The Euro Area’s Deepening Political Divide

By Ashoka Mody, Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University. Author of EuroTragedy: A Drama in Nine Acts. Originally published at

Two European elections – in Germany on 24 September 2017 and Italy on 4 March 2018 – warn that the peoples of Europe are drifting apart. Much of the recent deepening of these divisions can be traced to Europe’s single currency, the euro. This column argues that the political divide in Europe may now be hard to roll back absent a shift in focus to national priorities that pay urgent attention to the needs of those being left behind.

The University of Cambridge economist Nicholas Kaldor was first to warn that the euro would divide Europe (reprinted in Kaldor 1978). His critique came in March 1971 as a response to the Werner Commission Report, which presented the original blueprint of what would eventually be the euro area’s architecture (Werner 1970). Kaldor wrote that a single monetary policy (and the accompanying one-size-fits-all fiscal policy framework), when applied to diverse European countries, would cause their economies to diverge from one another. The logic was simple: a monetary policy that is too tight for one country can be too loose for another. The economic divergence, Kaldor said, would cause a political rift. Such warnings continued. The University of Chicago economist and Nobel laureate Milton Friedman (1997) predicted that the euro’s flawed economics would “exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues”.

European leaders dismissed such naysayers. They insisted that the single currency would bring Europeans closer into a political union (Sutherland 1997).

A Permissive Consensus?

The discourse on the possibility of political union in Europe was conducted mainly within a group of so-called elites. These elites – political leaders and bureaucrats – had little basis to presume that national interests could be reconciled to unify Europe. But they made the further assumption that they had a “permissive consensus” from the public to make far-reaching decisions on European matters (Mair 2013). As I argue in a forthcoming book (Mody 2018), the permissive consensus began to break down about the time the single European currency became a political reality. Following the signing of the Maastricht Treaty in February 1992, the Danish public rejected the single currency in a referendum held in June 1992. And in September 1992, the French public came within a whisker of rejecting the single currency.

The voting pattern in the French referendum eerily foreshadowed recent political protests. Those who voted against the single currency tended to have low incomes and limited education, they lived in areas that were turning into industrial wastelands, they worked in insecure jobs, and, for all these reasons, they were deeply worried about the future (Mody 2018: 101–103). By voting against the Maastricht Treaty, they were not necessarily expressing an anti-European sentiment; rather, they were demanding that French policymakers pay more attention to domestic problems, which European institutions and policies could not solve.

Over the following years, the permissive consensus continued to fray. The popular voice against ‘more Europe’ expressed itself again in referendums on a European Constitutional Treaty in 2005. Referendums allowed focus on European issues, which were crowded out by domestic priorities in national elections. European elites found it easy to dismiss the referendums as aberrations.

A critical new phase began during the financial crises of the past decade. After the onset of the Global Crisis in 2007 and then through the protracted euro area crisis, euro area monetary and fiscal policies hurt the lives of ordinary people who felt left behind – the less educated and those living outside of metropolitan cities. Euro area policies, however, remained insulated from political accountability to those whose prospects they most severely damaged. As a consequence, domestic rebellions gathered force throughout the euro area. These rebellions originated among similar people in the various member states, but they resulted in opposing national public responses in the northern and southern countries, increasing the political divide.

The Rise of Alternative für Deutschland in Germany

The most virulent form of political division emerged in the crucible of the euro area financial crisis in 2012. The permissive consensus finally broke down. In Germany, long-time members of Chancellor Angela Merkel’s Christian Democratic Union (CDU) formed a new political movement, Electoral Alternative, in September 2012. This new movement represented those who refused to accept Merkel’s claim that Germany had no alternative but to support financially troubled euro area nations. In February 2013, Electoral Alternative converted itself into a political party, Alternative für Deutschland (AfD), which called for a breakup of the euro area.

