Cyprus: European Brick Wall

March 21st, 2013
in Op Ed, syndication

Written by Hilary Barnes

Europe hits a brick wall: democracy.

An ever closer union of the European peoples is a fine ideal. But from its conception in the early 1950s it was always a top-down project constructed on the assumption that the peoples of Europe would applaud it ex post with their votes.

It worked along these lines as long as the measures taken by the Common Market, as it was called in its early days, were seen to promote the prosperity of the European economies, firstly by bringing down trade barriers in the 1960s, then the liberalisation of capital movements in the 1970s and later with the single market legislation.

But when governments went ahead with the European single currency on the same assumption, that once the electorate had had a chance to taste the delights of a single currency without a super structure of banking union, fiscal union and political union, they would vote for these as well, they made a big mistake.

Follow up:

The monetary union as conceived by the authors of the Maastricht Treaty was flawed, as many economists pointed out at the time, including a Danish professor of economics who warned the government of the day that they would live to see the Danish EU commissioner of some future date hanging from a Brussels lamp post.

It has not come to that, but the collapse of the system appears to be well advanced.

The systematic errors in the construction of the EMU were shown up rapidly when the financial crisis, unleashed initially in the United States, hit the developed world.

Without a banking, fiscal and political union - a federal European state - there was no way the sovereign debt and banking crises could be effectively brought under control except by fiscal austerity, the so-called internal devaluation doctrine.

But this had had such severe effects on the economies worst affected that electorates are rebelling.

The vote in Cyprus last night was the first occasion on which the legislature in a member state has refused to accept the rescue deal arranged for it by the EU governments and the IMF, although the Europeans had a narrow squeak in Greece, and they are facing a possible revolt in Italy, and perhaps in Spain as well.

It is too soon to conclude that last night's vote in Nicosia was the beginning of the end of the euro system, although at moment of writing it certainly seems possible that it might be.

However, it is becoming clearer for every day that passes that electorates in Europe will not tolerate the present austerity doctrine, and attempts to continue to impose it are unlikely to work.

In fact, in Brussels and chancelleries around Europe, it is time to consider an alternative approach to the future of the European union, and that may mean accepting, for a decade or three, that Europe will flourish best as a free trade area and that when new plans or a federal system are drawn up it will allow much greater autonomy for member states than the plans on the table at present.

It is, for example, political lunacy to try to impose a system on the proud nation states of Europe by which their budgets (not to mention a lot of other things) are subject to control and veto by the European Commission.

It is true that something similar happens under the German federal system, but it is not necessary and will not be accepted by European electorates.

Europe needs a system which is at least as liberal as the federal system of the USA, were states have widely different tax policies and variations in how they spend tax revenues.

No attempt is made to force states with low productivity to match the performance of Massachusetts. And there should be no reason, either, why Greece should be forced to become as productive as Germany.

A few days ago some economists in a European country were asked what they thought about the dire predictions about the survival of the euro system made by many American economists. The answer was that the American economists failed to take into account that Europe's politicians will do everything that is necessary to save the system.

But they can't, because they are running democracies, and when the voters refuse to accept what the politicians propose the governments have bit a brick wall.

That seems to be stage that has been reached in the EU right now.

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