped to achieve is working.
For many in the union, they get more out than they put in, in terms of the central budget. Twelve of the seventeen members of the eurozone are takers from the EU central budget, i.e. they get more than they put in on a net basis. And guess what: all of the nations that have so far required a bailout are net takers. Only five nations actually end up with less net-net: Germany, of course, then Holland, Finland, Austria and Luxembourg. It was surely no coincidence that it was Holland and Finland that wanted collateral for the money they were to contribute to the rescue plan for Spain recently rather than just promises to pay.
Of the PIIGS nations that were and still are in trouble and required a bailout, only Spain and Italy are large enough to matter. Portugal, Ireland and Greece account for little more than 5% of eurozone GDP. Italy is, so far, not a basket case though borrowing rates are getting up there and Sicily might be a problem going forward too. Greece’s growth prospects look even bleaker now and its recession deeper, according to PM Antonis Samaras, and will make adherence to the austerity demanded by the troika bankers that much more difficult. It is Spain that could be the tipping point. A growing number of Spain’s 17 autonomous regions have said that they need funds from the Spanish government.
Great Britain was not a founder/member of the EU and its previous applications for membership were vetoed by France. It famously opted out of the euro refusing to give up “the proud pound” but has been a member of the EU since 1973. At some point, it will hold a referendum on whether it is actually worth staying in the EU given that it costs Brits, on average, about £5,000 per person every year. Since It joined, membership has always been a net drag so the question will be: is continued EU membership the problem or the solution and should there be a wholesale renegotiation of terms?
Other members might also be asking themselves, not necessarily out loud, whether they should just call the whole thing off and go their separate ways. Easier said than done for some though. As part of the membership process, each country’s legislature had to pass hundreds of laws in order to conform to a central vision for the European Union and many of them are completely useless as far as everyday life in the various countries are concerned. That would all have to be undone.
A great deal of political capital has been invested by a generation or two of European leaders in making sure that the EU works. President Reagan, of happy memory, used to say that government wasn’t the solution, it was the problem and that realization is starting to set in for many in Europe. But it all costs money, lots of money, spreading the wealth around in good socialist fashion. Financial hemorrhage is a powerful persuader and at some point, someone is going to say enough is enough and start to question the whole premise.
What if the belief systems you had once were all wrong and all the assumptions you had made about how life was going to change for the better once you had signed on to the reality of a strong centralized government all turned out to be completely false, just as it did for the citizens of the USSR once communism was discredited as an economic system? A system that spreads its tentacles all over your society assuring you that what it is doing is for your own good while sucking you dry. A sort of economic “the emperor has no clothes”
We don’t yet know how all this is going to play out and which country will pick up its marbles and leave, even though it might cost them to do so. It’s better than throwing good money after bad. Conventional wisdom, which generally turns out to be wrong, is that one of the PIIGs will leave first. Unless they are forced out, then it is in their own interest to stay right where they are. But it might well be one of those countries I referred to above which are the net payers to the system.
This past week, Moody’s, a bit more pessimistic than its sister credit agencies, put Germany, Holland and Luxembourg, all of which have a AAA rating, on negative outlook. Austria and France, also both AAA, were put on negative outlook by Moody’s back in May. The stress on the AAAs of putting all that money out there for Greece, Spain and others, particularly if Greece leaves the euro, will set off a chain of events that would have catastrophic consequences. If the objective is for the eurozone to remain in its current form, then something’s gotta give.
Frau Merkel and M. Hollande say that what was agreed at the recent summit must be implemented quickly. ECB chief Mario Draghi says he will do whatever it takes to save the euro and alleviate the debt crisis. I suspect that the cure might be worse than the disease, but it cheered the equity markets up just the same. Bad US economic numbers also encouraged speculation that “Helicopter Ben” Bernanke will be distributing newly printed largesse from on high or engineering Son of Twist.
Groucho Marx used to say that he refused to join any club that would have him as a member. Sounds like good advice. Maybe Great Britain should have heeded that advice after General de Gaulle twice vetoed British membership of the EU. Others may be thinking that Groucho had a point.