Main Edition
US
FR
December 11, 2020 - 11:00am
Yesterday, my colleague Ed West wrote about changing his mind — in this case, about his previous sympathies for Brexit. The same day, in a column for Bloomberg, Tyler Cowen described his journey in the opposite direction. I say “journey” because he hasn’t quite gone all the way:
Nevertheless, he believes that “in the last year, the EU has become a less workable political union, especially for the UK.”
For instance, he makes the under-appreciated point that if the EU is to deal with the growing challenge from its disruptive member states — especially Hungary and Poland — then that would “require weakening the EU’s unanimity requirements on many decisions”. Had Britain voted to remain, then that further dilution of sovereignty would have applied to us too.
Another worsening problem that Cowen identifies is the strain on the single currency. Until this year, the Stability and Growth Pact just about held things together. However, the economic impact of Covid-19 means that the hard limits on what national governments are allowed spend and borrow have been abandoned. Thus the overwhelming focus of the EU in the years ahead is going to be on saving a monetary union that the UK was never part of. Had we remained, it would have been in a club whose “focus is going to seem increasingly irrelevant” to British concerns.
Actually, I don’t think that’s the whole story, because the struggle to stabilise the Euro would have been made very relevant to Britain — but not in good way. As I explain here, the EU is propping-up the single currency by borrowing money through the European Commission — with all EU member states having to make the repayments.
On top of these fiscal demands, we’d also have seen our monetary independence come under attack. The Covid rescue package agreed this year is huge (€750 billion) and yet not big enough to see the Eurozone through the post-Covid recovery. Each member state will need to keep borrowing and the European Central Bank will need to keep buying a big chunk of the bonds they issue. Already there are calls for this ECB-owned debt to be cancelled — or, failing that, sat upon indefinitely. This will be hugely controversial because while these debts are national, the costs of cancelling them are shared.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
Subscribe‘Until this year, the Stability and Growth Pact just about held things together.’
Are you joking!? The Stability and Growth Pact, allied to the euro, was an unfolding disaster even before 2008, at which point it all fell apart. Read ‘Euro Tragedy: A Drama In Nine Acts’ by Ashoka Mody. He was part of the IMF team working to hold it all together, and not anti-EU per se.
As more or less anyone except the politicians and the media could have foretold, the Growth & Stability Pact was always doomed to deliver no growth for many countries and no stability for the EU as a whole.
Mody is wrong.
Some countries (Greece, Argentina) shouldn’t have their own currency. It is for their own good.
What would Greece have lost exactly? Even default wouldn’t have been as bad as selling the country for nothing.
How was the country sold?
Have you actually read Mody’s book? I suspect not. It’s an outstandingly good book that actually changed my mind in the sense that I now agree that the northern Europeans should keep shovelling money to the southern Europeans.
Of course, I always accepted – or at least understood – the logic that if you’re in a currency union you will have to subsidise the weaker members, but I now support these transfers on the grounds of ‘solidarity’ and the fact that for many decades, all the politicians knew what they were getting into, even if they didn’t understand it.
If Greece had been able to devalue an independent drachma, it would have dealt with its financial crisis much more quickly. Everyone would have been taking holidays in Greece the next summer rather than in Spain; people would have been buying Greek rather than Italian olive oil; some might have even have discovered the pleasures of Assyrtiko and Xinomavro rather than sticking to French wine.
1) Tourist numbers in Greece have doubled since the 2007/8 crash. How much more growth do you want? Every single year the numbers of tourists increased.
2) You can buy RIGHT NOW Greek olive oil (wine is a bit tricky)
3) You missed the other side ; default (think of argentina), bank bankruptcies, very high inflation (think of Turkey right now).
Garbage.. Most greeks hate Merkel &her Globalist EU for Turning Greece into Peoples smugglers paradise & drachma into the ONLY solution… merging currencies..Excluding the French Franc in C19 dont work
The Greeks chose to go into the Euro. It seems that the books were cooked by the government at the time. I agree that many Greeks dislike Merkel, but the catastrophe was largely of their own making.
True – all true, but that doesn’t mean that the Euro has been good for Greece. So the country had corrupt and venal politicians who cooked the books. That doesn’t make their decision irrevocable.
Yes, I can now buy Greek olive oil, but if Greece had devalued its drachma, Greek olive oil would be half the price of Italian olive oil… Tourist numbers have increased worldwide over the same period, of course.
The Turkish economy does indeed have problems, but then, it is completely outside the EU. The EU would probably have wanted to stabilise the Greek economy somehow, and could have done so at a much smaller cost had Greece retained its own currency.
One of the ironies of the Brexit vote, as far as I was concerned, was that we had the best of all worlds: EU membership, but control over our own currency and our borders. Ah, well!
