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Brexit: Can the Euro be saved?

01 February, 2018Andrew Hilton
europe migration

“With sufficient political effort, the Eurozone may well be able to stagger on…”  There’s a conclusion to warm the cockles of a Remainer’s heart.  

It comes from a slender volume by one of the Guardian’s favourite economists, Malcolm Sawyer – currently emeritus professor at Leeds Business School (and an associate at Bard College’s quirky Levy Institute, where Hyman Minsky’s spirit lives on).

The work of a "reactionary Devil"

What’s interesting about the book is the way it ties its author in ideological knots – knots that, I imagine, are very similar to those currently being experienced by John McDonnell and most of the Corbynista crowd.  In his heart, Sawyer clearly (and heartily) dislikes the EU – which he sees as a manifestation of Germany’s obsession with far-right ‘ordo-liberalism’, destined to produce decades of sub-optimal growth and the progressive immiseration of the working classes at the altar of price stability.  Slightly to my surprise, he doesn’t wheel in the old ‘Red/Black’ divide (which is still a live issue in Germany), but there is no doubt that he sees the Stability & Growth Pact, the Maastricht Treaty, ECB independence and Economic and Monetary Union (EMU) itself as the work of a malevolent and reactionary Devil.

And yet… Being of a right-on, ‘woke’, progressive disposition, Sawyer could hardly come out as a “so-called populist” – or, worse, an out-and-out Brexiteer.  So, the answer has to be… (you guessed) “more Europe”.  By this, Sawyer means:

  • a shift in the EU’s focus from price stability to employment;
  • a mechanism for massive fiscal transfers (North-South and West to East) within the Eurozone;
  • abandonment of the idea of long-term budget balance as a realistic goal;
  • an end to the ECB’s political independence;
  • coordination of wage/price policies across member countries;
  • an “effective devaluation and revaluation” within the Eurozone (Sawyer rightly points out that Germany’s super-strong export performance is, in good measure, the product of an undervalued D-mark);
  • an EU-wide social security system… und so weiter.

building-79221_1920Muddle Economic Thinking

Of course, even absent Wolfgang Schäuble, it ain’t going to happen.  But painting this picture of Social Democratic heaven means that (in his own eyes) Sawyer is on the right side of history.  Nevertheless, until he gets that old EU religion, his book is (as he says) a pretty devastating critique of the muddled economic thinking that went into EMU and the euro.  Just at the moment, Remainers are crowing that the Eurozone is outperforming the UK economy – which is obviously true.  However, one of the more pertinent factoids that Sawyer dredges up is that, between 2008 and 2015 (ie in the aftermath of the financial crisis) real GDP in the Eurozone rose just 0.5% - compared with 10.5% for the US and 7.7% for the UK.  And then, of course, there’s unemployment…

European Super-State?

Numbers like this, one would assume, will make political leaders in Berlin and Brussels think a bit – though I am not sure that either doubling down on existing policies or adopting a Scandinavian-style federal model is the answer either.  Still, it is worth reading Prof Sawyer’s book – at least, the first half – for his take-down of the intellectual arrogance and economic illiteracy that propelled the EU to move from a fairly successful common market to a deeply-flawed attempt at creating a European super-state on the basis of a belief that what works for Germany must work for the rest of Europe just as well. 

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