I’ve had a number of posts on my blog about my piece on Merkelomics. I shall ignore the one which says ‘all debt is bad’: has the person in question has ever had a mortgage?
Let me take the more serious point made by one commentator (Commentator ‘A’) who clearly wants to Eurozone to succeed—a sentiment I share fully. ‘A’ says: ‘I believe the fault in your analysis is that you don’t see the Eurozone as a national economy in the making. If you were, you would’ve realised that it doesn’t matter whether Eurozone exports originate in Germany or some other Eurozone country.’
My reply? I do indeed wish that the Eurozone were a national economy in the making and that I could praise the Germans for their export-led growth model. That German industry is admirably efficient I have no doubt (far more so than the UK). But perhaps I can best explain the case for Eurozone reform in the following manner. Below is a short ‘thought experiment’.
Let us assume—you can tell I’m an economist—that the contemporary USA were like the Eurozone, that there was little labour mobility, no Federal Treasury, that Congress was weak and that power lay almost entirely with the individual states (as indeed it did in the late 18th century). Let us further assume that because there was no Treasury but only a Central Bank, there was no federal borrowing and that individual states had to finance themselves through taxation and state bond issues.
In such a world, the ‘rating agencies’ would look at the trade statistics of the various US states. Suppose that most US state-level trade was with other states (which it is) and that Michigan and Ohio (which produced mainly manufactures) had enormous trade surpluses while the relatively poor states of Louisiana and Mississippi (which produced mainly fish) ran persistent trade deficits. (Remember, this story is allegorical.)
Ohio and Louisiana might initially both have AAA+ ratings, but because Louisiana was dirt poor and suddenly was struck by a hurricane causing coastal devastation, its economy became a basket case and its tax receipts collapsed. In consequence, the rating agencies downgraded Louisiana’s dollar bonds, making it nearly impossible for the state to borrow. Nor could Louisiana export its way out of trouble because, as part of the dollar zone, it could not devalue. Drastic cuts (internal depreciation) would make it even poorer and more likely to default.
So Louisiana—-together with Alabama and Mississippi— needed help from richer states like Ohio and Michigan. But Ohio, Michigan and various other ‘northern states’ were not without internal problems, and their citizens were reluctant to help the ‘lazy and feckless southerners’. Nor would they let the Central Bank buy the bonds issued by these poorer states … until a major crisis occurred.
I leave the reader to finish the story. Needless to say, the crucial point is that the USA is not in the above situation because it has the economic institutions necessary for operating a federal economy.
At least the USA had Alexander Hamilton and James Madison to shape its structure—today, Europe has Angela Merkel and Nicolas Sarkozy. I’m not optimistic.
#1 by Freeborn John on July 23, 2010 - 3:05 pm
K-boy: The Swiss are a nation. There are some signs the strength of Swiss national identity is on the wane a little but it is still strong. A common language is one of the main components that contribute to a strong national identity, but only one alongside community of history, culture, religion, geography, etc. As a general rule of thumb though one can say that states containing multiple languages do eventually divide along language lines as Sweden/Norway did in 1905 and Belgium appears to be doing today.
The EU however is deficient in all the components that contribute to national identity. To the extent that one can speak of a European identity at all, it is a “civilisational identity” (like ‘The West’) which is the weakest form of community that we have. Civilisational identiies are far too weak to bear the weight of democratic politics. That is why referendums are not allowed on EU integration. If they were allowed each national demos would immediately vote to reduce EU power over them.
The 1975 UK referendum on joining the common market cannot legitimatize EU membership today. Neither i nor anyone else under the age under 53 had any chance to vote in 1975. And all accounts indicate that it was sold as a trading arrangement and certainly no future federation. Referendum literature from the time supports that view. Furthermore, all UK opinion polls in the 1990s and 2000 show that every single European Treaty since the Single European Act would have been defeated in the UK if put to referendum. Therefore nothing decided at EU level under the terms of the treaties of Maastricht, Amsterdam, Nice or Lisbon has any claim to legitimacy in this land. We cannot be held as EU serfs like this forever though. We are going to get out; the only question is when.
