The Problem is Still the Euro

As I have written before, my view last June when I voted to ‘Leave’ was that ‘Remain’ would win by at worse 60/40 and more likely 70/30 so I was as surprised as the next person to wake up that Friday morning and find that we had voted for Brexit. However and despite my expectations for being on the losing side, it wouldn’t have troubled me over much because my belief was and still is that the EU as we know it today, will not exist in 5 years time and the reason ?

Simply the existence of the Euro and the fact that it is so poorly constituted that even the countries that are part of the eurozone must question whether it is a good idea. The question today as we gear up for Brexit negotiations is whether the unreality and Alice in Wonderland world created by it, are already spilling over into those negotiations.

The Road Ahead

The current state of the Brexit game is that prior to anything happening with the negotiations, the game of leaking information to the media is in full swing with wild claims on all sides and even Mrs May putting a swipe in. Whether this ‘drama’ is a smoke screen to make pre agreed ‘solutions’ seem ‘magical’ as they are pulled out of the hat in due course, I don’t know but doubt it because the EU has always been an incompetent organization something that will not be improved by there being 27 hands on the tiller for this particular gig.

The EU has long since acquired a reputation for “muddling through” which is fair enough for many things where various parties will always have irreconcilable needs or demands but this never works on key issues where things need to be tackled head on such as in running a common currency. It therefore looks like the EU’s approach to Brexit is going to be ‘difficult’ but there is one certainty we must acknowledge going forward, leaks from the EU side will be a constant factor as there are 27 members and many with specific domestic agendas .

Those who contribute more to the EU Budget than they take out, will not want to pay in more to top up the missing €10 billion there will be on the UK’s departure but nor will those member states who get funding from Brussels, want to get less hence the “crazy talk” demands. It also means that throughout the negotiations, any one of the 27 may leak this detail or that at any moment in time if they think it might be better for them and their particular interests. Apart from the initial stages which will represent posturing on behalf of the EU collectively, later leaks whilst potentially embarrassing to the UK Government will be less aimed at the UK and more motivated by a particular country seeking to improve its position in Brussels.

It’s About the Money

The EU collectively completely underestimated the problem when David Cameron went to them with “renegotiation” of the UK’s relationship with the EU, they gave him nothing and were then shocked by the response at the polling booths. A more nuanced approach based on the fact that the UK being outside the eurozone and with no intention of joining it in the future, was always going to be a ‘peripheral’ member, an “accommodation” should have been made that kept the UK alongside and its contributions still coming in. That this most obvious thing didn’t happen can only be put down to smugness and complacency within the EU itself so that now, they have a €10 billion budget deficit to make up.

For all the froth, for the majority of EU members, the only ‘bad thing’ about the UK leaving is this budget shortfall which is why we have had various “divorce bill” estimates coming from who knows where of €50 – 100 billion which is total nonsense. However, nonsense though it may be, it does point to a repeating failure with regard to the EU and money, they just don’t have a sound grip on it or much understanding of it either. The “divorce bill” demands are childish, even if the UK Government was daft enough to pay the EU 10 years worth of member contributions, the EU would be incapable of dealing with it, all they would have done is kicked the can down the road. The problem would not be resolved they would still be spending the same amount of money rather than cutting back on it as would be logical.

The fundamental truth is that the UK will continue making budget contributions until the Spring of 2019 after which it will no longer be a member, I believe the current EU Budget cycle ends in 2020 so the UK as a good will gesture, may contribute for another years but legally there seems no reason that it should be liable for any payments after that unless it gets something in return. It is frankly an odd concept that the EU should demand money in order to trade with it and when people have time to collect their thoughts, why should the UK even countenance such a proposition ?

Back to the Euro

The fact that the EU and eurozone members couldn’t have dealt better with Greece than they did and instead crucified a country of only 11 million people, by itself should have made people realise just what a crock of shit the Euro is and how badly it is constructed. I suspect that the reason people haven’t called the Euro’s bluff is simply because investors globally are holding too many Euro assets and they would rather believe in the “King’s Magic Suit of Clothes” than accept the reality, “The King is in the nude !”

It is because of this that the only practical solution to the Euro crisis would have been for Germany to leave the Euro and set up a new D Mark currency. This should have been done some 8 years ago, the Euro would have devalued without Germany, Euro bond/asset holders would have taken a ‘haircut’ on the value of their holdings but would still be in the game and by now, strong economic growth would have returned to the eurozone, a tide that floats all boats.

Germany wouldn’t want to do this because it would increase the costs of their exports which are currently cheaper because of being in the Euro. Secondly, a devalued Euro they were no longer part of might bring with it industrial competition from France and Italy in those same export markets. Neither fear would have been realised because the quality of German exports could withstand a price hike and it would take an awful long time before France and Italy could even start to challenge Germany on grounds of product quality.

Conclusion

The fact that Germany did not lead a splitting of the Euro by setting up a D Mark zone must be written as a major opportunity lost and sadly, catastrophically so. The next moves will not be good because although much delayed, over the next couple of years, interest rates are likely to rise and that will wreak havoc on the weaker eurozone economies which is frankly most of them. The upheaval, blame and lingering resentment that this will generate will be long lasting and have a major impact on the EU as an organisation especially if Germany in self preservation mode then finally jumps from the Euro ship !

Frankly it is in the UK’s best interests to not still be part of the EU when that happens. As an island nation that despite the drivel of the SNP and Sinn Fein is still broadly homogeneous in terms of there being a political Demos, we can pull together to face the sweeping economic changes about to engulf the global economy. These pressures will require major social changes which cannot be accomplished within a narrow and hidebound collective such as the EU which by its nature lacks any flexibility let alone being fleet of foot when it comes to adopting change.

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