Thoughts from Brussels on the euro crisis

I have been prodded – both by being on a radio panel discussion today and by the awesome Catie – to assemble some thoughts on the euro crisis and what it means for both parts of Ireland. There is a certain air of pessimism at present, driven largely by recent pieces in the Financial Times and the Economist predicting that the end is nigh and that the single currency is on the verge of breaking up. I must say that I am very sceptical of such reports. They seem to me a combination of wishful thinking from those outside the system who never wanted to see it get off the ground in the first place, deliberate spinning from those inside the system who hope that a sense of urgency may spur EU leaders into action, and malicious spinning from those inside the system who resent being marginalised by the process of resolving it. The fact is that while the costs of retaining the euro for now are huge, the costs of abandoning the project are almost literally unimaginable, and so far no government in the system has determined even that their own interests are in leaving, let alone that they wish to bring down the system. 

A good example is Friday's pair of pieces (1, 2) by the Economist's "Charlemagne" (Anton La Guardia) on the differences between President Sarkozy and Chancellor Merkel, which combines a detailed and forensic analysis of their recent statements with, in my view, an unnecessarily pessimistic take on the chance of their reaching agreement. Even the uninformed reader will be able to spot that there is not actually much substantive difference between the positions of Paris and Berlin on the way forward. In addition, La Guardia could have looked a bit more at the underlying dynamics – most importantly, Merkel and Ssarkozy actively want to reach a deal; and where there are differences between them, Merkel is likely to prevail over Sarkozy because she is is more widely respected in the EU, enjoys the paradoxical combination of a stronger domestic political situation and more serious domestic institutional constraints (thanks to the Karlsruhe constitutional court), and is basically a smarter and more serious politician than the French President. Next week's summits will inevitably declare success, because they always do, but I think it's more likely than not that there will be serious substance to that success.

That is almost certain to mean a proposal for institutionalised fiscal governance for the 17 countries in the euro-zone – a surrender of national sovereign financial powers to some Brussels-based institutions. The big concerns there are going to be the extent to which such a process can have democratic oversight, and the role for the 10 (soon 11) member states who don't use the euro as their currency. David Cameron appears to have decided that British interests are to have a fiscal union without the UK in, and if so he is likely to get that. But the UK and the other 'Outs' will certainly be marginalised from the debate; as the Economist's "Bagehot" (David Rennie) has reported, if the British demand anything much in return for their consent to a treaty change which does not directly affect them, the Germans will reluctantly (and others less reluctantly) move to a new treaty with no British involvement at all.

From the Irish perspective, this is all pretty significant. Irish fiscal sovereignty has already effectively been outsourced as a result of the crisis; the new EU architecture offers not a means of regaining it, but an opportunity to at least fight for some openness and transparency (perhaps even democracy!) in the new structures. I doubt that Irish officials will have the stomach for such a fight. I have been told by one senior source that Ireland's red line is to retain its right to set a low level of corporation tax, and pretty much all other concessions may be made with that goal in mind. (Has that been a matter of public debate in Dublin?)

Northern Ireland is a marginal region, on the frontier of the euro zone, in a state which will have little input into the debate and whose neighbouring euro-users will not be arguing for Northern Ireland's interests either. Northern Ireland's three MEPs, whose positions I respect and who have all been personally helpful to me on various issues, are Eurosceptics and so will also be outside the political mainstream on this. There is a role for civil society to get a bit more involved in European issues, for the Assembly to start taking a stronger interest in Brussels, and for the Executive to start liaising with other regions which are in a similar situation – the likes of Skåne, or Karlovy Vary.

There is a bit of a silver lining. The crisis has directly resulted in Belgium finally forming a government, almost twenty months after the last one resigned; bow-tie-wearing Francophone Socialist Elio Di Rupo is to take office as our new Prime Minister tomorrow. And later in the week, Croatia will sign its accession treaty to become the 28th member state, a significant reminder of the EU's origins as a mechanism for continental conflict resolution, and of the importance of the EU in removing war or the threat of war as an element of forward planning for its member states. That will be a great moment, particularly for chief negotiator Vladimir Drobnjak, who has been managing the process for most of the last decade, and a chance for the EU as a whole to cheer rather than sigh; it is a club that people still want to join.

