Markets prefer almost anything to continuing uncertainty and this is what the political class have been giving us for some time. It does seem that things are at last being forced to a conclusion. Whatever happens will be painful but probably less painful than the present fog of doubt. We are most likely to face some sort of arrangement by which Europe generates billions of new Euros to somehow prevent default among the weaker economies of Europe. This would be good for the UK because it would make sure that these nations could continue to purchase British goods but it would be bad for democracy.
There is no way to prevent default without creating billions of new Euros. China is not interested in financing any such venture and the USA is unable to do so. The IMF and the World Bank seem fully committed and lack the political will. This leaves Europe with a stark choice- default or inflation.
This question can never be presented to the people of Europe in an honest way and therefore the people can never make a choice about it. The German public will never accept their nation being used as collateral for an inflationary round of money printing and so they will never be asked. If the Euro is to be saved it will be done in secret by a group of bankers and politicians. Saving the Euro is incompatible with democracy.
It is easy to see why the French and German public would not support a pooling of resources with their feckless neighbours. Why then are the leaders of these nations so keen on the idea? One reason is that France and Germany would get to control the economic direction the other nations. This would be done on the reasonable sounding grounds of financial prudence. Small nations would be prevented from running up further debts or raising tax in their own way. This reduces the sovereign states of Europe to the status of a town council. The only real powers they would hold would be to make national laws when these do not conflict with European policy. Individual nations would be unable to design their own economic policies. It is difficult to say such a body is a national government at all.
Who exactly will administer this European super state? In effect the European Central Bank. This body has the power to override the spending plans of individual nations in the name of financial stability. Low budget deficits may well be sensible but the real point for me is that an unelected group of bankers are overriding the wishes of a national electorate.
In theory all of this is not as bad as it seems. There is a European Parliament that supposedly controls the executive although many doubt this. In any case the parliament has been unable to stop widespread corruption or even to punish those responsible. It speaks in many voices and rarely calls things by their true names. In addition to this we must realise that the electorate do not really control their representatives in Europe. The public select their European representative on the basis of national politics. In other words if the public will vote for or against a particular candidate on the basis of how they feel about David Cameron. They know nothing of what goes on in the European Parliament and even less about the person they are voting for. This means that MEP's exist within their own political bubble that may or may not have anything to do with the public that elected them.
We are seeing the evolution of a European superstate that is strangely similar to a resurrected Soviet Union- an over centralised multi national superstate with a plethora of assemblies and elections but no democracy.
It seems that David Cameron, the British PM has decided to separate himself from this particular quagmire. In truth his reasons may not be entirely honourable. Any renegotiation of European treaties is likely to require a referendum and the public is likely to use this as a way of rejecting the EU altogether. The issue will also split his own party and cause a split with the Liberal Democrats. It is also likely to upset many of his parties biggest donors- the hedge funds. Hedge funds are completely opposed to being regulated by Europe who seem not to understand their purpose. To be frank, hardly anyone else does either but this is a separate story.
The PM may have brought about the one thing that federalist politicians seem to fear- a two speed Europe. It is quite possible he has lit a slow burning fuse under the whole corrupt enterprise without intending to do so. Whatever happens he has chosen to keep as much power as he can in the UK parliament and whatever faults this may have it is at least directly answerable to the electorate.
I have no idea how all of is will play out but I see the following possibilities.
1. A successful power grab by Germany, France and the EU bureaucracy that defends the present economic order. This causes these two countries to continue with their present export led economic recoveries as it causes both countries to be cheaper than they would be with fairly valued currencies. Weaker nations such as Greece or Italy would receive financial help but continue in severe austerity due to relative overvaluation. Britain would be a winner in this event as some of this created money would be spent on British goods. Germany in particular is likely to suffer inflation but all nations will become less democratic.
2. A continued currency union without the weaker nations. This would resolve the imbalances listed above but also offer little economic advantage to the stronger nations. Germany would find its products harder to sell abroad.
3. A disorderly breakup of the Euro. This would at least be a rapid death of a bad idea but would cause a colossal fall in purchasing power within the former Eurozone. A BBC pet economist estimates this would knock 7% from British GDP simply as a result of lost exports. This seem a little high but what do I know? This option rather resembles the breakup of the Soviet Union but healing would begin almost immediately. Nations such as Greece would still have huge debts but would at least have competitive economies and so they could expect a recovery in employment. This option would be the best for democracy provided there is no military takeover in Greece. The electorate would have direct leverage upon national governments in ways that they do not have over European institutions and therefore would be able to dictate economic policy. Unfortunately the electorate is likely to choose nationalistic or populist policies that are destructive but this is a secondary matter in my mind. Democracy is the thing.
All in all we are headed for dark times but we are also headed for times in which issues are resolved rather than glossed over. I take comfort in that.
0 comments:
Post a Comment