Reopening a can of worms?

At the moment, the papers, especially those of a remoaner persuasion, are full of positive news about the Eurozone economy.  In spite of the European Central bank’s programme of quantitative easing, which tends to reduce the value of a given currency, the €uro hit its highest level against Sterling since 2009 on 23rd August. The Eurozone manufacturing sector is doing well, with even the French economy showing signs of improving after a rather stagnant period.

So all looks rather hunky-dory across the water – or does it? As we have pointed out before, a number of underlying tensions lurk beneath the seemingly calm EU waters. Emmanuel Macron, the EU’s new blue-eyed boy, has not only seen a sharp fall in his popularity ratings in his native France, but looks likely to stir up West-East tensions following an attack on “social dumping” – the reduction in wages caused by the arrival in the west of large numbers of migrants from the former Soviet Bloc countries.  This desire to control the level of East to West migration is viewed by these countries as a form of protectionism incompatible with the Single Market.

Then the North-South divide could be rekindled soon if a recent statement by Spain’s Prime Minister Mariano Rajoy is anything to go by.  The Spanish government is keen to press ahead with closer fiscal and monetary integration within the 19-nation single currency bloc, calling for  Eurobonds, a  European Monetary Fund and a common Eurozone budget.

This move has the support of Germany’s Chancellor Merkel but not of many of her countrymen, who fear they will end up subsidising the weaker economies of Club Med. Luis de Guindos, Spain’s Finance Minister, said that Brexit, along with the election of President Trump, has pushed the EU and the Eurozone closer together, but given that this proposed deepening of integration within the Eurozone would require treaty change and thus reopen a can of worms, the net result could be the opposite.

Besides the hostility among the German public to Eurobonds, there is also the issue of countries outside the Single Currency Area. Poland, which has historically looked to the UK to be the spokesman for the non-Eurozone group, is concerned that closer integration among single currency users would lead to the formalising of a two-speed EU, which it has long opposed. Technically, all member states apart from Denmark (and, of course, the UK) are required to adopt the €uro after meeting certain criteria, but there is no enthusiasm to adopt the Euro in Poland, Hungary or the Czech Republic and given the tensions between these countries and Brussels over migration quotas, amendments to existing treaties – or indeed, a successor to the Lisbon treaty – is likely further to fuel tensions.

So while the improved performance of the Eurozone may perhaps take something of the sting out of the North-South divide which, after all, is primarily about economics, we need to remind ourselves that the EU has always been a political project. A drive to closer integration which leaves some member states on the outside could have highly unpredictable consequences.

 

North v South, East v West

Cast your eyes no further east than Berlin, Vienna or Rome and all looks pretty rosy in the EU’s garden. Apart from the shock of Brexit, most of the critical votes during the past year have gone the Establishment’s way. Even before our referendum, the Austrians set the scene by choosing a former Green party leader as President rather than Norbert Hofer of strongly eurosceptic FPÖ (Freedom Party of Austria). Now this year, the Dutch and French elections have not seen any breakthrough for eurosceptic parties and looking to the future, Germany’s Alternative für Deutschland (AfD) is losing support, with Angela Merkel looking unassailable while Italy’s Five Star Movement does not now look likely to make any sort of breakthrough when the country goes to the polls. It too may have peaked.

Meanwhile, the economic news looks positive. The €urozone is enjoying a decent recovery with deflation beaten and business confidence returning. After almost a decade of one problem after another, the EU does appear on the surface to have turned a corner. Frexit, Iexit and other variations on the same theme don’t take up many column inches now.

In actual fact, one other country would vote to leave the EU if granted a referendum – the Czech Republic. At the beginning of July, the Spectator Magazine published an interesting report on the state EU in collaboration with Project 28, a polling organisation.  47% of Czechs would vote to leave as opposed to 43% who want to stay. The country  is very much an outlier, however, as the next most anti-EU country, Greece, would vote to stay in by 54% to 39%.

