Originally Posted by
Saracen
Our current economic problems are down to a complex blend of factors, among which are previous government decisions AND the impact of the EU/Euro. But the single biggest overt factor is the credit crash, the effects of which we're still dealing with. And that did not originate in the EU or, at least not directly, the UK either.
However, the EU is doing very poorly economically, certainly compared to the UK, the US or pretty much the rest of the world. And the EU doing poorly is PART of why our recovery is very slow, precisely because it's a major trading partner and is in the poop.
The quwstion then becomes why the EU is doing so poorly. The answer, in very large part, the the disastrous effect of the entirely politically motivated Euro project. The desire, and indeed need, for a single currency is political, not economic. There are economic advantages, if it's done well, for sure, but the driving force is political, namely, "integration".
Remember, behind everything the EU does, stands for, and was set up to achieve, is "ever closer union". Monetary union is a central, key, critical, fundamental and absolutely indispensable core component in that, without which so much else cannot and will not follow.
So, the biggest single component in the EU's current economic problems are the horrendously incompetent, if not illegal, manner in which monetary union was conducted, treating highly industrialised economies like Germany, and yes, even the UK, and southern countries like Greece, with indefensibly large "cheap" money following like a torrent from a burst riverbank downhill. One currency requires one interest rate, and with such diverse economic structures and cycles as Germany and Greece, that always was a blindingly obvious disaster waiting to happen.
For some years before the crash, we had arguments here, and I've had them elsewhere too, about whether the UK should join the Euro or not. Lots of patronising remarks about those saying "no" being little Englanders, xenophobes, lost in the days of Empire unaware they'd gone, or being irrationally fond of the Queen's head on coins. I (among others) pointed out that a single interest in such circumstances was a recipe for disaster.
Why?
Because all economies are cyclic. They go up, and down. The problem is that both amplitude and phase vary. Some cycles are shorter than others, and some much larger in effect. Even within a single country, these both vary over time. Gordon Brown got at least one really big decision right, which was that the UK would be monumentally stupid to join the Euro UNLESS his key economic tests were met, and those tests essentially amounted to those cycles being in harmony. And not just in harmony at a given point in time, like a specific year, but the duration of the cycles were synchronised over at least the medium term.
Why? Because the principle mechanism of monetary policy is interest rates, and we'd of necessity give up control, call it "sovereignty" if you like, over that if we'd joined the Euro. Interest rates of the Eurozone would be set by the ECB in the interests of the EU, not the BofE in the inrerests of the UK. And, as stated, this would be a sacrifice to the political God of the EU, "integration", union.
Trouble is, if economic cycles aren't harmonised, what you end up with is monetary policy in one country, say .... Greece, needs to be doing one thing to deal with their current economic cycle, while the economic cycles of, say, Germany and France are requiring sonething else. Guess which side of that bargain is going to win, and which get defecated on ftom a great height? Yup, that's right. And for confirmation, ask the Greek people how "union" is working out for them.
Put all that together, the varying economic cycles, the political drive for union, theresulting Euro project, and then the credit crash providing the (externally originating) economic shock, and you have the core components of the EU's current doldrums.
Or at least, you do when you add in one more politically motivated factor, that being "enlarge, enlarge again, then enlarge dome more".
It's been the remorseless enlargement campaign that turned the Euro project from dubious into disaster, because that enlargement went from largely similar Northern European type economies with at least broadly similar economic structures, to the vastly different ones of southern Europe, eastern Europe, the Balkans etc.
So yes, part of our economic situation is directly due to the political ambitions of the EU. It's not the only factor and not even probably the largest, but it's in the mix as indeed are lots and lots of entirely home-grown decisions.
Going back to interest rates for a moment, one thing to consider, and it's an example of what I mean by "differing economic structures" is the different degrees to which a population are home-owners (with mortgages) or renters (without).
If a country, or a central bank for a group of countries like the Eurozone, feels tge need yo tighten or loosen monetary policy, the first and certainly fastest tool at it's disposal is interest rates. But who gets hit hardest and most by increases? Mortgage payers, that's who. If a central bank rate goes up, traditionally retail rates follow very quickly (usually days if not hours) and money disappears from consumer spending power pretty much instantly as mortgage payments rise.
But if one country has 70% of homes owner-occupied and another country has 30%, the impact on consumer spending is going to be FAR greater on the first country, because of that 70%, than the second even if the same single rate change applies everywhere. A 0.5% rise has far more effect in a country with high mortage levels and low rentals thsn elsewhere.
Yet, as we saw with how Greece was treated, the big powers in the EU will do what suits them, regardless of the devastation it causes in Greece.
Niw remember that the UK is one of, what, two EU states that is either not a Euro member or treaty-committed to working towards joining snd eventually doing so. A VERY real consideration of staying in is that if we do, we will be bound by any collective decisions but almost alone in bring outside that Eurogroup power block.
One argument being made for Remain is that the UK is heavily dependent on services. A critical one of those is financial services (banking, insurance, pensions, etc) for which the UK is a leading world player, and to which the UK economy is MUCH more dependent than any other EU state, or the EU as a whole.
So, like mortgages and interest rates, when it comes to decisions over the impact of, say, financial regulation, what priority are the other 27 going to give to the disproportionate effect it'll have on the UKs most important economic sector? My guess is about the same as Greece got.
For me, the key economic question is who gets to make decisions on such matters? London, or Brussels?
Even London isn't necessarily ideal. Just ask the Scots, or at least, the SNP. After all, the SNP are forever bitching about how the Westminster government is more focussed on the 58m of us not in Scotland and the 5m that are get decisions imposed. As if somehow the 5m get to decide for the 58m.
But guess what. The question for anyone that got this far in this post is .... how much priority will the 440m EU citizens that aren't in the UK give to the 63m that are, if THEIR interests are, for example, best served by tight financial regulation and never mind the devastating effect it has here.
As far as the economy goes, for sure there are risks to leaving. There are advantages and disadvantages. But there are risks to staying, too. It is not a decision between a stable, static secure EU and the cold, scary unknown world outside. It is a decision between a degree of risk by leaving, or a degree of risk by staying, but staying in a project whose central, core theme is ever greater union, with all that that enrails. Staying is NOT a vote for the comfortable status quo, but for a rather different unknown future as a half-hearted semi-detached non-Euroclub state in a body determinedly focussed on the Euro project and "ever closer integration".
This vote is entirely about picking your preferred blend of risks and opportunities, and about where decusions are made and on the basis of exactly what priorities.