Slowly, It's All Coming Together

In four days France is scheduled to vote up or down the 300 page EU Constitution, and absent a sudden change of heart, the French will give it the thumbs down. While such news will likely not make the 5th page of most newspapers, I am going to guess that in ten years May 29, 2005 will be looked upon as the beginning of the end of the European Union, and eventually its currency. As I suggested in my very first piece for the ‘Ville, this outcome is virtually inevitable, and a phenomenal piece by uber-service Stratfor nails the reasons why. Here are the key excerpts:

"There were two reasons for creating the EU. The first was to build
institutions that would prevent a fourth war between France and Germany. The catastrophic record of European statesmanship created the impulse to tie the hands of European politicians by creating overarching institutions. In other words, transnationalism was designed to overcome Europe's ruinous nationalism.

Second, the European Union, and the European Community before it, were designed to facilitate European prosperity. It was reasonably assumed that a Europe without protectionist barriers would do better than a Europe fragmented into multiple, exclusionary markets. On this level, the EU had a purely utilitarian goal: It was designed for economic ends, and the only justification for its existence was how readily it achieved those ends and how universally it could distribute those benefits across national lines. The European Union was designed to allow Europe to be competitive in the global marketplace.
. . . .

But there is a huge difference in the ways political systems function in
relatively prosperous times and in more austere times. Things that are
acceptable when the economy is healthy become less tolerable -- or
intolerable -- when the economy is weak. This does not mean that the primary issue is economic. The chief obstacle to an EU constitution in France and elsewhere is political and social -- it is the unwillingness to abandon sovereignty. This sensibility is always there, but it is activated when the political ambitions of the new regime interact with hard times. This is doubly the case when people believe that their own problems and votes might have no bearing on the actions or policies of the new political system."

Meanwhile, financial symptoms of this untenable structure are spreading all around. Europe has joined the U.S. in the noise for protectionist measures. For now China is the preferred target, but the underlying economic and fiscal imbalances are growing between European countries as well.  In addition, Italy is joining France and Germany in disregarding the Maastricht’s deficit boundaries, the mechanical heart of the Euro currency. 

I am aware that to loyal Minyans I must sound like a broken record. And it is also likely that none of today’s circumstances will probably mean much tomorrow. But the more I step back, the more I grow convinced that these events are yet more pieces of the puzzle coming together. As night follows day, financial imbalances lead to protectionism, which in turn leads to worldwide financial crisis. When Hoofy will ultimately hit the fan, people will look back and blame the General Motors (GM) bonds, hedge funds, or the housing bubble. And in another 75 years, the very root causes of the debacle will be ignored again, and our grandchildren will, once again, be heard arguing that “this time is different.”