vrijdag 1 juni 2012

The future of Europe

Yesterday, I published an article discussing the many problems of the EU, which have until now gone unsolved due to the unwillingness of the Europhiles to accept that their utopian dreams are simply impossible. Arrogance has poisoned the European project beyond any hope of rescue, and it seems that arrogance will in the end destroy the EU altogether.

The question is now: how do we get rid of the bad, while preserving the good? Cooperation and good relations between the many states of Europe are by no means a bad thing. How can we preserve those elements, while dismantling the European bureacracy and the undemocratic power of Brussels? Well, if you think about it, it’s not that difficult. The only thing missing to achieve a peaceful and relatively painless end to the EU is the political will to go about it.

That’s certainly a problem, because the Eurocrats in charge are dead set on creating a centralized political union. I explained yesterday how their efforts are inherently counterproductive, serving only to sow futher animosity between the nations of Europe. If they continue to force their utopia on all of us, they even risk sparking off a civil war. That catastrophe must be avoided at all costs.

So how? What’s the alternative? That question is imperative, because Europhiles will repeat again and again that we need the EU, and that to dismantle it would be tantamount to economic suicide. What we need to do is prove them wrong, so everyone can see that there is a viable alternative to Eurofederalism. To that end, I’ve written this article: a proposal for dismantling the European Union in a peaceful and orderly manner. Because we can prevent the disastrous future currently awaiting Europe, and we can lay the ground work for a far better future for us all.

As I argued in yesterday’s article, ending the European Union will benefit all the involved nations in the end. Basically, the North will no longer be footing a bill that can never be payed off, and the South will be free to develop at its own pace. However, splitting up the EU will force the South to rely on its own stength, and that’s something the nations in question haven’t been used to for a long time. They have grown accustomed to money transfers from the North: first the “structural funds” via the EU, and now the bailouts in the face of the economic crisis. It may be hard for the South to let go of the EU, even if to do so would be better for them in the long term.

Ultimately, it’s the states of Northern Europe that stand to lose everything they have worked so hard to achieve, should the EU be forcibly held together for much longer. After all, these are the nations that in the end pay the bills that Brussels racks up: the net contributors to the EU budget. The net recipients are primarily in Southern and Eastern Europe. Consequently, it’s also Northern Europe that stands the most to gain from dismantling the EU sooner rather than later. The impetus for splitting up the union, I suspect, will have to come from the North. So that is the scenario that I’d like to examine here: the secession of the affluent and stable Northern states from the European Union.

Now, assuming that such a secession will eventually take place (and I believe that I have by this point offered enough facts to prove that this is at the very least a distinct possibility), it would be best if it happened as soon as possible. The reason is simple: every day we spend waiting, more money is transferred from North to South. Enough money to bleed the North dry, but only barely sufficient to keep the South from collapsing. So the longer we hold off, the more money the North loses, and the longer it takes until the South can declare bankruptcy and start a real recovery the next morning.

So let us consider the following scenario: on the first of january, 2013,  the Northern states secede from the EU. Needless to say, the European Union is a complex structure, and completely unweaving the web of treaties and agreements the involved nations have entered into will be a process that may very well last for years. The actual split-up, however, can be effected on the short term. It’s a matter of withdrawing from the treaties that establish the existing union, declaring the regulations (and the authority of the various institutions) of the EU null and void, and circulating a new currency. All these things can be achieved in a short span of time, as previous secessions and breakups of nations have already demonstrated.

An independent Northern Europe

Before discussing the effects of this scenario on the nations involved, we have to establish which nations would actually be involved. Considering the political and economic character of the various EU member states, my guess would be the following: Germany, Great Britain, Ireland, the Netherlands, Luxemburg, Austria, Denmark, Sweden and Finland.

An uncertain case is Belgium, which consists of French-speaking Wallonia and Dutch-speaking Flanders. An independent Flanders would definitely belong with the North. Wallonia, on the other hand, shares the Southern mindset of deficit spending and monetary inflation. It would not fit in with the North at all. Considering that Flanders has its own secession movement, which has gained serious momentum over time, a split-up of the EU might also mean a split-up of Belgium. For the purposes of this scenario, I will assume that such a split occurs, with Flanders joining the group of seceding nations.

No-one in his right mind believes that secession will be a piece of cake. There will be challenges to overcome, the first and most pressing of which will be the circulation of a new currency. The Northern nations that have adopted the Euro (Germany, Ireland, the Netherlands, Flanders, Luxemburg, Austria and Finland) could simply re-introduce their original currencies. But would that be wise?

