A gradual demise of the European Union?

Embed from Getty Images

When a British journalist posed the question, “Is this the beginning of the end of the EU?” to the President of the European Commission, Jean-Claude Junker replied, “No” and walked off the stage to the applause of European journalists present.  Before that incident, Junker also stressed that Britain must get out of the EU “as soon as possible, no matter how painful (to the British people) that may be.”  “We are united in our response,” he added.  This is an extreme case of European leaders who could not care less if Britain wanted to be in or out of Europe; what matters, like to the German finance minister Wolfgang Schauble, is that the EU project continues.  Other European leaders responded to the British decision to exit the EU in a more diplomatic and level-headed manner, including French President Francois Hollande and German Chancellor Angela Merkel.  Their well-measured responses ruled the day after Brexit, evidently when German industrialists conceded that Britain is still a very important trading partner for Europe whether the latter is inside or outside of the EU.  The German media likewise stress very much the importance of Britain in Europe although for non-economic reasons, such as to keep Germany’s fragile democratic tradition in check, especially to prevent the rise of another Adolf Hitler.

On the other hand, opinions in Britain itself are divided.  There are those who are still “in shock” over what they have achieved especially those who voted Leave as well as those who led them to vote Leave like Boris Johnson and Nigel Farage.  Then there are those who are “in panic” over what the economic future of Britain will be, especially the younger generation.  Finally, there are those who “cry in happiness” over the fact that after 43 years that they have finally “won back” their country as if it was colonized in the first place.  The issue that remains to be seen is whether Britain will go up or down economically from now on.

Embed from Getty Images

Here are several factors to consider.

Economic growth.  When the Treaty of Rome was signed in 1957, European solidarity was never intended to be an economic project by their founders, but wholly political and with the sole aim of preventing another devastating world war.  Even when the Eurozone monetary union was created, its principal aim was to ensure that Germany did not use its growing economic potential, especially after reunification of East and West Germany, to outdo other Europeans, and it was thought that the power of the German central bank (Bundesbank) would be reduced, Germany’s competitiveness kept in check for the sake of the rest of the continent.  In fact this political objective has been achieved, but at the expense of not only of other 27 EU members, but especially so of Germany itself whose GDP is practically bound to the European market.  The reason is simple – keeping Germany happy necessarily comes at the expense of the freedom for others to trade freely with the rest of the world.  European countries had for all intents and purposes, become inward-looking not only politically, but crucially also economically.  This is evident in the chronically low economic growth rates collectively experienced by those inside the EU.  Although Britain has been one of the better performing ones, EU economies collectively have rarely exceeded 3 per cent annual GDP growth rates, and in fact have only averaged 1 to 2 per cent growth rates for most of the time.  Indeed, EU economies fare unfavourably when compared to advanced economies that trade freely with the world like Australia, the United States, Canada and South Korea.

German hegemony.  The political decision to keep Germany bound to its frightened neighbors has completely played to the hands of German industrialists, who not only rule the common market of 500 million consumers, but sadly also in the process has completely decimated the economies of much of Southern Europe, arguably forever.  Greece is only the worst example of many tragedies to come.  Keeping all the powers of individual central banks within the Eurozone under the virtual control of a common central bank (ECB) have ensured that no one steps outside of the confine of non-competitive zone that was created to facilitate superior Germany’s industrial dominance over Europe.  Indeed, the presently limited membership Eurozone is bound to increase its coverage to the whole of the EU eventually.  This is plainly evident in the grossly divergent Current Account surpluses of Germany (8.8% of GDP), Netherlands (9.1%) over tiny surpluses of Portugal (0.7%), Spain (1.5%) and even of Italy (2.2%).  Indeed, France (-1.4%) and Britain (-5%) suffered deficits as bad or worse than troubled Greece (-1.8%) itself.  The data clearly shows that Germany had enjoyed tremendous export performance at the expense of other European economies, and this is only possible with an inward-looking trading bloc like the EU.

Comments welcomed.