In the past week there have been a variety of reactions to the fiscal compact referendum. On the Yes side, we are getting the usual establishment cocktail of indignation, anger, haughtiness and scare mongering. It’s kind of pathetic the way the Yes side oscillates between apocalypse and indifference like a tired parent dealing with an irritating child.
One day it is “the sky will fall in” if we vote no. The next it’s a case of “nothing will happen, this will go ahead anyway and we will get left behind”; the inference being we don’t count so our vote is not particularly important for the bigger project.
In previous referendums the central argument was “we have to vote yes because if we don’t Europe will stop”. This time one of the central arguments on the Yes side is we have to vote Yes because Europe will just carry on regardless.
So we have to vote yes when we matter and yes when we don’t.
On the No side we also have the rather duplicitous “treaty on austerity” slogan, which seems to suggest that if we vote no there will be money aplenty for all things and the State’s budget can be in deficit for perpetuity.
It seems that we can look forward to a campaign based on half-truths from both sides.
Let us be clear about something. The fiscal compact is all about German politics. It is needed to win Ms Merkel the election. That’s it. It has no validity in modern economics. It is needed so that Ms Merkel can go to her voters and say we have tied the hands of the delinquents. Europe will then be once again safe for German industry to export to without the risk that the imbalances which Germany’s dominance causes might whiplash on the German taxpayer through a sovereign default in the weakened periphery.
In order to make sure that this doesn’t happen, Mr Sarkozy — the bridesmaid — has been leaning on the ECB to open up the monetary taps and print as much cash as is necessary to recapitalise the banks, so no one in the rich core of Europe really pays.
It has nothing to do with the economics of the euro.
The euro’s problems are centred on the wildly divergent current account deficits. These deficits will not go away because Germany has decided that Keynesian economics is dead.
The only way to make the eurozone work as a proper currency union is to force the Germans to accept eurobonds, so that we have a unified debt market. This would level the playing field because it would lead to interest rates at least being equal across the zone. But they don’t want this and every jitter in the future will cause a flood of worried cash to flee peripheral markets to Germany. Capital flows will simply reinforce Germany’s trade dominance.
We will be left with a defaulters’ charter, where money will once again move via the banks to the periphery in reasonably good times. Then when the next slump comes, money will gush back to Germany and periphery companies will default in greater numbers, irrespective of fiscal rules.
We will be left with the nonsensical situation of private sector defaults occurring in the midst of public sector stringency. The fiscal compact simply shifts the default risk from the sovereign to the private sector because it is happening at a time of mass monetary incontinence.
If you print as much money as the ECB is doing — â‚¬1trillion at the last count, and flush it into the system, it leaks out somewhere.
The crux of the eurozone’s problem, like the Gold Standard before it, is that the creditor nation is too strong and the balance of adjustment always falls on the debtor country, making it weaker. In the 1930s, the US was the creditor nation. Today that country is Germany.
The weaknesses between Germany and the rest are deeply structural. Italy will never be Germany nor will Spain or Portugal and frankly most Spanish, Portuguese and Italian people don’t want to be German.
Germany is just too strong for the competition in Europe. Even France, the country that most thinks of itself as Germany’s equal, is way off the pace. France’s trade deficit reached an all-time high last year — amounting to about â‚¬69.6bn — raising serious questions about French competitiveness. According to the French treasury, France’s share of global trade fell from 7.8pc in 2003 to 6.2pc in the final quarter of 2011. France is gradually losing its vitality and presence in global export markets. French imports climbed 11.7pc last year, while exports slumped.
So the eurozone isn’t even a two-horse race. It’s a walkover for Germany.
One way of visualising the economic problems of the eurozone is to compare it to the SPL — the Scottish Premier League — where Germany, traditionally known as the Hun, is Celtic.
Celtic are 21 points ahead. The league is a bit of a joke because the top team is just too strong. The second strongest, Rangers, had to do unnatural acts to keep up.
A bit like Rangers trying to keep up with Celtic, France is just way off the pace, spending money it doesn’t have to try to pretend it is still in the game.
As for the rest, we languish miles behind. We simply can’t compete. And the longer the SPL goes on with Celtic so utterly dominant the more of a Mickey Mouse league it will become.
Similarly the eurozone will just reinforce German domin-ance and guarantee recessions and defaults in the periphery.
Now think of the fiscal compact.
In footballing terms it is the equivalent of docking points from the weakest teams for being weak. Given that the economic weaknesses are structural, these weaknesses will just re-emerge time and again. Ireland is the Hibs of Europe in that case.
The thing about the eurozone now is that it guarantees defaults. But defaulting is like relegation in football. You lose a few ratings, the rates of interest go up but, like the relegated teams, the defaulting country doesn’t stop being an economy, it just competes more muscularly for capital at its own level.
Once relegation happens, the process of promotion starts again and away we go.
Without a Europe of different currencies and different economies, the different national economic structures will cause more and more dislocation. The alternative — a German dominated eurozone — is just the SPL with Celtic winning everything.
This is what we are being asked to vote on.