The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Freedom of Movement and the Cruelty of the Euro

To escape the damage caused by the euro, and the resulting problems of mass migration, Brexit is essential for the UK

9th January 2017
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Summary

 

1.      The euro prevents EU countries with weak economies using currency exchange rates to adjust their competitiveness within and external to the EU.  The EU therefore has a policy of  ‘rebalancing’, or ‘internal devaluation’.  Rebalancing relies on the failure of uncompetitive industries.   The result is unemployment, lower wages and lower prices together with austerity justified by high levels of sovereign debt.  These pressures on the population are intended to force the creation of competitive trading industries and reduce non-trading activities.

 

2.      Regional EU payments are bureaucratically allocated and managed.  They are inadequate, inappropriate and inefficient compared with simple and automatic floating exchange rate adjustments.

 

3.      Freedom of movement theoretically reduces the unemployed population by moving labour to stronger economies that have labour shortages.  This is the reason for its importance to the Euro model.

 

4.      Rebalancing involves severe dislocation and widespread hardship.  The relief of hardship by EU welfare provision is inadequate and counter to the desired pressures to bring about rebalancing.  The EU policy of rebalancing is entirely unethical, repressive and manipulative.  It is a cruel policy reminiscent of Stalin’s forced 1930/40s population transfers.  Moreover, in practice it does not work and therefore nor does the euro. 

 

5.      By contrast, Brexit is ethical and traditional in seeking to develop local economies without dislocation and with whatever support is needed.  It incorporates normal exchange rate adjustments and acceptance of skilled persons of any origin through controlled immigration.  Many who voted for Brexit voted for jobs and standard of living.  The characterization of controlled immigration through Brexit as racist and discriminatory attempts to disguise the cruel nature of EU internal ‘rebalancing’.

*    *    *

Freedom of Movement and the Cruelty of the Euro

 

1.      It is a false accusation that the UK’s wish to control immigration is racist and discriminatory.  That accusation is intended to disguise a vicious and cruel EU policy.  Freedom of movement is asserted by the European Union to be a privilege and great benefit.  That is not true.  Its fundamental purpose and the reason for the EU’s insistence that the UK accepts it as a condition of market access following Brexit is to enforce use of the euro.

 

2.   It is well known that prior to adoption of the Euro the weaker economies of Southern Europe, such as Greece, were able to maintain rough competitiveness with the stronger states such as Germany by currency exchange rate movements.  After adoption of the Euro this was no longer possible, either within the EU or in relation to countries outside the EU.  The IMF, ECB and European Commission therefore adopted a policy of ‘rebalancing’.

 

3.      The rebalancing or ‘internal devaluation’ model assumes that when competitive trading differences arise between countries, the less competitive industries will fail.  There will be unemployment, less demand and a consequent fall in wages and prices.  Austerity is a tool to reinforce this process.  Where these conditions occur, the countries affected must develop more competitive production methods and move resources from non-trading activities to trading production.   Those persons made unemployed by this process or who cannot find work should be able to emigrate to EU countries that are more competitive and where there are labour shortages. This is the reason why freedom of movement is essential to the EU.  It reduces the economic pressures that are desirable for rebalancing. 

 

4.    Unemployment, euphemistically called ‘labour shedding’ is regarded as essential to rebalancing.  The ECB at present purchases company debt to sustain the financial markets since even negative interest rates and money printing have failed to give growth.   The EU regional funds that are given to Greece and Spain for social and economic purposes are inadequate, inappropriate and are inefficiently bureaucratically allocated and managed.  In practice they do not materially reduce the pressures for rebalancing/internal devaluation.  The only large scale assistance offered is more debt, additional to the debt that is a major part of their economic problems in the first instance.

 

5.    The traditional simple and automatic rebalancing of competitiveness by exchange rate movements involves little or no drastic economic reorganization or social disruption.  That is not the case within the Eurozone.  Eurozone rebalancing is driven by closure of industries, unemployment and migration.  The creation of new competitive industries is merely an aspiration.  The notion that competitiveness can be equalized between Greece and Germany, for example, by these means is absurd.

