Larry Elliott writes:
The elephant in the room.
Everybody knew what Mark Carney
meant when he paused halfway through his regular three-monthly update on the state of the economy: the
implications of Brexit.
The governor of the Bank of
England did not pull any punches.
He warned of a potential run on the pound and
of possible problems financing the UK’s whopping balance of payments deficit.
He said the Bank expected growth to be materially lower and inflation to be
notably higher.
Voters trust the Bank of England. They sat up and took notice.
The opinion polls started to move in favour of remain.
When the history of the
referendum campaign is written, Carney’s may be seen as the decisive
intervention.
In truth, there was more than one elephant in the room.
Carney was right when he said there was a risk that the upheaval caused by
Brexit could tip an already weakening economy into recession.
But as elephants
in the room go, this was the smaller, Indian version.
The equivalent of the
bigger, African elephant was the shocking state of the eurozone after the
failure of the single currency experiment.
This went unremarked by Carney,
although it is relevant to the debate about Europe.
Why? Because, although Britain is
likely to stay in the EU, Brexit will
remain a live issue unless the eurozone can sort itself out.
That means either
admitting that the euro has been a terrible mistake, or going the whole hog and
integrating further, with a single banking system, a Europe-wide treasury, and
a democratically elected finance minister with the power to raise money in
Germany and spend it in Greece.
This is not going to happen any time soon, and
perhaps never.
Countries that joined the eurozone gave up a considerable amount
of economic power when they adopted the euro, but they retained the right to
raise their own taxes and make their own spending decisions.
Britain is not in the euro, for which we should all be
thankful. But let’s be clear: staying in the EU means hitching the wagon to a
currency zone unable to go forwards or backwards, and which will continue to
struggle as a result.
The euro brought to fruition the
idea of ever-closer union, a plan that dates back to the early 1950s.
Lots of
things considered good ideas back then are no longer considered quite so
clever: system-built high-rise flats as the answer to slum housing; nuclear
power to meet energy needs.
Put ever-closer union in the same category as the
Birmingham inner-city ring road: it seemed a good idea at the time.
Dan Atkinson and I spent the
winter working on a book about the single currency commissioned
in the wake of last summer’s Greek crisis.
The brief was to look at what had
gone wrong from a left-of-centre perspective; to explore the widespread
disquiet about the way in which a country that voted in January 2015 for an end to austerity ended up seven months later being forced to accept even deeper cuts in wages and spending.
The eurozone crisis is about more than Greece.
It is
about Italy, where the economy is barely any bigger now than it was when the
single currency was introduced.
And France, where unemployment is double the
level of the UK or the US.
And Finland, one of the most tech-savvy countries in
Europe, where the economy is 7% smaller than it was before the start of the
financial crisis.
And even Germany, where an export boom and high corporate profits
have been paid for by workers in the form of below-inflation pay increases.
Our investigations took us back
to the last time Britain held a referendum on EU membership, when during the
cabinet discussions Tony Benn warned that Britain was signing up for something
that was undemocratic, deflationary and run in the interests of big business.
“I can think of no body of men outside the Kremlin who have so much power
without a shred of accountability for what they do,” Benn said.
Benn’s dystopian vision proved
entirely accurate.
When the architects of the new Europe looked to the future,
they envisaged a new and better version of the United States of America.
Europe
would have all the good bits about the US – such as the economic dynamism, a
large barrier-free market and a single currency – without any of the bad bits:
the inequality, the high levels of incarceration, the poverty and the
inadequate welfare safety net.
This dream lives on.
Yanis
Varoufakis, the deposed finance minister of Greece, thinks the eurozone could be recast along Keynesian lines, with
the rich and strong countries obliged to provide financial help to the poor and
weak. Good luck with getting Germany to agree to that.
Economic policy has been relentlessly deflationary. The
interests of bankers have been given a higher priority than workers’.
Greece,
Ireland, Portugal, Cyprus and Spain have been the laboratory mice in a
continent-wide neoliberal experiment of a sort Tea Party Republicans in the US
can only fantasise about.
Given the obscene level of
long-term unemployment, the idea of Europe as the guardian of labour rights is
laughable.
The gap between the US and Europe has widened, not narrowed, since
the launch of the single currency.
Populist parties of both left and right are
gaining in support.
One left-of-centre argument against Brexit is that it would
result in the breakup of the euro and by doing so set off a chain reaction that
would lead to the next global crisis: a perfectly fair point.
Those who fear
that another recession and even higher levels of joblessness would threaten a
return to the totalitarian politics of the 1930s are right to highlight the
risks.
Some on the left who want Brexit say that the time is not yet ripe.
The left-of-centre case for
divorce is that Europe doesn’t work, is not remotely progressive and is heading
for an existential crisis anyway.
Last year’s threat was Grexit. This year’s
threat is Brexit. Next year’s threat will be something else: Italy leaving the
single currency, perhaps, or Marine Le Pen’s tilt for the French
presidency.
This presents an opportunity for
those who believe that the way ahead still involves closer integration.
Jean Monnet, the godfather of the EU, always
said that ever-closer union would be forged through crises, which is what
Brexit would undoubtedly trigger.
If the polls are right, Britain
seems unready to trigger this act of creative destruction and it will be left
to Varoufakis to do out of office what he could not do in power: prove a different
Europe is possible.
A different Europe is needed, but
it is stretching credibility to imagine that the Europe of Greece and the Transatlantic Trade and Investment Partnership can easily morph into America with the
nice people in charge.
The eurozone is economically moribund, persists with
policies that have demonstrably failed, is indifferent to democracy, is run by
and for a small, self-perpetuating elite, and is slowing dying.
The wrong
comparison is being made. This is not the US without the electric chair; it is the
USSR without the gulag.
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