Tag: European Union

Must-Read: Paul Krugman: Brexit: The Morning After

Posted on by Brad DeLong

Must-Read: I disagree with Paul Krugman: not “Brexit just brings to a head an abscess that would have burst fairly soon in any case…” but rather: Brexit evolves antibiotic-resistant bacteria and brings to a head an abscess that would probably have drained itself gradually–and could still have been treated…

Paul Krugman: Brexit: The Morning After: “A number of people deserve vast condemnation here, from David Cameron…

…who may go down in history as the man who risked wrecking Europe and his own nation for the sake of a momentary political advantage, to the seriously evil editors of Britain’s tabloids, who fed the public a steady diet of lies. That said, I’m finding myself less horrified by Brexit… than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming…. Brexit will make Britain poorer. It’s hard to put a number on the trade effects of leaving the EU, but it will be substantial…. Assurance of market access has a big effect in encouraging long-term investments aimed at selling across borders; revoking that assurance will, over time, erode trade even if there isn’t any kind of trade war. And Britain will become less productive as a result.

But right now all the talk is about financial repercussions–plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. It’s true that the pound has fallen by a lot compared with normal daily fluctuations. But for those of us who cut our teeth on emerging-market crises, the fall isn’t that big…. This is not a world-class shock. Furthermore, Britain is a nation that borrows in its own currency….

Now, it’s true that world stock markets are down; so are interest rates around the world, presumably reflecting fears of economic weakness that will force central banks to keep monetary policy very loose. Why these fears? One answer is that uncertainty might depress investment. We don’t know how the process of Brexit plays out, and I could see CEOs choosing to delay spending until matter clarify. A bigger issue might be fears of very bad political consequences, both in Europe and within the UK…. The European project… is in deep, deep trouble [with] Brexit… probably just the beginning…. Lots of people are now very pessimistic about Europe’s future, and I share their worries. But those worries wouldn’t have gone away even if Remain had won…. At the European level… I would argue that Brexit just brings to a head an abscess that would have burst fairly soon in any case. Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself…. So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.

Must-Read: Felix Salmon: Little England Just Screwed Us All

Posted on by Brad DeLong

Must-Read: Felix Salmon: Little England Just Screwed Us All: “The world’s bond markets (and, even more, its foreign-exchange markets) tell you everything you need to know…

…Recession in the UK, quite possibly recession in Europe, and extremely nasty spillover effects in the rest of the world, including the U.S. The small-minded burghers of rural England have managed to destroy trillions of dollars of value globally, including to their own investments, pension plans, and housing values. And things will get worse before they get worse: it’s going to take a while for all the subsequent shoes to drop. Make no mistake, the forces set in motion by this vote will not end here. France and Spain will want their own referendums; so will Scotland. Northern Ireland… will request and probably receive a referendum on whether it should just rejoin the Republic of Ireland, and Europe. Britain has been in many ways the most unambiguous winner of the European project: it received all the advantages of free trade with an enormous economic bloc, while also having a floating currency instead of one which was pegged mercilessly to how things were going in Germany….

This vote is also the grimmest of reminders of the power still held by the older generation, not only in the UK but around the world. Young Britons—the multicultural generation which grew up in and of Europe, the people who have only ever known European passports—voted overwhelmingly to remain. They’re the generation that just lost its future. Meanwhile, Britons over the age of 65, fed a diet of lies by a sensationalist UK press, voted by a large margin to leave. Most of them did so out of a misplaced belief that doing so might reduce immigration, or make them better off, or save them from meddling bureaucrats. In a couple of decades, most of those voters will be dead. But the consequences of their actions will resonate far beyond the grave….

The forces of narrow-minded nationalism have tasted a major victory; they will want more, much more. The economic malaise that has beset all of Europe for the past decade will work in their favor, as will the growing inequality that can be seen in almost every country worldwide. International institutions like the European Union, born of an idealistic belief in peace and prosperity, have become avatars of unaccountable power, and are much loathed by the suffering European middle classes. The result is that we are now entering a world in retreat from progress, a world of atavistic nationalisms and mutual distrust, a world in which we demonize foreigners and prefer walls to bridges. In November, the U.S. will have its own plebiscite, and will likely vote along similar lines to Britain. The cities, and the young, will vote for progress, inclusion, and unity. Meanwhile, the white, rural areas and the old will vote for a sepia-tinged dream of a past in which equality was something only straight white men really qualified for. Before the Brexit vote, I didn’t believe it could happen here. But Britain is significantly more cosmopolitan than America, and we managed to shoot ourselves (and all of Europe) straight through the heart.

So, be afraid.

Must-Read: Charlie Stross: “Tomorrow Belongs to Me”

Posted on by Brad DeLong

Must-Read: Brexit Edition. The very sharp Charlie Stross writes from Caledonia:

Charlie Stross: “Tomorrow Belongs to Me”: “Okay, so the idiots did it; they broke the UK…

…The Brexit referendum was initially a red herring; a proxy struggle for control of the Conservative Party, with Boris Johnson suddenly turning his coat to march in front of the Leave campaign because it offered his best–arguably his only — chance of winkling David Cameron out of Downing Street before his scheduled retirement in 2020…. But in the process of squabbling over their own party the euroskeptic Conservatives opened the door to the goose-stepping hate-filled morons of the extreme right. The results include the first assassination of an MP–unconnected with the Irish independence struggle–in nearly two centuries, an upsurge in racist attacks on minorities and the disabled, and finally a demented protest vote by the elderly (voters under 25 broke 75% for remain; the over-60s voted over 66% for leave)….

