Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 14 June 2016

Brexit and Democracy

Ambrose Evans-Pritchard writes eloquently and honestly about why he will be voting for the UK to leave the EU. Honestly because he gives chapter and verse on how “anybody who claims that Britain can lightly disengage after 43 years enmeshed in EU affairs is a charlatan or a dreamer.” His argument to nevertheless Leave is straightforward:
“it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error.”

Although he does attack the Commission “with quasi-executive powers that operates more like the priesthood of the 13th Century papacy than a modern civil service”, and although he talks about the European Court of Justice on which I have no expertise, most words are spent denouncing those that created the Euro, and here I have some knowledge. He writes
“Nobody has ever been held to account for the design faults and hubris of the euro, or for the monetary and fiscal contraction that turned recession into depression, and led to levels of youth unemployment across a large arc of Europe that nobody would have thought possible or tolerable in a modern civilized society. … We do not know who exactly was responsible for anything because power was exercised through a shadowy interplay of elites in Berlin, Frankfurt, Brussels, and Paris, and still is.”

Is this really the case? We know that the push for a monetary union came from France in particular. Germany was less enthusiastic, and therefore demanded as a price some central control of national budgets because they feared that a profligate government could cause systemic problems. When those fears proved correct, they doubled down on that central control and also believed a union wide demonstration of austerity was required. I strongly disagree with all of this, and have thought a lot about why it happened, but a lack of democracy is not high on my list of culprits. After all the Eurozone did not cause austerity to happen in the UK and US.

The fact that democracy was overridden in Greece so cruelly was not the result of actions of unelected bureaucrats, but of elected finance ministers from the other union countries. One reason these finance ministers refused to write off any debt was because of pressure from their own electorates. This exercise in raw political power worked because the Greek people wanted to stay in the Euro. The ‘bad equilibrium’ Evans-Pritchard talks about happens in part because of democracy. The lesson I would draw is that union governments should not lend money directly to other union governments, precisely because governments are democratic and so find it hard to accept write-offs.

Dani Rodrik talks about an impossible trilemma: how you cannot have all three of ‘hyper globalisation’, national sovereignty and democracy. The key question is whether you can find acceptable arrangements that partially limit each of these rather than abandoning one altogether. That is a tricky issue of design, and it is clear that the Eurozone has not succeeded so far. Too many assume that this failure condemns all attempts at monetary union, and that the only way forward is full political union. If that is what is meant by saying there is no chance of a democratic Europe anytime soon I agree, but I think that form of democracy was always a step too far too soon.

There is no shortage of ideas of how the Eurozone could be improved that fall well short of political union. It is simply not the case that you can only have one monetary union design, so you cannot reject the whole concept based on one failed experiment. It is quite possible that in the short term Germany or others may block reform, but it is far from obvious why Germany or others should prevent reform in the longer term. Germany does not want to repeat what happened in Greece.

Above all this, there is a fundamental point. The Eurozone as it currently stands is not immutable, or inevitably dying, or some kind of monster that is bound to ensnare the UK or bring it down. If the Eurozone did become one of these things, we can always exercise our option to leave. In contrast, once we leave, it will be a long time before we can change our minds.

29 comments:

  1. The impact of the euro is more subtle than either of you allow.

    First, the euro is symbolic of EU overstretch. The EU is not, and cannot be in the foreseeable future, a single polity. That creates a democratic deficit that cannot be overcome by perfectly democratic process. That in turn necessitates that the "European project" is carried out with restraint and caution. The euro was not, and has caused economic damage and hardship. It is the worst example of a wider problem.

    Second, in 1975 the EEC was perceived as a relative economic success compared to the UK. The UK had had decades of relative decline (while of course in absolute terms becoming richer). Joining a success story could be sold. Today, the euro is symbolic of incompetence and failure.

    Since 2008 the ez has not been an economic success story. Relatively weak GDP growth, coupled with bad (France) and terrible (Spain, Greece) unemployment makes the EU look a less attractive club. In part this is because "austerity" has been worse in some countries than in the UK, with a larger deficit run here than elsewhere.

    I doubt these factors are as large as that of immigration, but they do mean that the Remain campaigns attempt to sell EU membership as a necessary condition of UK prosperity faces a difficult task.

    Vote In, but I fear Out is coming.

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  2. first, other finance mis+nisters only did what Germans demanded of them, they werent so independently selfish as you give them credit for.

    Second, no government lended directly to Greece a single cent as you claim that they did.
    It is easy to check it out that EZ governments gave only guarantees to ECB and a permission to print new Euros and pay of old debts. That money has to be destroyed if Greece would pay it off. but that is impossible; for a government to pay off old debt with tax money. It has to pay old debts with new debt only.

