The Titanic Sets Sail

So the great Euro farce rolls on. The question the markets all want answered, not unreasonably, is “How will you repay your debts”?

And the answer is (part 1)…

Germany thinks the answer is by sort of… well… doing away with everybody else’s democracy, telling them they will be punished for over borrowing (when very soon no one will lend them money anyway) and introducing centralised fiscal management, by committee, from the loathed and unpopular Brussels.

Then you get 5 feet of French President to sell it to the quivering victims of 10 years of failed Eurozone experimentation to boost his election prospects. This is not a recipe for success.

The huge, great obvious problems remain, almost blissfully undisturbed by all this frantic squabbling. There is a huge lack of productivity (except for Germany and Scandinavia), too much welfare state (which compounds the productivity problem) and living standards that have accelerated with alarming speed, most notably in those countries least able to afford them.

And therein is the problem. Europe is not a single country and one-size-fits-all economic rules don’t work. The solution being applied is not far short of taking a family of 27 shoe shopping and Dad (Germany) saying “well, I’m size 9 so let’s have 27 pairs of size 9 shoes please” and then wondering why no one can walk straight.

And the answer is (part 2)…

It is now almost a foregone conclusion that the Eurozone will collapse unless it transforms itself from an angry and frightened conglomeration of unequal, indebted countries, into a single “legal” state. That means the countries of Europe will become the “provinces” of a Super state, thus enabling full fiscal and political union and control. That will enable the more stabilising distribution of wealth and the application of rules that all are able to follow. But that will mean Germany has to pay for the rest because it is by far the richest and most competitive area. It’s the model that works in the USA and China, and in the UK, where, broadly speaking, London and the south east share their wealth with the rest of the UK. Whether it can be made to work in Europe is a very different matter.

The Great Escape

Cameron has vacated his cabin on the good ship Eurozone, just in time. Given its direction of travel this was always going to be a forgone conclusion. Despite the choking and gasping in the press (and the puerile tweeting of the leader of the opposition), the main players will have known this was all but inevitable. Being stuck on the pier when the Titanic leaves port is no bad place to be. Britain is going to find the going increasingly tough, but it has made a decision that leaves it responsible for its own fate, which right now, would be a better bet than that of the Eurozone, which is still not facing up to the terrifying scale of its problems, instead choosing to force its respective nations into an ugly, undemocratic and increasingly resentful half embrace.  

Europe’s leaders should remember Abraham Lincoln’s famous words in 1858: “A house divided against itself cannot stand. I believe this government cannot endure, permanently, half slave and half free”.

His words, spoken over 150 years ago, in a way are eerily prescient of the situation in which the Eurozone now finds itself.