June 6th found me reading the Financial Times (sigh of relief from readers tired of me quoting the Telegraph!). I was on a plane, and it was the only English-language paper they had, apart from the New York Times.
The lead story on Page One was “Brussels bid to strip London of its Libor rôle” (although the paper failed to include the circumflex accent). OK. So the City screwed up seriously on the Libor rate fixing scandal. But then, hands up anyone who thinks that Brussels would do it better. The truth is that the EU harbours extreme prejudice against the City of London, and a series of measures including the Financial Transaction Tax, and the regulation of bankers’ bonuses, and now the Libor proposal, have a clear objective of cutting the City down to size — despite the damage that this would do to the whole of Europe, never mind the UK.
But I was struck by an article on page 9 from the pen of former German Chancellor Gerhard Schröder (they got the trema right this time), entitled France should copy Germany’s reform efforts to thrive. I think that Mr. Schröder may be right, but you also have to admire his wonderfully patronising approach. “You’ve got problems, chaps? Never mind. Just copy us, and you’ll be fine”.
He makes another point which bears consideration. He points out that some EU countries are keen on further and full integration, whilst others (he has the UK in mind) favour a looser model. “Europe must choose between these two positions”, he asserts. Yes indeed. Though it is quite conceivable that both models might co-exist. We could see a United States of Europe based essentially on today’s €urozone, with other countries in something close to a Free Trade Area
(And an aside to my €urophile friends: No. Countries in that zone would not need to be subject to “regulation by fax”, as Norway is said to be. The USA, and Canada, and China, and Japan can export to the EU without being subject to EU regulation, and so will we. Korea has a Free Trade deal with the EU — is Korea subject to regulation by fax from Brussels?).
Then he says: “To solve the problems of the €uro, we must change the structures of the European institutions. The fundamental mistake of monetary union is that there is no coordination of economic and financial policy”. He just hasn’t got it, has he? The fundamental problem of the €uro is that it attempts to apply the same monetary policy and interest rates to widely divergent economies. In a full fiscal union, you could overcome that problem by massive, permanent fiscal transfers from North to South (in a sort of mirror image of the Barnett Formula). But surely Schröder must realise that such payments would be wholly unacceptable to German tax-payers.
More fundamentally, the €uro was supposed to benefit the EU. Clearly it has had exactly the reverse effect. So just why is it important to save it? If Schröder is making any case at all, it is surely that the EU should abandon its rash monetary experiment — not re-design it from the ground up simply to accommodate the cuckoo in the nest?
The flight of fancy continues. “Only a united Europe can stand a chance in a globalised political and economic world”. Stand a chance of what, Gerhard? Of freedom and prosperity? So Switzerland stands no chance? And Singapore stands no chance? In that case, how come those small, independent countries are doing so much better than the EU?
Then it’s back to the same hubris we saw in the title. Preposterously, he says “Our model can be a beacon and a blessing for the world”. Oh my yes! Zero growth. High unemployment (youth unemployment at 60% in Spain and Greece). Grinding poverty and misery in large parts of Europe, and a growing sense that our governing institutions have entirely lost any sense of legitimacy and accountability. Some beacon. Some blessing. But then you can’t teach an old €urophile new tricks. Ask Ken Clarke.