Saturday, December 14, 2013

As the World Decentralizes: EU Edition

I have written often of the continuing political decentralization of the world.  The high-water mark in terms of having centralizing institutions in place was likely at the end of WWII.  This system held more or less for a few decades.  The economics could never hold together – and this was made plain to see via Nixon’s 1971 gold decision, but big cracks started showing with the collapse of the Soviet Union and other Eastern European conglomerations.

Sure, the formation of the European Union was a movement in the other direction, but the signs of the end of this centralizing contraption have been obvious to all who care to think.

Well, now it is becoming obvious to some of those who have previously demonstrated little such insight:

A Nobel prize-winning economist will on Thursday withdraw his support for the euro saying it has created a “lost generation” unemployed youngsters and should be broken up.

Sir Christopher Pissarides was once a key proponent of a single currency but will on Thursday accuse the euro of “dividing Europe” and say action is needed to “restore the euro’s credibility in international markets” and the “trust that Europe’s nations once had in each other”, according to the Daily Mail.

Speaking at the London School of Economics, where he teaches, Professor Pissarides will say: “The euro should either be dismantled in an orderly way or the leading members should do the necessary as fast as possible to make it growth and employment-friendly.

Well, I know; he is suggesting that political leaders must take one path or the other.  But at least he is publicly offering the other!

Explaining why he had worked hard to persuade Cyprus to join the currency union in 2008, Professor Pissarides will say: “I was completely sold on the idea.

“Back then, the euro looked like a great idea. But it has now backfired. It is holding back growth and job creation and it is dividing Europe. The present situation is untenable.”

“Untenable.”  That is better than “a great idea.”

Even more direct is Ambrose Evans-Pritchard.  Now I don’t put Ambrose in the camp of fervent believer now changing his tune.  He has often written of the untenable situation of the EU and the Euro.  However, in this piece, he captures the sentiments of those who are starting to see the light.

Britain no longer must consider leaving the Union in order to maintain significant sovereignty:

Events are moving very fast in Europe, overtaking the debate in Britain. Advocates of the historic nation states - L'Europe des Patries - are gaining ground across the Continent. Superstate romantics are on the back foot almost everywhere. The Hegelians are hated.

"The time of an 'ever closer union' in every possible policy area is behind us," says the Dutch government. Its review of EU powers calls for swathes of policy, from social security to water management, to be left "more or less entirely to member states".

The Dutch are carefully shadowing the British, as well they might given that Geert Wilder's Freedom Party is leading the polls with calls to "control our borders, our economy, our currency".

It isn’t just Nigel Farage and UKIP speaking out against further consolidation, it seems.

Over the past few months the eurosceptic floodgates have burst. French support for the EU Project has dropped from 60pc to 41pc since mid-2012, according to the Pew Foundation.

AEP cites Germany’s decision regarding Libya as being a milestone issue in the developing cracks of the Union:

Germany's fateful decision to side with China and Russia against France (and the UK, Italy, and Spain) over Libya in 2011 - even after the Arab League had called for military action - was an inflexion point in EU affairs. Paris was shocked, for the diplomatic manouvering showed how little Berlin really care about a joint EU foreign policy - whatever it claimed - and how little it valued France itself.

I still hold to the possibility that Germany has eastern plans.

My point is that it had profound effects on internal EU loyalties.

Some are speaking out against the common currency, in the hopes of saving some semblance of a common union:

Prof Heisbourg, a pro-European, has since published La Fin du Rêve Européen (End of the European Dream) calling for the euro to be broken up to save the European Project. "The dream has become a nightmare. We must face the reality that the EU itself is now threatened by the euro," he said.

He proposes an orderly return to national currencies - "putting the euro to sleep" - arguing that everything changed when French and Dutch voters rejected the EU Constitution in 2005.

None of the significant steps necessary to bind the Union have been taken, although all have been floated:

It looked for a while as if the euro crisis would force EU leaders to create a superstate machinery…

Yet the great leap forward has not happened. The German elections have changed nothing. There are no eurobonds, no debt redemption funds. The EMU banking union is eyewash. There is almost no sharing of real risk. Sovereign states are still on the hook if their banks go bust, leaving them prone to the same vicious circle that threatened EMU implosion in July 2012.

AEP sees much hinging on France:

France is the pivotal country as the drama unfolds. All signs are that the Socialist leadership is deeply alarmed by the prospect of a perma-slump under a fixed-exchange system that offers no hope of cutting unemployment.

This is playing into the hands of Marine Le Pen's Front National, now leading the polls with calls for a return to the franc and economic self-rule, and pulling votes from Socialist working class bastions.

It seems clear that Germany would like that France goes first, so as to minimize blame for the failure.

Italy is falling away as well:

"It is a failed policy," said Romano Prodi, the former head of the European Commission and the man who launched the euro. He is now losing faith in the EU as a treaty organisation of sovereign peers.

In every country, political parties that are challenging the Union are gaining ground:

The "Five Star Movement of comedian Beppe Grillo has not gone away. It is still running at 24pc in the polls, and calling for a referendum on the euro. It is likely to join Britain's UKIP, the Front National, Wilder's Freedom Party and a host of radical groups from Austria, Scandinavia and the Balkans in sweeping the European Parliament's elections next May.

Who knows when or how things will proceed.  However, decentralization has been on the upswing for at least twenty years; the continuing and increasing economic failings of the central planners are too obvious to ignore; the internet offers many outlets for decentralized communication – just as important, the internet offers non-mainstream explanations of the root causes of the current crisis.

It seems clear that peak centralization is behind us – at least for this era.  The signs are too numerous, and the momentum continues to build.

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