Financial Times columnist Wolfgang Münchau points a finger squarely at
chancellor Angela Merkel in his article High Price of Europe’s Misguided Pragmatism.
As is typically the case, Münchau gets some things right while missing the
big picture.
As for solutions, Münchau is nearly always wrong.
Sustainability is what this is all about. This is the main lesson from the
Brexit vote. Britain will leave the EU not because David Cameron , the former
prime minister, made a tactical error. He did, of course. But UK membership
is ending because it was unsustainable. The EU has always been a project of
political integration. The Remain campaign was premised on the notion that
this was not so.
For the EU you can define a sustainable solution as the opposite of a pragmatic
one. Sustainable solutions are task-oriented; pragmatic ones are often
short-sighted. The German refusal in 2008 to recapitalise the European
banking system seemed pragmatic at the time. Chancellor Angela Merkel goaded
the other leaders into the decision that every country rescues its own
banking system. Eight years later, the Italian banking system is still
insolvent and awaiting an urgent recapitalisation. We are still debating what
toxic assets may be hidden in the balance sheet of Deutsche Bank. Ms Merkel’s
decision was the start of the eurozone crisis.
Or take the equally pragmatic decision in 2010 not to allow a writedown of
Greek sovereign debt because German and French banks would otherwise have
incurred unpleasant losses. The halfhearted programmes for Greece led to
another crisis in 2012 and again in 2015. The latest news from Greece is that
the recession is accelerating again.
Britain’s opt-outs are perhaps the most fateful example of misguided
pragmatism. The opt-out from the single currency and the Schengen
passport-free travel zone sounded sensible when agreed; they allowed a
Conservative government to overcome its internal divisions for a short
period. But they did not fix the underlying problem of a country deeply
divided over its engagement in Europe.
The monetary union is the most important part of the EU, especially now
the UK is leaving. The eurozone will require a higher degree of political and
market integration. The eurozone, not the EU, is the only geographical unit
for which a single market makes sense, especially in financial services. The
eurozone also requires further market integration, most importantly in
labour. It needs free movement as a macroeconomic stabiliser — with people
moving from countries with high unemployment to those with a shortage of
labour; EU countries not in the eurozone can happily live with less
integration.
Sustainable Solution
Münchau concludes with the idea the “sustainable solution thus consists of
a more integrated eurozone and a less integrated EU.”
As is typical, Münchau fails to get at the heart of the matter.
Impossible is Not Sustainable
Münchau hit at Merkel because she did not allow a eurozone banking bailout
and repeatedly failed to do anything to help Greece.
He conveniently fails to point out the German constitution has already
been distorted out of shape to do as much as it already has.
Münchau also fails to note the makeup of the euro itself is fundamentally
flawed.
The “pragmatic” problems to which he refers are simply a guaranteed
outcome of those flaws. And at this point there is virtually nothing that can
be done to fix them.
Rise of the Eurosceptics and Anti-Immigration Forces
#eu
Viktor Orban "Trump made three proposals to stop terrorism. As a
European, I myself could not have drawn up better what Europe needs."
— Mike Shedlock (@MishGEA) July 24, 2016
Brexit was not a pragmatic decision, but a common sense, sustainable one.
Curiously, the second paragraph in Münchau’s article is as follows:
“Virtually all my continental European friends saw that UK membership of
the EU was unsustainable. How is it possible, they asked, to refuse to be
part of the eurozone and the banking union, but also be a full member of the
single market for financial services?”
What part of his own paragraph does Münchau fail to understand?
Voters Sick of More EU/EMU integration
Voters are clearly sick of more integration, for good reason.
The Euro was supposed to lift all boats. Italy was left behind, and will
stay there for two more decades according to the IMF.
Italy GDP Since Joining Eurozone
The main beneficiary of the Eurozone was Germany.
For discussion, please see Italy’s Miserable Eurozone Experience: 20 More Years of Woe
Coming.
It is ridiculous to propose “solutions” that cannot work politically and
are fundamentally flawed from the start.
Mike “Mish” Shedlock