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  • Rory Carr

    …a significant reminder of the EU’s origins as a mechanism for continental conflict resolution…

    Not to mention a reminder of of some EU members’ role as continental conflict instigators, Nicholas. But I do not suppose that any War Crimes Commission investigators will come aknocking round their way, after all it was only for the money.

  • Alanbrooke

    You skirt over the disconnect between the EU and its people as if it doesn’t matter. Imposed governement, sovereignty destroyed, weakening of all states. How does giving yet more power to the people who created the problem in the first place lead to a solution ? Europe is heading in a concerning direction and it’s time to take ask is this where we want to go ?

  • Turgon

    Alanbrooke,
    I agree entirely. It seems that a new Treaty is going to be created. If Cameron disagrees enough the implication is that a new structure will be created. All this without a democratic mandate or else a mandate to be driven through.

    The last few months have seen two elected governments swept away. The Greek PM dared to suggest a referendum and was removed. The Italian PM (dreadful as he may have been) has also been removed without a vote and not merely a new PM but a new government and governing party is in power: all without an election.

    It is hyperbole but one could argue that the French and especially German government have effectively fermented two coups against democratically elected governments of fellow European states.

  • http://nwhyte.livejournal.com Nicholas Whyte

    @Rory,

    I am genuinely not sure what you are talking about. Can you expand a bit?

    @Alan,

    I’m sorry you read my remarks that way. Au contraire, I regret that there is not likely to be a lot of popular consultation about the coming treaty changes, and you may note that I point out a couple of opportunities to at least ameliorate the situation in my piece. But I am telling it as I think it is, not as I would wish it to be, and hope that contributes to the debate around your second question, which is entirely the right one to ask though I might have put it a bit differently.

    On your first question, I don’t agree with you that the specific people who caused the problem are the same as those who are likely to be charged with finding and implementing a solution, but I think that may be an irreconcilable difference between us.

  • Alanbrooke

    Nicholas,

    perhaps wording on my part. The “people” aren’t perhaps the same but the institutions are. That Europe is run by a largely unaccountable commission which sees its mandate as to force a single european state is a major part of the problem. The commission has ignored just about every warning on the Euro and is supervised by a Parliament which sees its job as rubber stamping. There is no evidence of any recognition that more of the same may not be the right answer.

  • Rory Carr

    This paper presented at a Symposium on the Balkan War,
    Yugoslavia: Past and Present, Chicago, August 31-September 1, 1995:
    http://bit.ly/tDi7F5

    will introduce readers to the nefarious involvement of Germany into Yugoslavia without which the atrocities that followed may not have happened.

    Here, from the introduction to the paper:

    INTRODUCTION

    On June 12, 1994, US President William Clinton made a “symbolic” speech at the Brandenburg Gate in Berlin in which he made it clear to the world that a reunited Germany was the United States key European Partner in bringing about a new world order. At associated meetings he referred to Chancellor Hemut Kohl as: “Helmut is my principal partner in Europe”…and “A reunited Germany will be the leader of a united Europe”. President Clinton projected a vision of a reunited, rebuilt Berlin as the centre of united Europe with Germany moving the continent forward in peace and economic progress.

    The facts however deny the realisation of such a Utopean vision. Many European leaders and analysts have noted that Germany’s actions since the fall of the Berlin Wall have been largely self-serving and frequently destablizing within Europe, rather than furthering European unity and continental stability. The hundreds of thousands of people killed, maimed, made homeless and turned into refugees in the former Yugoslavia bear witness to Germany’s apparent agenda in the Balkans, aided both wittingly and unwittingly since 1991 by two successive US Governments.

    The economy of the Balkans has been put back at least 30 years, and enough new hatred generated to last for decades. Far from being a forward looking foreign policy as projected by President Clinton, Germany has reverted to some of its traditional strategic goals, albeit presented in a modern idiom. If new maps were to be produced of Europe which depict current zones of German economic dominance and military influence, they would bear a striking similarity to maps of the Holy Roman Empire, and, more recently, to those made a temporary reality by Adolf Hitler’s Third Reich in the 1940’s.

    However, south of the “German Zone”, in a swathe which runs from Albania in the West through Macedonia, Bulgaria, Romania, Moldavia to the Ukraine in the East, is another zone to which the United States is paying special attention. It appears that the US Government views this southern belt as its area of economic interest. It is not yet certain whether there is an agreement between Germany and the US to carve Europe into two main zones, but there is strong circumstantial evidence from their actions in the Balkans and in the Southern belt to support the supposition of carving up of Europe by two superpowers of the next century.