Although AfD missed the threshold of 5% of votes cast for the September 2013 election to the Bundestag, it gained political strength starting in August 2015, following Merkel’s open door to Syrian refugees. Seeing that she was losing popular support, Merkel quickly clamped down on refugee and migrant inflows, but AfD continued to gain political strength. In the September 2017 election, AfD received 12.6% of the vote. Many who voted for AfD in 2017 had not cast a vote in 2013, having lost faith that they have a voice in the democratic process. In 2017, these voters looked for solutions outside of the political mainstream. AfD voters had one very specific German feature: many were East Germans. Aside from that, however, the AfD vote manifested a pattern observed elsewhere in Europe and in the US. In East and West Germany, low-income men with only ‘basic’ school education or vocational training voted in large numbers for AfD (Roth and Wolff 2017). Most AfD voters were between the ages of 30 and 59; they worked in blue-collar jobs, often with little job security. They lived in small cities and rural areas.

Thus, economic protest and anti-immigrant sentiment overlapped in AfD voters, an overlap that Guiso et al. (2017: 5) find for several European countries. Even prosperous Germany had left behind many of its citizens. Marcel Fratzscher, president of the research institute DIW Berlin, explains in his forthcoming book that the country’s economic gains in the past few decades have not percolated to the bottom half of the German population (Fratzscher 2018). In this bottom half, real incomes have barely grown; few are able to save for a rainy day. Political alienation and conflict within society have increased.

With the CDU and the Social Democrats having experienced historic setbacks, a governing coalition proved difficult to form and Germany remained without a government for an unprecedented five months. Recently – coincidentally, on the same day as the Italian election, 4 March 2018 – the CDU and the Social Democrats finally agreed to form a ‘grand coalition’. A German government will soon be in place, but polling data show continuing decline in popular support for the CDU and especially for the Social Democrats. AfD will be the largest opposition party in the Bundestag, and, for now, its support in the polls is rising.

The Anti-Europe Movement in Italy

Italian developments moved in parallel. Italy’s Five Star Movement, headed by the comedian-blogger Giuseppe “Beppe” Grillo, rose from relative obscurity to prominence in the February 2013 election, garnering 25% of the vote. Italy had been in near-perpetual recession since early 2011, with mounting job losses, especially among young Italians. The Five Star Movement’s call for direct democracy resonated with voters frustrated with European monetary and fiscal policies, which profoundly affected their lives but which they felt powerless to influence. The poorer southern areas voted for Five Star candidates. But whether in the north or the south, the share of votes received by Five Star candidates was higher in regions of higher unemployment (Romei 2018).

For Italians, indignities during the crisis years had come on top of economic stagnation since Italy entered the euro area in 1999. Economic productivity – the source of higher standards of living – stopped increasing, Italian producers lost international competitiveness, and well-paying manufacturing jobs began to disappear with nothing commensurate to replace them. The financial crises – first the Global Crisis that started in July 2007 and then the continuing euro area crisis – compounded Italy’s economic and political dysfunction. Euro area authorities’ emphasis on tight monetary policy and unrelenting austerity depressed economic growth and therefore had the perverse consequence of increasing the government’s debt burden. Meanwhile, the enforced fiscal austerity crowded out the government’s ability to cushion the economic pain of vulnerable citizens. And although ECB President Mario Draghi’s announcement in July 2012 that the ECB would do “whatever it takes” to save the euro area helped bring down the nominal interest rate the Italian government paid on its debts, the ‘real’ interest rate (the nominal rate adjusted for inflation) remained high. The Italian economic squeeze continued. In early 2013, the average Italian was poorer than at the time of entry into the euro area.

In the February 2013 election, Grillo campaigned on an anti-European platform, even promising to hold a referendum on whether Italy should remain in the currency union. Mario Monti, the outgoing prime minister, appointed to head an interim ‘technocratic’ government in November 2011, campaigned as a pro-European and received an electoral drubbing. Pier Luigi Bersani, head of the center-left Partito Democratic (PD), also promised a pro-European Italian government, and his party received 29% of the votes, down from 38% in the 2008 election.

Although the PD did manage to lead a coalition government, it ran through two prime ministers – Enrico Letta and Matteo Renzi – before settling on Paolo Gentiloni. The damage was done. The jockeying for power within the PD, much of it instigated by Renzi, eroded the party’s reputation and public standing. In the March 2018 election, the PD received 19% of the votes cast. In contrast, the Five Star Movement increased its vote share to 32%. The anti-Europe parties altogether received about half the votes; if former Prime Minister Silvio Berlusconi’s Forza Italia, with its softer European-skepticism, is added, nearly two-thirds of all Italians distanced themselves from Europe in the latest election.

