When Did We Lose the Fight?
Eurointelligence founder Wolfgang Münchau is a strong pro-Europe advocate. He has been that way for the entire decade I followed him.
Earlier this month he commented: “The battle for European integration has failed. It is time to recognise defeat, and to think through the consequences.“
Please consider Münchau’s thought-provoking article When Did We Lose the Fight? Emphasis below is mine.
When you fight for a cause that does not materialise, at what point do you recognise, and admit, defeat? There are some causes you may want to keep fighting for no matter what, like human rights or climate change. Is European integration in that category? For me, it is not. My biggest area of disagreement with my fellow European federalists is not in what we think is desirable. What we disagree on is where the dividing line between realpolitik and wishful thinking lies.
A good example occurred this weekend. The fool whose committed the crime of saying what everybody in the SPD is thinking was Kay-Achim Schönbach. He was forced to resign as head of the German Navy for revealing to the world that Germany’s natural ally is Russia.
Germany also plays a non-cooperative game in the EU’s monetary union, through an economic model that is reliant on large savings surpluses. Whether the issue is economic or foreign policy, other member states have been reluctant to challenge Germany.
The euro area’s sovereign debt crisis deprived me of my last great European illusion, the notion that crises make us stronger. That particular crisis made us weaker. So has the pandemic. I see no trajectory whatsoever for Italy to generate the degree of productivity growth needed to render its foreign debt sustainable. The only way to avoid disaster is for the ECB to support Italian debt forever. It might do so. But that would set the ECB on a toxic path, leading to a wide selection of other horrible destinations. Then again, the euro area would probably not survive an Italian debt default intact either. Pick your poison.
My scepticism is not impatience, but concern that opportunities have been lost forever. Take ECB asset purchases. There was a short window for a genuine eurobond between 2008 and 2015, when the ECB’s programme of quantitative easing started. Afterwards, the ECB bought national sovereign debt in the trillions, and turned them into euros. This is what QE does: it swaps debt for money. Money is a liability similar to bonds, except that the maturity is shorter.
The idea behind a real eurobond could not be more different. It would not have been about the monetisation of national debt. A real eurobond would have been a debt instrument of a federal fiscal union with limited tax raising powers.
If only. I have come to the conclusion that this ship has sailed. Once you realise this, the consequences are far-reaching. If a proper economic union constitutes the first-best option, it is does not follow logically that a dysfunctional economic union is the second best.
But if you don’t, you have to ask yourself some rather troubling questions. This is where I am at. One of the questions is this: even if the European solution is optimal, is it possible that the national alternative is superior to a malfunctioning hybrid?
Fatal Flaws
I disagree with Münchau that there ever was a chance for a united Europe.
- The euro itself is fatally flawed. There is no way for a single interest rate to work for Italy, Germany, France, Spain and Greece with monstrously different work ethics, hours pension plans, productivity, etc.
- There is no way to change the rules.
When the Eurozone was formed, Germany insisted on rules that could not be changed without unanimous consent of all countries and without consent of the German constitution.
Over the years Germany bent in minor ways, but did not break on some constitutional debt rules.
But point two still remains. It take unanimous consent to do nearly anything in the EU or Eurozone that was not explicitly spelled out in the Maastricht Treaty that created the EU.
This is why it took a nearly a decade for the EU to work out a simple trade agreement with Canada.
Germany will never give up on debt brakes and France will never give up on Agricultural policy. The latter has stymied every global global trade agreement for at least two decades.
Russia is Germany’s Natural Ally
Russia is and has been Germany’s natural ally. Note that Germany even blocked sending military aid to Lithuania and Ukraine.
Former Chancellor Angela Merkel, bowed to the Greens and dismantled German nuclear reactors.
Now Germany is in desperate need of Russian natural gas.
What About China?
Germany will not stand up to China, once again over trade issues.
Is Germany a US ally?
The US has still not figured out Germany is a weak ally at best. The EU has not figured out that Germany has no intention of ever changing its trade stance.
But everyone does understand that France will never change its agricultural policy.
What About the UK?
The UK did good to exit the EU mess via Brexit even if they have so far mishandled many steps along the way.
The National Alternative
Münchau asks the right question: “Even if the European solution is optimal, is it possible that the national alternative is superior to a malfunctioning hybrid?“
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One other
thing, The EU and NATO have overlapping members but are two different entities
with totally different purposes. With security issues it is NATO and not the EU
even though the bureaucrats there want to be treated as equal to NATO but they
are not. However if Russia cuts off the gas then the EU bureaucrats will have a
handful managing the economic fallout. That should scare any right-thinking
person. Some pretty in-depth studies have been done and Europe can survive a
Russia cutting off the gas. It would be a somewhat tough two years but nowhere
near what is being said in the press. Economically it can be done and if the
Russians cut the energy vanes to Europe those vanes just might remain closed
forever since in those two years Europe will have diversified their
provisioning in energy away from Russia. That should cause the Russians to rethink their policies.
“”The battle for European
integration has failed. It is time to recognise defeat, and to think through
the consequences.“
Recognising failure is
a very good and is a necessary step to rectifying the mistakes made. Many now
understand the EU desperately needs reform. The problem is that there is little
consensus on what reforms should be made.
Putting everyone into
the Euro was a big mistake but here again there is no consensus as to how to
rectify that either.
Germany’s reluctance to
reform the EU, modify the Euro and provide a security role that corresponds to
its economic power is also recognized as a deep problem and again no one has an
idea about how make Germany change its orientations.
Most of the member
countries know that the EU is dysfunctional in certain areas which unfortunately
are the ones that count the most but recognize that the institution cannot be
reformed because of two important facts. The first is that all important
decisions must be consensual which means that all those decisions are watered
down to the least common denominator. Secondly is the fact that they do not
trust each other and through experience know that their neighboring countries
don’t necessarily have much interest in their wellbeing. So what do they do?
They won’t leave it like the UK did because after all there are some good
things about the EU and they do not want greater integration because there is
little reason to believe that that would work better either. So what they do is
ignore it if what they want is important enough to them. In effect the large
countries in the EU often did that and got away with it so the small countries
took note and are doing the same thing now.
The rub is the Euro. It’s
a trap for some and a boon for others. It should never have been implemented
and many know it but see no way out unless maybe there is a way out. Each
country has kept their own central banks for “just in case” and many are
working on the “just in case” scenario right now.
There is a sea change
coming in Europe and frankly it’s exciting to see history in action. I just
hope I do not get too much excitement and that it ends well. Although I live in
Europe I am not a citizen. I am American and on the side-lines watching the
game unfold.