The future of “Europe”

In some ways bringing nations together … or not … is a bit like marriage guidance – yes some couples are deeply romantically attached – but you just know they have such different attitudes to money, etc. that they’ll never stay together.

Likewise, the “United Europe” is a lovely romantic idea – but that relationship works when European countries are “just friends” but problems start when they try “sleeping together” and there’s no way the “marriage” will ever last between countries like Germany and Greece.

Unfortunately, entering the single currency was akin to marriage in the sense that currencies force economies to co-habit and share financial responsibly for each other. And like marriage there are many ways to create one financial union between two (or more) partners, but it always involves huge give and take which puts a massive stress on those involved.

In reality when it comes to large superstates, you are either forced to become a single state (like USSR, China or other models imposing central control) OR you move to the US model where you allow massive inequalities to grow with no welfare etc to force poor people to move to find work or starve.

The key problem is divergent economic growth. That is not a problem immediately, but it grows with time.Think of it this way – if you have a convoy of boats travelling together, even a small difference in speed eventually grows to a considerable gap. So in order to keep them together the convoy master must effectively get the fast boats towing the slower ones. But that will only be acceptable to those in the faster boat, if those in the slower boat are working hard to catch up and not sun bathing on the decks allowing themselves to be towed along.

But the problem for economies is greater. Because divergent economies tend to diverge at ever growing rates within a single currency. The reason is because workers are very reluctant to accept different pay rates (particularly with strong labour laws). This creates a vicious cycle. Workers in less productive economies (so less attractive to business) demand the same rates as workers in more attractive economies and so price themselves out of work. So, economies falling behind have higher unemployment. This results in lower government tax income, which then results in less investment into economic infrastructure, so they are even less attractive to business and this means less well performing countries in the same currency tend to spiral into economic decline in a single currency. In contrast, countries doing well, have larger amounts of tax income which then then tend to invest in making their economies even more economically attractive. So better performing countries tend to find themselves in a virtuous spiral. Thus the rate of divergence tends to increase.

This is why we in the UK have the “Barnet formula” a formula that gives far more money to Scotland than otherwise. This transfer payments – tends to transfer money from the SE (boosted by bigger gov. spending) to Scotland (where gov. job creating spending is lowest due to its distance from government in London).

The result of the barnet formula is to keep Scotland from lagging too far behind England and to stop the economies diverging too rapidly. Because when economies diverge we not only get problems of massive migration down to London – but also it tends to promote extremist parties.

But anyone who understands the Barnet formula knows that this payment causes a lot of resentment even in the UK where Scotland and England are not that divergent economically and we share 300 years of joint history.

So, the idea that such massive payments will work in the far more divergent cultures and economies of the continent are laughable. The alternative approach would be to follow the US pattern. To use the England Scotland example, there would be little in the way of transfer payments in the form of “Welfare” creating. This would be allowed to create great disparity between e.g .England and Scotland … with the result we’d expect to see the start of another mass emigration from Scotland to London & abroad.

So, instead of London government paying people to stay in Scotland – it could just allow the economy to find its own balance like the US. So people would be forced to migrate to where there are jobs such as in London. This increases demand for houses, reduces farm & factory land meaning people & produce have to commute increasing the cost of living in London. This then tends to stabilise the disparity because it results in an informal transfer system developing. People earn money in London – but because they commute, they spend it outside. And particularly when people retire (or go on holiday), it is cheaper and usually a better quality of life if they move to areas not performing so well and this injects large amounts of money into the economy.

But the traditional approach throughout Europe has not been the low welfare system of the US. Instead, the UK & national European model has been for high welfare levels and large government spending that evens out economic growth. That works when those involved see themselves as “one” people. But even the small division between England and Scotland is enough to create resentment.

So, there is no way on earth the Germans will ever tolerate something similar to a “Barnet formula” for Greeks, nor will the Greeks tolerate Germany having the same kind of control the English have had over Scotland. Even Ireland couldn’t tolerate that kind of interfering by England it’s long term neighbour with so much in common … so there is no way on earth the “Barnet formula” will work across Europe.

So, what can be done? Greece and Germany are just the most divergence economies – but every economy diverges – so Greece and Germany are just the extremes of the spectrum and so the first to experience the extreme effects of divergent economies. But sooner or later all economies will reach the same scale of divergence. At that point they too will have to bite the bullet of German style imposed “work ethic” (to be frank: “Arbeit macht frei”) or leave the EU. (The alternative is to impose massive economic “penalties” on faster growing economies like the Germans to slow them down – which for obvious reasons will be equally disliked).