Thus, in Germany, AfD has attracted economically anxious Germans worried that the German government is doing too much for Europe. In Italy, the Five Star Movement has gained because anxious Italians are angry that the European governance system disadvantages, and even damages, their futures. Despite the continued decline in nominal interest rates under the ECB’s quantitative easing programme since January 2015, the real interest rate for Italians remains higher than 1%; in contrast, the real interest rate for Germans is –1%, which gives German producers and consumers greater ability to spend and grow. The single monetary policy continues to the economic divergence between northern and southern member states, which sustains and amplifies the political divisions.

Today many hope that, spurred by French President Emmanuel Macron’s call for euro area reform, Merkel will work on repairing the euro area’s architecture. Such a hope is illusory. Merkel is all too aware that any sign of financial generosity toward Europe will embolden the rebels within the CDU. Other northern nations have made clear that they will oppose calls on their taxpayers (Rutte 2018, Finance Ministers 2018). No euro area nation state is willing to cede its national parliament’s sovereignty on fiscal matters. Policy decisions will remain disengaged from politics. Hence, even if new financial arrangements are engineered, it will be impossible to achieve accountability in euro area governance. Political tensions will continue to build.

Concluding Remarks

There are no easy answers to Europe’s economic and political woes. For this reason, as I argue in my forthcoming book, the answers will not be found in ‘more Europe’. For too long, euro area leaders have dismissed or denigrated the domestic public rebellions. This is a terrible mistake. However inchoate, and sometimes nationalistic and xenophobic, these rebellions have been, they convey an important message. In addition to the distress the euro directly inflicts, the single currency distracts European leaders’ attention from where it ought to be directed: domestic priorities. Of special importance is strengthening human capital, a capability in which all southern euro area countries (and even some northern countries) are lagging behind world leaders. Investment in human capital is crucial to achieving greater equity and sense of fairness while helping to regain international competitiveness.

Put simply, European leaders must shift their efforts away from the ultimately impossible goal of making euro area governance more accountable and towards national domestic economic agendas that give hope to those who feel disenfranchised. If they fail to make this shift, domestic politics will continue to fragment, and as that happens, European politics will become ever more corrosive.

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50 comments

  1. Sound of the Suburbs

    Neoliberalism is about competition and establishing winners and losers.

    US wealth distribution:

    shot 2015-06-15 at 11.28.56 am.png

    The 1% won, the top 20% did pretty well and the rest lost.

    The Euro-zone.

    Germany won, other Northern nations did quite well, the Southern nations did badly and Greece lost.

    1. Ignim Brites

      You could geographize this distribution of benefits (really of central bank largess) down to zipcodes but roughly New York City, Fairfax County, the Bay Area, King County, Los Angeles County, Harris County and Travis County won. The vast majority of counties lost. Think of it this way, some like to preen by supporting a $15 minimum wage but in the Bay Area that is laughable. $40 minimum wage would be more realistic, which means, in turn that US income tax rates need to be COLAd by zipcode. All of which makes it pretty clear that the odds of the nation surviving intact are minimal and it would behoove the political class to start talking about how to accomplish a peaceful disintegration. Or to put it another way, for the illumination of the Sandersistas, the new name for revolution is secession. So should the county be recognized by the political elites as the optimal secessiona
      ble unit?

      1. Rostale

        I’ve thought for a while that minimum wage should vary based on property values of the area.

      2. Synoia

        Please add Orange and Ventura Counties to you list.

        Parts of LA county look as poor as Africa. Orange County does not.

    2. Tony of Ca

      I’m not so sure Neoliberalism is really all about competition. In my day to day business life, all I see is firms continually trying to stifle competition. As an example, the pillar of US capitalism, Warren Buffet openly boast of investing in companies which have moats around them ensuring they are free from much competition.

      1. Yves Smith Post author

        Buffett is too old to be a neoliberal. And he believes in redistributive taxes. Recall he said it was bad that his secretary’s tax rate is higher than his.