Scratch beneath the surface, however, and the picture isn’t so positive. Some 41% of Italians, 32% of French an 28% of Germans do not think that the EU in its present form will still exist in 10 years’ time. What is behind this sentiment? – or to put it another way, what are the most likely causes of conflict within the EU, causing it to splinter?

Firstly, the €urozone’s overall improved economic performance conceals real problems within individual countries. Youth unemployment is still over 40% in Spain and 45% in Greece. Italy recently bailed out two of its banks and, along with Spain, the overall indebtedness of its country’s banks increases while the net credit of German banks is also increasing. Such imbalances within the Single Currency area have the potential to cause problems if uncorrected. Furthermore, any push for closer political and economic integration within the €urozone would risk reopening old wounds when they have not had long to heal. Club Med is still resentful of Germany, whereas German taxpayers will not want to subsidise what they regard as the profligate and lazy southern countries.

More destabilising than the north-south divisions, however, are the east-west tensions. The Spectator claims that Hungarians have little appetite for “Hexit”, with only 15% of voters wanting to leave the EU. Viktor Orbán, the country’s leader, is a frequent critic of Brussels, however, He is no enthusiast of further integration and according to a piece in the Guardian, “he doesn’t want to leave the EU; he wants to subvert it, which is far more dangerous.”

The refugee crisis has inflamed East-West tensions. Hungary’s initial opposition to accepting large numbers of immigrants was worded roughly along the lines of “we’re not ready to accept immigrants; our country is still rebuilding itself after years of subjection to the Soviet Union. Come back in 20 years’ time and maybe we’ll be able to handle the sort of multicultural society you have in the West.” Now the rhetoric has hardened. Orbán doesn’t want multiculturalism now or ever and has announced that his country will offer a home  for “Germans, Dutch, French and Italians, terrified politicians and journalists who here in Hungary want to find the Europe they have lost in their homelands.” In the same speech, he also attacked political correctness while elsewhere, he claimed that Europe’s Christian identity was under threat from Moslem migration.

It is quite clear that there is a vast difference between his vision of the EU’s future and that of Macron and Merkel. “In 1990,  Europe was our future, now we are Europe’s future,” he said on another occasion. Meanwhile, according to one blog, in the Czech Republic, the country’s parliament has voted to enshrine in its Constitution (subject to Senate approval) the right for its citizens to carry arms. The reason for this seemingly drastic measure seems to be a concern about the possible problems which migrants might cause. The blogger wasn’t able to provide too many sources of information and any extra detail about this surprising development would be welcomed.

Such attitudes are light years away from the pathetic defeatism of Sweden’s former Prime Minister Fredrik Reinfeldt, who said that his countrymen were “boring”, going on to rubbish his own country to an incredible degree, claiming that “only barbarism is genuinely Swedish.” Well, the Swedish Vikings were a pretty rough lot a thousand years ago, but since then, European civilisation, including Sweden , has much of which to be proud. Is he unaware of the heroic efforts of Sweden’s king Gustav II Adolf who played a huge part in saving Europe from barbarism in the Thirty Years’ War? Or the great Swedish botanist Carl Linnaeus whose categorisation of plants into different genres is still the basis of botany today?

It is quite unbelievable for any western leader to be so dismissive of  his country, but although perhaps the worst, he is far from unique. Douglas Murray’s book The Strange Death of Europe claims that the entire continent is “weighed down with a guilt for its past.”  While his arguments are persuasive, they hardly apply to the former Soviet bloc countries like Hungary and Poland who are proudly patriotic and defensive of their culture after years of subjection to the sterile ideology of Marxism-Leninism. There doesn’t seem to be much evidence of guilt in the utterances of Mr Orbán nor indeed, in those of Poland’s most influential politician Jarosław Kaczyński.

Furthermore, we are not talking about a straight west-east split. I am sure that many people living in Western Europe probably sympathise far more with Hungary, Poland and the Czech Republic than with their own guilt-ridden political leaders. It is these leaders, however, who will be trying to drive European integration forward and if it is on their multicultural, self-loathing politically-correct terms, then Hexit, Czexit, Polexit may be on our lips sooner than you can say Jack Robinson.

