The rise of UKIP and Euro-scepticism in the UK inspired me to have another look at an old blog post – Benefits of the European Union.
I’ve spent the past four years criticising the economic policy of the EU, and more specifically the ECB. There are may good reasons to be dissappointed at the EU in recent years. But there is always a danger that people can lose any sense of perspective and see the EU only as an unmitigated bureaucratic disaster more reminiscent of the Soviet Union than a modern progressive block of countries, who have made substantial progress in the past couple of decades.
Researching the benefits of the European Union was a reminder to myself that despite all the problems of the EU, it is not quite as bad as some politicians would like to make out. If nothing else – there is nowhere else in the world I would rather live than within the EU, where there is the rule of law, respect for human rights and decent living standards.
The European Union can count many significant achievements of the past few decades.
- Reduction of tariff and non-tariff barriers have led to increased trade and, despite problems of recent years, real prosperity for most of the population.
- Promoting human rights and helping Europe to become continent of peace, rather than the near perpetual conflict which marred the first half of the Twentieth Century.
- Harmonisation of rules and regulations has helped simplify trade and commerce, and enabled the free movement of people.
Yes, despite many impressive achievements, the EU do seem in danger of throwing away, or at least diminishing many of these hard won gains. I don’t see the problem as regulation on bendy bananas (which are usually false or exaggerated for effect by Daily Trash newspapers – who seem to latch onto anti-EU headline with a glee previously reserved for stories about Princess Diana). The real problem the EU faces is economic stagnation, mass unemployment and the alienation of a whole young generation.
What makes it doubly sad is that it didn’t have to be like this.
The biggest problem facing the EU is one of economic policy. The Single Currency was a bridge too far. The EU is simply not an optimal currency area. The limitations of the Single Currency have been magnified by an attempt to deal with deflationary pressure through a combination of misplaced austerity and the dogma of suffering. What makes it worse is that countries who have suffered the most economically, have the feeling that their economic suffering has been imposed from the outside. And this just isn’t political rhetoric, that’s how a single monetary policy works. It’s the worst combination – economic stagnation caused by policies outside your country. With the toxic mix of unemployment and outside influence, it is hardly surprising that political extremism is on the rise.
The ECB may claim that in the coming months they may do more to combat the threat of deflation and low growth. Now the ECB is willing to effectively act as lender of resort, bond yields have fallen. The Euro may hold together. But, that doesn’t change the fact Europe has been failing for the past five years. The crisis was never about bond yields or EU debt. When bond yields on government debt rise to 12%, this doesn’t cause social alienation and a surge in political extremism. The social and political alienation is caused by mass unemployment and a sense of powerlessness.
The UK and the best of both worlds
The paradox of the UK is that we made the visionary (or lucky) decision to stay outside the single currency. The UK doesn’t have to suffer ECB’s deflationary monetary policy – we can still devalue the currency, we do not have to meet meaningless and highly damaging fiscal rules in the middle of a recession. With the Bank of England acting as lender of last resort, we never had a bond crisis. Our unnecessary lurch into austerity was entirely decided in the UK. At least we could blame our suffering and prolonged recession on ourselves. Now, the UK is recovering a bit faster than most of Europe, there is hope that the escape from economic stagnation will create a more positive attitude in the UK.
Yet, despite being masters of our own misfortune, the European Union makes a more convenient scapegoat. And it is at least partially true, European economic policy has been very poor.
Perhaps the growing dislike of the EU, stems from the great immigration debate. Not so much racism of Polish immigrant, but a real fear of a growing population – For those unable to afford house prices, why would you want to see the population rise 10 million in the next few decades, especially you know the UK is not going to build anywhere enough houses.
It’s a shame because the principle of free movement of people and goods across the borders, is a noble idea.