  2. PlutoniumKun

    This is a very good overview – but one key issue which is often overlooked by those opposing the Euro, usually for very good reasons, is that e, even in countries like Italy and Greece. Quite simply, most people do not associate austerity with the euro, they place the blame alternatively on local or EU level politicians and bureaucrats. The Euro is actually less popular in those countries that have benefited most (Germany most obviously, but also countries like Finland) than in those countries that have suffered from it.

    The reason for this is quite simple – people in those countries hated their former currencies because of their perceived ‘weakness’ and the belief that politicians were always debasing the currency to get out of short term difficulties. And of course everyone would have experienced rip off currency exchanges at some time. The Euro is least popular in those countries with fond memories of strong currencies giving them great holidays in Spain.

    While it can certainly be argued that the Euro is destined at some time to fall apart under its own terrible design, there is a strong popular support for it, even in deprived areas. I think most European politicians are well aware that there is more support for reform of the Eurozone than breaking up the Euro or returning to national currencies, even if the latter is a more sensible long term approach.

    1. Ignim Brites

      This is an excellent observation about how political elites claim ownership of the means of exchange.

    2. Hans Suter

      pollster Mannheimer estimates that up to 40% of the Italian electorate wants to leave the euro

        1. Hans Suter

          hahaha, sure, like Renzi who lost his referendum with 60% and then said 40% have voted for him

  3. frequent

    To me this is first and foremost a “societal” political divide rather something specific to Europe. Just take the US – single currency, centralized government, same outcome: parts of a population left behind with little perspective and sufficient fear of immigration/free movement to vote “anti establishment” and even consider putting up a wall.

    I also don’t believe (back here in Europe) these issues can and should be solved on a national level only as it allows to make the EU an easy scapgoat. Plus I don’t see national eonomic agendas neither being the sole remedy nor effective with likely competing and offsetting agendas and spillover effects. The freedom and freedoms we have been given being part of Europe also means having to share and figure out expected and unexpected downsides together. We’re still bad at this though.

  4. Harry

    I was curious about the references in the article. Alistair Sutherland was my director of studies at one point, and its always worth digging up references which prove what we students thought at the time – that he was universally wrong

  5. Bugs Bunny

    I have to comment on the inherent contradiction in the conclusion: how can Eurozone members concentrate on national priorities without violating Maastrich provisions? During his campaign, Mélenchon proposed simply ignoring certain rules; perhaps that’s the way to go.

  6. Norb

    Removing political tension would require rethinking how basic human needs are met. Health care, transportation, housing, education, and guaranteed work. Put simply, more brainpower focused on providing social services, instead of personal and class advancement along strictly monetary and power lines. Inequality and strife are always present when viewed from a personal property perspective or extreme nationalism, which is just the same outlook, large scale.

    The West provided the world with a vision of personal freedom that still resonates greatly, but has failed to offer a social system that ensures its actualization in the real world. A powerful, selfish elite, have always worked to undermine any broader collective vision other than a violent nationalism- the easy solution for complex problems.

    Orwell had it right when he wrote about some being more free than others. Actually believing in freedom for all, and actively persuing that goal to its logical conclusion would lead to a socialist and communist world. In a sense, individualism would recede into the background and become irrelevant to the broader social construct. A “working” society would mean the greatest effort would be dedicated toward maintaining the “fairness” of the system. Fairness being defined collectively through democratic processes. Such a person is free from want, not social responsibility.

    In our current social manifestations, western citizens are free to become slaves to an exploitative system, or risk being cast aside. Such a person is free to express individual desires, but has no responsibility. They are responsible only to themselves and their clan. That is authoritarianism masked as freedom.

    People want freedom, but a selfish elite always arise to limit and control the bounds of that freedom. What is needed is an elite that don’t act, and think selfishly.

    1. Norm

      It’s not just the elites whose selfishness warps the system. Most people given the choice between more social justice and a better paying job would gladly forget about the social justice. The viability of any democracy depends on there being a balance of attachment to the prospects of what’s good for me vs what’s good for my community, my country, my world. We can all point to people who maintain a decent balance in this regard, but most do not.

  7. James

    When are we going to get another post on this forum re Brexit? Hasn’t there been some news on that front lately?

  8. Synoia

    The aristocracy has always ignored the peasants.

    Plus la change la meme chose!

    The peasants are revolting, is only partly a threat.

