Wednesday, May 23, 2012

Euro future versus a "Brexit"

Living in the latest country to adopt the Euro, it is clear that, to say the least, the British media has a "different" perspective on the single currency.

If you believe the British press, the Euro not only will collapse, but it should collapse. The propaganda spread by such "newspapers" as the Daily Mail and the Express, is unrelentingly hostile, not merely to the Euro, but even to continuing British membership of the European Union itself. Continuing campaigns against the Union, which is consistently portrayed in the most negative light possible, have undoubtedly contributed to a sharp decline in British popular support for the EU. The polls now show a majority backing British withdrawal from the European Union.

However, the departure of the UK is not the same as the end of the European Union, or even the Euro itself.

In Estonia, as in many other Eurozone countries, the idea of restoring national currencies is not merely not on the national agenda, it is simply absurd. It is absurd to think that Estonia and Finland should return to separate currencies. Indeed, there is every chance that in 2014, Latvia will join the single currency, and Lithuania may not be far behind. It is also pretty far fetched to think that Austria, Slovakia and Slovenia would also return to separate currencies, and all seven of these nations fully intend to maintain their currency link with Germany.

And of course they can maintain the common currency because they have the fiscal prudence and budgetary discipline to make it work, even without the rigmarole of common bonds that will be required to keep such states as Spain, Italy and France inside the Eurozone. There is a strong core of disciplined states- also including the Netherlands- which can maintain their membership in the single currency without major structural changes taking place. Also these countries, with the possible exception of the Netherlands, have the political will to maintain the currency union.

Clearly as Greece faces its moment of nemesis, we can not be sure that all of the Eurozone has the will or the means to maintain the currency. However, despite the utter belief in the UK that the single currency will fall within a few days, even a limited collapse, the so-called "Grexit", may not occur for months, and indeed may not occur at all.

However, the "Brexit"- that is British exit, not merely from a currency, but from the EU itself, might actually be more likely. Of course, such a course may trigger the break up of the UK, as support for the EU is dramatically higher in Scotland, Wales and Northern Ireland than in England. The "Little Englander" press still does not understand the changing dynamics in our own state, still less in the rest of the EU. The nods and winks given by Labour towards an EU referendum may be good politics, from the point of view of the Daily Telegraph, but not really from the point of view of the national interest.

A Euro is highly likely to survive, whether it is precisely this Euro is a more open question.

So the choices for the UK are much less clear than the British right wing press would have you believe. The way forward is going to involve continued engagement with the EU- and that engagement will be much more difficult from outside the EU than it is as a member state. So, if a referendum is held -say- in 2016 and, under the poisonous influence of the vested interests that control the media, a No vote forces British withdrawal, what happens next?

Britain would have to impose proper austerity, simply to bring the absurd wastefulness of the state under some kind of control. Trying to reorient British trade away from the EU, when we still do more trade with Ireland than with all of the BRICS states combined would require a serious shock in order to make the UK more globally competitive against such economies as Vietnam or China. Naturally, the price for British "independence" has not been discussed in the right wing press. It may well be that the British state, or more likely states, would be actively seeking to rejoin the EU within only a few years of "Brexit". Of course, such policies, if deemed necessary, can be adopted from inside the EU, as Germany adopted its own structural reforms a decade or so ago.

The European Union faces a major change in direction. It needs to develop greater economic coherence at a time when its political coherence is still being challenged. The EU is unpopular because it is getting the blame for insisting that member states adopt policies that should have been adopted by national governments many years ago- and which Germany, of course, did adopt. However, whether popular or not, the way is clear: even a so-called plan B, of more short term stimulus, can only take place in the context of a general and large scale long term debt reduction. The demographics and the years of waste have finally caught up with Europe. Those who retired at 55 or younger simply stole their pensions from the the wealth of the next generation. Therefore, the idea of taxing pensioners is not merely economically necessary- it is a matter of fairness and equity between the generations. 

The time has come for Britain to stop sulking and start leading. We must accept the political realities, even while we can try to improve both political and economic realities. 

Ceasing to listen to the negative propaganda- essentially the lies- of the British right wing press would be a good place to start.  

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