Brexit, Part II: Faith in Oneself

brexit two flagsThe folly of the Euro has been discussed ad nauseam. For our purpose, let us just look at the outcomes: Far from harmonising, the most efficient economies, the newly reunified Germany to the fore, reaped the benefits while the least efficient economies, led by France, were left horribly exposed when the whole house of cards collapsed after the financial crisis of 2008. Trying to run a currency union by relying on monetary policy and adherence to the rules alone was always an ill-starred project. Interest rates that suited historically stable German deutschemarks were never suitable for Italy and their inflated Lire.

Where did this leave the EU? Paralysed. The Franco-German axis has tipped. It used to be Merkozy[1], now it’s just Merkel. Her CDU party hold the balance of power in the European Parliament[2]; she herself dominates the Council of Ministers, leaving just the Commission. Their own frustrations with the supposedly democratic arms of EU government were neatly summed up by Commission President Jean-Claude Juncker, back when he had to worry about such things, quipping, “We all know what to do, we just don’t know how to get re-elected after we’ve done it”[3]. While the Euro crisis unfolded it became increasingly clear that Angela Merkel was the de facto head of the EU and that the énarques had become little more than her EUnuchs while she cautiously adopted a Grand Wait & See policy.

The status quo, before the migrant crisis at least, suited Merkel very well. Like France pre-enlargement and the Euro, Germany benefits the most from the state of affairs. While the governance of Europe was French, the finances are quintessentially German. The new Members to the east have cultural and economic ties, smoothing their path into the German supply line. Historically however, Germany has never been powerful enough to completely dominate Europe and she is uncomfortable in the role now. The old German Question has resurfaced, namely: How does she deal with the lesser powers surrounding her? Fortunately, while a hundred years ago the question revolved around the military, nowadays it’s the economy[4]. Germans increasingly resent having to pay for the weaker Members who share the Euro and worry that they will club together to make them do so. They themselves see Germany’s trade and budget surpluses rise while theirs’ seem to fall in an inverse proportion and resent German economic growth at what they perceive as their expense[5].

The Euro crisis has brought up all the old European fault lines and the EU’s reaction to the migrant crisis has only deepened those divisions. After trying to ignore the crossings into Italy, the numbers choosing the much shorter route into Greece has led to extraordinary measures. While the Commission came up with a plan to distribute the refugees equally among Member States the Balkan nations, followed by the central European ones, put up fences with an alacrity that Donald Trump would envy. The EU’s passport free Schengen zone has effectively been ended[6] and while the Commission has tried its usual pan-European model that only answers the questions nobody else is asking, the Member States typically fell out over it. Merkel’s response was, against all European treaties, protocols and conventions, to invite a million into her country with no concern as to how they would get there. In doing so she has alienated her central and eastern allies.

The Brexit Countdown: Part I

The rights and wrongs of the migrant crisis will not concern us here. The British model of helping refugees closer to their homes seems eminently sensible if one is furthest away and has a moat to hide behind. The EU has fewer options and little experience in implementing them. The effects have been added political unrest amongst the citizenry and threats to social order unseen in the EU’s, but not Europe’s history. Merkel’s policy, while undoubtedly heartfelt, has undermined her authority and led to a rise in support for ultra-nationalist and xenophobic parties. Her recent Turkish deal and the backlash over the prosecution of the German comedian Jan Böhmermann, who dared exercise his right to free speech by insulting the Turkish president, has diminished her further.


The Empire Strikes Back

Merkel’s loss is the Commission’s gain. The Five Presidents’ Report[7] plots out the short, medium and long-term future of the EU. Progress must be made “towards a genuine Economic Union” – building on that “successful and stable” currency; “towards a Financial Union which “increases risk-sharing with the private sector” – does anyone remember Moral Hazard? “towards a Fiscal Union” that somehow will deliver “fiscal sustainability” and “fiscal stabilisation” – or in other words, “harmonised” (high) tax rates; “finally, towards a Political Union” that will give the proceeding Unions “legitimacy” – which in the UK is known as the ‘Cart Before the Horse Strategy’. It promises to do all this by creating several new layers of bureaucracy with undoubtedly untold numbers of committees to help form new “Authorities” within Member States to help them towards “harmonised policies”. These Authorities would then form various “Boards” which would then work with the other EU institutions to achieve “convergence and further pooling of decision making on national budgets”. It also looks at “significant policy areas” such as “digital and capital markets” which as yet the EU has not stuck its beak into. The idea of a “Euro area treasury” is also floated. Buried at the back in Annex 3 (on the last page, where else) it has the almost obligatory catch-all that not withstanding the above the Commission reserves the right to ignore all the new levels of bureaucracy and Boards which represent Member States, so long as it can explain itself. To whose satisfaction it must justify its actions is unclear. What the report, and the whole Euro elite for that matter, seemed to have missed in building their harmonious ‘United States of Europe’ is that the United States of America works because traditionally there is variety between the states; if you don’t like the tax or regulatory regime in New York you can move to Texas…

