With the rise of anti-EU sentiment particularly given the way in which one country, Germany, dominates the European Union there has been a backlash against traditional parties which have held that the EU as being good for not only individual countries but also for EU as a collective entity. The problem with such an approach is the failure to move beyond a monetary union to bring about a fiscal union with a common tax policy, minimum wage, industrial relations etc. so that eventually over time there would be a harmonisation of wages thus you could go from Spain to Hungary and the difference in pay should be relatively small rather than the extremes that exist today. The lack of transfers from rich to poor countries in terms of welfare payments through to economic development mean you have this massive divide.
Then there is the issue in Greece where the cutting of public spending as resulted in a death spiral relating to the fewer people with purchasing power thus creating the mess that exists today. Do they need to reform their government? sure, I don’t think anyone is denying that but to address the fiscal issue you need to address the economic problems and once you’ve got the economy back on track then you can start looking at reducing spending and head count because the economy will be in a stronger position to be able to absorb large numbers of people entering into the private sector employment. That being said, I doubt we’ll get to the point of having fiscal and political union within the EU so I’m even more dumb founded as to why Greece holds onto the Euro like a battered wife convincing themselves that they should keep with their abusive partner because they’re a ‘good provider’. If Greece wanted to solve their problems they would exit the Euro and go back the the Drachma on a 1 to 1 basis including converting all deposits over in the bank and pulling in what Euro’s exist in the system as foreign reserves then float the currency.
Then again this goes back to what I’ve said in the past – the European Union as a free trade zone with each country with their own currency makes sense and it is something that I’m sure most Europeans would support but alas here it is. You’d think for example in the case of the UK, what they did in terms of quantitative easing and other such policies serves as a good example of the merits relating to a decentralised monetary system so that individual states can respond accordingly to their fiscal and monetary ways without having a central body being hamstrung to the ideological whims of the dominant power. Where as Germany needed low interest rates to boost their economy what Spain and Ireland needed were higher interest rates and capital control to deal with their property bubble but because of the nature of a single European currency there was little that they could do to address what was happening in their country. What would also happen is the different currencies would ensure that you don’t have a central economy dumping their products onto the periphery and loaning money to pay for it – Greece’s currency would have dropped in value thus making their own products competitive not to mention businesses being tempted to Greece because of the low cost of doing business due to the weak currency – an equilibrium between imports and exports with the currency value regulating that.[youtube https://www.youtube.com/watch?v=B2PDDdPuJFk]
The argument relating to the globalisation through the reduction in tariffs, quotas and non-tariff barriers was the belief that trade is a net positive for both sides, a win-win, I have something you want an you have something I want so we trade thus both of us get what we want. Part of that also included the argument that over time there would be a gradual harmonisation of wages as those in developing countries wages rise resulting in the income gap between countries is reduced (not taking into account currency manipulation but that is an entirely new topic that requires its own post) and the competitive advantage of wage differentiation would close to the point that competitiveness would move from cost of labour to specialisation, natural advantage (aka ‘we have lots of minerals we can dig up’) and so on. The problem is that for many Americans they’ve found that although NAFTA was supposed to deliver that the problem is that 21 years after it was signed into law (1994 under Bill Clinton) many are asking when is that harmonisation going to happen given that 21 years later the manufacturing sector is still being hollowed out and the wages on the other side of the border still haven’t risen enough which leads many to wonder how long must the US bleed before this hypothetical equilibrium is reached? this is the reason why many are getting behind Bernie Sanders on the left and Donal Trump on the right – because talking about how the average American worker is being screwed by the current trade policies.
Then there is the environmental side of the equation which is particularly poignant when you consider the free trade agreement with China that was signed. It reminds me very much of a representative from the UK boastfully proclaiming about how they’ve been able to reduce CO2 emissions whilst ignoring that they’ve moved most of their manufacturing to China which is powered by mega polluting coal fuelled power plants not to mention the carbon miles chocked up not only shipping the product back to the UK but also shipping the raw materials to China for processing and use in the final product. As noted by Richard Wolff regarding the insanity of capitalism that believes that you take raw ingredients, ship it half way around the globe then import it back into the country then claim with a straight face that it is ‘efficient’ – check out the Hoki fillets some time, you’d be surprised that although they’re caught in New Zealand they’re sent to China for processing them re-imported back to New Zealand. Remind me funny enough of a around 20 years ago an interesting proposition was made regarding the idea alf a ‘carbon tariff’ to offset carbon miles that were accrued.
That being said, I’m not advocating for protectionism or economic nationalism because we’ve seen the negative impact of beggar be my neighbour trade policies but at the same time I don’t know what I should make of the current economic order of things.