A: Economy, Common Currency & Eurozone

The EU’s statements on these topics and how they match with reality.

What Does the EU Say It Is? What Is the EU Really?
The EU provides an “economy that works for people”, which means they are “working for social fairness and prosperity. The EU’s unique social market economy allows economies to grow and to reduce poverty and inequality.” The current EU/EMU projects are justified by the belief that economic, political and social development can only be achieved from the top down. The assumptions on which this belief is based include the (unstated) view that the nations of Europe cannot compete successfully in the world other than through a federal government in which self-selected (and unelected) bureaucrats rule on behalf of Europe’s citizens.

Many people in EU countries are being sacrificed, for an ideological cause. Some member states have prospered and others have become impoverished. The EU claims credit for the former and delegates blame for the latter. There is little reason to believe that this will improve.

Monetary union has failed to increase growth or converge the economies of the eurozone countries. The EU is the lowest-growth major trade bloc in the world and its share of global GDP is fast shrinking. Many people are willing to believe in the declared goal, of economic growth benefiting all, and choose not to notice that the EU is not achieving this while progressing fitfully towards its true goal of becoming a super-state.

Economic divergence among members of the monetary union appears to be growing, while the EU declares that such divergence should be curtailed (see B2). Realistically, the divergence is unlikely to be narrowed; imagine the Greeks behaving like Germans, or vice-versa. If the EU is not able to look after the economic well-being of its citizens, as it claims to be doing, then its future is clouded and uncertain. It may fall apart—because it bases its survival on deceit.

In June 2015 the presidents of the five major divisions of the European Union, led by Jean-Claude Juncker, then President of the European Commission, published their report, titled Completing Europe’s Economic and Monetary Union. The logic of monetary union for the EU is to support Ever Closer Union.

The Five Presidents Report states the vision of the benefits of EMU: “A complete EMU is not an end in itself. It is a means to create a better and fairer life for all citizens, to prepare the Union for future global challenges and to enable each of its members to prosper.”

The introduction to the Five Presidents Report (see From the Horse’s Mouth) opens with this: “closer coordination of economic policies is essential to ensure the smooth functioning of the Economic and Monetary Union”. As EMU is essential to ensure ever closer union, the argument is circular.

Another guide to the thinking of the five presidents is their view that, “… completing and fully exploiting the Single Market…should be part of a stronger boost towards economic union…”. This surely is the wrong way round: the purpose of any economic union should be to support the economic activities of the member states and their citizens but the political union (the ideology) takes precedence; everything else is PR to cover the main goal.

EU leaders state, without supporting theory or evidence, that completing economic and monetary union will resolve all problems, which anyway are the fault of the member states for holding back from completing the component parts of financial union. Divergence is the problem; convergence the solution, although they don’t say why we should believe this. Little has been done by the eurozone to protect the weak members, the EU has spent its efforts protecting the strong.

The case was nowhere substantiated that the EU can deliver desirable outcomes better than individual nations. Unless the eurozone effectively becomes a state with its own fiscal policy control (tax, spending, debt sharing and inter-regional subsidy) it must divide itself or shatter. There isn’t the popular will for a federal state.

A single currency was seen from the very beginning as a key signifier of a single nation because it would help mould Europeans into a common mindset. It would promote convergence towards a single economy bringing equality and prosperity to all its constituent communities; and it would eliminate wasteful conversions, promote economic convergence and stimulate growth. The euro is seen by its keenest defenders as the crucial means by which integration is to be achieved and the member states brought under the wing of a federal government. It aims to apply a uniform solution to a diversity of economies and cultures. To participate fully in the Union all EU Member States must join the eurozone (EZ).

There is no rationale for economic and monetary union (EMU); its purpose is to drive the EU towards federal governance. The EU cannot justify EMU in terms of its ability to deliver jobs, growth or productivity, it merely declares that it will. The priority is clear, the purpose is to boost progress towards economic union, which is one dimension of progress towards completing the Union – i.e. federal governance.

