Europe, now

Things have gone wrong. Brexit may or may not prove a calamity for Britain, but it will be an existential challenge to the EU in its present form. If one country leaves, so can others. There is no shortage of member states where much of the population wants to leave. Any referendum, in any country that may hold one, can no longer be assumed to produce a vote to remain.  

The tragedy is that this situation was avoidable. And the fact that it has not been avoided is due mainly to the arrogance of the EU itself and to an abandonment of the clarity of thought that characterised it in the early years.

The arrogance was epitomised by the reaction of Jean-Claude Juncker to Donald Trump’s election: ‘We must teach the President-elect what Europe is and how it works. I believe we’ll have two years of wasted time while Mr Trump tours a world he doesn’t know.’ I doubt that my views on Trump are much different from Juncker’s, but for the unelected Juncker to say this in public about the choice made by one of the world’s largest and most enduring democracies is so patronising, so offensive, so dumb, that it beggars belief.

It is not even as though the EU does work at the moment. IMF growth projections place the Eurozone at the bottom of the list of advanced economies, bar Japan, as it has been in all recent years. Youth unemployment is 47% in Greece, 46% in Spain, 37% in Italy and 24% in France. Everyone is aware of these figures. When did you last hear the EU admit that this situation is not only shameful, but a threat to future social stability?

More astonishing still is the fact that half the social expenditure of the world is spent by European governments. When one considers the public protests and anger that have been provoked by the cuts of recent years, one has to ask what will happen next. The current level of expenditure is surely unsustainable, yet it is already straining democratic consent. The shallow roots of democracy in Europe, explored in last week’s blog, are likely to be tested as never before since the war.

One reason that these issues are seldom discussed publicly is that doing so would reveal the full debacle that was the creation of the Eurozone. To create a viable currency zone requires the convergence of a wide range national policies on taxation, pensions, social expenditure and much else. This was not attempted when the Eurozone began because agreement between the member states would have been impossible. The Eurozone was formed, regardless, because it was part of the EU’s blueprint for the future.

This is not being wise after the event. Countless economists pointed out the folly of embarking on a currency union with so little convergence, but they were ignored. The result was a ship that could function when conditions were calm, but would fall apart in a storm. As it did in 2008. As it will again when the next storm hits.

The measures that southern Eurozone countries would have taken to stimulate their economies, principally through their exchange rates, are now closed to them. Hence the staggering levels of unemployment. It is apparent to many that, unless the necessary measures of convergence are undertaken (on which there is still no consensus), the Eurozone should and must divide into two zones: north and south.

If that were to happen, the exchange rate of the southern zone would fall sharply, enabling a resurgence of growth. But the exchange rate of the northern zone would soar, stifling the exports of northern Europe, and of Germany in particular. Since the entire Eurozone now relies on the strength of the German economy and of German finance to function at all, this option would surely be calamitous.

So the EU can do nothing. Except hope that worldwide growth will recover, hope that none of the southern Eurozone economies and major banks will collapse, and hope that the next global economic crisis is a long way off.

All this has sprung from the EU’s insistence on sticking rigidly to its blueprint, no matter what had changed in the world, no matter how questionable parts of that blueprint had become. There was no provision for a two-tier Europe. All member states were to proceed together, in perfect step. The creation of the Eurozone, and the refusal of some countries to join it, unarguably created a two-tier Europe, but this has been denied and the consequences remain unaddressed.

The greatest practical effect of the denial concerns freedom of movement. This freedom was a principle of the single market. But, at the time, the single market was considered by the EU as a prelude to the Eurozone, which all member states would join. Freedom of movement may be a necessary part of a currency union, but it is not a necessary part of a single market in which some members are in a currency union and some are not.

If there had been a proper clarity of thought, this would have been recognised when a two-tier Europe came about. At that time, different rules, different principles, should have been drawn up for those countries that were part of the Eurozone and those that were not. If they had been, Britain would probably have chosen to remain in the EU. But such a step was anathema. It would have signalled the fact that the blueprint was now a dead letter. Instead, the principle of subsidiarity was announced: that the EU should do only what cannot be done at a national level. And then it was ignored.

It seems too late to change these things now, but perhaps it isn’t. Economic issues in the Eurozone, the migrant crisis, and the shortcomings of the Schengen Agreement, are likely to force change before long, whether EU leaders want it or not.

You can blame David Cameron for Brexit, if you like. You can blame UKIP for stirring up anti-immigrant feeling. You can blame Jeremy Corbyn for not doing more. But, if the leaders of the EU had been more flexible a long time earlier, we would probably never have got into this position.

You’ve got your troubles, we might say to the EU; we’ve got ours. But the EU’s troubles will continue to be ours, in addition to our own. Some people, Mark Carney among them, are suggesting we might get a good Brexit deal because the Eurozone depends on the City to finance it. They do not appear to be asking whether it is a good idea for Britain to be the Eurozone’s bankers at present.

These are not happy days. Time to batten down the hatches. The next storm approaches.