A Case For the European Union and Euro
With the sovereign debt crisis threatening to burst into a contagion that could rip apart the EU, some commentators are asking what the point is in the union. Here is one European's answer.
I am a big fan of Professor Mike Shedlock and consider him, together with Toddo, Peter Atwater, and the late Bennett Sedacca, as the professor with the broadest and smartest view on the international economy. He’s a must-read in my daily schedule.
But… as a European, his all-American view on the European Union and the Euro as two bad experiments that are a second-rate clone of the United States sometimes aggravates.
When you have this view, you can always find an Anglophile politician yelling at the members of the European Parliament that the Euro is a failure and that the European Commission are a bunch of idiots who will create havoc and riots in Europe with their mindless plans to bail out all European countries because of their hunger for more Europe and less nation state. Case in point.
But if you want to know why most Europeans don’t actually want to get rid of the European Union and the Euro you need to look at our (recent) history and geography.
If you live safely in Chicago like Professor Shedlock, where the closest “foreign” country is 270 miles away, it may be easy to forget European history, but most Europeans don’t. To remember what the European Union is all about you only have to drive 300 miles from The Netherlands to Berlin to look at the Remembrance Church (Gedächtniskirche) or 200 miles to Verdun, Belgium where tons of explosives and remainders from the first World War are still found.
England has always had the luxurious position of being an island, and English people are still very firmly in the mindset of being islanders. It’s the one country in Europe still “mentioning the war”. Watch a show of BBC’s Top Gear where they visit Germany, Belgium or The Netherlands and you know what “xenophobia with a smile” sounds like. People from The Netherlands, Belgium and Germany sometimes respond by joking that “we should pull the plug out of Britain to let it sink to the bottom of the sea”.
The European Union -- started as the European Community for Coal and Steel by Italy, France, Belgium and The Netherlands -- was our way out of a deadly spiral of war upon war that has lasted for more than 1900 years. It brought tremendous prosperity to all member countries and, importantly, it helps to withstand a little bit of the divide-and-conquer politics of the United States.
Looking at the different states of the European Union they produce goods and products of a quality that is second to none, famous around the world. Volvos, Mercedes, Rolls Royce and Ferraris, to mention only some car brands, along with top quality household appliances and an unbeatable variety of produce. Flowers from The Netherlands are exported over the whole planet, and your hamburger probably has a European onion on it.
China may beat us in producing low cost goods - but not in quality goods, and most American cars I’m sorry to say, are still not yet as well built as European cars. The European Union helped all countries to develop, build, and export these goods without borders or boundaries. Even in these challenging times don’t expect 20% of European Union citizens to live beneath the poverty line, and the only recent riots in Europe were striking Frenchmen, which is a kind of national hobby there.
Then the Euro. The scapegoat for everything wrong about the European Union and the big game that all bondholders are hunting for nowadays. Why do we have it in the first place? In the year 1990, if you drove your car from say, The Netherlands to Portugal, a robust 1000 mile drive, you had to purchase Dutch Guilders, Belgian Francs, French Francs, Spanish Pesetas and Portuguese Escudos. ATMs were not widespread in those days and bankcard transactions with your Dutch bankcard in every European shop were a mirage on the horizon. I still have at least six European currencies hidden in a box that I kept from past vacations.
The European Union countries had at least 20 currencies in a geographical area that is a fraction of the United States. Was the Euro a good idea? You bet it was.
Of course the coming months will be extremely tough with bond-holding scavengers feeding on the misery of Greece, Portugal, Spain, Italy, Ireland and even England (Pound Sterling!) with their enormous national debts compared to their GDP. Eventually Germany, France and The Netherlands will also go through a very tough time… but is the Euro to blame for that?
Or is it some stupid ideas like:
- House prices will never fall, so whatever you pay for it is the right price.
- Banks will help the whole economy and community when they prosper.
- The market will never fail if you just let it run its course.
- The economy will grow forever.
- It is good to lure multinational American and Japanese companies with ridiculously low tax rates to keep employment going.
To start with the last stupid idea: A tax rate of 12.5% for corporate tax is not a VIABLE tax rate for a country. And as soon as you increase taxes… the American and Japanese companies are gone to another stupid country.
And maybe the free market wouldn’t fail over the long run if we let it go totally; but what country can afford to let the market go all the way if the rest of the world is forcing it to take measures? As Keynes famously said, “In the long run, we are all dead”. A truly free market is a mirage from Austrian economic books. Professor Shedlock must know this in his heart when he is an honest man, which he truly is.
Will the Euro survive? Your guess is as good as mine! But should it -- and the European Union - survive? You betcha. Europe is going through a very tough period with Islamophobia, xenophobia and europhobia natural reactions to the economic misery that is now spread amongst us. But is a return to the pre-1990 situation a good idea? You can bet it isn’t. Most Europeans will guarantee you that.
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