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Why the Maastricht structure is primarily based on Franco/German interests

June 16, 2016

 

Ever since a teen-ager, I have supported the idea of a Socialist United States of Europe. As a UK government negotiator, I subsequently took part in many talks in Brussels.  In my time, it was largely a case of detailed ad hoc bargaining: “You give me this and I’ll give you that” – the small change of international diplomacy. 

 

The results were not wholly bad, possibly even mildly beneficial for the UK.  My own remit when in Brussels was to block any significant move by the EU to involve itself in anything that might affect British aviation policy.  This was the general UK approach at that time.

 

Harold Wilson was quite clear in the sixties that Labour’s attempt to “get into Europe” was based on wholly political considerations.  On the other hand, Ted Heath had the naïve belief that EU membership per se would unleash massive competitive pressures on British industry and thus lead to industrial rebirth.  Of course, if anything it speeded Britain’s industrial decline.

 

THE CURRENT EU REGIME

 

Nowadays, we are in a totally different game.  It began with the establishment, with the Maastricht and Lisbon treaties, of an EU central banking regime completely immunised against any democratic control.  As German finance Minister Dr Schäuble has rightly said: “Elections change nothing!”

 

Together with that came a rigid fiscal regime whereby government deficits and cumulative debt have to be kept below a particular ceiling.  This set-up is buttressed by the Euro which, fortunately, Britain never joined – perhaps the only sensible decision Gordon Brown ever made.

 

The Maastricht structure is primarily based on Franco/German interests. It means that a country in the Euro suffering a big trade deficit, say with Germany, cannot devalue its currency to get its trade position back towards an acceptable balance. Hence the immense German trade surpluses and the cruelties inflicted on Greece. 

 

In the latter type of case, the Eurocrats insist on an “internal devaluation”, i.e. cut public spending, particularly wages, old age pensions, welfare payment etc. to reduce the demand for imports.

 

This is the basis of the austerity policy which is applied everywhere but which has hit Greece particularly hard. (Because we still have a sovereign currency, the UK has a little more room for manoeuvre which it uses largely in the interest of the City).

 

Like the Germans, the French bankers benefit from a stable Euro while France’s still-large farming sector is an important beneficiary of EU agricultural policy. The latter is an important reason why Britain pays such a huge premium for membership. 

 

The overall result of this structure is a downward ratchet pressure whereby EU member countries cannot engage in contra-cyclical public spending or develop their own industries to be competitive with the Germans.  There is a strict prohibition against “state aids” and any public investment must be based upon the “commercial investor “principle.  Industrial subsidies are right out. 

 

So would be any attempted re-integration of the British railway system despite it being almost entirely publicly owned (the TOCs hold franchises) and receiving 4-6 times as much subsidy as the old BR would have done.

 

In practice, this means for example that the UK government cannot rescue its remaining steel industry, let alone have a Chinese/Japanese –type industrial policy.  In my view, this is the only way Britain could ever recover but it will not be allowed to happen within EU rules.

 

CAN BRITAIN REVERSE ITS LONG-DRAWN-OUT INDUSTRIAL DECLINE WHILE INSIDE THE EU?

 

Note that just about every major industrial economy – France Germany, USA, Japan, China, and even Britain – developed its industry by protection and state support. I know of no example to dispute this point. Britain turned to Free Trade only after it had established world commercial supremacy.

 

Striking modern-day evidence for this analysis is the catastrophic economic decline of the post-Communist countries, from Latvia to Mongolia.  As a consequence, Latvia, for example, has lost 20 per cent (sic) of its population – mainly younger people.

 

Economists term this “primitivisation”.  When trade barriers are torn down, the first casualties in the weaker economies are their most advanced industries but their leading agricultural sectors are also hit hard.  With the loss of such leading sectors, the “primitivised” countries become helpless victims for the IMF and foreign banks.

 

As far as Britain is concerned, our trade deficit, now at a record 7 per cent of GDP and worsening by the month, has reached an unsustainable level. The medicine that will be prescribed to deal with it, indeed is already being dished out, will be internal devaluation, i.e. yet more austerity.   

 

This unnecessary punishment will be inflicted on an economy where already: (1) there is zero net UK industrial investment; (2) productivity growth is non-existent; and (3) as the Sheffield Hallam studies show, unemployment is vastly higher than the official figures, with most of it concentrated in historic industrial areas. No mystery why so many former northern Labour voters are turning to UKIP.

 

Including my relatives back in my home town. After a lifetime voting Labour, they keep asking me why Labour has deserted them. They wrongly identify their plight – e.g. take a taxi thirty miles for a hospital appointment, crumbling social infrastructure, declining living standards and increasing street violence -- to immigration. (A further factor is that they have a well-justified detestation of Yvette Cooper).