    Conclusion is that ECB printed new money, not that any governent gave money to Greece. Forgiving debt to Greece would cost no EU taxpayer any money, nor Greece paying it off would give no money to any taxpayer.

    Why a great economist like your-self SW-L still live in imaginery economic paradigm? Why you could not accept the real one? Banks print money and destroy it as debts are payed off. When would that fact be acceptable to mainsteamers? Is it long time training in false economic paradigms that used to be reality 100 years ago, not today.

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    1. In and out both have advantages and disadvantages.
      How to vote is a question of personal preferences.
      I would personally rather prefer to be a free and starving entire man than an enslaved well-fed eunuch.
      Vote out!

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    2. Where would be the freedom, especially if starving? We negotiate to get a balance of individual freedom and community. I had not noticed that being in the EU made people infertile - in fact some of that red tape is about limiting endocrine disrupting chemicals in water. These are substances that would make people less fertile or cause birth defects, and at least we need the whole region to conform - one country alone will not change what is in the North Sea.

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  3. You and AEP are all very nice people but comfortable and relatively affluent. Brexit is mostly about British working class people who are losing their town and country to globalization/offshoring and mass immigration. Living in London like a stranger. I know this is not on the ballot, but it is the only way so far to express a No to the transformation of your country in a foreign one

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    1. The only ways to stop net inward migration are to crash the economy or to impose a police state, or some combination of the two. And that’s not a country I want to live in.

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    2. Thanks Anonymous. I agree these are some of the concerns among those who worry about immigration and may vote Brexit. Unfortunately identity issues have no place in economic theory. (Unfortunately anything that cannot be handled by Model is usually condemned.)

      But notions of community, identity - and marginalisation and alienation are very important. Sociologists know that. Anthropologists know that. Political scientists know that.

      New Labour is an example of cosmopolitan neo-liberalism. The elite are generally very patronising to concerns of identity and usually depict people with such concerns as xenophobic and conflate them with arguments made by the far right.

      But there are some people in the profession who are in touch and comprehend that charity should sometimes start at home:

      "When citizens believe that the elite care more about those across the ocean than those across the train tracks, insurance has broken down, we divide into factions, and those who are left behind become angry and disillusioned with a politics that no longer serves them. We may not agree with the remedies that they seek, but we ignore their real grievances at their peril and ours."

      (Angus Deaton)

      https://www.project-syndicate.org/commentary/globalization-hurts-poor-in-rich-countries-by-angus-deaton-2016-06

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  4. As an (retired) American who's spent a good few years working around related issues, I'm slightly surprised at the tenor of this Brexit debate.

    Britain is presently Europe's second largest economy, and if present trends continue, will be Europe's largest economy within a decade or so. You Brits have a permanent seat on the UN security council, you have the largest defense budget in Europe , and - critically - you are absolutely key and pivotal to the defense of Europe, not only as a founder member of the NATO alliance, but also one of the few US allies who are relatively comfortable with projecting power through the use of military force. Your RAF is presently intercepting Russian aircraft over Estonia, while your navy is patrolling the Baltic. The Poles are literally begging you to agree to stationing a British-led NATO battalion in their country. You are also not only a nuclear power, but the most powerful' soft power' in the world after the good old USA. So why would on earth would you Brits be looking to little Norway, Iceland or Switzerland for your post-Brexit trade model. Surely you are much more than that...

    For goodness' sake stand up for yourselves, and tell these guys that free trade in goods and services benefits everyone on balance, and should therefore be the normal state of affairs, and not something to be granted to you or withheld as a favour, or in return for a raft of unrelated political concessions. With some common sense and goodwill on both sides, there is no reason at all why a British withdrawal from the EU should be particularly disruptive for either Britain or its European partners. That Britain currently runs an annual 100 billion Euro trade deficit with Europe partners should make this point even more obvious.

    The big risk it sems to me is that should the Leave side win the referendum, common sense will go out of the window, and your 'good friends' in Brussels will seek to harm your economy 'pour encourager les autres', as some of them are saying quite plainly will be the case.

    This would be a very grave error on their part: History has shown repeatedly that Europe doesn't run very well without the British both present and engaged to balance things out.

    So post a putative Brexit, the best course for the EU would be to say 'we're sorry to see you leave, but we understand your reasons, and we wish you all the best: Of course our long friendship will continue regardless of your membership of our Euro-club (and please... please.... please keep defending us)', and by doing so try at all costs to keep the Brits fully engaged with Europe inside or outside of the EU framework.

