10 Dec 2011, 9:59am


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  • Britain ejected from the EU – exit ramp engaged

    I voted for continued membership of the EEC in 1975, not sure how I got to vote there as I was well under age. That was for a common market, and it’s something that has generally served Europe well over the intervening three decades.

    However, there’s always been a religious element to the EU, the dream of a pan-European super state, a United States of Europe. These dreams tend to go to the head of political leaders, and as a result the original dream of a Common market, with harmonised technical and regulatory framework facilitating free movement of goods and services has been corrupted by the vision of a USE.

    That vision was evident in the hubris of the creation of the Eurozone. It wasn’t apparent at the time, and much of the intent behind the Eurozone was good-intentioned. There isn’t a free lunch, however, and it seems that we created a way for Germany to bankroll increasing debt in other European states. National populations enjoyed increasing living standards as their previously inflation-prone currencies were stabilised and increased in value by the industry of other national populations. The Eurozone had monetary union but not cultural and productivity union, and these forces acted exceedingly slowly but with great force.

    All this became apparent in the credit crunch, and now the search for a solution. In the end the people with the money are going to define the boundary conditions of the solution, and in the Eurozone this is Germany. Unfortunately what works for Germany is somewhat against the national character of many of the other countries, particularly Club Med. Some countries had bad luck – the Irish and the Spanish seem to be victims of bad luck as well as irrational exuberance.

    Sarko, you are part of the problem if you blame the eurozone problem on the wrong causes...

    And like anything that goes titsup, there’s a search to apportion blame. And our dapper little Frenchman with his lovely wife seems to be keen on one interpretation, that financial deregulation started a shitstorm that is tearing the Euro apart. What better way to fix the problem and improve his re-election chances than by ejecting the obnoxious troublemakers who have built their shaky economy on financial wheeler dealing?

    The trouble with trying to fix something that is broken is that you need to tread carefully, reflection and analysis are the keys to success here. The main questions you need to ask, be the faulty component a eurozone or a piece of equipment are

    1. Is this faulty are are we using it wrong?
    2. if it is faulty, did it ever work correctly for the purpose it is used for?
    3. can we identify what is wrong with it?
    4. does our diagnosis stand up to scrutiny and testing?
    5. is it economically viable to fix this?

    only when we have reasonable clarity can we decide whether to fix or write off and start again.

    The assumption being made about the Eurozone is that it is fundamentally sound, does what the component nations want of it and needs fixing. A further assumption is being made that the credit crunch was the source of its current problems.

    I’m not so sure. I think it is the inherent differences in lifestyles and attitudes to work across the Eurozone that is giving rise to the problems. I observe that the fire has started in the nations that are less productive, and who have had a history of currency depreciation relative to other Eurozone nations.

    performance of various currencies against the erstwhile Deutsche Mark in the decade to 1996

    I pinched this from here because I didn’t do the analysis myself. A cursory inspections shows that the Italian Lira, Portuguese escudo and Spanish peseta were on a very different track to the other currencies.

    I think the seeds of the current crisis were set from the off, ie the design was wrong. We should have first asked the good people of Greece, Spain, Italy and perhaps Ireland this question on joining the Euro.

    You can have a more stable currency more akin to the German Deutsche Mark. That’s the good news. The bad news is that you are going to have to raise productivity or be paid less. How do you feel about that?

    Politicians fluffed this question, and borrowed money over the years to cover up the difference in productivity. And this is the money the bond markets want back, and if they’re not going to get it back, they would like to see a way to get the money they lend in future back from the Eurozone. They made the error of assuming all Eurozone debt is equal, they have been disabused of that notion, and they are now raising Cain and demanding that the Eurozone as a whole stands behind any money lent in future. To all intents and purposes that means Germany stands guarantor for the rest, because they’re the only ones with any money left at the moment.

    Our little man Sarko, and indeed others, would like to blame it all on financial deregulation. They’re wrong. Deregulation was a different fault, and it was used ably to take up the slack of these inherent contradictions in the Eurozone that would have been apparent earlier, perpetrating property bubbles in Spain and Ireland, losing Greek debt at German rates etc. It allowed things to get worse, and blew up first.

    It’s a very bad thing to confuse the symptoms with the cause in any diagnostic job. There is going to be hell to pay. The contradictions of the Eurozone run deep, and would be hard to address in the good times. They are virtually impossible to address in the hard times, and particularly if the symptoms are being tackled without adddressing the causes.

    As for Britain, well, if the EU means a United States of Europe then I go along with David Cameron. We are Das Inselreich, an Island Kingdom, we are in Europe but in some ways not of Europe. In the end, if the other countries of the EU desire a more dirigiste economy, then that is not compatible with Britain’s economy and probably not of its national character. We will pay a heavy price for taking a different fork in the road. As the Indy headline said, this is not Britain leaving the EU. It is the EU leaving Britain, taking a path that is not our way.