  9. Altandmain

    There is at least one partial solution. Stop sticking austerity down everyone’s throats.That is one of the biggest contributing factors to the current situation.

    The other is that there is too much money for the top 10 percent and especially the ultra rich. There needs to be a massive redistribution.

    Of course that is precisely what the neoliberals don’t want. They want to dismantle the middle class and turn the EU into the aristocracy of old.

  10. Jesper

    This part:

    Economic productivity – the source of higher standards of living

    Is interesting. Suppose we were to test that theory against the agricultural industry to see if the theory is sound?

    The productivity in the agricultural sector is currently amazingly high. Especially If compared to 200 years ago. But the increase in productivity might not be so great if looking comparing it with 20 years ago. Maybe that would indicate a mature industry? Maybe that indicates nothing?

    Either way, where have the productivity gains ended up?
    Family owned farms?
    Workers at farms and/or agricultural processing plants?
    Or with someone else? If so, who?

    Every time I read economists writings about the transition from agricultural to industrial I have the impression that it was an easy transition without hardship for displaced agricultural workers. Based on historical records I read then it was not easy and it was full of hardship, now a similar transition is apparently happening.
    A transition from what we have to something yet undefined. And this transition to the undefined is apparently not only going to something that is at best undefined it is also supposed to be easy and without hardship. Would it be rational to be concerned about this transition?
    Maybe our ‘enlightened elite’ would like to share with us their plan for how to deal with the increased producitivity?
    As far as I can tell their plan is to do nothing. And the plan of doing nothing is leading to lower wages, less secure employment and postponed retirement at lower pensions. I’m more surprised with the support some political leaders have than the rise of the so called populists.

    The ‘political woes’ are about the political leadership being completely and utterly unable to act in the interests of the electorate in this transition. If the political leadership was acting in the interest of the electorate there would be no ‘political woes’. Implying that the problem is with the electorate is a big part of the ‘political woes’.
    & this:

    Investment in human capital is crucial to achieving greater equity and sense of fairness while helping to regain international competitiveness.

    is what i consider to be at best meaningless twaddle and at worst a xenophobic blaming the victim mentality.

    1. John Wright

      Yes, “investment in human capital” is trotted out, I suspect, because it buys more time for the elites to polish their message.

      The new “investing in human capital” students are removed from the workforce while they are learning, so they are not expected to be good wage earners during the learning period.

      And the investment period may take many years, allowing elites to claim that it will take years for the “investment in human capital” to pay off.

      One simply needs patience.

      This also begs the question, how does a nation, with an expensive human capital enhancement industry (such as USA higher education) compete with a nation such as China or India that apparently can educate their students at a much lower cost?

      With USA and European international corporations able to tap the labor of well educated students from around the world, what is the differential advantage the expensively educated USA/European student has?

      1. economicator

        Very astute observation. In the US, the higher education industry is starting to prey on the human capital. And yeah, the differential advantage, especially up to the MS level, basically does not exist.

        Capital doesn’t care about this of course. Capital is transnational. These are national questions and expecting capital to take care of them is either a delusion, or a deliberate lie.

    2. Oregoncharles

      Funny (or not) how economists and plutocrats always talk about “productivity” OF LABOR, but not of capital – which is NOT the same thing as “returns.”

      Labor productivity is a good thing ONLY if everyone is employed. Then there is more to go around – if it does, the point you were making. But without full employment, increasing productivity is really just eliminating jobs. It hasn’t meant more leisure in a long time; that would only happen under full employment.

      Insofar as capital and labor are interchangeable (partly, but significantly) it also means wasted capital. Overall productivity would be higher if the unemployed were put to work, if necessary with minimal investment (shovels instead of backhoes). And of course the fundamental purpose of the economy, to support and supply the population, would be better served.

      A fundamental flaw of capitalism is that decisions rest mostly with the owners of capital, who express their self-interest by maximizing (total, not percentage) returns to capital and minimizing returns to labor (people). This is the reason NC obsesses about self-driving cars. The other consideration is that they would make commutes less tiresome, as well-planned public transport does. If you aren’t driving, you can read, work, or sleep. But good public transit would be a better solution.

