It is hard to keep up with the unfolding events of the eurozone debt crisis. Earlier this week, the auction by the German government of 10-year bonds, which is an event normally garnering only specialist coverage, made big news. It was, in the words of several news-sites, a disaster, with only some of the paper being bought.
With impeccable timing, therefore, the Institute of Economic Affairs, the UK-based free market think tank, held a panel debate last night around the question of whether the euro has a future. And an interesting collection of folk were on display: Prof Philip Booth, Editorial & Programme Director, IEA; William Cash, Conservative MP for Stone and a long-standing eurosceptic and loather of most things around the European Union; Ed Conway, Economics Editor, Sky News, Dominic Raab, Conservative MP for Esher and Walton, and finally, and in my view, most memorably, John Stevens, a former member of the European Parliament.
Stevens was memorable because, while he made some good arguments (such as that return to the drachma would cause severe problems for the Greeks in some ways), he also repeated a mistaken old argument that I occasionally hear from pro-EU/euro types.
The argument goes something like this: Small states (like the old city-states of Italy or wherever) cannot thrive on their own and need to be part of a bigger country. The European Union enables its members to punch with a heavier weight than alone. The old glories of Renaissance Italy only serve as a reminder of how small states lose their edge to bigger entities. And with China and India on the rampage, we need to stick together, despite the odd problem of making the project work.
Okay, that is a bit of a paraphrase, but in essentials that is what Stevens said last night. Like others in the audience, I smelled something a bit fishy about it. For a start, is it really the case that the prosperity of small states/principalities/whatever – like 15th Century Milan – could not be sustained alone and that these places had to merge or be taken over by a much bigger entity in order to survive? (It is not as if modern Italy, which was only unified 150 years ago, is an economic colossus as a result of said unification). Take Hong Kong, for instance. In geographic terms, it is tiny compared with the Chinese mainland and for reasons most Samizdata regulars will be familiar with, Hong Kong has been one of the great economic success stories since the Second World War. (For sure, it was a British colony until 1997 but plenty of other places were colonies and they did not thrive). The same goes for Singapore. Or to travel back in time a bit: the UK – hardly a big country – Switzerland (ditto) or the Netherlands. In the latter example, the Dutch were so lacking in room that rather than conquer a bunch of neighbours, they reclaimed land from the sea. The Swiss seem to be doing rather well, despite the pressures on their discreet banking sector. In fact, places such as Switzerland are a standing reproach to Transnational Progressivists generally.
And in any event, what all these examples of economically successful small states show is that they can survive and thrive so long as they can trade in a global marketplace, exploiting a wide division of labour. It is not necessary – pace Stevens and his allies – to create a centralised institution such as the EU or anything else in order for this trading to occur. So long as different jurisdictions recognise each other’s rules, trade can proceed. In that sense, any regulatory system that takes hold is a “bottom-up” phenomenon, not one imposed from above.
It should also be noted that if, by any chance, the eurozone does fracture, with some of the “northern” euro member countries operating a stronger currency than in the “south”, then this might ultimately work to the benefit of the people for whom the single currency was purportedly designed: the citizens of EU member states.
As an aside, I was pleased that Prof Booth last night pointed out that for economic liberals/libertarians, the issue that really counts is whether the arrangements we arrive at really do mean more, rather than less, movement of goods, services and people. Or, in other words, more freedom, period. No classical liberal can be happy at the prospect of a eurozone collapse being followed by a descent into autarky, protectionism and xenophobia.
Here, by the way, is an interesting book on the folly of empires.
Well said.
I remember long ago meeting a “Conservative” of the British sort, i.e. a member of the British Conservative Party, who solemnly told me that it is “impossible” to trade with anyone with whom one does not share a common political jurisdiction, and that therefore if we in Britain wanted to do any foreign trade at all, we would, now that the British Empire was a thing of the past, have to become part of some other big “trading block”.
I suspect this kind of idiocy is quite widespread. It’s not that people explicitly think this. More that they think it without thinking about it. They think as if this were true, deducing a world of foolishness from this one unexamined assumption.