 

6.      The simple unemployment rate does not, of course, reflect the quality of employment taken up by employees from failed industries.  Their first option will be to take whatever employment is avalable, which will probably be at a lower income and living standard.  This is part of the ‘rebalancing’ process.

 

7.      The closure of uncompetitive industries with theoretical development of new competitive industries is euphemistically called ‘structural reform’.  In the real world, uncompetitive industries within the Eurozone definitely close; in competition with Germany and other Northern states, competitive industrial development of the southern EU states definitely does not and can not occur.  This is the source of the present imbalances within the EU.

 

8.      Apparently, the EU rebalancing policy has developed from a United States model.   If so, it is wholly inappropriate.  The United States is homogeneous for language and culture.  Even so, unacceptable within-country imbalances have occurred as they also have in the UK.  It is these that have given rise to the protest votes for Donald Trump and Brexit.  The EU is not homogeneous for language, culture and many other factors.  For these reasons, Europeans are much more attached to their locality of origin than Americans. 

 

9.      In any country, a major rigidity is that the unemployed usually have low skills.  They cannot afford to move or are unwilling to leave an uncomfortable but manageable situation where housing, family and familiar support networks exist and move to another country having a different language where there are great uncertainties.

 

10.  Persons who are skilled and have money will regard freedom of movement as beneficial, for holidays, or retirement for example.  Many of these would wish to relocate for career reasons in any case.  They would be welcomed by receiving countries, as the UK welcomes such persons from any country and would do so following Brexit.  Young persons with qualifications and without family will also emigrate readily, although their loss disadvantages their countries of origin.  It is evident however, that those often older persons who are displaced from failed industries will be least able or willing to emigrate.  This is what can be seen in practice.

 

11.  Adoption of the euro has therefore generated economic imbalances that will not be rectified automatically.  Worse, the rebalancing policy based on the euro has created hardship for millions of people in Southern Europe and the Republic of Ireland.  It is a cruel policy that ignores human welfare and rather than encouraging prosperity, is indifferent to the pain that it causes. 

 

12.  The human cost of the EU’s rebalancing policy, that is driven by industry failure and unemployment, has always been known to the institutions of the EU but they have chosen to ignore it.  The UK’s Brexit is based on positive policies to create employment by assisting existing industries and developing new ones with, of course, exchange rate adjustment of external competitiveness.  Not only is the EU’s rebalancing policy an ethical disgrace, the attempt to disguise its true nature and purpose by labelling those who do not accept it as racists is despicable.

 

13.  Together with these considerations, many EU states have very large public and private debt that will never be repaid.  This requires separate consideration but, briefly, debt permits control by the EU central institutions, particularly the ECB and IMF.  Its most obvious outcome is the sale of state assets, further weakening states that are undergoing ‘rebalancing’ stress.  It is these destructive debts knowingly given by the banks and underwritten by the ECB and IMF that provide the rationale for austerity.  Austerity is intended to reinforce ‘rebalancing’.

 

14.  There may be said to be four broad groups of people affected by Brexit:

 

i.                 People who are aware that they are suffering, or at least are not benefiting, due to EU policies.  They tend to support Brexit because their local industries have vanished and they want jobs and a reasonable living standard.  They are often not well educated and do not understand the technicalities of the Euro or how the EU functions.  Although not articulated in these terms, their views contain implied strategic factors as well as self-interest.  They identify uncontrolled immigration as evidence that the UK no longer controls its own economy and their destiny. This enables pro-EU activists to label them as ignorant, racist or espousing ‘the politics of hate’.