Greek olive oil is cheaper than Italian one. Greek food simply doesn’t have the cache of Italian/French/Spanish food.
Tourist in Greece (unlike France, Spain, Italy) is seasonal and very regional (summer and mostly the islands) – so if you adjust for the specifics Greece has gotten more tourist growth than F/S/I.
We DID NOT have control of our borders at all. Cameron asked for more control and was thrown a bone and sent packing. There would never have been a referendum in 2016 if we had control of our borders.
Whilst I agree entirely in absolute terms. Relative to what is to come “just about held things together” will seem like an accurate enough statement.
The EU (Franco-German nexus that all other members have to go along with or suffer the consequences) would not even give Cameron a few crumbs from the table when he was on his knees begging them for anything that would help him in the referendum – he should not have been so silly as to promise one in the first place, had he learned nothing from earlier referendums in other member states over the Lisbon treaty?
The EU has given us nothing in all the negotiations since. I am really not sure why Boris has still not just stuck 2 fingers up at them and focused on getting all the deals lined up with the rest of the world ready for signature as soon as possible in the new year.
We could get on just fine with the nations of Europe too, if it was not for the EU political project. What has unsurprisingly become ever more transparent over the last 4 years is the Project is all that matters to this tiny elite and meeting the needs of the people of Europe does not even make it onto the list of priorities.
There is no doubt we are going to struggle over the next few years but we will be far better off than the other member states whose interests are nothing to the Franco-German nexus and its Eurocrats
I know many people (not just Brexiters – and I am not trying to score points) take comfort on the idea that “BofE can print £” but they fail (chose?) to understand that in a global economy with global flows of capital a country like UK (highly indebted , negative current account) will be impoverished through long term devaluation.
Since 2007/8 crash £ is the worst performing major currency in the world – it has lost c.25% of its value against major currencies. The byproduct of this long term devaluation is that the wage growth has been negative (inflation has been higher that wage growth).
Basically UK frog has been slowly boiled. The most likely scenario for the next decade is another 10 years of negative wage growth. Think about that, by 2030 UK would have gone through c.20 years of negative wage growth. And the total debts of the country (government + Consumers + business) will only go up.
If all the major countries have been trying to reduce the value of their currencies (see US accusations against China for artificially lowering their currency), surely the reduced value of the £ makes it the best performing currency?
What part of inflation higher than wage growth did you miss?
You are not China (huge exporters with massive savings and controlled capital markets).
What are you talking about? CPI to Sept 2020 is at 0.5 percent. Wage increase to Sept 2020 is 2.2 percent. Have you been reading an article that refers to the early months of the pandemic? The EU has no inflation which is an indication of its problems. No interest rates to lower. Debt spiralling. Euro too strong with no brake. And you think we’re in trouble. I imagine you’re Irish. Where is your Central Bank to help you out?
I am talking about 12 years of statistic – you are talking about September 2020…do you see the difference?
“Where is your Central Bank to help you out?” – What do you think ECB has been doing since 2012?
What do you think ECB has been doing since 2012?
Digging a massive hole that the EU can never climb out of, without debt mutualisation. Good luck with that.
You think the euro is fit?
You can easily compare €/£. It is beyond doubt that € has performed better.
Of course the euro performs better. The EU presses are running 24 hours per day printing fake money.
The world clearly prefers EUR vs £
Cue the prophet’s of doom, all they need now is a strange comet to appear in the sky confirming the coming economic apocalypse.
The value of the Euro is rising
Interest rates and inflation negative. Debt rising sharply especially in southern states. The ECB will have to buy it but if it is to be inflated down how is that to be done? Will they cancel it? How will Germany etc feel about sharing the debt? Who can afford to borrow QE money? Seems pretty grim. The EU does not need Brexit sapping what inward investment there is.
Against what is it rising ? Today it rose by 1 penny against the £. And fell against the US dollar.
Peter writes: “Upon electing a Labour-led government the process of monetary assimilation would have begun ” the Pound becoming a satellite of the Euro, just like the Danish and Swedish currencies are.” Denmark pegged its currency to the Deutschmark in 1982 and when Germany adopted the euro that became a euro peg. It could adopt the euro anytime it chose to. However the Swedish Riksbank still adopts an independent monetary policy similar to the Bank of England, does it not? Does Peter know something I don’t?
“For instance, he makes the under-appreciated point that if the EU is to deal with the growing challenge from its disruptive member states ” especially Hungary and Poland ” then that would “require weakening the EU’s unanimity requirements on many decisions”. Had Britain voted to remain, then that further dilution of sovereignty would have applied to us too.”