The Report also helpfully clarifies: “The euro is more than just a currency, it is a political and economic project”. The remorseless logic of this project means the EU needs to integrate further. To become more German, less French. To work harder, retire later. To pay more taxes and accept more meddling regulations. How do you sell that to an increasingly sceptical European citizenry, many of whom enjoy the less productive life that will not be possible in the future? Why by fait accompli of course.

The political deadlock in Europe has led to an ‘Age of the Technocrats’. Central Bankers such as ECB[8] head Mario Draghi, one of the five presidents who authored the report, have been charged with doctoring the patient while they’re on life support. However all the technocrats can do is use monetary policy to set interest rates and print money[9]. The surgery needed can only be carried out by policy makers yet they are either too timid, too weak or too beyond the pale to reach any working compromise.

At this crossroads of the EU’s history the French are being eclipsed by their German partners. Germany itself feels surrounded by weaker economies and is unsure of its leadership role. Western Europe is threatened by its low birth rates into accepting levels of migration that raise questions of social cohesion and possibly the integrity of the Union itself. At this juncture the UK asks the ‘Brexit’ question.


British Exceptionalism

In many ways Britain has already diverged significantly from the rest of the EU. It is not part of the Schengen zone or the Euro, the two wheels of the EU bandwagon spinning out of control because the cart was improperly hitched. While this has shielded Britain from the immediate effects, they cannot be escaped indefinitely. Whether through higher budget contributions because the economy is doing better relative to the Eurozone’s or in greater numbers of people wishing to move to Britain for the same reason, there is no say in the matter, those are the rules. One is tempted to ask where those rules were when Merkel unilaterally opened the EU’s borders? Or what rules were in place to stop the excessive borrowing of Eurozone Members and why were they broken by France and Germany precipitating the Euro crisis? Why those rules mean that since Britain adopted the inclusion into GDP calculations of black market activities such as prostitution and drug abuse, in line with some continental friends, EU budget contributions have gone up? The inescapable conclusion reached is that the UK’s willingness to follow the rules and the open nature of her laws and economy have been serially abused by the EU.

British opt-outs are often portrayed on the continent as a hangover from Empire. Those silly Brits still think they run the world and refuse to accept reality or some such nonsense. They are never seen as the common sense objections that they are, nor are they treated as such when all the evidence points to the wisdom of those decisions.

What the UK has undeniably shared with the rest of the EU has been high levels of ‘welfarism’ in the form of increasing state dependency. Again where they have digressed Britain has thrived with limited, though increasing, regulations in the labour market and resistance to mad French ideas such as limiting the number of hours one is allowed to work in a week. Unsurprisingly, the more driven members of the EU’s young and unemployed have gone to Britain to take advantage of this. Privatisation, with mixed results, has generally led to competitive industries innovating in ways state owned monoliths cannot.

This has placed Britain closer to the USA’s free market system in many respects. However America has recently followed the EU down the overregulated road. Indeed President Obama’s move to a more EU-style interventionist big government model makes him a natural cheerleader for the Remain campaign[10].  Many Americans are unhappy with the ‘anemic (sic) growth rates’ of their recovery under the Obama Administration at around 2%[11]. Well, if you’re going to have European spending and regulation then get used to European growth rates. Obama’s Secretary of State, John Kerry has echoed his warnings. This is the US’s highest foreign policy official and he sees the future as a “complex and borderless World”[12] which obviously only big government can regulate. It can only be concluded that it is a great shame that the heirs of Woodrow Wilson would deny even the right to self-determination for the British people.

