Europe’s fiscal Fascism brings British withdrawal ever closer
By Ambrose Evans-Pritchard
May 14th, 2010
Just when you thought the EU could not go any further down the road towards authoritarian excess, it gets worse.
The European Commission is calling for EU powers to vet budgets of the 27 member states before the draft laws have been presented to the House of Commons, the Tweede Kamer, the Folketing, the Bundestag, the Assemblee Nationale, or other national parliaments. It applies to Britain even though we are not in EMU.
Fonctionnaires and EU finance ministers will pass judgement on the British (or Dutch, or Danish, or French) budgets before the elected bodies of these ancient and sovereign nations have seen the proposals. Did we not we not fight the English Civil War and kill a king over such a prerogative?
Yet again we are discovering the trick played on our democracies by Europe’s insiders when they charged ahead with EMU, brushing aside warnings by their own staff economists that monetary union was unworkable without fiscal union. Jacques Delors knew perfectly well that this would lead inevitably to a crisis, but it would be the “beneficial crisis” that would force sovereign parliaments to submit to demands that they would never otherwise accept.
This is now playing out before our eyes. Club Med governments have built up €7 trillion sovereign debt under the cover of monetary union, which shut down the warning signals for borrowers and creditors alike. We are now near – or beyond – the point of no return. Eurozone states must go along with this cynical entrapment, or risk economic catastrophe. The conspirators have succeeded. The €750bn shock and awe package agreed over the weekend clearly alters the character of the European Project, crossing the line towards an EU debt union and an EU Treasury. How long will it be now before the EU acquires direct tax-raising powers?
As French president Nicolas Sarkozy said: “We have a veritable economic government”. I hope the excellent and proud French people realise what this means before it is too late, as it is for the Greek, Irish, Portuguese, and Spanish peoples. They are being forced by the logic of the economic machine to squeeze fiscal policy at a time when they are either in recession or trapped in a deeper perma-slump without offsetting stimulus. A Deutsche Bank note to clients said these countries have given up all three instruments of economic control: fiscal, monetary, and exchange. They are powerless. We are under an “EU protectorate”, said Spain’s opposition leader Mariano Rajoy last week, though it was empty, useless rhetoric since he does not draw any of the necessary conclusions from this intolerable state of affairs.
In Brussels, Mr Barroso wants EU powers to monitor current account deficits and credit growth – under pain of sanctions – in order to stop booms running out of control. “We must get to the root of the problems,” he said.
Notice how one-sided this is. The entire adjustment burden falls on the people of the Club Med states – including his own nation, Portugal – though they are already trapped in debt-deflation. There is no recognition that the EMU system itself is fundamentally dysfunctional because the euro was painted on a cultural canopy that cannot possibly be deemed an “optimal currency area”, nor that these countries have been grossly violated by the entirely predictable – and predicted – perversions of EMU.
There is no hint that intrusive EU surveillance powers should be used to compel Germany to increase spending and tolerate higher inflation so that the EU’s North-South divide can be bridged by the both camps meeting each other half way. All responses are tilted in one direction: deflation, fiscal austerity. This is the Gold Bloc fallacy of Continental Europe from 1931 to 1936, the policy that led to Bruning’s destruction of Weimar, Laval’s near destruction of the Third Republic in France with his deflation decrees. It was a precursor to Laval’s fateful role as the Nazi enforcer of Vichy. He was later executed by firing squad, vomitting from a botched suicide with cynanide.
The reactionary character of the EU system is astonishing to behold. Mr Barroso – a Maoist student protester on the revolutionary barricades, turned Thatcherite, turned … what exactly – a Salazar, a son insu? – is becoming a serious danger to civil society and the survival of European democracy. Señor Barroso, a decent man, needs to step back and ask himself what on earth is going to be achieved by imposing a deflation death spiral on a large swathe of Europe.
Nor is there any recognition at all that the European Central Bank was itself partly responsible for the crisis that has now engulfed the South. We all forget that the ECB ran a persistently loose monetary policy during the bubble – Greenspan Lite, let us call it – and an overly tight policy after the bubble burst. A double whammy for the GIPS.
It missed its own inflation target every year, and by the end it was tolerating an 11pc growth rate in the M3 money supply (against a target of 4.5pc, but by then it had abandoned its Bundesbank tradition of monetarism). This was pouring petrol on the property fires of Ireland and Spain.
The ECB has since let M3 contract, doing its own part to ensure a replay of 1931, at least until Europe’s politicians read the riot act on Friday and forced it to buy Greek, Portuguse, Irish, and Spanish bonds, albeit sterilized and injecting no net stimulus into the euroland system. This resassertion of political primacy is entirely appropriate. The idea that central banks should not be accountable to democracy is monstrous and untenable. Besides, they had their chance.
They showed themselves unfit for independence. Their doctrines were found to be pseudo-science.
Why did the ECB pursue policies that were so destructive for the GIPS? Because it was helping to nurse Germany through its long post-reunification slump in Phase I, and then bowed to Germany’s phobia of non-existent inflation in Phase II from 2008 onwards. ECB policy was twisted from the start to help one (mentally unhinged?) country. Let us at least be honest about this.
I do not envy David Cameron and George Osborne as they navigate these lethal waters. As Bruno Waterfield reports from Brussels, they will face their first clash next week when the new Chancellor is presented with the Barroso proposals, that is to say proposals for a reversal of the English Civil War and the re-establishment of Stuart monarchical absolutism.
The truth is that no British government can ever put Europe on the back-burner and hope it goes away. It hits you in the face, again, and again, and again. This is why so many British ministers end up feeling a visceral hatred for the project.
In my view, the EU elites overstepped the line by ignoring the rejection of the European Constitution by French and Dutch voters, then pushing it through under the guise of the Lisbon Treaty without a popular vote, except in Ireland, and when Ireland voted ‘No’, to ignore that too. The enterprise has become illegitimate – it is starting to exhibit the reflexes of tyranny.
The moment of definition is fast arriving from Britain. The measures now being demanded to save monetary union cannot and will not be accepted by this Government, Nick Clegg notwithstanding. The most eurosceptic people I have ever met are those who have actually worked for the European Commission, though it takes a while – and liberation from Brussels – for these views to ferment.
The outcome – un véritable gouvernement économique – will put Britain and the eurozone on such separate courses that it will amount to separation in all but name. The sooner we get the nastiness of divorce behind us, the better.