 

Macron’s victory may create more problems than it solves

Emmanuel Macron campaigned for – and indeed, won – the French Presidential election on an unashamedly pro-EU platform. His victory was greeted with huge sighs of relief across the Continent. Rather ironically, however, his enthusiasm for the Single Currency and indeed the European project as a whole may have the opposite effect, as John Stepek pointed out in a recent edition of Moneyweek magazine.

At the heart of the problem is that when it comes to further integration within the EU and in particular, the single currency area, it is far easier to talk the talk than walk the walk.

A broad range of economists acknowledge that so many economically divergent nations pushing ahead with a single currency in the 1990s was far from ideal. If a monetary union is to work, fiscal and political union, while not prerequisites, certainly reduce the risk of a catastrophic failure. As it currently stands, the Eurozone is far from being an optimal currency area.

This is exactly the line Macron has been taking. In other words, as Stepek puts it, “He’s one of the rare pro-eurozone politicians who’s actually quite honest about the euro and the eurozone. He is calling openly for a much closer Europe. He reckons that Europe needs a common budget, a common banking system – effectively, a full-blown United States of Europe.”

Any French politician who has made such a proposal in the past has been fobbed off by Berlin with the curt instructions to put their own house in order first. Reforms to France’s generous pension arrangements, bloated public sector and short working week have been often proposed by a number of newly-elected Presidents only to be scuppered by tyre-burning, stone-throwing protesters backed by France’s powerful trade unions.

But just suppose Macron succeeds where his predecessors have come to grief. Even a streamlined French economy will take years to converge with Germany’s and then, what about Italy or Greece? Following Macron’s victory, the headline in the Bild newspaper, which Stepek describes as the rough German equivalent of the Sun, was “How expensive will Macron be for us?”

This is not just the heart of the Eurozone’s problem – it highlights a major stumbling block with the whole European project. Germany has been happy to be a net contributor to the EU’s funds via the EU budget. In some ways, it would be very churlish of the Germans to moan about this. Labour market reforms in the first decade of the 21st Century made German businesses more competitive and the single currency also made German goods relatively cheap in other Eurozone countries. Italy and Spain, habitual devaluers before adopting the Euro, have lost this option. Unable to weaken their currency and thus boost their export markets, businesses in these countries have failed to compete with the Germans.

The unemployment figures bear this out. Only 3.9% of working age Germans are out of work and youth unemployment was a mere 6.7% in March. The corresponding figures for Italy are 11.7% and 34.1%. Spain and Greece are even worse, with overall unemployment at 18.8% and 23.2% respectively and more than two out of every five young people out of work in both countries.

Closer fiscal union means that not only would German taxpayers be paying into the EU budget to rebuild the infrastructure of the former Soviet bloc countries, but they would be liable for the social security and pension benefits of unemployed and retired Greeks, Italians and Spaniards. At the same time, a banking union would increase German liabilities if an Italian bank went bust. In short, it would be all pain for the average German (who is doing very nicely out of the Euro) with very little gain.

But surely the gain would be the big step towards full political integration which has always been the goal of the EU project? We are now getting to the heart of a fundamental flaw in the whole federalist vision. The idea of an United States of Europe may have been appealing in the late 1940s when everyone was keen to find a format which would prevent another world war. The problem is that while certain intellectuals, particularly on the political left, have long had an internationalist outlook, ordinary men and women are far more attached to the concept of nationhood and ethnicity, even though they may not even be aware of how deep that attachment runs.

But the subject of fiscal transfers, along with the related issues of benefits and welfare, can be guaranteed to bring such sentiments out into the open. Even in the United States of America, there is considerable resistance in some states to a European-style welfare state – and significantly, the states in question are the most ethnically diverse. It seems to be hard-wired into our nature that we are more willing to make sacrifices for people who are “one of us” than for people we perceive to be different.