This is specious. As things stand a straight choice is faced between becoming an offshore colony of the EU and dropping of an economic and social precipice
Systemic economic crisis ain’t the half of it
“The government has privately admitted the UK faces an increased likelihood of “systemic economic crisis” as it completes its exit from the European Union in the middle of a second wave of the coronavirus pandemic.”
Guardian 24/11/20
What sovereignty does a near bankrupt deindustrialised Fantasy Island have anyway?
Had we remained we could have worked with the “disruptive” states on issues impt to them, notably enforced immigration in their case, to weaken the EU’s grasp. I thought that is exactly what those who objected to the EU as centralising political project actually desired.
“Each member state will need to keep borrowing and the European Central Bank will need to keep buying a big chunk of the bonds they issue. Already there are calls for this ECB-owned debt to be cancelled ” or, failing that, sat upon indefinitely.2
We are hardly in a righteous position given that the BOE at the UK regime’s behest is printing, sorry Quantatively Easing £875 billions into existence, sitting on this debt is obviously what’s going to happen. But in any case if such profligacy was objected to within the EU Northern European states would also have looked askance at it.
We have gone out on a limb, and a collection of excerable rogues and fools – Messrs Farage, Johnson, Rees Mogg, Gove, Fox, Davies have fecklessly sawn through the branch on which we are sitting
Suez on Steroids.
Quoting the Grauniad as a source? Hahahahahahaha
That’s what I was thinking!
You are right, DT/DM/Sun/Express are much better sources.
Sarcasm is funny if done well. You need to take lessons.
What’s this fantasy from the Grauniad ‘The government has privately admitted….’
So unattributed source in ‘the Government’ has said (to whom?) that UK will have financial crisis. In a Remain backing paper.
Entire basis of your rant. Pitiful.
Well that bit of leaking plus the fact that this country hasn’t run a current account surplus since 1984 and is in the bottom 20 for current account deficits. Back in 2011 Robert Peston reported on a study showing that the UK was hopelessly indebted when the debts are aggregated
“McKinsey said that the UK had by 2008 become the most indebted of all the big, rich economies, more indebted even than debt-engulfed Japan.”
BBC
God only knows what it’s like now
Our industry has been closed down and/or sold off to foreigners. With the UK out of the EU what price Mini in Oxford and Nissan(French owned) in Sunderland; or Airbus in Bristol and Wrexham? The post industrial areas look desolate enough as it is.
The infrastructure and public services are heaving under the strain as it is. How long before they have to stop printing money? How long before footloose foreign capital takes flight?
As for social solidarity – keep calm and carry on – decades of mass immigration, and divisive economic policies which have seen the heartlands go hang have put paid to it.
Good luck with all this “mightily prosper” – my axxx
All this would be valid if the EU weren’t in a worse place. The UK ran a current account surplus in the mid nineties btw. It’s running a slight trade surplus right now. But it doesn’t matter as long as GDP increases. Current account deficit as a percentage of GDP has been falling since 2010 until now.
Your GDP Is increasing because (we know the stats) :
1) your population has increases through migration
2) you have increased debt faster than GDP
3) the current account has been consistently negative (it goes up and down) but the trend line is negative
Some EU countries are worst and other are in much better shape.
UK will lose of some of £90billion trade deficit,from EU.whose GDP has declined from 30% in 1973 to less than 14% in 2020…
Why must we choose between those two extremes? Can you explain why you think they are our only options? Also you have just described the EUs problem only their currency is too strong making their currency and goods undesirable. This view of the EU as a safe haven is absurd.
Because we are in a hopelessly comprised position(see post below). Some years ago Larry Elliot(Guardian) and Dan Atkinson(Sunday Mail) wrote a couple of books jointly – firstly Fantasy Island and then Going South, acerbic and in the latter case detailed explanations of where we are and why. It is not a good place. For all the world the pathetic delusionary drivel about Global Britain is reminiscent of the Herald of Free Enterprise, sailing out to sea with the bow doors open.
And clearly the EU has the whip hand, a few years the former Greek finance minister wrote an extremely interesting book – And the weak suffer what they must? Yanis Varoufakis
That’s exactly where are in terms of the relative power position between ourselves and the EU.
Oven ready Boris’ bluster has been called, as was obvious would always be the case to anyone with an iota of intelligence.
Perhaps as a classicist Boris might care to emulate Varus(Teutoberger Wald 9AD) – after all he wasn’t inveigled into disaster by a crafty German was the case then. He and his chancer/crazed ideolgue mates did it all by themselves.
Then we could have Ken Clarke perhaps as a Petain type senior statesman and father of the nation, he’d be ideal for the grovelling supplication which sadly will be required.
Perhaps as Kipling said re the Boer War – “we have had no end of a lesson and it will do us no end of good”
Although I very much doubt it.