    It would I suppose be hard for any British government to sell to the British electorate the prospect that their military forces should remain committed to the defense of a group of countries who were seeking actively to harm British interests, against a Russia that threatens Britain hardly at all.

    So the chief object of both sides in a post-Brexit negotiations should be to ensure that a Brexit marks the beginning of a new and cooperative relationship with Britain, and not the beginning of the end of Britain's engagement with Europe, and of Europe's post-war security architecture.

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    1. Even with common sense and goodwill to set aside the insults, there would be a fundamental problem in negotiating a post-Brexit treaty which arises precisely from the fact that the EU is not a federal super-state.

      The EU27 might have a 100 billion Euro surplus with the UK but that is not spread evenly. Some countries might be more interested in continued access to the UK’s labour market or in excluding the UK from their own market in financial services, and so on. Far from the ‘pick and mix’ fantasy of the UK choosing to include or exclude elements of a new trade deal to our own fancy, we will be lucky to come out of new negotiations with a deal approaching what we have today, as any one of the 27 could veto a deal that looked unfavourable to their own interests. There is no possibility of a deal offering the UK open access to EU27 markets for goods, services and capital but allowing the UK to close its labour market.

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  5. I would have more truck with arguments about democracy if
    a) those making the argument voted in EU Elections (which are at least held under a proportional electoral system
    b) we didn't have a disproportional electoral system which is subject to gerrymandering via constituency sizes and boundaries and is designed for a 2 party system which we patently no longer have
    c) we didn't have an unelected second chamber
    d) we didn't have placemen and women and bishops sitting in this second chamber
    e) that we have a hereditary head of state
    f) the Privy Council didn't exist
    g) the Lobby wasn't as powerful as it was
    h) the media didn't have undue influence.

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  6. "Above all this, there is a fundamental point. The Eurozone as it currently stands is not immutable, or inevitably dying, or some kind of monster that is bound to ensnare the UK or bring it down. If the Eurozone did become one of these things, we can always exercise our option to leave. In contrast, once we leave, it will be a long time before we can change our minds."

    Thank goodness people now are beginning to make the proper case for remain. People aren't as stupid as the elite make out, they will listen to stuff like this - it is the kind of argument they are looking for. This is much better than the drivel coming from Cameron and the Treasury.

    One other thing that would also be helpful - if remain can explain what they are going to do about EU immigration - rather than dismiss it as an unfounded concern.

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    1. On the question of what Remainers should say on EU immigration, Yvette Cooper has a go at this in today’s Guardian http://www.theguardian.com/commentisfree/2016/jun/14/ignoring-immigration-five-reforms-remain-eu-vote. Her suggestions include: new employment rules, a migration impact fund, tighter border controls, reforms to free movement and a new national consensus.

      My own thoughts on these:
      - Employment rules: these have to change to prevent employers using migrant or posted workers to undercut pay/conditions or to replace locals; the EU now acknowledges the problem but its current proposals are inadequate.
      - Impact fund: the problem with the economists’ focus on the GDP gain of inward migration is that it ignores the distributional and local effects which leave many losers, so it is essential that this benefit is spent where the impact is greatest on schools, housing, etc.
      - Border controls: OK if this is directed at people traffickers not legitimate travellers or migrants.
      - Free movement: the principle is right but its practical application does need to be reworked; ironically, there is more chance of doing this from inside the EU than from outside where will be confronted with a take-it-or-leave-it trade deal that will include access to the UK’s labour market.
      - National consensus: as Yvette argues, attitudes to migration are more nuanced and complex than the Yes/No choice that the referendum appears to force; a lot needs to be done here, particularly at a local level.

      I would add a couple of points:
      - Housing and city planning: not just that we need more homes but also that we need to manage the housing stock (public and private); some of the problems in inner cities arise from the conversion of family homes into often-overcrowded multi-occupied buy-to-let properties with associated problems of poor maintenance, waste, etc.; complaints are then directed at migrants living there even though it is the conditions which are responsible (students can cause similar problems).
      - Austerity, not just in the UK but across Europe: this creates both downward pressure on wages and a desire to move to escape mass unemployment or poor wages in the EU periphery; a return to steady growth would ease many of the problems associated with migration.

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    2. If I were the EU right now I would be very worried about what is happening. People say that Sterling is in for turmoil, I would say the Euro is. Brexit will send fears that other countries will follow suit, the EU itself is under danger from disintegration and the Euro will be attacked.

      The EU should call an emergency summit and give Cameron his emergency break on free movement.

