EU/Eurozone – Start Again or Plod On?

Why Integrate?

Why does Europe need to integrate, or even unite, especially now that the reasons behind the original Common Market have long been overshadowed with more pressing issues – explain. This was a message from an economist friend, having read my blogs on the EU/Eurozone, who felt that I should at least make some attempt to justify yet another grand plan for Europe after so much pain, misery, and expense of existing failed plans. As he is a professor of economics I feel obliged to take note and thus attempt to explain the logistics behind my interest in this subject.

As Europeans we do have choices regarding the future direction of Europe. We can disintegrate the current debacle, and return to independent nation states. The other extreme is to totally unite into a new United States of Europe – the idealist model in this debate. What I do not think we can do is to continue with the current model of part this, part that, one foot in …….. crazy system of fudge upon fudge which has wreaked havoc on weaker members, and to which the people of Europe feel totally disenfranchised. The basic tenet of a democratic system is that it is created ‘by the people, for the people’ and the current situation does not even remotely look anything like.

Where does Europe sit in the World today, and where does it see its future in the grand scheme of the world? It is steeped in history. It is the birthplace of the industrial revolution, and technology. Its pioneers explored the world, and provided answers to many unknowns across the spectrum of the sciences, medicine and philosophy. It developed global trade and finance. It is the cradle from which mankind developed democracy, free speech, and equality for all. But this is all in the past. The various empires created have essentially gone, and new centres of power and creativity have emerged in other parts of the world challenging the once might of Europe.

Can the individual nation states of Europe hold their own in the world of today, and more importantly the world of tomorrow? The short answer is that probably only two or three of the current nation states could be influential, whilst the others become second division players. Is this really the end of a long and proud heritage? There is no question that the nation states of Europe have suffered some serious differences throughout history, and some horrific differences within living memory, but what of the future? There are current distractions such as the current sabre rattling from Spain regarding Gibraltar which echoes of ‘The Mouse That Roared’. Will Europe really just wallow in the past and make the future for its children, and grandchildren, one of ‘we were once at the centre of the world, and at the forefront of progress – but that was yesterday’. Or does Europe reinvent itself, and takes its rightful place as a key player in the world of tomorrow?

Thus there is a case for an integrated Europe.

Recent pioneers have recognised that Europe needs to do something to stay influential in the world, and, to date, Europe has tried market integration, economic integration, trade integration, monetary integration, etc. but national self-interest, and the vested self-interest of the various politicians, in varying degrees, have created such an unmanageable hotchpotch of multi-dimensional chaos and unintended consequences that the people no longer understand what the plan is, if they ever did, and feel that they have little or no say in their own destiny. The people from the Eastern European states must think that they have emerged out of one fire, into another. All the European people really know is that it is all very expensive, painful, and with little obvious benefit.

A quick look at some of the (real and perceived) issues that stir great resentment by the British people to what is happening in the EU/Eurozone show that they do not have apathy, but hostility – and hence the rise of the UK Independence Party (UKIP) who polled enough votes in the most recent political elections to demonstrate that these votes were not just a protest vote. For example a common view is that it feels like the whole process of the creation of the Eurozone was engineered by the Germans, in favour of Germany – they could not capture Europe by military force, so they now they try by economic force. There are still many people alive in the UK who can remember the misery of rationing and other shortages they experienced whilst the UK had to rebuild itself after the last War, selling state assets and begging for loans while Germany was being rebuilt using $ billions under the Marshall Plan, and of course people will always quote that it was 2 British army officers who engineered the first Beetle car starting a successful rebuild of the German car industry.