While I agree with the main thrust of this post, I would take issue with the emphasis of your final paragraph:
. The word “mean” would be better replaced with “allow”. Movement in itself is not the goal; freedom to move is. If people choose for whatever reason to stick at home and only buy locally, fine, so long as they are not forced, as your next sentence implies.
Another nitpick: Britain is quite a large country – in the top ten percent of countries for population and certainly in the top half for area.
Yes, “allow” is much clearer.
On the UK issue, it has a relatively big population but if you listen to some EUrophiles, they give the impression that this island can’t cope alone and outside a big bloc. That is kind of the point I was making.
Indeed – if I knew offhand that Britain was in the top 10% by population, that is only because I have often argued against this tendency to talk as if Britain is tiny and poor.
Part of it is just reflexive left wing oikophobia They think big is good, and so wish to think that their own country is small. But why do they think big is good?
My guess: believing in the labour theory of value and averse to the idea that some individuals might be very much better at generating wealth than others, they vaguely assume that the labour of every person generates a roughly equal amount of wealth, leading to a total wealth generated in the world that depends only on population. On this model the only way of getting more wealth is to have a bigger share of people.
This is all my rather confused speculation on the mental processes of EUrophiles, being a slight advance on just saying they hate their own country and believe in the fixed quantity of wealth fallacy.
@Natalie Solent: thankyou for introducing me to a new word, I look forward to using that one myself one day. 🙂
As to the EUrophiles, I would say that they are focused on power-politics(Link) not economics. With the fall of the British & French empires, along with the dream of a German equivalent, they are seeking a replacement. Basically they long to be taken seriously and listened to on the world stage, like in the good ol’ days. The problem (of course) is that any power block that is forced to spend a lot of effort suppressing internal dissent, while incompetently trying to micro-management/centrally plan it’s economy, is hardly going to be someone the rest of the world looks up to.
Worth pondering that the Netherlands were once part of a bigger bloc. Getting rid of Spanish rule is what enabled the Dutch to prosper so well.
“the Dutch were so lacking in room that rather than conquer a bunch of neighbours, they reclaimed land from the sea”
I think the Dutch might point out that the neighbours, in this case,were Belgians. (See above) They’d spent 80 years trying to get away from them.
In addition to the “near failure” of the latest German bond offering, I see that Italy just had to pay 6.5% on its 6-month notes. Just a week or two ago, wasn’t 6% viewed as the magic line above which Italian rates couldn’t be allowed to go, which thus necessitated the EMF bail-out? What changed?
Re last comment/the book, the British Empire, barring the odd plumed hat, was a force for good and lasted the right amount of time.
Montesquieu said just about everything that needs to be said about size, in The Spirit of Laws, ix.1: small countries are best for everything, except defense; but a federation of small countries can provide for defense while retaining the advantages of small countries.
What Montesquieu did not foresee is that federal institutions are subject to Parkinson’s Law, and therefore they tend to take over functions other than defense.
For the sake of completeness I mention that Guicciardini, Spinoza (perhaps), Hume, the US Founding Fathers, and Hayek were also fans of small countries (or federations thereof). There were probably many more of whom I am unaware.
if, by any chance, the eurozone does fracture, with some of the “northern” euro member countries operating a stronger currency than in the “south”, then this might ultimately work to the benefit of the people for whom the single currency was purportedly designed: the citizens of EU member states.
This sounds suspiciously folk-Keynesian to me: the implication is that some countries are better off with a permanently lax monetary policy.
The struggle for Switzerland will be a trial of strength between the Swiss Peoples Party (and its allies) and the elite – the academic, political and (to some extent) fiancial elite (such as the Central Bank of Switzerland).
A key weakness for the pro Swiss independence forces may be the lack of any non establishment television and radio in Switzerland.
Snorri Godhi – on Montesquieu (strength and weaknessess of).
Yes – exactly right.
Dealing with the other names you mention would take a very long comment indeed.
Paul: as a contributor to this blog, you could put up a post on “the other names” I mention, rather than a comment. I’d be interested in that: I have much to learn.
(As for Switzerland, I’d think their independence is safe as long as the problems of the EU remain front page news.)