The EU’s disintegration continues this week. The headlines don’t seem to change much. Unless you pay careful attention to where they’re leading.
If you float above Europe and see Brexit as just another domino pushing at the EU’s foundations, you’ll notice the pressure is getting a little high.
As the posterchild of anti-EU action, Britain is doing rather well.
As the posterchild of EU success and compliance, Greece is doing rather badly.
The Greeks may be locked in the EU and the euro’s embrace. For now. But other nations are delivering plenty of vengeance on their behalf.
The best part is, the EU is getting the blame it deserves. It doesn’t seem to be weaselling its way out of all the outrage and attention as it used to.
Back during May’s mini-crisis in the Italian bond market, Lega’s economic spokesman Claudio Borghi explained just how powerful EU and European Central Ban (ECB) forces are when it comes to controlling national politics of its members:
“In a way I am very happy because we have finally wiped the bull**** off the table. We now know that it is a choice between democracy or comfortable bond spreads. You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It worse than a religion.
“What we are seeing is the fundamental problem with the eurozone construction; You can’t have a government that displeases the markets or the spread club. The ECB and the Eurogroup will use this to crush your economy. You are very lucky in the United Kingdom that you still live in a free country.”
But with great power comes great responsibility. If the EU and the eurozone system start to attract their fair share of the blame, they’re toast. Especially given where EU compliance leads you…
A Greek Tragedy
The Greek post-mortem could be just what the eurosceptics across Europe need in their battle with the EU. If this is the EU’s version of a success, as they’ve been touting, then European voters will want no part of it.
Boris Johnson is ahead of the curve on this. His Telegraph article argued that Greece shows why we need to distance ourselves from the EU as much as possible: “the experience of Greece alone is a lesson in the absolute insanity of any country allowing itself to be bullied by EU negotiators.”
And “The tragedy of the Greeks was that they never had the nerve to tell their EU masters to get lost.”
On Greek unemployment, poverty and crumbing GDP, Boris wrote they’re a problem “precisely because Greece is an EU country and meekly obeyed the prescriptions of Brussels.”
Barron’s magazine has summary of where the wholesome EU and International Monetary Fund diet left Greece:
If their purpose was to support the Greek economy, the emergency loans must be considered a failure. Since 2008, the economy has shrunk by a quarter, and more than 400,000 Greeks have emigrated. House prices are down 43%. Bank credit to the private sector has contracted by a third. Fixed capital formation after depreciation has been consistently negative since 2010. More than €70 billion ($81.4 billion) worth of assets, including infrastructure, housing, and business plant and equipment, has been destroyed because of a lack of maintenance—a staggering loss for a €180 billion economy.
Yanis Varoufakis puts things in perspective for Britons in the Guardian:
“To get a feel for the devastation that ensued, imagine what would have happened in the UK if RBS, Lloyds and the other City banks had been rescued without the help of the Bank of England and solely via foreign loans to the exchequer. All granted on the condition that UK wages would be reduced by 40%, pensions by 45%, the minimum wage by 30%, NHS spending by 32%. The UK would now be the wasteland of Europe, just as Greece is today.”
Brexit, anyone?
Italy, perhaps?
Speaking of the Horrorclown…
The battle of the budgets
Within hours of the bridge collapse in Genoa, Italian Deputy Prime Minister Matteo Salvini was blaming the EU’s restrictions on Italian infrastructure spending. That earned him the nickname Horrorclown in Germany. The war of words has raged ever since.
But things are escalating from words to real money now. The Italian budget and the EU budget are both under fire.
The Italian Premier Conte said Italy didn’t need to follow the EU’s budget rules if other EU states didn’t abide by EU immigration rules.
Back in June, EU members supposedly reached an iffy deal on migrants. That’s fallen apart according to Italy’s other deputy prime minister, Luigi Di Maio.
On Facebook he wrote that Italy would play the same sorts of games as other nations do on migration, but in terms of the EU budget instead: “we will look at all measures in discussions regarding the European budget and will block what doesn’t work for us”, given that “the other states are not doing what’s not convenient for them.”
Specifically, Di Maio is threatening to “veto the [EU] budget and any dossiers where it’s possible”, which amounts to over a trillion euro between 2020 and 2027.
Italy can’t veto alone, but it could withhold funding to the EU. That’s another threat it’s made.
In a drama that’s very familiar for Brits, the Italians claimed they’d stop sending their €20 billion contribution to the EU. But EU budget commissioner Gunther Oettinger called this €20 billion figure a “travesty”.
First of all, Italy doesn’t even contribute that at the gross level. “Italy pays in €14, 15, 16 billion a year. If you take into account what they get out of the EU budget, that leaves a net contribution of €3 billion a year,” Oettinger said.
But Oettinger is very wrong, and playing politics. Italy can’t refuse to pay last year’s budgets, where Oettinger gets his figures. Italy’s projected contribution next year, thanks to Brexit, will jump to €19 billion according to Statista. Presumably, it’ll continue growing, bringing the relevant figure for the 2020 to 2027 EU budget to more than €20 billion.
But what about the gross versus net distinction that mattered so much in the Brexit debate? Well, Italy can’t control how much money it gets from the EU. It can decide not to send fund though. So the gross figure is correct. Unless the EU stops sending any money to Italy…
I’d like to see what Oettinger says about net figures and the missing billion when Italy refuses to send its €19 billion to the EU…
Oettinger also argued that if the EU actively dealt with Italian budget threats on a day-to-day basis, it’d be too busy.
This is the peace and harmony the EU brings you.
On that note, I listened to an interview of Daniel Hannan yesterday. He pointed out that Europe’s wars were historically of a nature that the EU would not prevent. Religion and political idealism are not countered by the EU. It does seem to be making the latter worse though.
The end of the euro goes mainstream
In April, I predicted an end to the eurozone. In a very specific way. You can find an updated version of my predictions here.
What’s interesting is how my views are no longer controversial.
Boris Johnson wrote that the “The single currency remains an unmitigated disaster. One day it remains highly likely that it will implode.”
Economist Enrico Colombatto wrote for Geopolitical Intelligence Services that “the new [Italian] populist coalition made costly election promises that could bring about a default or a euro exit.”
I met Colombatto on the Free Market Road Show in 2016. He’s an avid mountaineer and professor at an Italian university conveniently close to Switzerland…
Ambrose Evans-Pritchard argued this month that the eurozone is already dangerously close to collapse:
Indeed, it is an open question whether the eurozone itself can weather another slump, given that the ECB has exhausted its monetary powder and there is still no fiscal union to stabilise the system. The glaring risk is that Italy’s insurgent coalition – armed with its “minibot” parallel currency – will set off a chain of events that causes the rupture of monetary union.
In which case, Greece will be forced out of the euro as a collateral casualty. All the sacrifice and national humiliation since 2010 will be have been pointless. Greece may get its drachma whether it wants it or not.
But what would the world look like without the euro? How can you protect yourself from the fallout?
I can’t find others helping you with questions like that. So find out here.
Until next time,
Nick Hubble
Capital & Conflict
Category: The End of Europe