  11. Michael Hudson

    I think a better explanation for the rise of the right-wing parties is that the Social Democratic parties (no more “really” left than America’s Democratic Party) have gone neoliberal. The rise in the political right reflects the failure of the left to come up with an alternative political and economic program.
    That is how fascism rose in the 1930s, and the same dynamic is true today.
    What is needed is a new set of parties as an ALTERNATIVE to the right. This cannot be done by working through the Social Democrats or Democrats.

    1. MisterMr

      “I think a better explanation for the rise of the right-wing parties is that the Social Democratic parties (no more “really” left than America’s Democratic Party) have gone neoliberal.”

      I think this is true today, but I’m not sure this was true in the 30s.

    2. RabidGandhi

      Yeah but… While the centre left parties have been rejected wholesale, we now have Syriza (now effectively neoliberal), Podemos (which has essentially stopped fighting austerity to instead focus on petty corruption/gender issues/penal reform) and Cinque Stelle (which abandoned its anti-euro stance prior to the recent election).

      The alternative anti-austerity parties are in fact rising up on the left, but one after one, they are being co-opted to look like the milquetoast socialists they were supposed to replace. Meanwhile, the most viable anti-austerity possibility at the present time is Jeremy Corbyn’s Labour, where the left has actually turned the tables and done some co-opting themselves.

      With regard to whether we need new parties or hostile takeovers of old parties, I’d say the jury is still out.

      1. jsn

        The submission of new leftisms to NeoLiberalism is a really interesting problem that I don’t think has an analogue in the past. All these political movements today are arising in urban, capitalized, marketized spaces with little memory of even a possibility of self sufficiency. Where there is a memory or possibility of autonomy, like in Venezuela or Ecuador, you see much more persistent resistance to NeoLiberalism, not necessarily more successful as yet, but persistent and ideological in opposition to “markets”: solidarity is still a possibility where cooperation can yield self sufficiency.

        Earlier leftisms, and that new one described the other day in Naomi Klein’s at the Intercept, are actually capable of positing a self sufficiency for ordinary people: these new ones can’t imagine that because the urban scale at which they have arisen does not offer a plausible vision of self sufficiency.

        The weight of population modern leftisms have to address require industrial food production and money is the only tool their advocates have experience with to address the distributional challenges of industrial scale production. This explains attachments to the Euro and the repeated capture of leftist experiments by NeoLiberalism.

        1. Oregoncharles

          I get the impression that the great failure in Venezuela was that they did not use the oil money, when it was plentiful, to make the country more economically self-sufficient – for instance, by promoting sustainable agriculture or building pharmaceutical factories. There are widespread complaints just about the basic infrastructure. Instead, they operated as petro-socialists, which made them very vulnerable to the price collapse.

          Putin’s Russia is an example of the opposite, for all its faults. Of course, it’s much bigger, but also colder.

  12. Anonymous2

    ‘there is too much money for the top 10 percent and especially the ultra rich. There needs to be a massive redistribution.’

    I agree absolutely. People IMO confuse two separate developments of the last three or four decades: globalisation and an increase in inequality in individual countries. The two are not identical; neither one requires the other of necessity. Globalisation can lead to greater intra-country inequality if handled badly, but it does not have to do so.

    It is very easy to blame globalisation for other unwelcome developments because it is in a way blaming the foreigner – the Other we are so ready to hate. This is not the way forward, however IMO. We need to address the real problems, if we can.

  13. MisterMr

    So how comes the first country to leave was the UK, that didn’t use the euro and thus supposedly was free of all these problems?

    1. Anonymous2

      The English have been deluged with anti-EU propaganda by their newspapers for 30 years. Virtually anything you could complain about was blamed on the EU, though usually the people responsible for causing the grievances were much more likely to be based in the UK. It is always easy to blame foreigners, who generally have no effective right of reply.

      1. Tony Wright

        Yes, even in BBC comedy – remember the priceless Yes Minister episode with Jim Hacker PM and the british sausage?

    2. Oregoncharles

      Wasn’t UK austerity based on EU policies?

      The truth is that Britain was pretty reluctant to start with.

      1. Anonymous2

        No. UK austerity was home-grown. Inflicted by the Cameron-Osborne government for political reasons.

        Poetic justice meant it contributed to their fall from power but that is of little comfort to the rest of us.