 

The policies Cooper supports – those of Thatcher/Blair/Brown/Osborne -- have contributed to a situation in which British products are uncompetitive internationally because (1) the £ is kept at too high a rate in order to suit City interests; (2) despite low wages, industrial costs are too high, e.g. due to energy privatisation; and (3) an abject failure to develop an industrial policy to nurture development (3) is the most crucial in my view.

 

Another adverse factor is the outflow of profits due to selling off assets to foreigners (around £600 billion in sales in recent years.)  Such assets are milked for short term profits. As with electricity, there is no sign of a long term approach, unless the Chinese agree to fill Mr Cameron’s begging bowl.

 

No other advanced industrial country behaves in this way. The Blairite argument that “labour market flexibility”, low wages and a reduced public sector deficit are needed to compete internationally is truly absurd. Germans, with their huge trade surpluses, must be chortling at Gordon Brown’s past lectures about how to run an economy – they knew that successful economies do exactly the opposite to “New” Labour!

 

THE BROADER POLITICAL DIMENSION

 

Even more sinister is now the way the Eurocrats are following their own thoroughly negative foreign policy. Their role in Libya, Syria and Ukraine hardly needs to be mentioned. But the best recent example is the secrecy surrounding the proposed TTIP trade deal. 

 

Although the EU position has been almost entirely formulated by lobbyists, no politician let alone member of the public has even been allowed to know the precise contents of the draft treaty with the USA. That is, until Dutch Greenpeace leaked the documents. 

 

The significance is that, under TTIP, which is aimed at “freeing” multinationals from regulation, national governments could easily be overruled by international arbitration committees of business lawyers. For example, Britain could be sued if it attempted to halt the privatisation of the NHS or renationalise, say, energy companies.

 

This sort of thing is already happening under US-style trade treaties, e.g. Philips tobacco suing the Australian government for loss of profits by insisting on plain cigarette wrappers, a Mexican decision to ban a dangerous chemical plant in a river valley overturned, the Canadian Post Office obliged to allow private companies to use its infrastructure etc. 

 

CAN THE EU BE REFORMED?

 

The reality is that this destructive international Free Market set-up is concreted in by our membership of the EU, and Britain will undoubtedly be pressed deeper into its economic black hole.

 

Can this situation be changed as Jeremy Corbyn appears to believe? Unfortunately, talk of being able to reform the EU is empty rhetoric by politicians. The EU constitutional reality is that its procedures are consciously designed to entrench a capitalist economy, and to carry through polices corresponding to the basic tenets of Market Theology.

 

Suppose that the UK wanted to introduce a mildly interventionist deviation from this, e.g. rescue its steel industry. It would have to approach the Commission which, in turn, would put a proposal to the Council of Ministers to allow that to happen. The Commission would be reluctant to go right against their constitution but, for the sake of the argument, let’s suppose they did so.

 

The legal basis would be Article 352 of the Treaty which requires the Council to act unanimously on a proposal like this. So just one country – Lithuania, Poland, Germany or anybody else – could block the move. Jeremy would have no room for manoeuvre whatever unless he secured unanimity.

 

What the terrifying UK economic situation requires is a total policy reversal – something like MITI, the Japanese Ministry of International Trade and Industry. Under EU rules, that is impossible.

 

It is uncomfortable to find oneself in the same camp as Tory Eurosceptics. Even more so to oppose Labour’s position which no doubt reflects understandable, albeit short term, thinking by the trade unions who are fearful of losing whatever social protection EU regulations now provide. But all the pressure by the EU is to get rid of these protections – “the drive to the bottom”. The technical term amongst official EU/IMF/UK economists is “de–securitisation” of labour.

 

The effects of this are clearly visible, for instance, in the recent EU inspired German railway “reforms”. The introduction of “on-track competition” is leading to wage reductions of as much as a half!

 

As to the effects of leaving the EU, no-one can really forecast in detail what will happen. But the dominant fact is that the Germans in particular have an immense trade surplus with the UK and will be very reluctant to put that at risk.  Wholesale retaliation is most unlikely. Indeed, significant retaliation would almost certainly fall afoul of World Trade Organisation (WTO) regulations.

 

International relations are of course dominated by power bargaining and, with Brexit, the UK would have a strong hand to play in view of the relative trade flows. There would no doubt be messy negotiations but eventually some kind of modus vivendi would be arrived at. Something like the arrangements the Swiss have with the EU which would leave the UK with more freedom of action including the ability to mount an industrial policy.

 

So I come to a clear conclusion – a No-Brainer, in fact. I shall vote to leave the EU.

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