  • Cynic2

    I am afaraid I disagree on the Euro. In effect the old Euro is dead. We will probably get a new treaty and a new inner core of polticial and fiscal union centred on the German – French axis. All countries in the Euro now will wnat to join this club but practically (eg Greece) they simply will not be able to meet the entry criteria and politiclaly they wont be avle to see the necessaery austerity measures to tehir people. Soem will foat on as members of a wider Union. Otehr s will spn off.

    My bet is that Ireland will make the inner core but Greece Portugal and perhaps even Italy will not.

  • Cynic2

    My apologies for the mis-spellings. i appear to have a dyslexic keyboard today

  • Alanbrooke

    Cynic2

    there may well be a re-launched Euro, but practically speaking what does it solve ? The fundamentals that Italy, Spain etc. cannot control productivity like Germany will still be there. Euro2 simply means the clock has been reset but the problems which caused the decoupling are still there and will be back for Euro3 in 10 years time. Any country wishing to join Euro2 needs to think can it out perform Germany if it is to have a chance.

  • http://nwhyte.livejournal.com Nicholas Whyte

    @Rory,

    I’m afraid that article, quite apart from being 16 years out of date, has numerous factual howlers and makes various dramatic predictions none of which have meantime come to pass. I won’t derail this thread by going into further details, but you are welcome to contact me offline for clarification. (I should also add that I lived in the former Yugoslavia for two years in the late 1990s and have written quite a lot about it.)

    @Alan,

    While I am in sympathy with some of your concerns, you are a bit misinformed on some of the details. Actually, far from ignoring warnings about the euro, the Commission issued many of them; and it’s not at all clear that it will be rewarded by getting a bigger share of influence in the end (I suspect we’ll see a new intergovernmental body of some kind). And the European Parliament is very far from being a rubber-stamping institution, as anyone who has dealt with it will be able to attest.

    @Turgon,

    It is indeed hyperbole, and also not really accurate. In both Italy and Greece, the immediate cause of the change of prime minister was that the previous one had lost the confidence of his parliament, which is in fact the core of democratic practice.

    @Cynic2,

    You come to the nub of things; we will see in a few months which of us is right.

  • http://www.openunionism.com oneill

    Nicholas,

    I am not sure Croatia joining “the club” is really a reason for us all to cheer.

    It remains a place where corruption reigns, where judicial independence can be suspect, where organised crime remains a problem.

    The cynic (not the one in this thread!) could reply “just like Italy then” and I can also understand the logic that hoping their admission reduces the possibility of conflict in the region but what’s the point in the EU trying to give lectures on democracy to the likes to Lukashenko and Yanukovych when we don’t bother too much with making sure our own entry requirements are adhered to?

    Romania and Bulgaria and now increasingly Hungary are not shining role models to show to the world on how to run an independent judiciary or free media should be run. Do we really need another bad apple added toan already dodgy barrel?

  • Alias

    True, oneill, and a country without a free press is a country where the political class, eager to expand their range of career and pension opportunities, can easily persuade a gullible public that surrendering their national sovereignty to a foreign regime will offer them any prosperity beyond the initial bribery of grants paid for by theft of wealth from the taxpayers of existing member states. That Croatia is allowed to join while lacking the democratic precondition of a free press is not surprising given that the EU has sero respect for demcracy and freedom.

  • Alanbrooke

    Nicholas

    there is an olding saying – judge people by what they do not what they say. The Commission has a habit of saying everything to cover all options, it’s what they do that counts. And what they have done has landed most of Europe in deep trouble.

    The Parliament is as bad as the commission the only times it seriosuly questions legislation is if it weakens its ability to exercise pork-barrel politics. It has very little for the average european. It can’t even force a sign off of a set of accounts.

  • Alanbrooke

    Nicholas

    when a government has lost the confidence of parliament, a democracy dissolves the parliament and holds an election.

  • http://nwhyte.livejournal.com Nicholas Whyte

    @Turgon,

    I must update that CV; my employers’ website is more accurate. I have not been in contractual relations with Kosovo for several years. For the sake of transparency I will also disclose that I was at one time advising the Croatian government, but that relationship too ended some time ago. (Likewise, though more recently, the Turkish Cypriots.)

