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Trouble comes to the EU from three directions

“The EU is a divided house”, writes John Keiger at the Spectator:

A 2019 German think tank report, entitled ‘20 Years of the Euro; Winners and Losers’, costed the single currency’s impact on individual states. From 1999 to 2017, only Germany and the Netherlands were serious winners with the former gaining a huge € 1.9 trillion, or around €23,000 per inhabitant.

In all other states analysed the Euro has provoked a drop in prosperity, with France losing a massive €3.6 trillion and Italy €4.3 trillion. French losses amount to €56,000 per capita and for Italians €74,000. Without fundamental reform the nineteen-member single currency’s divide between high-debt, high-unemployment southern states and their low-debt, low-unemployment northern counterparts will widen. The next crisis will come as the ECB’s quantitative easing programme ends and southern debt ceases to be sucked up by the Bank.

“The EU’s China deal is bad for democracy”, writes Edward Lucas at the Times:

The deal itself is quite narrow. It replaces and amplifies multiple existing agreements, with the aim of protecting investors against arbitrary treatment. Their bugbears include mandatory joint ventures, which China uses to steal technology and other secrets, and subsidies for local competitors. China has also made a mealy-mouthed commitment to make “continued and sustained efforts” to ratify International Labour Organization conventions that underpin free trade unions and prohibit slave labour.

The Chinese Communist Party (CCP) may have given away a bit on this front but has gained far more on others. Hopes of a global stance against Chinese bullying are dashed. Australia, the subject of ferocious pressure, is left marooned. Countries mulling how far to stand up to China will draw their own conclusions: Europe talks about values but self-interest trumps solidarity.

The deal exemplifies the gap between the EU’s foreign policy aims and reality. The European Commission claims to be “geopolitical”. In 2019 it deemed China a “strategic rival”. Yet the mercantilist influence of big business, particularly in Germany, steamrollers ethical and security concerns.

“EU’s coronavirus vaccination strategy in chaos as supplies run short”, write Oliver Moody and Charles Bremner, also in the Times:

The European Union’s vaccine strategy has been criticised as “clearly inadequate” after a first week of inoculation on the continent was marred by logistical mishaps.

President Macron reprimanded his ministers over France’s sluggish start after only 400 people received the Pfizer-Biontech jab in the first six days.

A senior German minister and the German-Turkish scientist who developed the Biontech vaccine questioned why the EU had not amassed a sufficient stockpile of the only vaccine it had licensed. Brussels has ordered up to 300 million doses of the jab — barely enough to cover a third of the EU’s 450 million residents — but turned down an offer of an extra 500 million doses, according to Der Spiegel magazine. This has left the bloc dependent on a range of vaccines that have yet to be licensed, including those from Sanofi and Curevac, which are not expected to be available until at least the second half of the year.

But the EU has survived many predictions of its demise, and it is not the only union of nations under strain. “With Brexit, the UK may be bolstering the EU and seeding its own disintegration”, writes Andrew Hammond in the South China Morning Post:

Within the EU, for instance, there are several key debates about the 27-member bloc’s future well under way, including rebalancing the union given the new balance of power within it, and whether the EU now integrates further, disintegrates or muddles through.

For instance, with the UK no longer in the Brussels-based club, the EU 27 has already made significant steps last year towards greater federalism. One example is the new €750 billion (US$825 billion) coronavirus recovery fund, a major political milestone in the post-war history of European integration, which saw the continent’s presidents and prime ministers commit for the first time to the principle of jointly issued debt as a funding tool.

What do you think will happen to the EU? What do you want to happen? Views from citizens or residents of EU countries would be especially welcome.

16 comments to Trouble comes to the EU from three directions

  • with the UK no longer in the Brussels-based club, the EU 27 has already made significant steps last year towards greater federalism. One example is the new €750 billion (US$825 billion) coronavirus recovery fund, a major political milestone in the post-war history of European integration, which saw the continent’s presidents and prime ministers commit for the first time to the principle of jointly issued debt as a funding tool.

    This was always the goal anyway, that Eurocratic desire to move towards “ever closer union”, which was never a UK desire and why the Maastricht opt outs were about “Closer union for them, but not for us”.

    The next question becomes, “How serious are they?”, since the next big hurdle is the fiscal one rather than anything else, which inevitably means German taxpayers paying for Greek pensions. Sure, they can continue with the smoke and mirrors act as they did with the Greek bailouts, pretending that those loans would ever be repaid, but everybody knows they won’t.