#2 by K-Boy on July 23, 2010 - 5:02 pm
OK, let’s see what we know so far. The UK is a democratic country, where the government is chosen by the people in free, open elections. The people largely want the country out of the EU, but the nasty British politicians, chosen in free and open elections, betray their wishes. And you somehow want Britain out of the EU, so that all the power to govern the British people is concentrated in the politicians, who betray the people in the first place. Now that to me is a conundrum.
How really hard is it for people to understand that people are stronger when they work together, not separately. And that working together in no way implies that British have to be less British or Slovenians less Slovenian, that patriotism is a great and proud feeling, but nationalism is a great obstacle to progress.
John, I see that you are aggravated by legitimacy and democracy issues in general, but can you give me a specific EU law, regulation, directive, anything that you personally find detrimental to the UK, some specific reason the exit the EU. As far as I see, UK has been given an a-la-carte menu and it can pick and choose the things it wants, and doesn’t want to participate it, so it can achieve exactly the amount of integration it wants. Nobody is forcing the euro, Schengen, the Fundamental Rights…
I don’t know if you are one of those people who can’t put 2+2 together, or of the kind who knows 2+2 is 4 but somehow find that unacceptably bothersome, but the reality is that the EU is here to stay, and that the UK is better off being in, than being out.
#3 by Freeborn John on July 23, 2010 - 6:09 pm
K-boy: We can work together with other nations just fine without EU supranationalism, using the traditional democracy-compatible intergovernmental methods as used successfully in the rest of the world and between the UK and non-EU countries.
This will allow us once again to elect governments capable of changing ossified policies that we currently disagree with but cannot elect a government to change due to the supremacy of EU law, such as agricultural policy, fisheries policy, working time policies, the rules that local councils must follow when collecting rubbish from outside our doors, etc., etc.
Not to mention the huge sums of money we will save when no longer contributing to the EU budget, and no longer burdening our businesses with over-regulation. There is no way we can stay in the EU when it is so damaging to both our finances and our democracy.
#4 by Felix on July 24, 2010 - 1:45 am
Freeborn John, just because you think that the EU is no good for UK does not automatically means that EU is not good for anybody. Who are you to talk in the name of the other 500 million EU citizens based on the principle: “EU is no good because I say so, because is no good for ME?”.
EU clearly works for France and Germany. They finally make money together instead of ruining each other in pointless wars. It is good for America who is now sending our products and services in Europe. We are not sending anymore our youth to die in order to solve your European stalemates because you guys failed on “traditional democracy-compatible intergovernmental methods” a la Munich ’38 or Yalta ’45.
EU is good for Spain and Portugal who caught up with prosperity and economic development levels after decades of fascists dictators and bloody civil wars. They may have a little debt problem for the moment, but UK is no maiden neither in that regard, so the EU membership has nothing to do with debt levels (see how Germany got that right). And now the whole Eastern Europe is catching up after 50 years in the prison of the red terror, where they were send with the treacherous written consent of Churchill on behalf of the British nations and one of our presidents with the red devil himself who killed millions as mere “statistics”.
All these EU citizens that can freely reside, travel, educate, live their live do not give a damn on complicated logic around “subsidiarity” and what federalism is. They realize the potential of the economic synergies and they realize it. This is why it is the European Airbus which is competing head-to-head with Boeing on a global scale and not the national-based BAC (a company to minuscule for such a large and competitive world aircraft market).
If EU is no good for UK why the hell in the world you just don’t get out of it? The only way for a member state to exit the EU is for the member-state itself to withdrew. Then why you target the wrong audience with your message? There is nothing that Barosso or Rompuy (or us here on the forum) can do to kick you out, even if they would very much wish so. You are really wasting your energy and potential with the wrong audience.
You guys cry like babies on blogs about it, but when election time comes in 2010 to empower UKIP (United Kingdom Independence Party), they only got 900,00 voters (3%) which won them NO seat in Parliament! So much for the independence movement, yeah, right. The “great” movement that got no seat.
On the other hand 15.7 million British citizens voted in the European Parliament elections in 2009. This tells me that the EU was legitimized by 16 more people than those who want it out.
So it seems to me that the “we the people of the world, yada, yada, yada, out of EU” are only a minuscule group that is far from being representative for the British citizens. Sure, you may get the majority of the votes one day in the distant future, but realistically neither you and me may be alive when that day will ever come. I rather believe that the EU will cease to exist for another reason before UK will manage to make their mind about getting out of EU.