The euro-tacticians knew they were creating conditions for more crises but this has always been their principal means of pushing their agenda forward; every crisis is an opportunity to put new rules and structures in place to resolve it and these always place more power and control in their hands.

The problem is that no economy can have a fixed exchange rate, free flow of capital and its own monetary policy; one of them has to adapt to economic stress. Economists call this the Impossible Trinity or Trilemma.

In practice the economies in the eurozone have diverged and growth hasn’t been enhanced. The EU is virtually out of tools and the political will to do what is necessary for its weakest members—which lack independent monetary policies—namely debt sharing.

The EZ is facing a triple whammy of shaky sovereigns, migrating capital from weak to strong and a massive quantity of IOUs that cannot be cleared at face value without strong growth. This is the danger of the ‘one size fits all’ nature of monetary union across such a diversity of economies; problems spread more quickly than effective solutions.

The euro project was a giant step towards union and uniformity, labelled misleadingly as ‘unity’. The deceit was propagated that the Union’s institutions were helping, whereas they were forcing Greece, Ireland, Portugal, Spain and Italy to take remedies that made matters harder for them—for example, Italy has scarcely grown and the Greek economy is now 25% smaller.

The risky EZ venture, which was meant to accelerate convergence, has actually driven its member nations further apart economically, with high unemployment, low growth and huge debts for some while others appear to be doing well. The appearance is deceptive; when citizens of the richer nations discover their savings will be forfeit—because the poorer ones can never repay what they owe—the consequences will be dire for both.

Many economists warned the EU of the dangers the Eurozone created but were ignored because this is a politically-driven project rather than an economic one, designed to bring the nations ever closer together, to be ruled from above.

In its 2015 report titled Completing Europe’s Economic and Monetary Union (the Five Presidents Report, see above), the EU proposed four strands to completing economic and monetary union (EMU): economic, financial, fiscal and political unions. These four strands remain the key objective for the EU, to bring about ever closer union. The wished-for unions (economic, financial, fiscal and political) needed to complete EMU will not come about, if only because those states that are doing well will not provide the necessary open cheques that such unions would require. Things happen in the eurozone in ways that are disguised from its citizens.

The crises in the eurozone, derive from the unmanageable economic differences between member states and the inability to overcome these through the four ‘unions’ that would be necessary to complete the ambition to achieve full economic and monetary union.

The true agenda is that completing financial union will make the euro stronger, and the euro is the glue that should hold the whole EU edifice together but instead seems to be threatening to pull it down.

The Trans-European Automated Real-time Gross Settlement Express Transfer System (known as Target2). Money in the Target 2 system will ebb and flow but balance out in the end.

Targeted longer-term refinancing operations (TLTRO) is a tool of the European Central Bank’s non-standard monetary policy. TLTRO is another form of Quantitative Easing (QE) whereby the ECB gives free money to banks for them to lend to businesses in order to stimulate an economy. The banks are financially rewarded, provided they do lend the money as intended.

TARGET2 (there’s no target, it’s just an acronym) is analogous to a credit card system that a country uses to buy imports from other EZ countries. However the accounts aren’t settled regularly, instead they are expected to balance out over time as import debts are matched by export credits—but that hasn’t happened. Target 2 is so out of balance now that it can never rebalance itself except by massive default.

The Italian central bank says it lost €39 billion during May 2019, which then whizzed back along the eurozone’s inter-bank plumbing system, Target 2. The loss is a further liability against the Bank of Italy, bringing its total to almost half a trillion euros. It means that bank deposits in Italy have fled to safer shores.

Eurozone interest rates are below zero so if Germany did keep topping up its Target2 account it would simply be parking its money where half its foreign assets already lie and where they do them no good at all. They’d be working for nothing and increasing the stakes against an even bigger crash in which they lose it all. Yet if they refuse to participate they will trigger the crash anyway. The EU is driven by political pressures that trump economic and commercial priorities, so they may well decide that their remaining members should take a hit “to preserve the integrity of the single market”.

TLTRO is another form of QE. The banks, if they do as expected, make good business from the ‘free’ money.


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