    I think that the Italian and Greek parliaments are perfectly entitled to withdraw confidence from their governments on any grounds they choose, including mismanaging relations with other countries.

    Oneill/Alias,

    Your concerns about the deterioration of standards in countries already in the EU are perfectly reasonable. Do note, however, that in Croatia a former prime minister is actually on trial for corruption at this moment; there may be other countries who could follow that practice. I don’t think that the Croats feel they are being given a free ride!

  • Mick Fealty

    Can we draw back to what NW has actually posted about. I see a lot of hobby horses taking to the road again.

    Absolutely spot on re the marginalization of the UK Nicholas. Cameron’s pitch for repatriation of powers seems to be being downgraded with every day that passes. If/when a fiscal union comes, the UK will very much be on the outside.

    Interestly, as you were on Inside Poltiics, Peadar Toibin was arguing that e ECB should become a lender of last resort, which in the terms most likely to be offered by Germany that reads as SF advocacy of that fiscal union (which is hard to credit given the party’s past position on the matter).

    Even Münchau says it is late, but not too late!

  • http://nwhyte.livejournal.com Nicholas Whyte

    @Alanbrooke,

    With respect, that is not automatically the case. Practice in the UK, Ireland and elsewhere is that if an alternative government can be identified which commands parliamentary support, they may take power without an election. In the USA, of course, elections are on fixed terms so no early recourse to the polls is even possible.

    As it happens, elections have been called for early next year in both Greece and Italy, so I am sure you are satisfied.

  • Alanbrooke

    Nicholas

    except in time of war I struggle to think where a PM external to the Parliamentary system has been imposed on a parliament. This is not normal.

    Worse if the budgetary proposals being mooted, that an overdebted country cannot recover full fiscal sovereignty until debts have been substantially reduced, then Ireland has no more power than a local authority. That is fundamentally undemocratic if not put to the voters.

  • Comrade Stalin

    Nick,

    It is good to see you writing here, and in particularly it is reassuring to hear a saner voice among what seems like a sea of naysayers. More please. :)

    The British system does, of course, have two prerequisites before a government can be formed; not only do you have to have the confidence of Parliament, you also have to have been elected to serve in a constituency. This idea they had in Italy where you can just appoint a bunch of ex diplomats or civil servants would not be easy to pull off – someone would have to appoint them all as life peers first (and who would do that if the House had withdrawn its confidence from the Prime Minister?), and then get then get the Commons to consent, something I can’t see being especially likely in such circumstances.

    In the case of Italy I am still not clear about how the parliament there could not supply an alternative cabinet from its own numbers but yet were able to consent to having a technocratic government drafted in.

    You can surely see how this turn of events is unhealthy for democracy. The message being sent out here is that when the going gets really tough democracy has to be suspended.

  • http://nwhyte.livejournal.com Nicholas Whyte

    Alan/CD,

    I don’t think anyone claims that we are in normal or healthy circumstances. But technical governments are not all that unusual; Italy has had a couple in the last twenty years, precisely to sort out public finances. As far as I know this is the first time for Greece post-1974, but I have not seen any suggestion that the Greek constitution and laws have been violated.

    The British political system has passed on to its spin-offs the peculiar notion that ministers in the government should also be members of parliament. The Americans quite sensibly created a system (based on the ideas of Montesquieu) where the legislature and executive are composed of different people. This was copied by the Belgians in 1830, and also has been implemented without apparent disaster by various other countries. Ministers are still accountable to Parliament and must come and answer questions there, but they do not have to carry out both the executive and the legislative roles at the same time. Obviously, this leads to a certain amount of turnover at the start of each parliament, as the newly appointed ministers resign their parliamentary seats if they have them, so you need a mechanism for replacement, but there are plenty of precedents for it. One other welcome consequence is that I think this encourages a greater turnover among the political class – many people give politics a try for a term or two and then get out, rather than being trapped inside the political hot-house.

    Going back to the subject, the coming months will be an interesting “stress test” for European democracy. But I think it is too soon to declare failure, even for Italy or Greece.