For some reason it always took British a looooong time to figure things right, then as you came late to the party you figure out there is not much food or girls left and so you start complaining
How in the world it took you 170 years more than the French to figure out that the correct calendar to use is the Gregorian Calendar? I’d love to read some of the Freeborn John-s from that time arguing how the French got it “wrong”. I will be surprised if I would find different lines of reasoning than the one we are seeing here from you 
#5 by K-Boy on July 24, 2010 - 1:11 pm
Freeborn John, lets go by your points one by one:
Agricultural policy: britain has an opt out from that, and as a result the money that it pays into the EU are substantially less than other member states, something called the UK rebate.
Fisheries: As much as I know, the fisheries policy basically means you can’t just go about and fish all the fish in the sea, which is pretty reasonable, no?
Working time: this is, and has always been determined between employee and employer. It basically guarantees some protection for the employee, but that of course is only if he wants it. I don’t see many of my investment banking friends from the City working 9 to 5.
Rubbish collection: that is a big issue for you, really? I have to admit I have not paid too much attention to that branch of legislation, you may have a point possibly…
So you speak of the expenditures… overall, the UK’s net contribution, including the rebate, is slightly less that 5 billion euro. That is compared to over 500 billion of overall expenditure for the British government, so the 5 billion is hardly an impoverishing item. Just to compare, military spending is 38 billion pounds.
The problem is the benefits are a little harder to monetize, the access to the common market, the ability for UK companies to freely hire the best talent out of Europe (those investment banking friends of mine graduated in the US, found jobs there and were transferred to the City precisely because of the free movement of labour. Gordon Brown said Britain has 2 million reasons to stay in the EU and those are the 2 million jobs it creates directly and indirectly. Now lets say he highly exaggerated, lets call them 1 million, or half a million… still a significant number.
And last but not least (or maybe even last but the most), those 5 billion net contribution ensures peace and quiet in Britain’s and Europe’s backyard, something that in the “ancient histories” of the nations in Europe has hardly happened. Who knows where Eastern Europe would have been if they didn’t have the EU to aspire to? The US now spends $7.3 billion a month ($12 billion in 2008), so if UK’s 5 billion euro a year ensures the long term peace and stability of Europe, do you think that is money well spent? Of course it is, but people like you would rather have France and Germany foot the bill by themselves. It is good that UK politicians and most of UK’s population have a little more sense.
So you see, when you put things in numbers, things don’t look so dire.
#6 by K-Boy on July 24, 2010 - 1:13 pm
**The US spends 7.3 billion a month on the wars in Iraq and Afghanistan, should have said that.
#7 by Freeborn John on July 24, 2010 - 2:12 pm
Felix: Democracies don’t go to war with one another so peace depends upon there being a world of democratic nation-states.
European integration is modelled on German unification which started with a customs union (the ‘zollverein’) and proceeded via confederation to an undemocratic state that started two world wars.
#8 by Freeborn John on July 24, 2010 - 2:37 pm
K-Boy: The UK does not have an opt-out from the CAP.
Nations that have their own fisheries policies (e.g. Iceland) take much better care of fish stocks than the ‘tragedy of the commons’ that is the EU fisheries policy.
Working time should be a matter between employer and employee but is subject to the EU Working Time Directive.
EU environmental policy was billed as addressing global problems; instead rubbish is renamed recycling, and recycling is held to be an environmental issue and before you know it the EU is interfering in what local councils do. It is totally unwarranted interference that the EU must be rooted out of.
There are also many, many other issues the EU must be removed from, such as minimum VAT rates.
Gordon Brown is disingenuous when he says 3 million UK jobs “depend on the EU”. That is 10% of the British workforce, which he calculates by virtue of 20% of British output being exported and a little over half of exports going to the EU. He could equally well have said 3 million British jobs depend on non-EU countries. Hardly any British jobs (other than those of bureaucrats) depend on the UK being an EU member.
80% of the UK economy is services and tariff free, but outside the EU we could have more free trade anyway, emulating Mexico for example in having a free trade agreement (NAFTA) with North America, a second FTA with the EU/EEA and now negotiating a 3rd one with South American countries. That is three times as much free trade as you get stuck in the one EU customs union, and does not destroy Mexico’s democracy by subjecting them to an undemocratic political union. Canada is currently following Mexico along the same path, and the UK could do so to. But ww have to leave the EU first because we are not free to negotiate free-trade agreements while still a member.
