Thursday, 30 March 2017

Enemies at Home and Friends Abroad

The Steamer Waverley
Setting Sail
One might have hoped the UK's  triggering of  Lisbon Article 50 would at least put a stop to Cassandra-like prophecies of doom at home. Surely the country would come together to make the best of the situation, like it or not?

Too much to hope for, I fear. The Scottish Government still wants to undermine the UK's negotiators with plaintive noises off, while many Remainers seem far more anxious to be proved right than they are for the country's wellbeing.

It might help if Remainers remembered the referendum campaign featured a dodgy prospectus on both sides and that Leavers weren't all ignorant and gullible; in fact we included several high-powered economists. The surging exports and solid economic growth since last June don't really resemble the catastrophe Remainers predicted, nor was a punishment budget required.

Moreover it would make more sense complaining about the Brexiteers' failure to deliver if the Brexiteers actually controlled the government, which they don't.  When did Theresa May promise loads of money for the NHS?

Let us consider the two biggest projects of the EU. (Since we opted out of both of these, we could only ever have been peripheral members henceforward anyway.)
  • The Euro is an economic disaster which can't be admitted because of the political fallout that would result, so they just let it cause thirty percent unemployment and chronic financial crisis in southern Europe instead. If we lived in Greece we might learn what it really means to have something to feel pessimistic about.
  • The Schengen Agreement is collapsing under the weight of uncontrolled migration and frontier fences have gone up all over Eastern Europe.
I have said before that political will is not enough to support a project to link so many economies by a common currency. The fudging of membership criteria did not begin with Greece, it goes right back to the foundation of the single currency when Italy's debt was almost twice the permitted percentage of GDP and France only qualified for the fiscal deficit criterion by a one-off privatisation of Thomson.

The point politicians failed to appreciate then and now is that the Eurozone membership criteria were not mere inconveniences to be circumvented but genuine economic convergence indicators. If you link divergent economies by a single currency you deprive weaker economies of the disequilibrium-corrective possibilities offered by the balance of payments and by currency devaluation, leaving only rising unemployment to provide a quite inadequate escape valve.

This is why it is not just Greece that has experienced severe dislocation but also Cyprus, Italy, Spain, Ireland etc. Even France has suffered. Although Germany has seen benefit from an undervalued currency it is now paying the price in terms of ever-increasing transfers to the hopelessly indebted zone members.

Does anyone really think the EU will return to being an economic powerhouse anytime soon? On the other hand outside the EU we have huge potential to develop new trading relationships with parts of the world that are enjoying rapid growth. The UK is not trying to make enemies or wishing ill to the continuing EU. We are simply seeking a wider circle of friends.

Though peevish voices in Europe may declare the UK must suffer 'pour encourager les autres' it is to be hoped that economic sanity will be allowed to prevail over political pique. Beggar your neighbour is not a good strategy for a continent that needs all the boost from trade it can get. 

And really - can they think of no better arguments for membership of the EU than to show how horrible they can make it for those who want to leave?

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