  • Zig70

    Is the Euro crisis not really just a side show, albeit a big one, for a western banking crisis? The current banking system is jist a big casino playing the euro crisis to it’s own ends. The natural order when debts are unpayable for nations is bankruptcy, slavery or war. I’m away to build a bunker. Maybe Iran will fancy it’s chances with a debilitated West.
    There is no doubt that many internal voices will argue for stronger nationalism and that will fall easy on the publics ears. Along with that, seems like every election I hear of is returning a more right sided party. The current banking system is a cancer, need to cut quick and cut deep. I blame Thatcher, I was breed that way.

  • Comrade Stalin

    The natural order when debts are unpayable for nations is bankruptcy, slavery or war.

    Like what happened in Argentina or Iceland ?

    I’d say there’s a good chance that a solution – albeit not a very palatable one – will be adopted. Taxes right across the Eurozone will be hiked, national economies will be made to synchronize.

  • Zig70

    Is Iceland successful? I don’t know the detail but completed the IMF bailout program so it is in their own hands, Argentina are still struggling but my understanding is default helped alot. The current bailout for the EU I would see as slavery to the banks in simple terms, which will result in increased nationalism. How that manifests is speculation but Cameron who normally plays to the gallery will beat the national drum for the UK. Need banking system regulation on an EU scale and a curb on directors salaries, should be easy once they go bust which seems inevitable the longer this goes on. However because the ECB is full of freemarket thinkers then the likelyhood for serious regulation is slim. So we are going to drag on in recession for years while we wait for some other natural mechanism to sort it out. I’m broke, the country’s broke, the banks are broke and people are optimistic? There is no Keynesian spending out of this one.

  • Alias

    There is a common assumption about fiscal union would mean for the resolution of problems created by the eurozone and its single currency. The europhiles, not unsurprisingly, are claiming that fiscal union will solve economic problems. It is unsurprising that they should claim this because fiscal union advances their goal of political union. That, of course, is more of the political arguments masquarading as economic arguments that created the eurozone – and the economic mess – in the first place.

    Apart from the europhiles claiming that fiscal union will solve the problem, some eurosceptics are claiming it too. Those claims are not economic arguments either but rather they a linear consequence of earlier eurosceptic propaganda, i.e. that a currency union could not work without a fiscal union.

    However, the eurozone member states already have a legally binding fiscal union that was ratified in the Maastricht treaty called the Stability and Growth Pact (SGP). That fiscal union did not prevent the problems from occuring, and there is no reason to suppose that any other form of fiscal union will prevent other problems from occuring.

    The SGP is as comprehensive as anything so far proposed by Ms Merkel, with the only difference being that she proposes that national budgets should be subject to veto by the European Court of Justice. The slight advantage there is that the EC can only impose fines on member states whose budgets transgress the terms of the SGP, whereas the ECJ can render a national budget null and void.

    As its judgements will have the status of instant EU law and take precedence over national law, the Court can thereby expand the control of the EU over national governments and parliaments in unknown ways. But why should we assume that such judgements from the European Court of Justice will offer meticolous economic guidance? The more logical assumption is that it will severely handicap the power of states to promote their economic interests.

    A lamentable consequence of Ireland’s europhile media and eurogombeen political class is that the issue is framed in terms of what is likely to help ease the problems for the EU and to promote its political interests rather than focusing what would be the best solution for, and in the bests interests of, Ireland.

    The problem for Ireland, of course, was not fiscal in origin (Ireland had a fiscal surplus in its budgets and was well within the terms of the GSP), so fiscal controls are a solution for a problem that didn’t exist in Ireland. The problem in Ireland was that the monetary policy and macroeconomic policy from the EU/ECB was ill-suited to the needs of an already booming economy.

    The residue problem for Ireland is the policy of bailing-out the eurosystem so that massively over-leveraged banks in Germany and elsewhere in the eurosystem are protected from the consequences of their own reckless eurosystem lending. It is a problem created by the conversion of private eurosystem debts into sovereign debts.

    The other problem is that fiscal union will destroy what remains of Ireland’s exports as these exports are 95% controlled by foreign companies that only continue to operate here because the higher cost of doing business here is offset by a lower corporate tax rate. These exports were severely damaged by entry into the eurozone (where only a minority of our eports went) and are now half the level in real terms that they were when we joined it 10 years ago. Naturally, while the EU is now celebrating 10 years of the euro they declined to mention the destruction of Ireland’s econmy as one of its principal achivements.

