60 YEARS ON – THE EURO VERSUS EUROPE


30/03/2017




Robert Harneis – TDO -The 60th anniversary of Treaty of Rome this week - more like a wake than a celebration. By a cruel trick of fate, it has coincided with the formal notification of Britain leaving the Union. It has seen the bizarre election of the Polish President Tusk at the head of the European Council in the teeth of the opposition of the Polish government.And all the time in the background andunderminingeverything the Eurobumbles on to its doom.

The Eurozone is characterized by an economically successful Germany on the one hand with a huge surplus and southern European states with their economies looking like a train wreck, on the other. In the south growth is largely absent and unemployment is massive, especially amongst the young. The countries that stayed out of the Euro – notable the UK and Sweden - are doing better economically than those within, both in terms of unemployment and growth. And yet in the leading countries of the EU, France and Germany the leaders can only think of plunging further into the Euro mire.

In the case of France, favorite to win the presidential election Emmanuel Macron proclaims ‘we will builda Europe, which develops our employment and economy’. This statement implicitly recognizes that as the Eurois presently constituted, this cannot happen. He proposes ‘so as to be able to invest more than today, we want a Eurozone budget voted by a Eurozone parliament and put into effect by a Eurozone Finance and Economy Minister.’ In the unlikely event that this revolutionary suggestion is ever put into effect, it will be the end of France as a nation state. It would also be in breach of the German constitution which claims priority over EU law.

It has to be admitted that his scheme would make the Euro coherent. Today it is wrecking Europe because it is money shared by 19 very different governments with no common fiscal policy and no transfer mechanism. The normal method of adjustment by exchange rates between countries is ruled out by the very existence of the Euro.

It is interesting to recall that Roy Jenkins, President of the European Commission from 1977 to 1981,originally proposed a joint euro-currency BUT stipulated that it would need a joint budget of 10% of GDP of member countries. This was rejected by all members. Note that the current joint budget is a mere 1.5% of GDP and members constantly complain about that.

Those who dream of a Macron type scheme,via which they can change Europe, or at least the Eurozone, to something comparable to the United States, should note that the US transfers, in any one fiscal year,some 12% of its GDP from rich to poor states. In the present imbalanced state of the Eurozone it has been calculated that the rich states, in reality Germany, would have to transfer 8% of its GDP to the south. It would be interesting to see the reaction of the new and rising anti-Europe party Alternative fur Deutschland (Fad) if Macron’s scheme ever sees the light of day. So,short of a political miracle the Euro,that Europe’s political class cling to, cannot be made be made to work for all of its members.

How did Europe get into this mess? In the 1980s, the European project was in the doldrums and going nowhere. Operating under the moving bicycle principle Jacques Delors the French President of the Commission launched the Euro project with competence, determination and 100% awareness that it was incomplete and therefore unviable. He also understood that the 12 countries involved had very different economies. The principle refers to a bicycle that can only remain upright if it is moving forward.

So why did Delors go ahead knowing his structure could not work? The answer is he relied on another strange EU phenomenon, the Monnet method, more scientifically known as ‘the functional theory of spillover’. Translated into English this means that the inevitable and foreseen crises that arise would, in the panic of themoment,force changes in the desired direction of a common Euro government. Before anybody knew it the Euro countries and the other EU countries would find themselves locked into to a Euro state, which would allow the necessary transfers to occur and economies to converge. Citizens would get used to it and all would be well.

That idea assumed that countries would prosper with the introduction of the Euro and that notably unemployment would fall and therefore there would be little resistance to change. But as predicted by a number of economists and a few less dreamy politicians that is not what has happened, to say the least. Worse enforcing ‘reforms’ within the Euro and dealing with the different debt crises particularly in Greece has revealed a sinister lack of respect for the populations concerned on the part of the unelected officials involved. The Troika that has dragooned the Greek government into endless austerity measures leading to more and more debt is the most dramatic example.

As a result, an alarmingly high proportion of the Europe’s voters are aroused and hostile to the EU as it already exists, never mind about new schemes.

Faced with this economic and democratic disaster, it is hardly surprising that Europe’s leaders were looking a little glum when they met in Rome. They are no doubt haunted by the famous quotation from the great French economist Jacques Rueff in 1949, ‘L’Europe se fera par la monnaieou ne se fera pas’. ‘Europe will be built through money or it will not happen’. Quite.

Those like Marine Le Pen in France, who are calling for an end to the Euro and a Europe of independent nation states working together, have yet to convince a majority of voters and their political rivals that what they are proposing is the only solution. It can only be a matter of time before they do, unless some unfortunate state (Italy?) is forced out of the Euro and the whole scheme blows apart. In the meantime, we stumble on from crisis to crisis.


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