April 30, 2010
Eurotroubles
In the 1999 book Both Sides of the Coin, Oxford economist James Forder argued against European Monetary Union. Like any good economist, he recognised that a valuable analysis necessarily combines economics with politics:
“Politically, poor economic performance is sure to reflect badly on the European ideal. Enthusiasm for European integration cannot possibly follow from economic failure created by EMU. But there is more to it than this simple fact. It is necessary to consider the case of a damaging economic policy being imposed from a foreign city. Imagine the scenario where inflation is a problem in Germany, France and some of the other countries. Interest rates rise, leading to a recession in one of the poorer countries which, let us suppose, did not have an inflation problem, and perhaps even needed lower interest rates. Most of the advocates of EMU, who are also hoping for closer political ties, apparently believe that using the same money will bind Europeans together more than the fact that rich countries will be seen to be imposing pointless recessions on poor ones to push them apart. The truth must be that such circumstances will lead to a growth of nationalist and perhaps even secessionist political movement in the recession-bound countries.”
Forder added:
“I fear, too, that the political movements arising from these circumstances will not all be in most things moderate. High, persistent unemployment breeds racism, not just separatism…It may then, if generally adverse circumstances develop or divergences between country’s interests become too great, not be inappropriate to doubt the hold of liberal democracy on the European political process. This is the greatest fear of all.”
Ten years later we appear to have the makings of an economic situation far worse than the recession-inducing scenario Forder imagined. With the collapse of Greece – and the threat of Spain and Ireland following suit – the Euro looks like it could be in terrible trouble. Things are made worse if Oliver Kamm is to be believed: that there is no procedure for Greece to exit EMU, and that doing so would also induce a devastating run on Greek financial institutions. The Eurozone is, apparently, stuck with the Hellenic albatross. Yet if measures to rescue failed EMU members mean recession-inducing policies in other member states, Forder’s warning of political consequences will be extremely prescient.
But there is more. On yesterday’s Newsnight, UKIP candidate and former leader Nigel Farage was simply delighted. He was able to point out that Nick Clegg had gone on record in the leaders’ debate to point out that proposed Tory migrant caps are largely redundant because 80% of immigrants come from EU member states. Accordingly, the British government cannot legally restrict these people’s movement. [Update: the Clegg figure is apparently wrong].
Many voters, like Gillian Duffy, are already resentful and angry about immigration; the issue was raised in all three leaders’ debates, after all. Furthermore, the last Euro election revealed a predominantly Eurosceptic electorate. As it becomes ever more politically-profitable for anti-Europeans to fear-monger about immigration, and to point out that whilst we remain EU members there is little we can do about it, what will the political outcomes be for British EU membership? Especially if we end up with a eurosceptic Tory government? And what if similar patterns of immigration-resentment are replicated in other EU member states – but are also combined with political resentments rooted in enormous economic failings?
The Treaty of Rome originally sought to bind leading European nations together economically. In large measure this was a bid to prevent the possibility of another devastating European war. However, the aspiration of “ever closer union” and ever-increasing political integration of the EU – with enormous democratic deficits in the EU presidency, commission and ECB, let alone the corruption and unaccountability of the EU Parliament – paradoxically runs the risk of inflaming member state resentments. It is too early to predict anything, but the Eurozone crisis centring on Greece surely has the potential to balloon out into a massive political crisis across the continent.
“Euroscepticism” normally brings to mind distasteful little-Englander xenophobes like Farage, the sorts who typically make-up UKIP and the Tory right. But anybody with an ounce of sense should be deeply concerned about the European project at this crucial juncture. As James Forder put it, he “always thought of himself as a Euroenthusiast until the Maastricht Treaty came to dominate European politics and made that position impossible for a liberal economist.”
–
Disclaimer: I was taught by James Forder as an undergraduate.
