Wednesday, September 07, 2016

Brexit: it's good for you

From the Telegraph:

The upshot is that despite the turmoil of the last several months, it is now eminently possible that Britain will show a higher rate of growth in the post-Brexit third quarter than the Eurozone. Few if any would have predicted such an outcome.

The British economy sails on as if nothing has happened, but the European one continues to stagnate. It is as if the Brexit shock has been more powerfully felt in Europe than in Britain. Both France and Italy showed no growth at all in the second quarter, and now even the data from Germany is starting to look poor.

That the Eurozone economy is still struggling after everything that has been thrown at it almost beggars belief. In terms of stimulus, it is hard to know how much more of a following wind the euro area could have had. It’s been positively gale force. Austerity has been effectively ended, interest rates have been cut below zero, the economy has been flooded with newly printed money, the euro was devalued and to cap it all, there has been the monumental boost to disposable incomes provided by the low oil price.

Yet still the European economy is struggling to raise itself from its sick bed. The danger is that the depression gripping large parts of Europe has gone on for so long now that they have lost the capacity to mend, a phenomenon known as hysteresis.

All this suggests that the problem with the European economy is not so much the European Union as such as its experiment in monetary union. Europe is stuck in an economic funk of its own making, where politically it can neither move forward with the sort of institutions and policies that might in the long run make the single currency work, nor backwards to the restoration of flexible exchange rates and sovereign monetary policy.

...What’s clear is that we are fast approaching some kind of tipping point which Brexit is very much a part of; the legitimacy of the entire European project is being questioned as never before, with every possibility that the EU will have changed fundamentally by the time the Article 50 negotiations on Britain’s exit conclude.

This is unsurprising to me: the UK's economy is one of the steadiest, stablest economies in the world. The British pound versus the US dollar has one of the least-variable exchange rates around: in my lifetime, the fluctuation has been mostly in the narrow band from about $1.30 to $1.70 per pound. I'm not a fan of bailouts, so the news about throwing good Continental money after bad isn't surprising, either. US-automaker bailouts have been deemed successful (Ford, which wisely spent within its means, didn't need a bailout), but that's partly because they took place in the context of a generally robust national economy. Europe, meanwhile, is sick all over; even the recognized financial powerhouses on the Continent are flagging.

I've been pro-Brexit since I first found out about the Brexit, and I've quietly believed that, in the long term, a Brexit and the hoped-for Brexit-ish domino effect throughout Europe will be healthy for both European economics and European politics. Europe's intentions, in creating the EU and eurozone (and Schengen and all the rest) are undeniably noble: I'm happy to see so many disparate peoples trying to transcend their bloody, war-torn past. But as I've written before—and the above-quoted article downplays this—I don't think Europe is actually ready for such radical integration. History runs deep; no amount of idealism can, at least for now, compensate for that fact. Better to recognize that reality post haste, and separate while separation is possible, than to move forward delusionally, subscribing to a dangerously papered-over version of political and economic reality.

Of course, Europe had an ulterior motive for creating a political and economic bloc: it wanted to be a global competitor with the US. I smell France's machinations in this: since at least de Gaulle, France has held to the notion of a contrepoids (counterweight) to US power and influence, and I've long believed that such thinking is unworthy of an ostensible ally. We in the West have enough enemies as it is; why would France feel the need to counterbalance—to thwart the interests of—a nation that shares its values? (The answer could be as simple as: the French heart is always reliably contrarian.)

If Europe loses its eurozone and is ripped apart by a Frexit, an Italexit, a Spexit, a Netherlexit, a Deutschausstieg, and so on, I won't lose any sleep. Europe, the geographical entity, won't be going anywhere, and neither will its vibrant countries and cultures. What will change, though, is that, post-dissolution, post-eurozone, there will be a greater sense of local/national identity, along with a much healthier, economically competitive relationship among countries that will be back to using their own native currencies. If a warm-weather, siesta-loving, wine-sipping, joie-de-vivre culture like Spain or Greece refuses to pull its weight, it will no longer drag down the collective. Let Spain and Greece fail on their own! The UK, in pulling away from the Continent, is already seeing this effect, and I think it was right to steer the course it's steered. To be sure, when the actual Brexit happens (Britain has only voted for it thus far), there will be troubled times ahead. But ultimately, the Brexit will show itself to have been the right move.


Charles said...

Would it be immature to say that, as a coin collector, I would also welcome the return of all those varied coins and currencies?

Kevin Kim said...

Not at all! That was one thing I loved about gallivanting around Europe in the late 80s and early 90s.

King Baeksu said...

So what you are saying is that "Project Fear" was nonsense and that nationalism is superior to globalism.

It's all too obvious whom you will be voting for in November.

Kevin Kim said...

You got me, Scott: Chuang Tzu and Master Joju.