Out of the ten nations seceding in this scenario, seven already share a single currency. The problem of this single currency has never been that these stable, affluent nations share it with each other. Only that they also shared it with Southern and Eastern nations that could not compete economically. So why not replace the Euro with a new monetary union? Sweden, Denmark and Great Britain would of course retain their own currencies, but the others would collectively introduce a new common currency.

German economist Markus Kerber has already proposed a so-called “Goldmark” to serve as a back-up currency for the North. It could be introduced right away, and then fully replace the Euro when secession is carried out. This would preserve the benefits of sharing a single currency with one’s immedeate neighbours, and it would also reduce the cost of replacing the Euro. Instead of all the nations doing so seperately, they could do it together, which would certainly make for a less costly process.

Considering that the main reasons for seceding would be popular disgust with forced centralization of the EU and a strong desire to end the draining monetary transfers to the South, it is to be expected that the North will be wary of forming a new union (even one that excludes the unreliable South). Nevertheless, there are certain benefits to cooperation, so I expect the Northern states to form a loose confederacy of otherwise independent states. Basically, back to the days of the European Economic Community, but not including any Southern nations this time around. There is no way of predicting what this community of nations would be called, but I will refer to it as the Northern Confederacy – as good a name as any, after all.

The confederacy would most likely implement a more restrictive (common) immigration policy right away, which would be easier to carry out in a constellation of fewer (not to mention tightly organized) nations. Considering the problems with budget deficits in the South, there would be strict rules to forestall such developments in the North: no more deficit spending, austerity is the way to go. Other than these issues, expect the member states to guard their sovereignty with great care. Unlike with the EU, there will not be regulation upon regulation coming from a central bureacracy. This will be a loose association of states, somewhere ‘in the middle’ between the current EU and the British Commonwealth. There will be no structural funds and no central agrarian subsidies. The contribution paid by the member states will be a few million annually, rather than several billion gobbeled up by the EU every year.

All in all, this secession is something I’d very much like to come about. But there will also be drawbacks. Europhiles are quick to point out such possible drawbacks, whether justified or not. It is my firm belief that the positive results will far outweigh the negative ones. Most of the drawbacks that the Europhiles point out are in fact offset by corresponding benefits. But let’s consider the possible negative aspects of secession.

First of all, there will be the intial costs, mainly to do with introducing a new currency. Then there’s the possibility of financial markets panicking, which would result in economic losses. The South, no longer propped up by the North, would be forced to declare bankruptcy, so the billions already transferred will have to be written off as complete losses in the North. Finally, the export position of the North would receive a blow.

The initial costs are of course unavoidable. I already explained how they can be minimized by introducing a common currency for Northern Europe, but it cannot be denied that there will be a cost. On the other hand… that cost is going to be two or three billion, all in all, per member state. Most of the Northern states pay more than that to the EU every year! A one-time pricetag sounds not so bad at all when you look at it from that perspective.

Will financial markets panic? Of course, this is after all a drastic occurrence. On the other hand… the next morning, when the dust clears, they’ll realize the North is no longer carrying the weight of the South, has a strong, stable currency, and is commited to austerity measures to keep its accounts in order. Those are all things that markets tend to look favourably upon. Europhile fearmongers often shout that if nations were to withdraw from the EU, they’d lose their favourable credit ratings. That might be true if any one nation departed on its own, yes. But the scenario I propose is for the North to secede collectively. Markets will be uncertain about it for a day or two, and then they’ll sigh in relief. No more uncertainty about the future of Europe. Investing is safe once more.

The money already tranferred to the South will not be coming back North. When the South goes bankrupt, those debts will be mostly or even completely voided. There’s no denying this. On the other hand… that money is lost anyway. As I explained yesterday, even if the South could be convinced to restructure its economies, it would take decades to get on par with the North. For tens of years, the North would have to borrow tens (or hundreds) of billions just to lend that money to the South in turn. And even if the Southern states were to eventually recover, they would never be able to pay off the huge debt they would then owe to the North. Again, they’d have to declare a sort of bankruptcy, and the Northern states would still lose all that money. Seceding now and losing what they’ve already tranferred is infinitely preferable to transferring many, many more billions and losing those as well. Also, keep in mind that while Southern bankruptcy might nullify any debts it ows the North, this also erases the debts owed by the North to the South.

Then there’s the export position of the Northern states. There are two reasons why it is likely to receive a blow. Firstly, it’s possible that the South (irate at being “abandoned” by the North) will put up trade barriers in the form of substantial tariffs. Secondly, there’s the fact that the new Northern currency is going to be a strong currency. This will increase its value, while the southern currenc(y/ies) will devaluate, following their bankruptcy. That makes export from Northern Europe to Southern Europe very costly.