Sterling has tanked to its lowest level in 31 years, the stock market has crashed by 10% already, and we’re likely to see international repercussions as all the sovereign wealth funds that had invested in the London property market see 30% wiped off their investments in a matter of days. Longer term, this may well be the beginning of the end for the UK as a nation. (Watch who’s standing on the sidelines praising the result: Donald Trump, Vladimir Zhirinovsky, Marine le Pen — a who’s who of international fascismus.)… Scotland voted by a 62%/38% margin to remain in the EU and is being dragged out against its will…. The enabling legislation for IndyRef 2 is apparently already being drafted in Holyrood…. It’s likely that in 2-5 years Scotland will have split from the UK and applied to re-admission to the EU. As for Northern Ireland there will be urgent negotiations for some sort of federal arrangement with the Republic that allows them to retain EU access (the Republic of Ireland being an EU member and Northern Ireland having voted to remain in the EU by a significant margin).

What happens to England and Wales now? Short version: economic turmoil caused by the uncertainty. An upswing in right-wing xenophobia as the utterly odious crypto-fascist Nigel Farage makes hay while the Sun shines on his project…. The Brexiters have been selling a lie: that they’d get a no-fault divorce and keep the house. Reality is somewhat less convenient…. We’re back in the Scottish Political Singularity, with a disturbing undercurrent of violent jingoistic xenophobia down south…

Must-Read: Thomas Piketty: Change Europe, Now

Posted on by Brad DeLong

Must-Read: Thomas Piketty (2015): Change Europe, Now: “The extreme right has risen from 15% to 30% of the votes in France…

…unemployment and xenophobia, extreme disappointment with the left in power, the feeling that everything has been tried and that something else must be experimented… disastrous management of the financial crisis…. Only a democratic and social re-founding of the Euro zone, based on growth and employment, round a small core of countries prepared to move forward and provide themselves with appropriate political institutions, would enable us to counter the temptation to revert to nationalism and hatred which today threatens the whole of Europe….

It is important that the European leaders—in particular the French and the German—acknowledge their mistakes. We can discuss endlessly all sorts of reforms, both big and small, to be carried out in the various Euro zone countries: shop-opening hours, bus lanes, labour markets, retirement pensions, etc. Some are useful, others less so. But… this is not the reason for the sudden fall in GDP in the Euro zone in 2011-2013…. Recovery was stifled by the over-rapid endeavour to reduce the deficits in 2011-2013—with in particular rises in taxation in France which were much too heavy…. The application of blind fiscal rules… explains why in 2015 the GDP of the Euro zone has still not recovered its 2007 level….

As a first step, all the debts of more than 60% of GDP could be placed in a common fund, with a moratorium on repayments until each country has recovered a strong growth trajectory since 2007. All historical experiences show that above a certain level, it makes no sense to repay debts for decades. It is better to ease the burden clearly so as to invest in growth, including from the creditors’ point of view…. New democratic governance… the setting up of a Euro-zone parliament comprising members from the national parliaments in proportion to the population of each country. This Euro-zone Parliamentary Chamber should also be entrusted with the voting of a common corporate tax… [to] enable the financing of an investment plan in infrastructures and universities…. Europe has all the assets required to offer the best social model in the world. Let’s stop squandering our opportunities…. Before coming to plan B, proposed by the extreme Right and which the extreme Left is increasingly tempted to invoke, let’s start by giving a fully-fledged plan A a genuine chance.

Must-read: Wolfgang Munchau: “The Errors Behind Europe’s Many Crises”

Posted on by Brad DeLong

Must-Read: Wolfgang Munchau: The Errors Behind Europe’s Many Crises: “The EU was wrong to construct a single currency without a proper banking union…

…wrong to create a passport-free travel zone without a common border police force and immigration policy. [And] I would add EU enlargement… the haste with which it was pursued. The cardinal mistake of our time was the decision to muddle through the eurozone crisis. Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary…. There are four channels through which that policy contributed to the broader instability….

First… the EU has the capacity only to deal with one big crisis at a time…. Second… the conflation, real or imaginary, of two more crises. The Greek economy continues to contract… refugees have been trapped in Greece… since Macedonia closed the border…. There are the fake connections. Poland has used last week’s Brussels bombings as a pretext for questioning a commitment to accept 7,000 refugees… an interaction between the terrorist attacks and the prospect of British exit…. Third… the output of several eurozone countries has yet to return to pre-crisis levels. Security… was among the areas most affected by austerity…. The widening income gap between rich and poor — and north and south….

Fourth… a generalised loss of trust and political capital…. Populist parties on the left and the right are exploiting the union’s failures…. The combination of these four channels frustrates perfectly good ideas for further projects aimed at European integration–those that would benefit everybody, such as central agencies to co-ordinate the fight against terrorism and to deal with the influx of refugees. If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind. But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?…

Economic history has shown… that efforts to muddle through financial crises never work…. For the EU it was a catastrophic policy error… an economic depression… destroyed public confidence in the EU and in the very idea of European integration.