Which Europe Now?

Political drama on television is finished. No fictional version could match the vicious infighting in both main political parties in Britain that followed the vote on June 23 by the British people to leave the European Union.

What the vote revealed—and the winning margin was larger than in three of the past four US presidential elections—is a growing and dangerous divide between the political class, often a metropolitan elite, and a large number of people who feel left out of the economic prosperity centered on London and disenfranchised by “political correctness.” Among the latter, insecurity has been growing for years, the result in part of the impact of globalization on real wages and of high levels of immigration.¹ It is a problem afflicting many industrialized countries.

Yet the political class, still in a state of shock and disbelief, shows few signs of recognizing the cause of its undoing. The campaign was not a reasoned discussion of the case for the two options but a propaganda war, the likes of which I cannot recall before in Britain, with both sides calling each other, and with some justification, liars.² And both sides continue to believe passionately that the other was the worse sinner.

Nor was the press any better. Even those newspapers that like to think of themselves as more authoritative and informed than their tabloid cousins allowed their editorial positions to infect their reporting of the campaign. No doubt their own commercial interests played a part.

It was and is simply false to claim that exit from the EU will result in Britain becoming either a land of milk and honey, on the one hand, or a land of plagues and locusts on the other. In truth, the economic arguments are much more evenly balanced. My own guess—and it can be little more than that—is that the effect of EU membership on the level and growth rate of national income in the long run will be much less than either camp would like to claim. But we cannot know today.

Two questions that should have been at the forefront were largely absent from the campaign. First, what will the EU look like in the future? Second, what is the place of Britain in Europe? It is helpful to distinguish three distinct entities: Europe, the EU, and the eurozone.

No referendum can alter the fact that Britain is and will continue to be in Europe. Not even politicians can change geography, even if they rewrite history. Cheap travel has meant that opportunities formerly available only to the privileged few who embarked on the Grand Tour are now open to all of us—young and old, left and right. We experience the pleasure and privilege of discovering the many countries of Europe and revel in their differences, their cultures and cuisines, their languages and landscapes. We are lucky indeed to live in Europe where so much variety can be experienced within such short travel times. So the referendum was not about whether Britain is in Europe. It is and always will be, and we take pride in that fact.

The same cannot be said of the eurozone. The monetary union is now facing serious problems. As I explain in my book The End of Alchemy, the failure of some member countries to maintain competitiveness during the first decade or so of its existence means that the eurozone is now confronted with the choice of pursuing one, or some combination, of four ways forward. First, continue with high unemployment in the periphery countries in the south until wages and prices have fallen by enough to restore the loss in competitiveness. Second, create a period of high inflation in Germany and other surplus countries, while restraining wages and prices in the periphery. Third, accept the need indefinitely for explicit transfers from the north to the south to finance the trade deficits that would emerge if those latter countries returned to full employment. Fourth, break up the eurozone.

When confronted with such unpalatable choices, the leaders of Europe react by saying, “We don’t like any of them.” So they have adopted a strategy of muddling through and hoping that something will turn up to resolve the problem. But so far it hasn’t. Greece became the first major European country to experience a depression even worse than the Great Depression in the 1930s. Policies dictated by Brussels and Frankfurt, and supported by policymakers in Washington, have imposed enormous costs on citizens throughout Europe. New political parties, untainted by the failed policies of the elite, are springing up across Europe and winning votes.

Putting the cart before the horse—setting up a monetary union before a political union—has led the European Central Bank to become more and more vocal about the need to “complete the architecture” of monetary union by proceeding quickly to create a Treasury and finance minister for the entire eurozone. The ability of such a new ministry to make transfers between member countries of the monetary union would reduce pressure on the European Central Bank to find new ways of holding the monetary union together. But there is no democratic mandate for a new ministry to create such transfers or to have political union—voters do not want either.