For that is what a vote to remain is. A statement to the world that Britons are happy to be ruled from abroad by lawmakers they cannot eject, no matter their policies. While some have agreed with a previous US government[13] in predicting that the EU is doomed anyway and that the UK should not leave and precipitate its collapse; others see the European Superstate as inevitable and that it is at best futile to resist and at worst dangerous to leave. These are known as the ‘Lemmings Over the Cliff’ arguments. Some claim Britain must stay within for fear of the reprisals the EU will deliver should they exit. This is often referred to as ‘Stockholm’ or ‘Battered Wife’ syndrome. A few starry eyed idealists also argue the UK should remain within to reform the EU into a free market or socialist paradise. Others still warn of the terrible economic costs; the short-term uncertainty and long-term decline. Some have even put it forward that as the Prime Minster is in favour of remaining…

With the greatest respect to Mr Cameron, the Five Presidents’ Report is the “more of the same” he warned would produce “less competitiveness, less growth, fewer jobs” back in his Bloomberg speech[14]. To be fair to the Prime Minister, everybody expected the EU would have to have a new treaty to solve the Euro crisis. Nobody predicted Merkel’s intransigence or that the Lisbon framework would prove so malleable to extraordinary circumstances. What cannot be denied is that the EU has proved itself unable to reform. The destination is set, the train may be stuck in the station but as soon as they find someone willing to loan them enough for the onward journey, they’ll be off. The recent deal is not worth the paper it hasn’t even been written on. There is little point in dissecting it here and as the Remain campaign have found it convenient to forget it, so shall we. However anyone who doubts the above statement go and watch Jean-Claude Juncker and Guy Verhofstadt[15] chortling at the sophistry needed to keep Britain’s exemption from Ever-Closer Union in line with the Lisbon Treaty, assuming the EU have not ‘regulated’ it by now of course[16]. The ‘Master of Lies’ and the ‘High Priest of More Europe’ have a great time comparing accommodating British demands to Belgian surrealism, “Ceci n’est pas une pipe.”

What if it works? What if somehow, against all historic precedent, a top-down, monolithic, overregulated, overtaxed, overspending and fast aging Continent determined to solve all the world’s problems before it can even make Belgium work, manages to make a successful Superstate out of disparate peoples of whom many have explicitly rejected such a concept? Well as trading partners, the view must be that rising tides do indeed help all boats. However if one ship is sinking the other can only deploy lifeboats, not lash itself to the hulk. When the house is on fire and the lunatics who run the asylum are arguing over the correct regulations on how many litres a fire-bucket should safely hold, one may think of heading for the exit. It may be dark outside but day often follows night and there will be the light from the fire in the meantime.

Do Britons trust themselves to make the best they can of this world? Or do they shelter from it behind the skirts of the big nanny on the continent? Do they trust their independence or do they trust that the Mother of Parliaments will not one day share the same fate as the birthplace of democracy or the city that gave the world its first Republic and enjoy an EU sponsored coup such as befell Athens and Rome in 2011? Whether you think the EU will collapse, survive or even thrive, the referendum now transcends that. It is now about what Britain says about itself.

[1] The slang term used to describe the partnership in the time of French President Nicolas Sarkozy. His successor, President Hollande, increasingly resembles Merkel’s butler as he stands to one side while she delivers a policy speech.

[2] The EU Parliament has many different groups whose membership comes from different nations. Of the 751 MEPs, those who are in favour of more integration to a greater or lesser degree reside in the Liberal Democratic Alliance group (ALDE, 70 MEPs); The Social-Democratic group (S&D, 190 MEPs); the Green-Free Alliance group (Verts/ALE, 50 MEPs); the Nordic Green group (GUE/NGL, 52 MEPs) and constitute 362 MEPs, or less than a majority, though the Parliament’s President Martin Schulz is from the S&D. Those opposed to further integration to a greater or lesser degree include the ECR group, which the British Conservative Party sit in (74 MEPs); the EFDD group, which is essentially an alliance between Britain’s UKIP and Italy’s 5 Star Movement (46 MEPs); the ENF group dominated by France’s Front National (38 MEPs). The biggest group, the European People’s Party (PPE, 215 MEPs), is led by German CDU MEP Manfred Weber (the CDU have the largest number of MEPs within the group at 34) with 16 independent MEPs making up the total. (Source http://www.europarl.europa.eu/meps/en/hemicycle.html). The PPE is not opposed to further integration per se but represents more national concerns than other groups to their left.

[4] See Hans Kundnani The Paradox of German Power 2014 for an analysis of the ‘New German Question’.