    So why then are bond markets calling for fiscal union if it isn’t going to solve the economic problems created by the eurozone? Probably because bond markets are not advisers on the subject of national developement and couldn’t care less about anything other than getting their money back. They see fiscal union as a precursor to sovereign debt union, and they see that as a guarantee that if one member state defaults that the others will assume its debt. That expedient. they hope, will stop the house of cards they helped build collapsing all around them.

    Ms Merkel has good reason to hope for the same since no major German bank has a leverage ratio of less than 52, so just a 2% fall in the value of its assets is enough to render it technically insolvent.

  • Harry Flashman

    “but an opportunity to at least fight for some openness and transparency (perhaps even democracy!)”

    Ah, ‘democracy’ in the EU what a quaint idea, but while they keep overthrowing democratically elected governments and overturning referendum results I imagine it will remain an elusive pipe dream

  • Neville Bagnall

    In 1990 Germany was lumbered with an uncompetitive, costly and wealth draining rump.

    For the following two decades it was characterised as the “Sick man of Europe”. While the US, UK and Ireland boomed, it suffered low growth, unbalanced budgets and high unemployment. But it fixed the problem, primarily through austerity.

    In 1998 the Euro – and the markets/ratings agencies – gave us access to cheap credit. For the following two decades we rode that wave.

    But we lost manufacturing competitiveness (nobody cared – we had plenty of high pay services jobs), distorted our tax system to over-dependence on indirect taxation (nobody cared – we’d have a soft landing) and built up a private sector debt that dwarfed our economy (nobody cared – it wasn’t on the Government Balance Sheet). All fiscal decisions and errors.

    Of the US, UK, Ireland or Germany, after two decades of Boom and Bust – or seven decades for that matter – which economy looks fit for the fight with the emerging nations?

    EMU was supposed to have fiscal oversight, but it was watered down from a legal basis to a political pact. And then broken by Germany and France first (over the objections of the Commission, ECB and some smaller nations). And then by others like us (we didn’t break the letter of the rules, but we thumbed our noses at the advice to rebalance our economy and tax system, until inevitably…). We should learn the lesson. The EU works when it is governed by the Rule of Law, and fails when politics is the final arbiter.

    And not for nothing, but we are in the midst of national emergencies – not to say an economic war – and the allied nations of the eurozone have been losing; not that any other nation or economic block has been winning, the enemy is our past actions.

    The end game for the euro crisis is starting to look like:
    1) a legally enforceable S&GP
    2) National Debt Redemption Funds (to immediately reactivate the pact rules, while providing a long term debt overhang solution)
    3) some ECB backed market stabilisation

    That may even be an improvement for Ireland, presuming the NDRFs stand outside the pact rules, we still have tactical fiscal freedom, and we re-balance our budget on schedule.

    However, unless it is a 27 member solution, it would seem to push the UK even closer to dropping out of the EU into the EEA and the long term implications of that for our two islands is hard to judge. Likewise, given the level of QE that is happening in the UK vs the Eurozone (so far), inflation interacting with austerity makes long term competitiveness hard to predict. So, our economic relationship with the North and Britain looks like getting even more complicated. The most significant factor in our relationship may be this: because we share so much culturally and economically, variations in distance from the core can cause intense trickle-up effects.

    For the Eurozone, presuming a resolution to the crisis, two critical questions will remain:
    1) Will the new S&GP provide enough fiscal auto-stabilisers to force economic imbalances to be addressed?
    2) Is the eurozone single market sufficiently integrated to pass the tipping point from trickle-up economics to trickle-down economics (as suggested by economic Core-Periphery Theory)?

    For the UK I think there are three critical questions:
    1) Can it drift into the EEA and still remain part of the European economic core?
    2) Would it be more successful on an economic periphery, be it of the EU or another?
    3) Could it become part of the American or Asian economic periphery if it left the EU and EEA?

    For Ireland the critical questions are the eurozone questions plus:
    1) Even if the eurozone single market works in the general case, will it work for Ireland specifically?
    2) Are we closer to the core than the UK?
    3) Would we be more successful staying on an economic periphery but with the freedom to be hyper-competitive?
    4) Could we become part of the American or Asian economic periphery if we left the EU and EEA?