A German, whose public sector employees have to work well into their 60s, is therefore unlikely to take kindly to subsidising the pensions of Greek public sector workers, many of whom used to retire in their 50s. But Greek austerity is biting impossibly hard. At our Annual CIB rally, Ambassador Chrysanthopoulos told us that his own pension had been cut from 3,400 euros per month to 1,200. If the recently announced cut of a further eighteen per cent applies to him, he will be down to under 1,000 euros a month – and he reckons himself lucky! So real hatred for Germany is building up in Greece, as is impatience with Greece in Germany. The German people may yet find the price of European empire too high while poorer Greek households on the most basic social security are currently receiving around 8 euros per household (not per person) per day. So starvation stalks the land – all in the name of building a European superstate.

An extreme example? Perhaps, but it illustrates graphically the challenges which Macron’s election has brought to the surface. How deeply does the average German, Greek, Frenchman, Swede, Pole, etc  – as opposed to an intellectual or a politician – really love the EU? If the depth of love of the rank and file isn’t strong enough to transcend ethnic and cultural divisions or to be willing to endure financial deprivation and extreme hunger, the only question which Macron, Merkel or their successors will need to consider is how the whole EU project can be put peacefully to sleep without a total political and economic catastrophe.

Photo by Lorie Shaull

EU unemployment could be higher than the official figures

A study by the European Central Bank has suggested that the real level of unemployment in the European Union may be higher than the official figures.  If the numbers of underemployed and unemployed people in the Eurozone are added together, it apparently amounts to between 15% and 18% of the total workforce.

France and Italy in particular have not seen the slow recovery within the Eurozone translate into reduced levels of unemployment. Bert Colijn, a senior economist at the Dutch bank ING, estimates that in Italy, the total of the underemployed and unemployed may be as high as 30%.

In total, five million jobs have allegedly been created across the EU since the 2008 financial crisis, but many are part-time or temporary. This means that wage growth is pretty anaemic in many EU member states.

This report, if true, paints a very bleak picture indeed for some EU member states, as the official data is pretty grim. The youth unemployment rate in Greece stood at 48% in January. In Spain, it hit 56.1% in April 2013, but by March 2017, it had fallen to 40.5% – still two in five young people. The figures for Italy and France were 34.1% and 23.7% respectively. By contrast, in Germany, the figure was 6.7% and the overall unemployment rate a mere 3.9%.

These figures highlight the flawed nature of the single currency. The Germans insisted on a “strong” €uro as the price for surrendering the Deutschmark. They have ended up gaining a very profitable export market for their goods on their very doorstep. Meanwhile, the Mediterranean countries are suffering.

Given that, on the one hand the current state of affairs is going to continue to keep unemployment high in these countries while on the other, Germany would have considerable say in any moves towards further integration within the Eurozone, the prospects for their struggling neighbours to the south are unlikely to  improve any time soon.

That BBC Documentary

As a post script to our piece last week discussing the problems which the EU is currently facing, a number of people have drawn our attention to Katya Adler’s documentary “After Brexit: The battle for Europe“.

The BBC has been in the firing line of groups like the Campaign for an Independent Britain for a long time because of its pro-EU bias –  a bias which dates back to the years when our accession talks were still ongoing, so it was understandably quite a shock to watch the Corporation’s own Europe editor travelling round Europe in a documentary which openly acknowledged the challenges which the EU is facing  in the wake of the Brexit vote. Miss Adler called our departure just “one crisis among many” as far as the EU is concerned and certainly, if one takes the documentary at face value, she is correct.

The progamme features interviews with several euro-critical politicians of varying shades of opinion, including Beppe Grillo in Italy and Marine le Pen in France. Miss Adler also travelled to Hungary to interview  László Toroczkai, the controversial mayor of Ásotthalom, a town near the country’s border with Serbia, who has posted a controversial video warning migrants not to enter his town – totally in disregard of the EU’s fundamental principles, but very much in line with the stance of his Prime Minister, Viktor Orbán.