#9 by Mupples on July 24, 2010 - 7:34 pm
As one of those evil EU federalist type’s (thought I’d get that out of the way). I would hope that 2 thing’s would happen, we’d have much more of a democratic say (including an yes/no in/out referendum in each country. The understanding being a yes would be for more intergration, a no would mean something else.
Also that the UK would be in, but if not I would hope we would maintain close friendship.
Now onto my main point, I have read alot about countries leaving the EU and making their own way in the global economic stream. That is fair enough except for the problem of size management. The World 25 year’s ahead will almost certainly be one of behemoths and giants (the US, China, India, Brazil, perhaps Russia)
Now as much as we’d all like to think our respective nations are special (which they are, but that will amount to a hill of beans) this is a World that the giant’s will dominate and no EU nation, not Even Germany, will be much more then a mouse fart.
Other part’s of the World seem to have grasped this, just look at the plans for ASEAN in Asia based on the EU, MERCOSUR in South America, it already has a parliament and they will be directly electing their MP’s, plus a single currancy is in the works. There are other entities less evolved but with similar aims, ECOWAS ect
I believe the future will be bloc’s talking with blocs and nations with blocs ect…No single nation will have the ability to influce event’s otherwise.
I know this horrifies alot of people, but I don’t see any other option, it’s work together or hang apart.
Remember in all those trade talk’s, it’s the EU’s collective size and bargaining power that get’s the result’s….No nation (perhaps Germany excepted) could walk into a trade deal with the PRC or the US and expect to come out on the good, the’r market’s are so huge and there are a lot of other’s competing for their attention. I don’t know if the UK would survive and thrive as a pretty small fish in that future shark tank (hopefully it would)…but I wouldn’t bet the farm on it. She’s a small rainy island off the shoulder of Europe who sems to specialse in financial services and product’s and those things are a dime a dozen. Would an ASEAN bloc or a Brail really alow the UK to muscle in on them ….I don’t think so.
I know I’m going to get flack for this, so helmet on .
#10 by Mupples on July 24, 2010 - 7:37 pm
Apologies for the grammar and spelling.
#11 by Felix on July 24, 2010 - 8:34 pm
Freeborn John, one huge achievement of the EU is the democratic institution which is the European Parliament, with MEP’s directly elected by the EU citizens. This allows the small countries to have a transparent voice to into the decisions that will affect them.
I guess that such a transparent institution, with Polish Mr. Buzek at the helm, is making harder now for UK to sell Poland again, isn’t it? The European Parliament is preventing shameful deals a la Munich, Tehran, Yalta, also known as “traditional democracy-compatible intergovernmental methods”, where UK is selling half of Europe into slavery for its own benefits, doesn’t it?
#12 by Patrick on July 26, 2010 - 10:44 am
@ Freeborn John
*The UK has a de facto CAP opt-out through the refund of much of its contributions in the rebate. This of course doesn’t stop the Queen from raking it in.
*Fishing stocks were in decline long before the common fisheries policy was even conceived.
http://www.bbc.co.uk/news/10096649
*If employment relations were left to the employer, as you suggest, there would be no such thing as holidays, pensions or minimum wage. The EU has to act, because the UK govt hasn’t. Ditto the environment. What you call “interference” is in fact modernisation.
*You’re living in cloud-cuckoo land if you think that a couple of free-trade agreements would allow the UK to continue its current living standards. All you would end up with is cheap food imports and unrestricted foreign labour. You also wouldn’t get away with a fta with the EU without implementing a large chunk of EU law, none of which you would have a say on. You would also be asked to pay some sort of fee for this privilege. Norway pays £500m, so taking into account the size of the UK economy, this would become something like £3bn. A high price to pay for the Mexicanisation of the UK for the sake of pure ideology.
#13 by Labora on July 27, 2010 - 9:23 am
I believe the people glorifying the nation state (like freeborn john) are on the wrong path of history. A hundred years from now nations will be looked at as a cultural curiosity, pretty much so as we look at the different dialects within one country today.
And this is simply the consequence of globalization – which is not just happening in the economy but in all aspects of our lives.