On the other hand… Europhiles sure like to cite statistics proving that EU member states do most of their trading with other EU member states, but they neglect to mention that the Northern states do most of their intra-European trading with other Northern states. Trade with the South represents only a modest percentage of total exports of the North.

Also, the Southern states do like to export their goods to the North. If the South puts up tariffs, so will the North. That will likely give them pause. In addition to that, the Southern states lack a sufficiently advanced infrastructure (both physical and governmental) to deal with their own needs when it comes to worldwide imports. Most of the foreign imports arriving in continental Europe pass through Rotterdam and Antwerp – both in the North. If the South wants access to those ports, they’d better reconsider any plans to put up trade barriers…

All in all, it is not likely that the South will raise tariffs against the North. Quite the opposite, in fact. The devaluation of Southern money means that the South is ideally positioned to produce goods relatively cheaply for the Northern market. There will hardly be transport costs, because their export market is right next door. Free trade between North and South would mean cheap products available to Northern consumers, but also a pick-me-up for the Southern economy. In the end, everyone benefits.

Lastly, while a strong currency is not optimal for export, is is optimal for confidence in markets. This confidence inspires foreign investment, which benefits the Northern economy. Most likely, this will easily make up for the limited drop in gains from exports. The Northern economy, then, ultimately benefits greatly from secession. It’s literally the best thing that could happen to Northern Europe, and any drawbacks are more than compensated by the huge benefits.

What happens to Southern Europe?

So, all’s looking fine for the North. But what about the South? What becomes of France, Wallonia, Italy, Portugal, Spain, Malta, Cyprus, Greece, Hungary, Slovakia, Romania, Bulgaria and Slovenia? It is possible that they remain united as a European Union, albeit one without Northern Europe. Possible, but not very likely. As there are vast differences between North and South, there are also crucial differences between the Southwest and the Southeast.

Following Northern secession, France will likely take the leading role in the South. But France has its own economic woes. Huge debts and a nanny state that the French cannot actually afford, combined with tens of millions invested by French banks and pension funds in Greek, Italian, Spanish and Portuguese bonds – things are not looking good for France. Without Northern funding, the South will collapse. Even if France itself could avoid that, the collapse of the other Southern nations (and thus the loss of French money invested in those nations) will inevitably drag France into bankruptcy as well.

Following this bankruptcy, it is likely that France, Wallonia, Italy, Portugal, Spain and Malta stick together. These nations are more structurally developed and more politically stable than the Southeast. They all use the Euro, and they are likely to keep doing so, albeit a strongly devaluated “Southern” Euro. Most likely, these states will unite in a sort of “Mediterranean Union” (a concept already proposed some years back by then-president of France, Nicolas Sarkozy). After their debts are essentially wiped out by bankruptcy, they will soon be able to recover economically, though it will be a long time before they can hope to be on par with the North.

In the end, their crash landing will most likely prove a blessing in disguise: instead of constantly relying on the North, they will be forced to fend for themselves. It will become a matter of sink or swim, and experience has shown there is no better way of encouraging someone to swim with fervour. They will not do so gladly, but they’ll do it – and it will leave their economies stronger than they’ve been in decades.

Then there’s the Southeast. Cyprus, Greece, Hungary, Slovakia, Romania, Bulgaria and Slovenia. Politically and economically, these are the least stable nations of the current EU. Allowing these nations to enter the EU before they were even remotely ready for it was the greatest mistake that the Europhiles ever made, and it’s what has already sealed the fate of the EU. These states will be helped in the short term by bankruptcy, which will wipe out their debts, but unlike the Southwest, the political corruption in these nations is critically widespread. Structural reform, necessary for long-term improvement, will be very hard.

It is more likely that populist left-wing radicals will gain power in most of these nations, racking up new debts while failing to reform the economy. It’ll be a long time before the Southeast finds its way out of the mess it is in. That, however, is the way things are. It’s a mess they got themselves into, and they’ll have to get themselves out of it as well.

I consider it unlikely that these states will preserve political unity and a common currency. More likely, they’ll each re-introduce their former, pre-Euro currencies, and devaluate those as they see fit. If they form a loose association of Southeastern states, I expect the former Yugoslavian nations to be involved (or at least, they’ll want to be included).

Both Russia and Turkey will be offering lucrative trade opportunities to the Southeastern bloc, which might just give a boost to the ailing economies in the region. The price paid for that help, however, will be political influence. Both Russia and Turkey consider this region to be their back yard, and Southeastern Europe will have to think long and hard before choosing which one (if any) of those two they want to get involved with.

And then there’s the future

Europe split into three blocs of nations, all three internally equal and therefore inherently stable. It’s by no means perfect, but we live in an imperfect world. It’s much, much better than the powderkeg we call the EU, that’s for sure. So how will these three blocs develop?