  • http://andrewg.wordpress.com Andrew Gallagher

    Neville,

    Any “solution” that involves the UK and RoI being in different trading blocs would be an economic disaster for Ireland (north and south). However, being dragged out of the EU by the UK would be a political disaster for the Republic. If Cameron and Osborne mean what they say about constructive solutions to the Euro crisis, they need to maintain the UK’s position in Europe – even if that means making do with a few scraps in exchange for supporting treaty change.

    Speaking of which, Croatia’s accession treaty is looking very convenient right about now.

  • http://[email protected] joeCanuck

    Meanwhile elsewhere in Europe, Russia has just had an election. The United Russia Party got most seats but not a majority. Interestingly, Putin is not a member of that Party yet he is its Chairman. Where have we heard that before?

  • aquifer

    People don’t miss what they never had, so maybe they needed the boom to show them what a real European Currency Union could do, before voting for it.

    The plan for economic and fiscal union may be going better than some believe:

    1 Have a nice boom with new cars and houses and jobs, to show people what a big GDP looks like
    2 Use a crisis to stop it for the time being, making sure your domestic government takes most of the blame
    3 Make an example of a state whose history is more significant than its economy, expelling them from the Union and humiliating them, just to show you can and may again.
    4 Offer an EU superstate with good prospects for a resumption of growth and prosperity in return for some votes
    5 Even losing one or two members, the fiscally and economically unified Eurozone is still big enough to make the Euro a reserve currency comparing favourably with the busted dollar, giving you some extra GDP for free.
    6 Re-export US Hi-Tec into EU land and buy more Beemers
    7 Fill those houses sure the place was half empty anyhow.

  • Neville Bagnall

    Andrew,

    I don’t disagree, and while I fear the UK is drifting into the EEA, I don’t think it would make any sort of economic sense for either the UK or Ireland to attempt to detach themselves from the European bloc in favour of another.

    However, it is an option that the more extreme wing of eurosceptism has suggested (Commonwealth trade bloc revival and all that). And if it is even remotely possible in this more eurosceptic environment, its worth evaluating.

    Personally, I think Ireland can only be competitive with the UK if it is more integrated (closer to, or in the core) and more attractive (productivity and/or costs). Otherwise employment will migrate to Britain.

    I think drifting to the EEA periphery will be a mistake for the UK that will see it decline relative to the EU and that the idea of full withdrawal from the European bloc is a suicidal fantasy.

    Merkozy and Poland’s Sikorski have made it clear that scraps is the most that will be on offer to the UK in the Euro fix and in fact the UK will be politely asked if they also want to submit to the new process; the eurozone can always invoke Enhanced Co-operation if they say no.

  • http://andrewg.wordpress.com Andrew Gallagher

    The idea of a Commonwealth trade bloc is far-fetched. Nearly every Commonwealth country is embedded in a regional trade pact together with non-Commonwealth countries. How many of these (aside from SAARC, which is useless) would have to be unpicked? Would Canada have to leave NAFTA? All to keep some British Eurosceptics happy?

    the UK will be politely asked if they also want to submit to the new process

    Germany would certainly prefer to have the UK onside as a counterweight to French dirigisme, and Cameron should be grateful. One of the great tragedies of modern Europe is how much Germany and the UK have in common and how little has come of it.

  • Alias

    Integration is the cause of the problem, not the solution to it.

    Contrary to expedient myth, Ireland’s economy grew substantially when it cut its monetary link with the UK. Likewise, 7 out of 17 states that integrated into the eurozone are now verging on bankrupcy. That is a catastrophic failure rate of 42%. The other states that integrated into the EU now top the rankings of the world’s most indebted states.

    These backward EU regions grew their economies over the last decade by borrowing and spending massive amounts of money. Now, over the next few decades, any revenue their damaged economies can generate muct be dedicated to repaying debt. That means that they won’t be spending money they don’t have, and that their fantasy economies will ‘advance’ over the next few decades to levels of poverty and unemployment that haven’t been seen in Western Europe since the 30s.

    Shared sovereignty has been an unmitigated disaster for the countries concerned. It is time to revert the EU back to the original basis of membership: a common market, not a common country. Either that or abandon it entirely before it is overtaken by formerly third world countries and becomes the new third world.

    The most vocal europhiles earn their living from the EU so it isn’t surprising that they should support it at all costs.