Monday, 12 December 2011

What’s going on in Europe?

What’s going on in Europe economically is impossible to understand without getting your head around what’s happening in Europe politically.

And it’s virtually impossible to understand what’s happening in Europe politically without having some idea of the on-going European political project: the European Union, or EU.

Because while the European Union had its beginnings in the benevolent notion that free trade would give Europe the peace it has so rarely enjoyed historically—the idea best summed up by the great Frederic Bastiat as “if goods don’t cross borders then armies will”—it has in more recent decades been more interested in regulation than in trade, and more in political union than in economic prosperity.

This is one reason that everything in Europe looks upside down economically—overspending “cured” by more spending; over-borrowing “cured” by more borrowing; debt “fixed” by the creation of more debt, and IOUs “written off” by the creation of more IOUs.

Where other countries kick cans down the road, the European Union kicks whole kegs. And this is a keg that won’t take much to explode.

So the house the European Union has built is now incredibly fragile, both economically and politically. Which is why even the relatively tepid “No"!” flung in the face of Europhiles over the weekend by British Prime Minister David Cameron was enough to give them conniptions.

If you want to start understanding why, and to understand what’s been happening in Europe politically, might I suggest you start with Liberty Scott’s excellent primer on the subject, the first part of a series:

[Hat tip Craig]

1 comment:

  1. Dan Denning:

    "--Imagine you've mortgaged your house to the hilt in order to fill it with all the gadgets your heart desires. And imagine you have a big heart, with lots of desires. Your home has a comfy lounge with a large new HD television in front of it. There's a plush recliner in which to park your weary behind. And all around the house are the accumulated creature comforts that enhance the quality of your domestic life.

    --Now imagine you're forced to take a pay cut at work. Your job no longer provides you with enough income to support the interest payments on your mortgage. Your domestic bliss is still undisturbed. But in the back of your mind, you know that you're living way beyond your means. Your lifestyle exceeds your financial resources.

    --Now imagine you're the European Union - a vast army of faceless bureaucrats desperately trying to save its big 60-year project in social engineering. The private market - investors who buy government bonds - tells you its losing confidence that you can control your spending. More importantly, the private market tells you it doesn't see how you're going to repay the debts you've already accumulated in order to support your lavish, government-sponsored, Welfare State lifestyle.

    --What do you do to convince them you're a good bet? You tell them that the answer to your problem is bigger government. That's right! Your answer to a debt problem is to turn all the big national governments into one really big supra-national government, and give a few people control over everyone else's money.

    --That's basically what happened in Europe since we last wrote to you. All 17 countries that use the Euro agreed to greater "fiscal integration". Even 10 or so countries not in the Euro agreed that it was a good idea. The lone exception was that island nation north of France, filled with cranky people drinking warm beer (their beer is wonder they're cranky). The British politely declined to pledge their allegiance to a European superstate."


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