The prevailing picture painted by the documentary was of an EU caught in the crossfire of several different, albeit interlinked, opposition movements. In Italy, the €uro is the main gripe, whereas in France, an historic bastion of protectionism, globalists are being challenged by what Marine le Pen calls “Patriots”.  Hungary, along with its Visegrád friends, is proclaiming in no uncertain terms its opposition to immigration and multiculturalism.

Of course, Marine le Pen’s Front National is every bit as opposed to immigration – at least Moslem immigration – as Hungary’s leaders while Germany’s Alternative für Deutschland – whose Deputy Leader Beatrix von Storch was among those interviewed by Miss Adler – is as unhappy with the €uro as Beppe Grillo’s party in Italy.  Yet these interwoven strands do seem to have put the EU into something of a stranglehold. Miss Adler finds herself drawing a conclusion which would have been dismissed as poppycock ten years ago:- “Europe’s decision-makers face an unprecedented challenge. Our thorny national debate about Brexit could turn out to be irrelevant. Sooner or later the EU as we know it may no longer be there for us to leave.”

Not everyone agrees, Guy Verhofstadt, the ex-Belgian Prime Minister whom she interviewed in Brussels,  sounded very upbeat. He pointed to a rise in support for EU membership in, among other countries, Denmark following the Brexit vote. “A counter-revolution is under way” he said, while reiterating the classic Europhile mantra for solving Europe’s problems:- “We need to work for closer union.”  Federica Mogherini, the EU’s “High representative” for foreign affairs, also sounded very positive, calling the EU ” a miracle” and claiming that as an institution, it remains “indispensable”.

A more sober assessment was provided by Martin Schulz, the former President of the European Parliament. Although every inch as much a Europhile as Verhofstadt or Mogherini, he bluntly stated that “the risk that we  fall apart is very real.” This is a far more realistic assessment of the situation. Gone are the days when the EU project was regarded with admiration by other countries and continents. To quote Miss Adler again, “Few Europeans are happy with the Union the way it is now. The cry for change is deafening. As is the demand for less bossiness from Brussels. EU power-brokers have a choice: to sink or swim differently, and more in harmony with what the people of Europe want.”

This is the crux of the matter. The EU has been doggedly pursuing its building project of a single European state by means of “ever closer union”. The political problems of its currency union, the blatant violation of the Schengen agreement, a smouldering resentment of the power of the institutions in Brussels and growing hostility to its embrace of big multinationals and political correctness cannot be addressed by just carrying on with the same agenda – Mr Verhofstadt’s solution to the  problem. The question is whether it is possible to change direction quickly and radically enough to avoid being swamped by the rising tide of hostility to everything which Brussels represents.

We have reached the point where the EU’s usual “muddle through” approach to crises is no longer adequate. Furthermore, the recent utterances of people like Verhofstadt, Juncker and Mogherini do not suggest that the EU élite has the ability to “think out of the box” which is needed if the EU is to survive in anything like its present form. No doubt critics will read this piece and say that it is nothing more than wishful thinking by a long-standing anti-EU campaigner, but the harsh reality is that it is nothing more than a précis of a documentary fronted by the BBC’s Europe editor  which happens to agree with her assessment.

Photo by motiqua

2017 – make or break for the EU?

The strong UK economic performance in the second half of 2016 defied the gloomy predictions of many economists. Nevertheless, these same people are determined to tell us that Brexit will result in economic problems in 2017 instead. According to a number of economists surveyed by the Financial Times, growth will slow markedly during the year. Well, we shall see. The fall in sterling will almost certainly cause a rise in inflation, but worst case estimates put the annual Comsumer Price Inflation figure at something between 2-4%, which in recent historical terms is not that high, albeit not terribly good news for consumers.

