I have been doing some research on Brexit. I vowed to stay clear of the topic because of all the stupidity surrounding it from both sides, but most galling are the Labour Remainers who think the European Union is some sort of nirvana (with a few problems) and is on the road to redemption through some amorphous ‘reform’ process. Pigs might fly! I mentioned the recent publication by Open Britain (January 30, 2018) – Busting the Lexit Myths – in yesterday’s blog. This document seeks to state the case for British Labour’s “Campaign for the Single Market”. The ‘single market’ is held out as some sort of security blanket for all and sundry. Without it, Britain will apparently lapse into a state where the government will be unable to maintain services, where “genetically modified foods, chlorinated chicken, and access to procurement of protected sectors like healthcare” overwhelm the local economy, where environmental and working standards disappear and that hapless island floats off into a shocking dystopia. It is really the stuff of fantasy. But the image it evokes of the confidence in British democratic systems and its own capacity for volition is quite stunning. Without the EU, Britain becomes hapless. You laugh then cry. Pathetic.

When the latest Greek bailout deal between the Greek government and the European Commission/IMF) was concluded on June 16, 2017, I concluded that it was designed to fail. Please read my blog – Latest Greek bailout – a recipe designed to fail. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions had abandoned any pretense to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. This deal only stalled reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use. And now the reality is emerging that the Greek economy will need a further bailout to survive for another period. The latest analysis from the German research group – Centrum für europäische Politik – shows that Greece remains close to insolvent and cannot survive within the Eurozone on its own. One has to ask what has all the austerity been for if the patient is still on life support some 10 years later. We know the answer.

During the crisis, I traced the evolution of the Irish economy. It was clear that the nation took a very big hit in the downturn – between 2007 and 2010 the economy shrunk by 15 per cent. Evidence also makes it clear that before the crisis, the narrative about the so-called Celtic Tiger miracle ignored the fact that a substantial portion of the growth was captured by foreign interests such are the taxation arrangements that attract foreign companies. Ireland also benefitted substantially from the growth in China and the US, and then the UK, all products of extended fiscal deficits. More recently, the impacts of the global tax structures and accounting nuances have significantly distorted the growth estimates for Ireland. In that context, to avoid becoming a laughing stock, the Irish Central Statistics Office (CSO) initiated a review of its national accounts framework and have now started to produce modified estimates of Gross National Income and some of the affected expenditure aggregates (Gross Fixed Capital Formation), which provide a very different picture indeed. While the official data suggests that the Irish economy grew by 39.7 per cent between 2007 and 2016, once the modifications were made to eliminate the distortions arising from these extraordinary global capital shifts, the Modified Gross National Income measure showed growth of only 12.2 per cent. In fact, the Irish economy in total is only 68 per cent the size that the GDP data would suggest – around a third smaller. Further, the modified Gross National Income series has barely grown since the crisis indicating that the Irish population has not received much in return for the hardships the austerity has inflicted upon them.

Germany’s domination of the EMU is clear both in political and economic terms. The current political impasse within Germany will not change that. Once resolved the on-going government will continue in the same vein – running excessive fiscal surpluses and huge external surpluses. It can sustain those positions because it dominates European policy and can force the adjustment to these overall ‘unsustainable’ positions onto both its own citizens (lowering their material living standards), and, more obviously, onto citizens of other EMU nations, most noticeably Spain and Greece. If it couldn’t bully nations like Greece, Italy, Spain and even France, Germany’s dangerous domestic strategy would be less effective. If all EMU nations followed Germany’s lead – then there would be mass Depression throughout Europe. This dangerous and ridiculous nation is a blight. Only by exiting the Eurozone and floating their currencies against the currency that Germany uses can these beleaguered EMU nations gain some respite. When the Europhile Left come to terms with that obvious conclusion things might change within Europe.

This is the final part of my four-part discussion of a so-called progressive proposal advanced by German academic Fritz Sharpf to reform the Eurozone into two tiers: a ‘Northern’ hard currency tier and a ‘Southern’ non-euro tier with the latter nations tying their currencies to the euro. We have seen that rather than providing a framework for convergence between the current Eurozone Member States, Sharpfs’ proposal would not liberate the weaker nations from the yoke of the euro, In fact, the proposal would just tie the exiting nations to the euro in a slightly different way – one that will not provide sufficient flexibility to make much difference. Further, Sharpf recommends that the ‘Northern’ nations should retain the euro and operate within the current European Commission orthodoxy. Yet he admits that this regime kills the democratic process. In other words, his proposal sustains that technocratic illegitimacy which would not appear to be the basis for a progressive solution. Finally, while he dichotomises the current 19 Eurozone Member States into a Northern and Southern grouping, there is no reliable way to allocate the Member States across the groups that would remain in the euro and those who would exit. What criteria would reasonably allocate nations to stay in the so-called Northern hard currency zone with the euro? For example, I do not think that a democratic France can ever function reasonably in a hard currency arrangement with Germany. The hard currency zone would effectively just revert to a ‘mark zone’ tantamount to the last EMS arrangement prior to the euro. That configuration was totally unworkable and that dysfunction would repeat itself. In other words, the proposal makes little operational sense. My view is that the vast majority of the Member States would be in the ‘Southern’ group, which would effectively end the EMU in any functional sense. Hardly a proposal for reform.

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates.