Brexit
may be the best answer to a dying eurozone
Larry Elliott
Staying
in the EU means hitching ourselves to an undemocratic project run by
and for a remote elite
Friday 20 May 2016
06.00 BST
The elephant in the
room. Everybody knew what Mark Carney meant when he paused halfway
through his regular three-monthly update on the state of the economy:
the implications of Brexit.
The governor of the
Bank of England did not pull any punches. He warned of a potential
run on the pound and of possible problems financing the UK’s
whopping balance of payments deficit. He said the Bank expected
growth to be materially lower and inflation to be notably higher.
Voters trust the Bank of England. They sat up and took notice. The
opinion polls started to move in favour of remain. When the history
of the referendum campaign is written, Carney’s may be seen as the
decisive intervention.
In truth, there was
more than one elephant in the room. Carney was right when he said
there was a risk that the upheaval caused by Brexit could tip an
already weakening economy into recession. But as elephants in the
room go, this was the smaller, Indian version. The equivalent of the
bigger, African elephant was the shocking state of the eurozone after
the failure of the single currency experiment. This went unremarked
by Carney, although it is relevant to the debate about Europe.
Why? Because,
although Britain is likely to stay in the EU, Brexit will remain a
live issue unless the eurozone can sort itself out. That means either
admitting that the euro has been a terrible mistake, or going the
whole hog and integrating further, with a single banking system, a
Europe-wide treasury, and a democratically elected finance minister
with the power to raise money in Germany and spend it in Greece. This
is not going to happen any time soon, and perhaps never. Countries
that joined the eurozone gave up a considerable amount of economic
power when they adopted the euro, but they retained the right to
raise their own taxes and make their own spending decisions.
Put ever-closer
union in the same category as the Birmingham inner city ring road: it
seemed a good idea at the time
Britain is not in
the euro, for which we should all be thankful. But let’s be clear:
staying in the EU means hitching the wagon to a currency zone unable
to go forwards or backwards, and which will continue to struggle as a
result.
The euro brought to
fruition the idea of ever-closer union, a plan that dates back to the
early 1950s. Lots of things considered good ideas back then are no
longer considered quite so clever: system-built high-rise flats as
the answer to slum housing; nuclear power to meet energy needs. Put
ever-closer union in the same category as the Birmingham inner-city
ring road: it seemed a good idea at the time.
Dan Atkinson and I
spent the winter working on a book about the single currency
commissioned in the wake of last summer’s Greek crisis. The brief
was to look at what had gone wrong from a left-of-centre perspective;
to explore the widespread disquiet about the way in which a country
that voted in January 2015 for an end to austerity ended up seven
months later being forced to accept even deeper cuts in wages and
spending.
The eurozone crisis
is about more than Greece. It is about Italy, where the economy is
barely any bigger now than it was when the single currency was
introduced. And France, where unemployment is double the level of the
UK or the US. And Finland, one of the most tech-savvy countries in
Europe, where the economy is 7% smaller than it was before the start
of the financial crisis. And even Germany, where an export boom and
high corporate profits have been paid for by workers in the form of
below-inflation pay increases.
Our investigations
took us back to the last time Britain held a referendum on EU
membership, when during the cabinet discussions Tony Benn warned that
Britain was signing up for something that was undemocratic,
deflationary and run in the interests of big business. “I can think
of no body of men outside the Kremlin who have so much power without
a shred of accountability for what they do,” Benn said.
Benn’s dystopian
vision proved entirely accurate. When the architects of the new
Europe looked to the future, they envisaged a new and better version
of the United States of America. Europe would have all the good bits
about the US – such as the economic dynamism, a large barrier-free
market and a single currency – without any of the bad bits: the
inequality, the high levels of incarceration, the poverty and the
inadequate welfare safety net.
This dream lives on.
Yanis Varoufakis, the deposed finance minister of Greece, thinks the
eurozone could be recast along Keynesian lines, with the rich and
strong countries obliged to provide financial help to the poor and
weak. Good luck with getting Germany to agree to that.
Last year’s threat
was Grexit. This year’s threat is Brexit. Next year’s threat will
be something else
Economic policy has
been relentlessly deflationary. The interests of bankers have been
given a higher priority than workers’. Greece, Ireland, Portugal,
Cyprus and Spain have been the laboratory mice in a continent-wide
neoliberal experiment of a sort Tea Party Republicans in the US can
only fantasise about.
Given the obscene
level of long-term unemployment, the idea of Europe as the guardian
of labour rights is laughable. The gap between the US and Europe has
widened, not narrowed, since the launch of the single currency.
Populist parties of both left and right are gaining in support. One
left-of-centre argument against Brexit is that it would result in the
breakup of the euro and by doing so set off a chain reaction that
would lead to the next global crisis: a perfectly fair point. Those
who fear that another recession and even higher levels of joblessness
would threaten a return to the totalitarian politics of the 1930s are
right to highlight the risks. Some on the left who want Brexit say
that the time is not yet ripe.
The left-of-centre
case for divorce is that Europe doesn’t work, is not remotely
progressive and is heading for an existential crisis anyway. Last
year’s threat was Grexit. This year’s threat is Brexit. Next
year’s threat will be something else: Italy leaving the single
currency, perhaps, or Marine Le Pen’s tilt for the French
presidency.
This presents an
opportunity for those who believe that the way ahead still involves
closer integration. Jean Monnet, the godfather of the EU, always said
that ever-closer union would be forged through crises, which is what
Brexit would undoubtedly trigger.
If the polls are
right, Britain seems unready to trigger this act of creative
destruction and it will be left to Varoufakis to do out of office
what he could not do in power: prove a different Europe is possible.
A different Europe
is needed, but it is stretching credibility to imagine that the
Europe of Greece and the Transatlantic Trade and Investment
Partnership can easily morph into America with the nice people in
charge. The eurozone is economically moribund, persists with policies
that have demonstrably failed, is indifferent to democracy, is run by
and for a small, self-perpetuating elite, and is slowing dying. The
wrong comparison is being made. This is not the US without the
electric chair; it is the USSR without the gulag.
• Europe isn’t
working, by Larry Elliott and Dan Atkinson, will be published by Yale
University press in August
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