    Since the Germans and the Dutch are the one’s clearly winning from the Euro at the expense of pretty much everybody else, they are the ones who will have to bend when it comes to transfer payments. The problem though is that there are limits to how much tax can be squeezed out of the Germans and the Dutch and how much debt they will bear without breaking their own economies. In the short term, using a combined “BRExit / COVID-19 recession” as an excuse they will achieve the necessary reforms and the EU contributors will simply have to dig deep and cough up, since the alternative is EU political and economic stagnation.

    The fundamental problem though, is that the Eurozone is too large an interest rate area, and its needs are too diverse. While it might suit the Germanics and the Scandiwegians it does not suit the Latins and the Mediterraneans. There is simply no way of squaring that circle without massive structural, economic and political reforms which everybody will want “for thee and not for me” or the Latins/Mediterraneans will pass the necessary legislation and then either ignore it or fail to enforce it as they have always done, because the fundamental premise of the EU is that you can make Germans and Greeks into some polyglot population with the “best” attributes of both. It just won’t work.

    So what happens when “ever closer union” actually grinds to a halt, either because the Germanics and the Scandiwegians won’t pay the price or the Latins/Mediterraneans won’t change their wily ways? Pretty obvious – Stagnation, gradual decline and eventual dissolution just like the USSR.

    Sure, there might be some periods of chaos and catharsis, such as Italy repudiating the Euro and going back to the Lira (or even just implementing the new Lira as a domestic currency), but the EU is doomed and will eventually fail, simply because it’s fundamental proposition is preposterous. I think it will still limp on in some form until 2040 or so though, before being put out of its misery.

  • Fraser Orr

    I am struck by the notion that politicians getting together and borrowing one trillion dollars is a “major political milestone”. Because what the poor be leagued citizens of Europe need is another layer of government borrowing vast piles of money without and plan to repay. And that somehow that is a milestone to celebrate. To me, that says all you need to know.

    Perhaps I am old fashioned, but I remember a time when a trillion dollars was considered a lot of money.

    There is a saying: if you owe the bank a thousand dollars, that is your problem. If you owe the bank a million dollars, that is the banks problem. If you owe the bank a billion dollars, that is the government’s problem.

    May I suggest a new line to this pithy saying? If you owe the bank a trillion dollars that is civilization’s problem.

  • Mr Ed

    From 1999 to 2017, only Germany and the Netherlands were serious winners with the former gaining a huge € 1.9 trillion, or around €23,000 per inhabitant.

    Will the current leader of the Conservative and Unionist Party apologise (belatedly) to the late Nicholas Ridley who was hounded out of a government job for calling what became the Euro a German racket designed to take over the whole of Europe?

    He added as per the linked piece

    It has to be thwarted. This rushed take-over by the Germans on the worst possible basis, with the French behaving like poodles to the Germans, is absolutely intolerable.”

    The EU is not letting crises go to waste, it will go the way of Diocletian’s empire, suffocated in its own bureaucracy, but that may take another 30 years.

  • Nicholas (Unlicensed Joker) Gray

    The Euro was a French racket, originally, so De Gaul could recreate the Napoleonic Empire. The Germans might be better at it, but we might all be better without it.

  • Philippe Hermkens

    You are writing about the Euro and it’s future collapse rightly
    Is it different from the future dollar’s collapse ?
    We are all in the same boat except China and South Korea

  • Mark

    I once read a book which described Bismark’s foreign policy as basically “employing your neighbours to pull out each others teeth”.

    A better description of the euro it’s difficult to imagine.

    The EU is a German empire of course as they control the money. France might think it’s in charge, or at least a partner, with their political strutting and posturing, but I would imagine this amuses the boche more than anything else.

    Not sure who’ll have the last laugh. Us most likely, we always do.

  • APL

    “What do you want to happen?”

    Supposedly, the UK is out. Therefor I no longer care about the EU. Its constituent countries, thought? I wish them well.

  • The Pedant-General

    This is why I voted leave. I expected the EU to unravel, possibly nastily, in about 20 years and that we did not want to be part of that next 20 years and that our leaving might help it to see that there was a better way.

    Unravel though it must – if it carries on in the way it has, it will create the conditions for a monstrous civil war.

    Didn’t expect the unravelling to start happening quite this quickly though…

  • Johnathan Pearce (London)

    I think it was notable that Gideon Rachman, of the Remain-leaning Financial Times, was particularly hard on the EU for its China deal.

    Excerpt: “It is naive to believe that China will respect the agreement it has signed. It is naive to ignore the geopolitical implications of doing a deal with China right now. And it is naive to think that the darkening political climate in Beijing will never affect life in Brussels or Berlin.

    Over the past year, China has repeatedly demonstrated its willingness to ignore treaty commitments. Its new national security law violates an agreement with Britain that guaranteed the autonomy of Hong Kong. China has also imposed tariffs on Australian goods in violation of the China-Australia free trade agreement. 

