To Fix Europe, Break It
thepoliticus.com

To Fix Europe, Break It

Last week, British Prime Minister David Cameron negotiated a deal with his fellow Europeans that may save the EU—or, more likely, accelerate its demise. It was Cameron’s mission to extract more favorable terms for his country. The Prime Minister emerged from the talks with an agreement that, among other things, allows the UK to cut benefits received by migrant EU workers. While British Eurosceptics—including six of Cameron’s senior ministers—saw the deal as more form than substance, their Continental neighbors understood the significance of granting these special privileges to a member country. Some fear it to be a “kiss of death” for the European experiment.

Now, Cameron has set a date—June 23rd—for a referendum on his country’s membership in the EU, given the concessions—or lack thereof, depending your point of view—that he obtained. The Prime Minister will campaign for Britain to remain in the Union, while Boris Johnson, the popular mayor of London (and potential Cameron successor), will urge his compatriots to leave. 

The fundamental issue at hand, which the UK’s status within Europe obscures, is that monetary union without political integration generates tension and instability. Just consider the havoc wreaked by Europe’s equivocal approach to unification.  Countries like Greece are stuck with an overvalued currency that makes them uncompetitive, while richer nations like Germany are made ultracompetitive by a de facto undervalued currency. The situation creates tremendous pressure on the system, with no meaningful ways to resolve imbalances except through counter-productive austerity measures.

By contrast, the United States of America, which integrated politically and monetarily, does not have these problems, despite large disparities in federal tax contributions and benefits between states. Given the European experience, I suspect potential future monetary unions, like the Gulf Common Currency, that lack the political integration of the US, but whose states could benefit from independent monetary policy, will not get far. 

The European economic outlook is dire. Countries like Italy and Greece rank low in economic freedom. Growth is anemic, and Greece remains stuck in recession, with farmers clashing with police in recent weeks over austerity measures. Unemployment in Europe is high—averaging 10.4%, but reaching 25% in Greece. Further, a million migrants entered the region in 2015, and states have struggled to respond. It’s only getting worse, and the dynamic is adding pressure on states to erect impenetrable national borders.

For these reasons, the European Union—a historically unique attempt at bloodless state formation—is at an inflection point. It is very unstable today and will either politically integrate into a “United States of Europe,” as Winston Churchill put it, or revert to the land of drachmas, marks, francs, and solid borders. I’m not betting on an outcome, but if I were, it would be on the dissolution of the common currency within the next 10 years.

I’m not betting on an outcome, but if I were, it would be on the dissolution of the common currency within the next 10 years.

If the EU must move decisively towards an “ever closer union” to survive, the provision granted to the UK last week may be a harbinger of disintegration. Cameron’s success in obtaining language that frees the UK from any obligation of “further political integration” sets a precedent. The concessions imply a wounded Brussels desperately clinging to the hope of union. It’s a not-so-subtle admission that the European experiment is failing, that political union appears unachievable.

Elsewhere on the continent, French Eurosceptic Marine Le Pen, who is running for President in 2017, promises to lead a “Frexit” referendum. The Dutch and Italians are also harboring strong anti-European movements.

Whether or not countries actually leave the EU, Cameron’s gambit has paved the way for members to extract concessions from Brussels by threatening a referendum, potentially dooming the idealistic dream of a coherent European superstate. 

Given the political barriers to further integration, the best strategy may well be to dissolve the Euro, and perhaps with it the European Union—at least in its original conception. Doing so might enable the restoration of democratic legitimacy, and the re-emergence of independent monetary controls might help improve the region’s economic outlook. Greece, for instance, would regain control of its own fiscal and monetary policy. Despite having seen its GDP shrink by one-third, a depreciated drachma 2.0 might increase the appeal of Greece in a global economy, quite possibly putting it on a path to a sustainable recovery.

The pressures on the economies of Europe are unlikely to dissipate anytime soon. As such, it's time to admit the unification experiment isn't working and that to fix Europe, we likely need to break it.

 

Vikram Mansharamani is a Lecturer at Yale University in the Program on Ethics, Politics, & Economics. He is the author of BOOMBUSTOLOGY: Spotting Financial Bubbles Before They Burst (Wiley, 2011). Visit his website for more information or to subscribe to his mailing list.  He can also be followed on Twitter or by liking his Page on Facebook.

Colin Holland

Independent Management Consulting Professional

8 年

I came late to this excellent post and now the UK has voted for Brexit by 52% to 48%. The UK Referendum was badly conducted with many lies and exaggerations and they still continue to this day with biased reporting mainly from the losing side. There are multiple problems with the EU, but the major one was the erosion of freedom of the EU states to a degree that they became vassals states of an EU governed by a bureaucratic "elite" in Brussels, and a German Merkel government intent on establishing a Greater Germany. This aim was almost destroyed by Merkel's invitation to another culture into Germany, and this single fact showed the UK how the EU elite were more than willing to destroy our culture and freedom. The principles of the early Common Market was destroyed by federalism in trying to combine countries of very dissimilar cultures, traditions, languages and economics. A 2 stage system would also not work as disparities abound over 28 nations. The key to a future EU is to go back to first trading principles and have a core membership of some 5 mainland countries with a Euro currency and laws agreed by a professional and open referendum with all agreed inhabitants and their diaspora . Other countries should be encouraged to join on a rigorous associate basis; not like Germany did with Greece fully knowing its economics were corrupt but simply making it an export market and a vassal economic state. Currently the EU is led by pygmies, who have absolutely no interest in reform or indeed have the skills to do so. Without commitment to reform and appropriate leadership the EU will implode on itself, leaving a relatively rich but socially disrupted Germany, surrounded by weaker countries who find it difficult to reform out of the acquired 1980's EU groupthink mentality.

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Torey Hall

Program Manager | Cybersecurity | AI First

8 年

The act of defiance towards the EU is a virtue, but a well defined plan of the future is absolutley necessary. First cancel the City of London derivatives speculation and align the Euro economy with the New Silk Road and AIIB along with an amped up European Space Program through the issuance of Supranational Credit.

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new vision social service society

Project Manager at new vision social service society

9 年

how are you Respected sir good after noon

Stephen Pearce

Specialist Investor , Alliance & Strategy Developer , Board Member , Ag, Food & Water Tech , Business Coach , Manufacturing ,Supply Chain & Strategic Sourcing Specialist . Life Long Learner , Masters Athlete .

9 年

Important to remember that this started a long time ago ; first with the Marshall plan - then with the formation of the OECD , then tbe EEC ( common market ) then the EU. It's makes total sense to cooperate Economiically ( like NAFTA for example ) This is also about a nations Sovereignty and ability to pass its own laws. Economic Union is a no brainer - political and monetary union with the political and cultural diversity that exists - I am personally not so sure of successful outcome . To my mind this is not a 'failed experiment ' because Europe has been united for centuries in many ways ( the oldest treaty in the world for example spans many centuries and is between Britain and Portugal) so this is about a better way forward for everybody not a failed experiment .

"All projects come to an end sooner or later." Be brave and don't lose faith! The inevitable end of every project is almost always a guaranteed start of a new project. Life has to go on, one way or another...

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