    The price will be heavy. But not as heavy, I fear, as the price that will be paid in unemployment, misery and Depression-era pain as the rest of Europe, particularly Club Med, is economically crash-locked to German standards. It may work. I don’t think it will. The Euro will change from something that was designed to bring Europe to an ever-closer union to one that sets the nations apart, as they are forced into a single economic mould via austerity and deflation. It doesn’t just scare me. It even scares the US Army, which has probably got more cojones than me 😉

    It ain’t going to be fun. But if it was the choice of austerity/deflation or nothing, I’m happy with the nothing. We have very, very, serious problems in the UK, that may be hard to solve as it is. That’ll be rough as hell, but probably not as rough as the enforced austerity the Eurozone is going to go through. Good luck to them, and the best of British to y’all. I hope the eurozone has captains clever enough and economies strong enough to come through the storm. That which does not kill you makes you stronger…

    PS Damn – the Economist has this “Lessons of the 1930s” prognosis which is a better argued prognosis of the way ahead for the Euorozone. It’s not inevitable, but it ain’t good.


    For hundreds of years states have been growing and combined into fewer and larger units, compare Germany and Italy now with what was there before for example.

    I can’t imagine a multi-languaged and splintered Europe in 75 years, the question is how will it evolve.

    I am amazed at the childish headlines in the press today and and jingoistic comments made by so many people.

    If aggregation is inevitable why not just suck it up and get on with something more interesting, like finding a new basis for economic life beyond shadow banking in the UK

    This whole thing seems a bit ridiculous because, as Cameron pointed out, the UK is not in the Eurozone. As for the flag waving and jingoism, it’s really all about the money ( as usual ).It would be political and economic suicide for Conservatives to adopt a financial services tax, and it is to the UK’s advantage to stay as far away from it as possible. Likewise, it is a lot of wishful thinking in Euroland to believe that the UK would sign up to something which would have no political or economic advantage to the UK.

    The day of the supranational state is a long way off for the very reasons you point out. These nation states have developed independent ways of governance worked out over centuries. You can’t just wipe out all that cultural baggage overnight. Not only do these countries have different means of governance and approaches to bureaucracy, they have very different foreign policies as well, both inside and outside of Europe, built on histories of country to country relationships and allegiances. As for the Euro “rules”, all they seem to be promising is to “this time” make the rules “stick”. Good luck with that one. And yes, the US Army should be alarmed.

    I’m suprized the Euro has lasted this long.

    Yes, the biggest problem is that the EU is intent on becoming the Eurozone. That puts the UK in a difficult position. Cameron has got us into a lifeboat, but when the ship sinks it’s going to get choppy.

    The Eurozone needs economic solutions but all that is on offer are political ones. If this does not change it has to fail.

    @Trevor Brown isn’t Heidiland another example of a country resistant to integration, partially by nature of geography 😉

    I’m not sure I see the greater union towards increasing size. Can’t argue thta if that is wehre it’s all going then your conclusion would be reasonable. And britain could perhaps do well to do something other than finance…

    @g I’m also surprised the euro lasted so long. The trouble with the euro rules is you have to enforce them when countries are short of money. It would be kinda rough to fine the Greeks for breaching the Finacian Stability Pact when they as so deep in the crap they can’t pay wages. Parachting non-elected administrators isn’t cool. I quite liked James Kunstler’s take on it

    Nobody who observed the proceedings in last week’s European Union talks came away from that spectacle feeling reassured. Brussels is like a ventriloquist’s dummy sitting on Germany’s knee. Germany cannot just step up and act like the Boss of Europe. […]. So, Germany has to pretend to speak through Brussels. The message was: listen up all y’all nations of the Eurozone! Prepare to live on a whole lot less than you’re used to! Do not exceed your borrowing and spending! Or else!
    Yes, the lingering question: or else…what?
    It is safe to say that nobody believed this mummery. Anyway, Great Britain (a.k.a. Old Blighty) simply checked out. The sceptered isle is now Europe’s dog-house.

    @SG, that hadn’t actually struck me before, but yes, the issue is EU -> EZ. Curious, really. “Hey, this doesn’t work. Let’s have MORE of it”. Barmy as a bag of spanners. I can’t see how it’s not all going to go titsup, and the longer they string it out for the more wealth is going to get destroyed on the way 🙁

    @ermine I read Kunstler’s blog too. Great stuff. Yes, it’s the “what if’s” that make all of this look so ludicrous. They’ve all broken “the rules” in the past, including Germany, a few years back. “Don’t you dare break the rules or… we’ll have to have another emergency session and implement another series of measures to this time ensure the rules will really stuck to next time, maybe…,and we won’t stop there either!” It would really be funny if it weren’t so tragic.


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