    The timing of this deal is exquisite for Beijing, since it presents the Biden team with a fait accompli. Reinhard Bütikofer, chairman of the European parliament’s delegation on China, says: “We’ve allowed China to drive a huge wedge between the US and Europe.”

    And: The Europeans are also kidding themselves if they think they can be blind to the increasingly authoritarian and aggressive nature of Xi Jinping’s China. For the past 70 years, Europeans have benefited from the fact that the world’s most powerful nation is a liberal democracy. If an authoritarian nation, such as China, displaces America as the dominant global power, then democracies all over the world will feel the consequences. 

  • jmc

    What was so interesting about the Euro winners and losers report is that if you dug through the numbers, it was actually a pretty good study as studies go, the really damning number is not that almost every country was a net loser from the Euro but that all Euro-zone member economies grew at less than one third the rate of the benchmark economies.

    So not only did countries like Italy and Greece get a perma-depression with the Euro but the true cost of the Euro for the EU was a loss of most of its economic growth over the last two decades. If I remember correctly the Eurozone economies would have been at least 25% richer than 2000 if there had been no euro.

    That’s the true price of being communitaire. Depression, no growth, or seriously impaired economic growth. I think I remember hearing all that predicted for the ecu/euro back in the 1990’s by its critics if I am not mistaken.

  • Penseivat

    With Hong Kong now just another Chinese province, how can we be sure that any comment in the SCMP has not had to be cleared by one of Xijin Ping Pong’s minions before publication? The Chinese play the long game and their tactics to achieve their ultimate aim are not always clear.

  • Paul Marks

    The European Union is despicable – and, sadly, the United States under “President Biden” will be very much like it.

    The People’s Republic of China will dominate a totalitarian international community – with the support of the pet corporations and so on.

    It is very unfortunate – but I can not see what can be done to prevent it.

  • Johnathan Pearce (London)

    Penseivat: I would add to your comment that the same goes not just for Hong Kong-based media, but for Hong Kong-listed banks, to give another example. HSBC and Standard Chartered (also listed in the UK, where they are supposed to be headquartered) both wrote gushing paeans of approval to the new national security law on Hong Kong last year, much to the disgust of some American legislators. The UK government barely raised a murmur.

    As Paul Marks says, at this stage there appears to be no great desire to take China on.

  • Snorri Godhi

    A 2019 German think tank report, entitled ‘20 Years of the Euro; Winners and Losers’, costed the single currency’s impact on individual states. From 1999 to 2017, only Germany and the Netherlands were serious winners with the former gaining a huge € 1.9 trillion, or around €23,000 per inhabitant.

    In all other states analysed the Euro has provoked a drop in prosperity, with France losing a massive €3.6 trillion and Italy €4.3 trillion.

    In the absence of a link to the aforesaid think-tank report, i assume that the above figures refer to trade imbalances. Should they be taken seriously? Not sure about that. After all, when the Germans and the Dutch have a positive trade balance with France & Italy, that means that there is net investment from Germany & the Netherlands into France & Italy. How is that a bad thing for France & Italy? (Although i can see how a negative trade balance with _China_ can be a bad thing for France & Italy, or any Western country for that matter.)

    And that is not to mention the high inflation rate in Italy pre-euro. Good for exporters, but very bad for the common people. Who does the think-tank care about, exporters or the common people?

  • mickc

    Yes, the much missed Nick Ridley; the best Chancellor we never had, unfortunately.

  • Rich Rostrom

    For the EU to “collapse”, there has to be a process for that, people to execute that process, and motive for those people to do that.

    The process could be withdrawals declared by national governments, which are not going to be abolished. (I can think of only three historical events comparable to such a restructuring of the EU: the replacement of France’s provinces with departments, the mediatization of the Holy Roman Empire, and the realignment of Germany’s “Lander” after WW II. Two of these were largely imposed by foreign occupiers.)

    However, in the “managed democracy” of modern Europe, I don’t think any nation could elect an exiteer majority to its legislature. There might be regime change by revolution, but who would organize and lead the Revolution? Pretty nearly all such people are assimilated into the EU itself.

    It might happen by mob actions under conditions of extreme physical hardship. When people are literally starving or freezing, they may spontanously rebel en masse. But conditions must be so bad that social order dissolves as on a sinking ship. And with modern technology, it will be very hard for conditions to get that bad.

    Or foreign invasion: the Empire of Diocletian survived for over 150 years, until it was invaded by the Goths. I don’t see any external physical threat to the EU. Mass migration from Africa and the Near East may swamp the existing state power structure by sheer numbers, but that will take at least 25 years. A lot of the migrants are assimilated into that power structure, often corrupting it, but not “collapsing” it.

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