The original concept of a “loose alliance” of countries was a good one. Unfortunately – as with so many things – stupid Utopian politicians then pushed for closer and closer “single state-ism”. The result is a disaster because now we have a bag full of massively divergent economies all stuck within the Euro which suits only a very few economies whose economic growth fit the (current) value of the Euro. But as each year of even marginally different growth, adds to the divergence, the stresses grow year upon year. So in order to be in the single currency, they have to keep national economies economically aligned, the EU must slow down growth in the fast growing countries and boost it in the slower growing.

That will be most unacceptable to those countries who least feel part of “Europe”, and clearly England has already reached the point where the small benefit of EU trade is not worth the lost of its social and economic diversity from Europe.

There is no doubt England will leave the EU soon (relatively).

That will either happen at this brexit vote with the support of Scotland – or given the way the “EU floozy” is flirting with Scotland – Scotland will  “jump out the marriage bed” to the “greener grass on the other side of the fence” … and after Scotland goes for independence (and the SNP take us into the Euro). There will be a clear majority for Brexit for England (taking Wales and NI).

The result will be that Scotland will then be massively worse off having lost barnet and lost its preferential trading position with England. But worse, because Scotland will be part of the EU – it will be unable to reach its own agreement to resume trade with England (That is after all the whole rational of the EU!).

But UK exit, will undoubtedly trigger an economic crisis in the Eurozone (if it hasn’t happened before) with Greece leaving the Euro and possibly followed by others. And given past performance, Scottish politicians would be stupid enough to try to join the Euro just at the point it is collapsing causing even more economic problems in Scotland.

Basically, even if Scotland gets independence, it is certain that the economic problems after independence will trigger calls to rejoin the UK. And likewise Ireland will have problems.

None of this is what anyone “wants to happen” – instead this is just what will happen by economic and historical logic: the closer politicians try to tie the EU together – the more it forces upon its members a single culture and economy which will not fit – and the less well it fits the more countries less like the “EU norm” like the UK want to exit.

SOLUTIONS

  1. To get rid of Euro, much of the EU machinery and return to something more akin to the common market – this is the ideal solution, but it will be strongly opposed by the Utopian EUrocrats and benelux countries who want to be a single state.
  2. To impose Nazi/communist-style “unity”: impose central control, impose a single legal system, impose common language and culture, manufacturing a new “European history” to replace local national histories and impose a state religion – something that most people who support the EU would oppose but paradoxically this squashing of separate identity is something that is already happening.
  3. To create a US style single economic unit with next to no welfare system and thus put the burden of “economic alignment” on individuals who would be forced to migrate within Europe to find new jobs when economies fall behind. This also requires strict border control, something easy in the US where the only problematic border is Mexico, but next to impossible with the EU – again this would be opposed by those most who support the EU, but in some sense it is already happening with mass immigration from Poland and Hungary. What has not yet happened, is that countries like the UK will then have to reduce welfare levels to the lowest common denominator!
  4. To get out – run national affairs on a country by country basis without all the problems of integrating into a large state.

Likely outcome

Two decades ago at the Time of Thatcher, the writing was already on the wall for the EU. Because it was patently obvious that the core countries wanted a single European state, and it was equally obvious that Britain did not want to be part of such a state. Yet despite, these clearly opposing needs, the EUrocrats continued on relentlessly. Nothing the UK does will stop this suicidal move to impose a single state (on countries that will not stomach it). So it is very clear that nothing the UK does (and certainly no “peace in our time bit of paper from Cameron”) will slow down the march toward an imposed single EU state.

So, the public will vote Brexit – if not this time – then certainly the next.

The SNP are dead set against Brexit for one very simple reason: even though they will never admit it – the only way they can have “independence” from England, is if England is also in the EU. Likewise Ireland is dead set against it – because they know that if the UK is outside the EU they will have to formalise a close relationship with the UK (although not formally political union) – and that will not be possible if they too remain in the EU.

However, with the impending collapse of the Euro, the bigger question is what future there is for Ireland and Scotland (if it separates from England) in the EU rather than what future there is for England (Wales & NI) outside. Because sooner or later the whole EU is going to fragment. We can even estimate the time. If Greek divergence was enough in ~15 years – then give it another 20-30 years and the divergence between the top and bottom performers will be so great that a single economy is impossible.

And if history is anything to go by (as it usually is), the outcome will be a series of small country-to-country agreements with some larger unions developing … which (on the continent where there are no obvious limits – as in “Eurovision song contest”) it will then grow and grow, until they too fall apart – sometimes with military action. Obvious one would hope that sensible politicians would avoid going to war – but the world does not have sensible politicians because no sensible politicians would ever have created the EU!

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