        Reluctant to start with ? There was a 67-32 vote in favour of staying in in 1975.

        The newspapers turned against the EU in the late 1980s (especially Murdoch and the Telegraph and Mail)

        1. Anonymous2

          See from Wikipedia below. Without the ability to impose sanctions, the EU are toothless with regard to the UK’s fiscal policy. The UK has therefore been able to ignore the EU on these matters and has done so.

          ‘Note about UK: Paragraph 4 of Treaty Protocol No 15, exempts UK from the obligation in Article 126(1+9+11) of the Treaty on the Functioning of the European Union to avoid excessive general government deficits, for as long as the state opts not to adopt the euro. Paragraph 5 of the same protocol however still provides that the “UK shall endeavour to avoid an excessive government deficit”. On one hand, this means that the Commission and Council still approach the UK with EDP recommendations whenever excessive deficits are found,[238] but on the other hand, they legally can not launch any sanctions against the UK if they do not comply with the recommendations. Due to its special exemption, the UK also did not incorporate the additional MTO adjustment rules introduced by the 2005 SGP reform and six-pack reform. Instead, the UK defined their own budget concept comprising a “Golden rule” and “Sustainable investment rule”, effectively running throughout 1998-2008, which was UK’s national interpretation how the SGP-regulation text should be understood.’

  14. steven

    As I understand it the idea of a European Union originated with the recognition by Europe’s elites that their hegemonic wars for control of the Eurasian continent were self-defeating and ultimately suicidal. (If you want a refresher course on what industrial-scale mass murder was like a century ago, take a look at the US Public Broadcasting System’s The Great War.) Two attempts to obtain that hegemony militarily left Europe devastated and its elites in danger of being deposed. Into the breach stepped the United States. Its goal was to preserve the omnipotence of money, particularly its own. Its strategy was to continue the de facto global military hegemony it enjoyed in the aftermath of WWII. Europe’s elites were to be permitted to contest with each other for regional hegemony – but only through monetary not military means.

    What is at stake here is money as a method of social and geopolitical control. (See Michael Hudson’s ) Through the post-WWII Bretton Woods international monetary system the US succeeded in hanging so much of its “debts that can’t be repaid (and) won’t be” on the Western world’s oligarchs they now apparently believe they have no choice but to go all in with the US neoconservatives – who having squandered so much of the nation’s wealth on needless wars and countenanced the idling of Western ‘human capital’ so people like US president Trump can “keep score” while they play money games with each other – threaten humanity with annihilation if the US isn’t permitted to hang on to an unsustainable status quo.

  15. Oregoncharles

    The conclusion is much weaker than the body of the article, which actually says that the Eurozone and probably the EU are coming apart; Brexit is the least of it.

    And although he doesn’t use the term, he’s condemning a particular impact of neo-liberalism. That’s the root all evil in the Euro: it’s built into the “currency” – a bizarre approach in the first place. Shouldn’t a currency be policy neutral? I wonder whether it would even be possible to make the Euro into a proper currency.

    1. Tony Wright

      Sadly, there is currently no fiat currency that is policy neutral. Whilst they all float, and provide highly lucrative, but risky incomes to unproductive forex traders, all are variously manipulated using a wide range of mechanisms by both Governments and top end players in the money markets
      Everyone tries to stack the deck to their advantage.

      1. Oregoncharles

        Since they’re controlled by the government, they will always be used to carry out policy. But in the case of the Euro, neoliberal policies are built into the agreement that creates the currency. To reform it, they’d have to rewrite the underlying agreement. I suspect that would cause some market instability.

    2. Anonymous2

      Is the EU coming apart? Well perhaps but, apart from the UK, I have my doubts. There is an element of the right wing UK establishment, which I suspect influences the US establishment, and which has been predicting the imminent failure of the European project since the 1950s. This is at least in part wishful thinking, stemming IMO from the days when the UK could stir up divisions in Europe so as to give itself a free hand in the rest of the world. Of course it was an approach which blew up in its face in 1914 and 1939 but some have difficulty adjusting to changed circumstances.

      1. Oregoncharles

        I believe that was the implication of the article. Poland and Hungary provide particulars, at the other end from Britain. And Italy’s recent election was not a good sign.