 

ii.            Educated and well-informed persons who understand that the EU is undemocratic, administered by a super-rich elite with dependent politicians, a large dependent bureaucracy and a dysfunctional currency.  They understand that the BIS, ECB and banks generally control the EU.  They might know, for example, that Mario Draghi came from bankers Goldman Sachs, achieved Presidency of the ECB and after his term of office returned to Goldman Sachs.  They might know that Goldman Sachs conspired with Greek politicians to hide Greece’s debts in order to obtain EU entry, so laying the foundation for the present economic misery of the Greek people.  They may view the EU to be on the path to tyranny, which would not be unusual in some EU countries.

 

iii.            Usually middle class persons who support the EU and believe that it is beneficial because their jobs depend on EU trading, are publicly funded or EU funded.  These apparently do not understand how the EU operates or do not care. Their evaluation is based on their immediate interests rather than whether  the EU system is democratically legitimate or benefits the UK. 

 

iv.             The rich and high level executives in international companies, banks, the ECB and IMF who understand the EU.  They will fight to retain the euro because it is they who have designed it in their own interests to make them richer and to give them political control of the EU through its economy.  This group believes in ‘realpolitic’ rather than democracy and will support tyranny as it has in the past.

 

13.  Because it is clear that the existing banks are hostile to Brexit, a priority for Brexit planning must be to organize a banking system independent of the ECB and the existing big banks.  Ideally local mutual units would be best for SMEs with a large central unit for major development and export finance.  The role of the Bank of England needs close examination.  The recent actions of the Royal Bank of Scotland in asset-stripping vulnerable SMEs indicates where the interests of all bankers lie.  It is noteworthy that Richard Branson who cultivates his image as ‘a man of the people’ has recently publicly opposed Brexit and is financing an opposition group.  The EU operates for the very rich.

 

14.  Those who designed the EU’s euro ‘rebalancing’ policy view people as theoretical economic units without human needs, feelings and attachments to family and locality.  Theoretically, it is not desirable to give welfare to because this would lessen the economic pressure that is essential to rebalancing.  In any case, the levels of welfare assistance would be impossibly large for the EU to accept.  This neglect of welfare is to the extent that in Greece large numbers of people are homeless and actually starving and in Spain youth unemployment is 45-50 percent.  ‘Rebalancing’ is not based on a democratic, egalitarian view of society.  It is a policy of repression and manipulation without any ethical content.   For this reason the euro does not work and nor does the EU.

 

15.  The creation of the EU and Euro is a far development from the Common Market that the UK joined.  The Common Market has moved from national directly elected parliamentary democracies to a centralized bureaucracy managed by a political and economic elite.  This elite, most visible in central banks, the ECB and IMF has little if any connection with or responsiveness to the immediate needs of the population.  It is not at all clear that the first priority of the EU is the welfare of its population.

 

16.  Brexit has a democratic and ethical foundation based on centuries of trading, economic development experience and the democratic development of society.  It will be traditionally designed to give benefits with the minimum of dislocation possible, to develop local skills and industries and to welcome skilled workers from all other countries.

 

17.  It is the writer’s view that on present trends, full EU integration based on the euro and supremacy of the banks over the public interest can only be achieved by political repression and a police state, that is, tyranny.  That is a form of government that often occurs in Europe.  The EU and UK parliament have permitted the spying and financial infrastructure of tyranny to be assembled under the guise of fighting terrorism.  The democratic Brexit decision is now being labelled ‘tyranny of the majority’ (John Major) and ‘populism’.  It is a bad sign.

 

By Christopher King MSc DipM DMS

 

Most of the following are discussion papers, not official ECB or IMF papers.

Official IMF report 2015 http://www.imf.org/external/np/pp/eng/2015/110915.pdf

http://voxeu.org/article/rebalancing-eurozone-internal-adjustments-won-t-be-enough )

http://www.imf.org/external/pubs/ft/sdn/2014/sdn1407.pdf

https://www.imf.org/external/pubs/ft/wp/2014/wp14130.pdf

http://www.economonitor.com/blog/2013/11/europe-the-failure-of-internal-devaluation/

 

 

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Thursday, 30 March 2017