This attitude by the British people is very unfortunate and unhelpful as it breeds distrust and suspicion of the whole process, but it has foundation and thus requires sensitive consideration when looking for support for an integrated Europe. It does not help that Germany, until 2 years ago, was the clear winner from the introduction of the Euro, albeit that the disciplines associated with the Euro exposed hidden cracks in the economic condition of a number of the Euro nation states. I can remember in 2011 that, contrary to market sentiment, Eurozone interest rates rose to offset inflationary pressures within Germany causing much pain to other Euro members – not the way to win support. Sometimes one has to ask if Germany just arrogantly believes that their way is the only way, or whether it is just a cultural problem. Years ago Germany imposed withholding taxes within Germany on some types of International bonds that are specifically designed to be tax neutral, and then surprised with the number of Germans crossing the border into banks in Luxembourg to buy and sell these bonds to avoid the taxes. The recent attempt, led by Germany, to introduce a transaction tax on banks trading within the EU is another classic example of an ambivalent attitude to the global nature of banking and its importance, not only to the UK, but to the whole of Europe. As the UK is second only to Germany as a net contributor to the existing EU budget they have good reason to be concerned at this behaviour, and have no desire to become just another federal state of Germany – indeed this would be  seriously counterproductive to the desired outcome. I have many German friends, and clearly Germany is a successful country, but a nation is more than an economic machine and thus I think integration requires a new way of inclusive thinking, as was required by the founding fathers of the USA. Indeed Jacques Delors, President of the European Commission between 1985 and 1994, stated that ‘Europe needs a soul’. A further important consideration is that one cannot ignore the important historic influence of the UK throughout the world as a valuable asset to an integrated Europe. For both Germany and the UK integration will be 1 step back to take 2 steps forward – probably painful for both, but necessary for the peaceful co-existence of all nation states.

Can the current situation be fixed so that Europe can obtain a reasonable degree of integration that works without suspicion of vested interest by any nation state, and enables an appropriate external status in the World to be influential? For many this is probably akin to attempting to solve a Rubik cube blindfolded, and many, including nation state leaders, know this. For example while there are a multitude of nation state leaders all voicing their own views to the world, and seeking self-promotion, the outside world will not understand what an integrated Europe really means.

David Cameron, the British Prime Minister, has stated that if his party are re-elected at the next General Election, then he will give the British people a vote in 2016 on whether or not to stay in the EU. As a senior banker understanding the economic and trade benefits of integration my vote would still be ‘no’ in the expectation that, without the UK, the current European model will implode, and then we could start again with a seriously less wealthy Germany. I remember when Margaret Thatcher was being forced by her colleagues to take sterling into the European Rate Mechanism (ERM) – but she managed to include a time bomb which eventually imploded the ERM – another expensive, ill-conceived European political experiment that did not work.

Thus we are back to the underlying tenet of my proposed model. First seek the ideal situation, and then see how close you can get to it in practice without loss of integrity.

Many will say that full integration, i.e. my United States of Europe model, is not a new idea. This is very true – Jacques Delors, probably the founding father of the idea of a fully integrated Europe, constantly promoted this idea. But has anyone ever been able to explain and sell this idea to the people in a way that they can understand the benefits to them, their children, and their grandchildren, and thus fully embrace the transition? To date the debate has been about the technical issues of economic benefit, trade, financial stability, national sovereignty, no borders, etc. etc. etc.

Has any politician told the people that a fully integrated Europe, i.e. a United States of Europe, will:

• be 2^nd only to India as the largest democracy in the world;
• will be a larger economy than the USA;
• will have less overall debt than the USA (if the politicians step away and let the bankers solve the debt issues);
• will be the centre of the global financial system;
• will have superior, and less expensive organs of government per capita (if they get it right) than any other major power;
• will be a major force in the global arena;
• significant economies of scale should lower the cost of living, i.e. a better lifestyle for all;
• will provide substantial new job opportunities as more international companies seek to be part of such a large market;
• will certainly be a major, if not the strongest force in sport throughout the world;
• etc etc.

People can understand these statements, and thus they can feel a sense of real value and belonging as a new European citizen.

We should look to the speeches of Winston Churchill during the Second World War. He was from an aristocratic family, and went to the top private schools – but he knew how to speak with the people to galvanise and instil resolve towards a common goal, especially in the dark days. In the hour of need cometh the man, but where is he/her today?

So back to our model to see if we can show the politicians what the people see as an integrated Europe, and thus what they could be prepared to buy into.

Thank you for your continued interest in this European venture.

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