[5] While Germany has not always run a budget surplus, her balance of trade has nearly always been positive since the 1950s. France on the other hand has rarely run trade surpluses before a prolonged period in the 1990s (post Maastricht) and again for a briefer period in the 2000s. (Source http://www.tradingeconomics.com/germany/balance-of-trade and http://www.tradingeconomics.com/france/balance-of-trade). For a quick analysis of the French Economy see http://www.ofce.sciences-po.fr/blog/frances-trade-deficit-entirely-structural/ and https://www.stratfor.com/sample/weekly/french-conundrum for her geo-political dilemma. For the tensions created see http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/03-germany-trade-surplus-problem, http://www.wsj.com/articles/SB10001424052702303309504579185361910371956, http://www.telegraph.co.uk/finance/economics/10980824/Juncker-faces-political-test-as-fines-loom-on-illegal-German-trade-surplus.html, http://foreignpolicy.com/2015/02/20/its-time-to-kick-germany-out-of-the-eurozone/, etc.

[7] Completing Europe’s Economic and Monetary Union’ available at http://europa.eu/rapid/press-release_IP-15-5240_en.htm. Published 22nd June 2015, it builds on the seminal, well-remembered ‘Four Presidents’ Report’ of 2012. The author has not provided references. Unlike certain MPs (who may also be historians) the author has actually read the report and would urge everyone to do so. The bold type is the report’s own.

[8] The European Central Bank.

[9] Otherwise known as ‘Quantitative Easing’.

[10] A report for the Heritage Foundation points out that it is the Obama Administration and the UK’s membership of the EU that prevent a US-UK free trade deal, an otherwise simple bi-lateral deal given the similar nature of both economies (http://www.heritage.org/research/reports/2014/09/freedom-from-the-eu-why-britain-and-the-us-should-pursue-a-usuk-free-trade-area).

[11] See Bret Stephens America In Retreat 2014, Yuval Levin The Fractured Republic 2016, Daniel Henninger: “Barack Obama’s seven years of zero to 2% growth is killing the American public.” (http://www.wsj.com/articles/the-ryan-trump-summit-1463008193 or indeed any of the countless explanations for the support for ‘outsider’ Presidential candidates in this year) etc.

[12] Speaking at Northeastern University, May 6th 2016.

[13] The US government’s own National Intelligence Council sketched out a scenario where the EU could collapse by 2020 “The current EU welfare state is unsustainable and the lack of any economic revitalisation could lead to the splintering or, at worst, disintegration of the EU” – ‘Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project’, Published January 25, 2005 (pre ‘The Great Recession’).

[14] David Cameron, ‘Bloomberg Speech’, London 24th January 2013.

[15] A former Belgian prime minister, Guy Verhofstadt now heads the ALDE group in the EU Parliament. His solution to every problem is always further integration. Deeply against any British reforms, at the time of the Bloomberg Speech, he warned that this ‘Europe á la carte’ would be the end of the EU. He also has called for an end to all countries’ opt-outs from the Euro, Schengen etc. Strange then that he was so supportive of the ‘deal’ reached in February 2016…

  • Jody

    I hope the UK votes for Brexit. The idea of ‘one world government’ (EU and UN) is increasingly threatening to individual national sovereignty and few dare to speak up against their undemocratic diktat. We’ve had it here with the UN trying to tell us what to do about ‘asylum seekers’. Fortunately our government stared them down!!

    The Germans have history in inviting people from muslim countries in their country to work; without the Turks the rebuilding of Germany post WW2 would have taken decades. Now that Germany needs ‘population replacement’ they’ve resorted to their familiar immigration tic. Trouble is, Merkel is a child of the Communist government of East Germany and she spent her formative years behind an iron curtain. She shows scant understanding of how the real world works, and we shouldn’t be surprised given her history. And she is childless. As Niall Ferguson recently pointed out, the current Chancellor of Germany is childless as was the one before her. When people have no children they have no investment in the next generation.

    Everything Germany does is having negative impacts on the rest of Europe. I suspect the people of the UK are absolutely fed up with it. Good for them.

  • lloveday

    Would not have commented, but I got down to “…anemic (sic)..” and so, “beyond the pail [sic]”.
    Reminded me what a bugger English is; yesterday a young man texted “not much more than the doll”, and when I drew his attention to it, claimed he’d never seen “dole” written – and he’s got a rigorous bachelor degree.

    • Roger Franklin


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