In spite of Brexit, however, it is events in a number of the other 27 countries of the EU which are likely to cause far more concern during the course of 2017. While the Eurozone economy is recovering, it is still not strong enough to manage without the Quantitative Easing programme which the European Central bank began in early 2015. Italy in particular is looking very wobbly. It is estimated that 18% of all loans made by its banks are “non-performing” – in other words, are highly unlikely ever to be repaid.  These amount to a staggering €360 billion in total.

Furthermore, outweighing the economic concerns is the political scene. This year will see general elections in France, Germany, the Netherlands and the Czech Republic and possibly Italy. The likelihood of parties from outside the “mainstream” making significant gains or even ending up in power has been widely reported (See for instance here and here.)   Indeed, Mark Blyth, an academic based at Brown University in the USA, has predicted has predicted that the EU will cease to exist by the end of this year.

As James Forsyth wrote in the Spectator article mentioned above, however, “The British, it is said, always underestimate the sheer political determination to keep the European project moving forward.” Perhaps he has a point. Many of us who campaigned for Brexit regard the whole EU project as at best misguided and at worst, simply daft. Both during referendum debates and in articles for this website, I have publicly declared “I wouldn’t wish EU membership on my worst enemy”, but is this a sentiment confined to a minority of people in one country which has never been that keen on the EU project anyway?

Certainly Angela Merkel in Germany still exhibits the determination of which Mr Forsyth speaks. She reiterated her belief in the European project only a couple of weeks ago. “We Germans should never be deceived into thinking that a happy future could ever lie in going it alone nationally”, she said in her New Year message.

Meanwhile the Slovak Prime Minister, Robert Fico (whose surname, out of interest, should be pronounced “Feet-so“) has urged member states to stop their “adventures” – in other words, holding referendums on domestic issues  – because they “pose a threat to the EU.”

What will we do if … there is a referendum in Italy on the euro and Italian citizens decide they don’t want the euro?” he asked. What indeed?

On the surface, it appears that Mr Fico is singing from the same songsheet as Frau Merkel, but scratch a bit deeper and it very apparent that the former Soviet bloc countries, while seemingly committed to the EU, have a rather different idea of the way forward. In Poland, for instance, Jaroslaw Kaczynski, the leader of the governing  Law & Justice Party, has called for a new EU treaty in the wake of Brexit which would stop, if not reverse, the flow of power from national parliaments to Brussels. “We need reforms which clearly define that the EU is an association of national states and that national states are the foundation,” he said.

These words are hardly in the spirit of the “Ever closer union” from which David Cameron sought to exempt the UK last year – and it needs to be remembered that this phrase goes right back to 1957. It features in the preamble to the Treaty of Rome which was the treaty which launched what has become the European Union. It is a foundational concept to the whole European project.

Kaczynski is often labelled “Eurosceptic” as is his Hungarian counterpart Viktor Orban. Whether or not this is an accurate label, there is no doubt that their vision of the EU is vastly different from that of the Western European leaders 20 or so years ago. Indeed, according to Martin Schulz, the outgoing president to the European Parliament, the attitude of these men has hamstrung the entire EU project:- “The generation of [Helmut] Kohl and [François] Mitterrand travelled to Brussels with the attitude that a strong Europe is in the interest of our country… The [Viktor] Orbán generation says ‘we have to defend the interests of our country against Europe’ – as if they were being attacked by Brussels.”

Schulz went on to defend both the €uro and the eastward enlargement of 2004, even though both have created enormous problems for the EU. The former has brought Greece to its knees and has given Italy a “lost decade” economically, the latter has brought in a group of nations whose outlook on life is very different from the mindset of Herr Schulz or his Chancellor and are none too keen to change.

It could be that Mr Forsyth is right and that, in spite of both the misery the Single Currency has caused to several Mediterranean nations and the opposition to multiculturalism, social liberalism and various other -isms in Eastern Europe, the EU will muddle through. On the other hand, throw into the mix the forthcoming General Elections and the fact that 2016 did not turn out as the “experts” predicted and  it would be a brave man who would bet his money on it.