A forced political union will make the Continent less, not more, stable. Consider just one example. Germany made an extraordinary sacrifice when it allowed monetary union to proceed. It sacrificed the most successful achievement of a new and democratic postwar Germany—the Deutschmark—in the belief that binding itself to Europe through a monetary union would remove fears of an excessively powerful German state. The result has been the opposite. Antagonism toward Germany in countries such as Greece and Italy is now greater than at any point since the end of World War II.

The crisis of European monetary union will drag on, and it cannot be resolved without confronting either the supranational ambitions of the EU or the democratic nature of sovereign national governments. One or the other will have to give way. Eventually the choice between, on the one hand, a return to national currencies and democratic control or, on the other, a clear and abrupt transfer of political sovereignty to a European government will be difficult to avoid. It is clear, therefore, why there is no political support in Britain for abandoning sterling and joining the euro project.

In Europe but not in the eurozone—what does this condition mean for Britain and Europe? The EU faces two existential challenges. First, the failure to create a sustainable economic basis for the single currency. Second, the magnitude of migration, whether refugees or economic migrants, across the borders of the EU. The first threatens to undermine the monetary union. And the second threatens to undermine the commitment to the free movement of people across the EU and the Schengen border-free zone of countries within it. The Schengen Agreement was a laudable objective in earlier times but one almost impossible to sustain when confronted by an influx of millions trying to enter Europe.

What then is the place of the United Kingdom in a Europe facing such existential challenges? Britain’s historical goals have been to develop trade and other links around the world and prevent the emergence of a dominant power on the Continent. As Henry Kissinger wrote sixty-five years ago, “The traditional role of an island power towards a land-mass [is] to prevent the consolidation of that continent under a single rule.” Yet successive UK governments have gone along with the attempt by a political and bureaucratic elite to consolidate control of Europe into a single administrative structure, justified by the goal of “ever closer union.” They chose not to be part of such a process, but did little to prevent it. As a result, it is naive to believe that the UK can provide leadership in helping to resolve the two existential challenges facing Europe today. For all our shared history, culture, and values, it would be impertinent for a country that has chosen to join neither the euro nor the Schengen areas to tell our European partners what they should do.

All the other large members of the EU belong to both the euro and the Schengen areas. Britain does not wish to be a member of such a club. Why would you want to be a member of a tennis club if you do not play tennis and indeed actively dislike the game, simply in order to play a game of bridge once a month? That is the fundamental problem in Britain’s relationship with the other members of the EU.

In or out of the EU, Britain faces difficult choices. Can it really be in its long-run interest to acquiesce in the creation of political union in Europe, contrary to the traditional role of an island power? Is it sensible to leave the opposition to this project to extreme political parties across the Continent and possibly in future at home? As things stand, the long march toward political union desired by the elite governing the EU is not likely to reach a democratic destination. Those who decry nationalism should realize that the attempt by an elite to impose political union and free movement of people on unwilling electorates is today the main driving force of the extreme nationalist sentiments that they abhor. Whatever our grandchildren and their descendants decide to do in Europe, it must be based on a democratically legitimate process if it is to avoid recreating the very divisions that the original conception of the architects of postwar Europe so rightly strove to avoid.

Americans need to wake up from their cozy assumption that the apparatus of a supranational state is the only way to ensure a peaceful and cooperative European partner. Across Europe the younger generation wants to go beyond the nation-state to break down barriers and find new ways to resolve problems that extend beyond national boundaries. They will find ways to do this that do not require the outdated trappings of a supranational entity with its own anthem, flag, parliament, and now even steps toward an army.

Our political class would do well to recall the words of Confucius:

Three things are necessary for government: weapons, food and trust. If a ruler cannot hold on to all three, he should give up weapons first and food next. Trust should be guarded to the end: without trust we cannot stand.

Not just in Britain, but around the industrialized world, the divide between the political class and a large number of disillusioned and disaffected voters threatens trust. At times it seems that the governing class has lost faith in the people and that the people have lost faith in the government. And the two sides seem incapable of understanding each other, as we see today in the United States. But the continent on which the challenge is greatest is Europe. If any good comes out of the British referendum, it will be a renewed determination, not just in Britain but around Europe, to eliminate that divide.