They just don’t get it, do they? Of all the stupidities aired by European Union (EU) policymakers in response to Britain’s referendum vote, there are two standouts. One was the verdict of Herman van Rompuy, former president of the European Council. Former British prime minister David Cameron’s decision to hold a referendum, he said, was “the worst policy decision in decades”.
You’ll be relieved to learn that Jean-Claude Juncker, president of the European Commission (Europe manages to have no less than five separate presidents), doesn’t agree. In fact, he says, “borders are the worst invention ever made by politicians”. This from someone who, while prime minister of Luxembourg, had cynically used sovereign borders to make Luxembourg into Europe’s premier tax haven.
Even acknowledging that this latter remark was made in the context of the migrant crisis, it goes to the heart of what’s gone wrong with the EU. For together with Van Rompuy’s condescending dismissal of the democratic process, it displays a deep contempt at the heart of the European project for the collective will and concerns of the people. As the economist, Joe Stiglitz, notes in a compellingly-argued new book on the failure of the European project — The Euro, and its Threat to the Future of Europe — on virtually every occasion when voters have been directly consulted, they have rejected the idea of further integration. And in each case, whether it was introduction of the euro or reform of the constitution, they have been ignored.
The EU cannot stop Britain from leaving, but what it can do is turn a tin ear to the message that loud and clear Britain’s vote for Brexit has delivered — that Europe isn’t working and if it is to survive, then it must urgently reform. On current evidence, it shows virtually no sign of doing so.
To the contrary, in his mini-summit on the island of Ventotene this week, the Italian Prime Minister, Matteo Renzi, insisted that Brexit could not be allowed to drive the process of European integration into reverse. The venue was deeply resonant of the narrative he wished to convey, for Ventotene was where Altiero Spinelli, while imprisoned by the fascist dictator Mussolini, wrote one of the original federalist manifestos for Europe. Renzi echoed this founding father of the EU in his summit rhetoric.
Europe is not the problem amid today’s myriad challenges, he said, but the solution. It is, lamentably, ever harder to agree with him. Six years after the start of the Eurozone crisis, the economy is still deep in the doldrums, with output in some nations a pale shadow of its former self, shockingly high levels of youth unemployment and what growth there is now almost wholly dependent on the drip feed of central bank money printing. How did things get so bad?
In his book, Stiglitz convincingly demonstrates that the root cause of virtually all Europe’s economic and political ills was the premature introduction of the euro. To begin with, things seemed to go swimmingly, with all member states apparently growing richer together. But far from leading to convergence among national economies, the single currency was beneath the surface driving a dangerously destabilising process of divergence. Structurally, economies were growing apart, not together, with the Eurozone ever more precariously divided into surplus and deficit nations. This process met its nemesis in the financial crisis, when it became brutally apparent that while nominally a monetary union, Europe lacked the political and economic institutions, or indeed the political consensus, to make it properly function as one, with mutualisation of debts built up in the boom and a counteracting policy response.
In forging monetary union before political, banking and fiscal union, Europe had put the cart before the horse and is now devastatingly paying the price. Europe had taken away the natural market-based adjustment mechanism of free floating exchange rates, but with nothing to replace it. German refusal to increase its wages and prices meant that deficit nations were forced to reduce theirs instead. This process of so-called internal devaluation, besides being socially and politically extraordinarily painful, has succeeded only in further increasing the real-terms debt burden of afflicted nations. To compound it all, Eurozone policymakers tried to force the pace of convergence by imposing austerity in a futile attempt to eradicate budget deficits and mounting debts. By crimping growth, the effect was precisely the reverse — again to further increase real debt burdens. Brexit too, it might be argued, is in some way linked to the failure of monetary union, even though Britain wasn’t ever a part of it.
The impact was threefold.
First and foremost, it ratcheted up the alienating process of European integration. Britain as a member of the EU was collateral damage in the federalist endeavour. Second, it destroyed faith in the competence of European policymakers. And finally, it greatly increased the number of migrants coming to Britain by creating a depression across great swathes of the continent. Free movement became a substitute for enhanced trade and national economic advancement.
By the way, it has further contributed to the Eurozone debt crisis, in that the young and talented tend to migrate, rather than stay at home to work off the liabilities. As with monetary union, imposing free movement on nations of widely different incomes, wealth and welfare systems was always bound to cause problems, resentment and a consequent political backlash. These chickens have come home to roost in Brexit. Unless things change, others will at some stage follow. Italy or France will be the next shoe to drop.
That the euro still survives at all is explained only by the egos and political careers still tied up in its continuation. That, and fear of the economic costs of trying to disentangle it. Rather than making it work for the economies that use it, policy has become focused almost entirely on whatever contrivance is thought necessary to sustain it. Logically, a project whose purpose was originally to bind nations together through trade would be doing all it could to ensure an amicable divorce with Britain so that this trade may continue. But such a rational outcome is to misunderstand the nature of the beast.
The early signs do not look encouraging. This is what Juncker had to say about it all. “There will be no access to the internal market for those who do not accept the rules — without exception or nuance — that make up the very nature of the internal market system.” He appears to want to punish Britain for daring to leave, even if this proves damaging to Europe too. One can but hope that cooler heads and wiser counsel prevails. Unwise to count on it, though — given the record.
— The Telegraph Group Limited, London, 2016
Jeremy Warner, assistant editor of the Daily Telegraph, is one of Britain’s leading business and economics commentators.
