June 21, 2016
Guest blog post by Philip Geddes.
(I spent 10 years of my life as a European Correspondent for the FT’s TV News Service, and 15 years as an adviser to various parts of the European Commission. Many people have now asked me what my views on the EU Referendum are, so here goes).
You are a passenger on the Costa Concordia, enjoying the beautiful balmy Mediterranean night time passage past an island when the ship hits a rock. You can – bravely – stay aboard and help in the rescue, hoping to save as many lives as possible before the ship sinks (and hoping to get away yourself at some stage), or you can take to the life boats as soon as possible, and aim to save survivors as you row round the stricken ship. In essence those are the options in the referendum.
The veteran American investor Warren Buffet has his answer to this quandary: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
On the face of it, I should be a firm believer in the UK remaining part of the EU. I voted yes the 1975 Referendum, in the hopes of cheaper wine and easier travel – both of which were delivered, and the feeling that Europe must do better together. But now Europe feels like a doomed cruise ship sailing too close to the rocks.
I have spent half my working life around Europe watching the transition from a divided, quarrelsome set of individual nations to a continent which, most of the time, works effectively together: it has virtually abolished borders, created a single market of over 500 m people, and fostered numerous pan European projects which have benefited the citizens of Europe. I have even played a small part in some of those developments as an adviser – working for four years on the development of a free market in labour across Europe, and advising on the gradual EU led improvements in politics and economies in the Balkans, which have helped keep peace there and seen several states join the EU.
But, but……The wise words attributed to German Chancellor Otto Von Bismarck put these successes into context – “laws are like sausages, it is better not to see them being made”. I have learned that you shouldn’t look too closely at the process of European legal sausage making – (or constitution building) – it is not a pretty sight. In the glory days, when the Berlin Wall came down, the Single Market arrived and membership of the EU was the only game in town, poor ideas didn’t much matter – we were swept along by an incoming tide of events which lifted every European boat regardless.
Even the Greek boat. In the run up to the introduction of the € – when teams from Brussels were being sent out to potential members with a checklist, crafted by Germany, to ensure that each state met the entry criteria – I met an official in Brussels who’d just returned from Greece. He told me they’d failed every single test, but the ruling from his masters in Brussels was that it was more important to get large numbers of states into the € than get the underlying numbers right.
In the last fifteen years the results of such hubris have become more and more evident as Europe has discovered it is living in a much more competitive and tough world than that of the 1990s. It has responded by becoming more ideological in its decision making and less democratic and accountable. Decision after decision has been based on top down thinking rather than on policies reflecting the expressed consent of the ruled. Because of the EU’s lack of accountability – the so called ‘democratic deficit’, Europe is obsessed by legal process rather democratic outcome. While most Britons take the longstanding rule of law linked to democratic accountability for granted, for many citizens of Europe these are relatively novel concepts. But if leaders ignore the people, the people will – in time – ignore their rulers.
This has created among Europe’s elite a dangerous inward looking attitude of “groupthink” – enforcing collective thinking which ignores uncomfortable realities.
The creation of the Eurozone, which I covered for the FT in the 1990’s, is a good example of this. The central principles required of a common currency zone have been known for many years:
- there must be a considerable degree of convergence in performance between the various economies involved before you start;
- common rules of economic engagement (taxes and fiscal procedures and rules etc) must be agreed and created at the start;
- you must agree that all debt becomes mutual (ie the responsibility of the whole currency zone);
- and single currency zones are only acceptable to all members if considerable transfers of wealth are made between the richer and the poorer areas.
None of this should have been news, and all were pointed out by numerous commentators (including the FT). But these vital principles were ignored by the EU as it careered into currency union, with predictable results. Currency union was – for most Eurocrats – a magic bullet to solve all Europe’s problems, not an economic tool to advance prosperity.
The cost has been staggering. As we knew it would be. To take one example – when Germany reunified, the cost of that process was €1.3 trillion.  Given that this was the cost of the (imperfect) reunification of just over 15m people into a federal Germany it is not hard to see why the German taxpayer is unhappy at the idea of paying a very much larger sum to bring the 133m people of Italy, Spain, Portugal, Greece, and Ireland up to a standard of living at which they can participate effectively in the eurozone.
And I would argue that, despite the UK’s opt out, we are involved in that. It has been argued by Remain that the opt out, means we are not under any obligation to support the eurozone financially or politically. That is true in that the UK’s opt out is specifically guaranteed by law as it is included in the EU Treaty setting up a single currency.
But is not a complete opt out by any means. Under the regulations founding the European Central Bank, ownership of the ECB was vested in the central banks of Europe, regardless of whether they represented states in the Eurozone. (This was done to satisfy German requirements for central bank independence). Thus the UK is, via the Bank of England, the third largest shareholder in the ECB – at 13.673%, with only Germany (17.9973%) and France ( 14.792%) having larger shareholdings. Admittedly as a non-participant, the UK has a much smaller paid up share in the capital of the bank, but under any reading of current banking law, we are ‘on the hook’ as a shareholder with financial responsibility for future decisions by the ECB, because we are owners. Banking law requires any international bank, seeking to set up a subsidiary in a Member State, to offer a “letter of comfort” to the banking authorities that it will stand behind its subsidiary in event of problems. I cannot see why that principle should not apply if the ECB found itself in trouble and I cannot find any clause in the legislation that allows the UK to ‘opt out’ in such a situation.
Admittedly this is – as yet – an untested thesis – but we know that Europe has a habit of changing the interpretation of the rules when circumstances change (see the reaction to the recent migration crisis, with several firmly established EU principles and laws chucked on the bonfire.) It adds a huge amount of potential uncertainty to the hazards of any future Eurozone crisis; and the chances of that are high, as every observer admits.
I am not saying we are necessarily ‘on the hook’, I am saying that no one knows – and asking why would anyone voluntarily enter into such an area of uncertainty when there is an option ?
I am voting Leave because the uncertainties in the EU’s future are much too large. The concept of “Remain” suggests that things will continue as they are; which is the one option that is not on the table. Europe has a long list of actions in the pipeline to create a federal state of Europe – including the absurd notion of a European Army which would compete for limited resources against NATO, which has a 70 year track record of keeping the peace in Europe.
I have made many good friends in Europe in the last 25 years and I remain a fervent fan of Europe as a group of nations working together to achieve mutual benefits in an accountable democratic structure. But just as one has a duty in one’s personal life to discourage good friends from making stupid decisions which will lead to long term unhappiness, so we need to send a message to our many European friends that, though not willing to be a part of a federal Europe, we will be there for them when the time comes to think again.
Europe is a case of good intentions going astray. But it can be changed – though not from inside, the groupthink is too established – and I look forward to Britain being a leader of the process when that time comes. I hope I don’t end up sharing Bismarck’s sour view of Europe – “whoever speaks of Europe is wrong; it is a geographical expression.”
 IWH Institute of Halle, in Germany, commissioned by the Federal Government in 2006. The Institute’s report was never published, (at the request of the German government) but Reuters, quoting IWH, stated the cost – without contradiction – at €1.3 trillion.