As I pointed out, free trade among them is to be expected. That’s the most important function of the EU preserved right there. After the split-up, they’ll all be able to develop at their own pace, which goes a long way to safeguarding peace and stability. The South being forced to “sink or swim” will provide effective motivation for structural reform, especially in the Southwest. Increased prosperity for most of Europe, then, is also in the cards – especially in the long term.

There are some nations I have not yet mentioned. Four that currently remain outside the EU, and five that are members at this time. Norway, Iceland, Switzerland and Liechtenstein on the one hand, Estonia, Latvia, Lithuania, Poland and the Czech Republic on the other. The first four, though not members of the EU, would fit right in with the Northern Confederacy. I expect them to be invited to join its ranks. They might even do so eventually, if not right away. The drawbacks of the EU (loss of sovereignty, union with less economically stable nations) are no longer an issue, after all.

Then there’s Northeastern Europe. Estonia, Latvia, Lithuania, Poland and the Czech Republic will certainly want to join the North. They are too prosperous to join the ailing Southeast. The question will be: are they prosperous enough to join the North? Maybe they’ll have to wait a few years, show that they can balance their budgets and implement austerity measures on their own strength. If they can do that, they’ll certainly be included in the Northern Confederacy before long. And then they, too, will be able to look ahead to a very promising future indeed.

Ultimately, that is the future that a split-up of the EU has to offer: a bright and promising tomorrow, but only if you’re willing to work for it. The EU currently achieves the opposite, by sucking the money right out of the succesful nations, and injecting it into the ailing ones. It punishes good behaviour, and rewards poor performance. That is a recipe for distaster, as current developments have already made clear. By means of this article, I have tried to offer a realistic alternative. Not a perfect utopia, but certainly a better future for Europe than the one we may currently expect.

All that is necessary to change the direction of Europe is political will, and all that is necessary for political will is popular will. If the people of Europe realize that there is an alternative to the megalomania of Brussels, we can build a better Europe and a better future. Why should we settle for anything less than the best we can achieve? Why should we settle for the stale utopianism of the Eurocrats? Let’s stop dreaming about a perfect EU that’s never going to be real, and build a real Europe that’s worth dreaming about.

Europe, the way it can also be: not a centralized bureaucracy, but three blocs of sovereign nations; all working together and enjoying the benefits of free trade, but each bloc developing at its own pace.

3 opmerkingen:

  1. Dear Victor,

    I will keep my story short.

    A very interesting proposal, but to write a one-sided economic story about something which might not even happen?
    It might be a bit too ambitious to cover up all of contemporary EU-history in one or two pages.

    Let's say the motives to make this dramatic decision need to be looked at from more directions than an economic desire to build a Northern European economic super state ;)
    The economic debate inside the EU is not an island of policydebate (although some neoliberals like to think that way), and decisions will effect more substantial areas of the citizens of the Union than you think. And so there are more aspects to the EU-debate than a democratic gap and bad economics. Do not oversimplify this debate and do not draw too hasty conclusions about the Euro crisis. What's easier than being an outspoken sceptic in a time the euro-crisis is dominating the newspapers? It's a good thing there are sceptics, but the arguments need to be all inclusive.

    To conclude, I do appreciate the attempt to find an alternative plan for Europe. I hope like you, our economic future will be brighter.

  2. How about all the money pension funds and banks of the Northern states did invest in the South? Does anyone knows how much this is since bankrupcy of the South also means losing that. If France is also taken into acount here we could be talking about an astromomical figure that would be better protected with some form of union where troubled states are to be directed via politics and financial directives.

    I'd say the EU is far from perfect but has a lot to offer. I think it is even doable to transform it into a nice system if we make three changes
    1 First we take away veto rights from all nations besides the ones that are netto payers.
    2 Secondly if a country ia not a netto payer all they can provide is members for the parliament rhe other poaitions of power are only ro be taken by people from countries that did contribute more then receiving on average the period between the European elections.
    3 And thirdly every six months countries change European presidency now and once more (you could have guessed it by now ;-)) only netto payers can become this.

    The one that pays decides in this proposal and it builds in a incentive to strive for change in countries that now receive more.

    1. Wimmm,

      I agree that your suggestion would go a long way to solving some problems of the EU, but I fear there's more to it than that. If we also get rid of the bureaucracy in Brussels, the structural funds and the agricultural subsidies, your plan would certainly have chance. In addition, countries that don't get their government budget deficits in check should be expelled from the union.

      With those additions, you'd essentially end up with my idea for a northern confederacy, but instead covering the entire EU, and with much-needed checks on the southern nations.

      I don't think the southern nations will agree to those terms, but if they did, such a proposal would be completely acceptable to me.