Monday, November 14, 2011

The Final Countdown

For all the talk of catastrophe and crisis and meltdown it is difficult to do anything other than look a little wryly at the current problems within the Eurozone (the seventeen countries that have adopted the Euro as their currency) and the consequences for the European Union (the larger body of twenty seven countries) as a whole. The situation is, in most part, out of our hands and any amount of wailing and gnashing of teeth and protesting will have little or no effect.

The EU was initally formed in 1958 and has since then steadily grown by adding new member states and increasing its powers within those states. What was initally intended  to be a group of nations which would relax trade laws and movement of peoples between each other in order to reduce bureaucracy has grown into an organisation that's ultimate objective is, loosely speaking, The United States of Europe. Some may disagree with that statement but it is the nature of bodies such as this that their role, functions, responsibilities and powers must always increase.

I am, loosely speaking, pro European. Trade barriers have always seemed to encourage apathy within the country that imposed them because they just created inefficient domestic monopolies. Trade barriers between adjoining countries also invariably just causes resentment and wherever possible, people do their best to find a way around them. Restricting the movement of people between countries that share enormous borders has always been difficult and created foolish constructs such as the Berlin Wall. Some sort of European integration has always made a lot of sense.

Problems have arisen because European governments (and it has to be said, the USA as well), borrowed money throughout a period which they told their people was an unprecedented boom. Even in the good times, many countries could not sell more than they bought but credit was cheap and easy to get and, as long as "growth" continued, the debts could be serviced. People were encouraged to borrow using the relentlessly increasing value of their homes as collateral, to buy (mostly imported) consumer goods and luxuries which fuelled the "boom" even more. In the case of Greece, a lot of money went into creating a massive and well-rewarded public sector. Those public sector employees who could retire on generous pensions in their fifties knew who to vote for. Their votes had been bought.

When it all started to unravel, politicians were happy when most of the blame was laid on the bankers as it conveniently deflected any blame from them, but it's become increasingly apparent politicians were responsible for many problems wherein some countries massively mismanaged their finances believing the good times would never end. The loose morals and sharp practice of the banking industry may have triggered the crisis but it was the already weak financial position and poor anticipation of governments to plan for such an eventuality which exacerbated the situation.

Individual countries have seen the fragility of their economic models thrown into sharp relief. In the UK we have increasingly relied on a service based economy - that means we don't really make anything any more. Call it a knowledge based economy if you want - we hope to rely on being smarter than other countries, selling them our services and intelligence rather than our manufacturing output and then with the income we raise, buying a significant amount of our manufactured goods, food and energy from countries who can produce them more cheaply than we can. In the case of the UK, a major part of that service based economy has been banking and financial services and despite political rhetoric that demonises bankers, the harsh reality is that we need them here and if we want them to stay we will have to provide a climate in which they believe they can thrive.

The Eurozone crisis has called into question not only the validity of the Euro but also the long term viability of the EU. It was never anticipated that countries within the EU would mismanage themselves in such a profligate and foolish manner that they could not sustain themself or service the debts they accumulated. EU economic integration may have had a  rulebook that said that certain economic conditions must be met by its member states but it did not anticipate that countries might simply break the rules.

It has been said that The EU has been responsible for maintaining peace in Europe for that last fifty or so years. That is a depressing thought and one which I simply do not buy. Some European countries were operating under dictatorships or military rule well into the seventies and the rest of Europe chose not to intervene. If that were to happen in an EU country now then the EU would probably want to get involved in a very physical and robust manner. As Europeans, we like to think we have been instrumental in helping to create an outbreak of democracy in some countries in the Middle East but the EU seems to see no contradiction in manipulating the ousting of the elected leaders of Greece and Italy and imposing unelected technocrats to hopefully sort out their problems.

The problem is also that questioning the intentions or future of the EU or the Euro is seen by some senior European politicians as unacceptable. Belief in the EU by some individuals  has reached the fervour of the religious fundamentalist - to them it is above criticism. So much of their intellectual capital is invested in the great European project that their futures are inexorably tied to it.  Any failure of the EU or the Euro would almost certainly hasten their downfall and they are therefore obliged to unflinchingly believe the solution to Europe's problem is only more integration and not less. The EU's ability to railroad elections in its favour show that it does not like its authority to be questioned.

Every day a new development changes the game. Bailout plans seem to last no more than a few weeks before they have to be rewritten and the bailout fund increased by more unimaginable sums. These bailout funds do not actually represent real money that the member states of the EU have to spend. It also has to be borrowed; we were hoping last week the Chinese would step in and underwrite it. They didn't.

It really is simply a matter of wait and see. How interesting.


Terra Shield said...

Interesting indeed. This has been a very educational post...

Nota Bene said...

We share many views I think.

What we really need is leadership with vision. And reform, reform, reform. Perhaps revolution even.

King of Scurf said...

Terra: Glad to be of service :)

NB: I'm inclined to think we need less leadership but what we do have should have rather more imagination.