  16. IsabelPS

    I know that this article is about the Eurozone and not the EU in general. But I have the feeling that people that look at what is going on over there often miss one point: although “Brussels” is indeed a convenient scapegoat for anything unpleasant that national governments intend to implement, lots of people, especially in the “weaker democracies”, let’s put it this way, are wary of their own political class and, deep inside, prefer to be “ruled” from afar…

    1. Anonymous2

      That certainly used to be the case with Italy (and maybe still is deep-down as the election result there seems to be so inconclusive that perhaps little change can really be expected as a result?).

    2. Oregoncharles

      Americans from some states can identify with that. As a citizen of Oregon, I’d just as soon we seceded, if it could be done bloodlessly; but I came from Indiana, a different picture altogether. And that’s just the North.

  17. TG

    Yes, well said. However, I would suggest that while domestic politics will likely fragment, it is also irrelevant. It doesn’t matter what ‘the people’ vote for, the status quo will continue. I mean, look at “Brexit.” The British people voted to leave the EU – and it simply will not happen, at least not in any substantive way.

    Things like the German Afd and Italian five star movement, they will stumble along, and churn the electoral waters, but will never actually get into power – and if they do, they will by that time have been so corrupted and bought out, that they will do nothing. Witness the current ‘socialist’ leadership of Greece… Any real alternatives will be denounced as Nazis and their organization banned and broken up by force (This is not paranoia. It’s the standard operating procedure and has occurred many times in EU member states).

    As the people continue to vote for A and get B, political parties will churn as they are dumped for betrayal, a new alternative party takes power, it continues the status quo, and is then itself dumped for betrayal, etc.etc. Meanwhile the centralized European pharanoic state continues and expands its lock on power.

    “European leaders must shift their efforts away from the ultimately impossible goal of making euro area governance more accountable and towards national domestic economic agendas that give hope to those who feel disenfranchised.” With respect: why do you say “must?” What if the European leaders just don’t want to? And where does anyone get the idea that they have the goal of making euro area more accountable? Surely they have been pushing for the opposite?

  18. RBHoughotn

    If Europe Union was simply about republicanism and democracy there would be no difficulty but we have the merchants up there to contend with and they shape the financial demands in ways that politicians love and the people hate.

    Everyone who was in a European country when it adopted the Euro knows the appalling social cost of the sudden doubling of prices (I was in Portugal in 1989-90). In an agricultural country the people can fall back on their own market gardening selling through the local cooperative but in the towns and cities there’s nothing to cushion the halving of salary values.

    One suspects the attraction of a single currency was solely political. Its about power.

  19. disc_writes

    Can someone please stop this nonsense? There is no anti-Euro movement in Italy.

    The M5S has abandoned the (dumb) idea of the referendum and has recently expressed support for the 3% deficit limit.

    The Lega does have anti-Euro economists, but is really an anti-immigration party. The party leadership neither understands not cares about monetary matters. And neither do their voters, who usually see the Euro as something to be proud of.

    Berlusconi’s political story coincides with the Euro period. Whatever Berlusconi might say about the Euro, he held on to power for 20+ years thanks to cheap government debt which followed Maastricht.

    There is a small minority of Italians who would like to go back to the Lira. But they are not represented by any party. There is no Italian AfD.

    Italians would rather burn their savings than give control over them back to Italian politicians. They see Draghi as a national hero and understand almost nothing of how the ECB works.

    Not to mention the fact that, even if there was an organized party capable of a majority, exiting the Euro *in a democratic way* is legally impossible.

    Italy will either be kicked out of the Euro, or will get taken over by a truly authoritarian regime who will exit the hard way.

  20. lou strong

    It’s true that there’s no real anti-euro movement in Italy . More than democratically impossible, euro-exit seems practically impossible ,but I would add as much as euro-permanence, so the problem is tricky.No way to get out, no way to stay in.
    On the other side , I’d be careful with sentences like “Italians would rather burn their savings than give control over them back to Italian politicians. They see Draghi as a national hero ” . Reality is much more nuanced. An overall majority doesn’t understand ECB functioning, but as for the euro I personally witnessed a good number of medium-sized industrialists saying at the time of adoption and still saying now, after the “countercheck ” , that it was a big mistake.

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