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  7. "Dani Rodrik talks about an impossible trilemma: how you cannot have all three of ‘hyper globalisation’, national sovereignty and democracy. The key question is whether you can find acceptable arrangements that partially limit each of these rather than abandoning one altogether. "

    Exactly. This trilemma looks like the sort of gimmick which they just love in the US. It is not the way to look at issues like this. A country like Switzerland or Denmark is democratic, but sovereign and with high trade and other international economic engagement. In many ways it depends whether you are small or large country or not.

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  8. The sovereignty debate is entirely spurious - although it obviously acts well as a populist dog whistle. Take the quote:

    "We do not know who exactly was responsible for anything because power was exercised through a shadowy interplay of elites in Berlin, Frankfurt, Brussels, and Paris, and still is."

    You could equally replace "Berlin, Frankfurt, Brussels, and Paris" with Westminster for all the effect the ordinary voter has on our national government. Did anybody demand nuclear power and fracking, for example?

    In reality, our "sovereignty" is distributed over many layers of personal and institutional decision making. In a properly functioning democracy, the idea is to ensure that decisions are made at the right level. It makes a lot of sense that, for example, environmental and rights decisions are made at a multinational level. Business and some taxation as well - the "level playing field".

    The rhetoric of "making our own decisions" used by Brexit is likely to end up as just another ruse for Westminster politicians to grab more power for themselves - and we already have an incredibly centralised government ruled by a minority for an even smaller minority.

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  9. The problem with this argument is that the structure of the EU which pits one country's government against another has not fallen from the sky but has been consciously set up in this way.
    The structure was set up in this way to maximize leverage for the antidemocratic commission which then developed in the even worse intergovernmentalism since Merkel.

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  10. "The key question is whether you can find acceptable arrangements that partially limit each of these rather than abandoning one altogether. "

    Of course you can. These artificial devices, such as this Trilemma create non issues and become truisms. Countries can trade, maintain their political sovereignty and don't need to become fascist dictatorships or technocracies. And people are overstating the technocratic aspects of the EU, ultimately decisions are made or (repealed) by the elected heads of states of its members. It's just that majority rules in regional or multilateral bodies.

    Even the immigration problem was something ultimately Britain decided on - it pushed for rapid eastward expansion (against much opposition) and then did not put in transitional controls. But these were decisions made by the elected British Government. However, once you have agreed to a treaty, be it UN, Vienna Convention or Maastrict, you have to keep it. But it is a sovereign decision to enter them.

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  11. Dear Simon,
    Very well argued, especially the last paragraph. I can't believe we hear screams like "the EU has stripped us of democracy" etc, etc. I wonder: Have they ever visited any non-democracy those (and there are many) who keep on repeating these hysteric comments?
    Best wishes,
    Costas Milas

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    1. It was the last paragraph that I liked too, Costas - as you point out, the leave camp is prone to the style of Greek statistics...
      http://www.ekathimerini.com/209593/opinion/ekathimerini/comment/brexit-camp-resorts-to-greek-statistics

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  12. It is not clear to me what is wrong with Rodrik's argument. Following the logic of the trilemma, the problem is not that a monetary union is not viable, but that the way it is run (or it would be run should it be made more functional) is not democratic, as decisions are the result of asymmetric power relation among countries. (The fact that the latter are democratic does not change the picture.) As long as the monetary union limits nation states sovereignty but cannot be made democratically accountable -- e.g. through a political union -- we haven't solved the problem. Hence the conclusion: if as you admit there's no chance of a political union, we cannot solve the lack of democracy in the EU.

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    1. Although I am in the 'Remain' camp, I agree with Massimo. SWL seems to imply that democracy is only about being 'elected'. To me democracy is also about limits placed upon the 'majority' and elected politicians. In our countries even a large Parlamentary majority cannot expropriate those who lose an election, nor close their banks. But in Greece the 'majority' of EU countries could use the EBC as a partisan instrument for blackmailing the Greek government, by creating bank panic and then closing the Greek private banks, until the Greek Government accepted the austerian's requested policies. This shows that, unless and until we have a democratic EU Constitution in place (which we shouldn't, now, for anthropological reasons), the concentration of power in the hands of the ECB and of the European Council (admittely only if/when large majorities arise) is potentially way too large and too dangerous. It was proven to be so not only in Greece, but also in other EZ countries where a human made economic depression has ravaged the local economies. Do you think that staying out of the EZ is enough to prevent these risks? Maybe; or maybe not...

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  13. 'Democracy' and 'sovereignty' are words getting thrown around with abandon. Apparently they are both fine things, and having more is good. But what exactly do they mean in practical terms, for the proverbial bloke down the pub? What do they mean to someone who can't pay their mortgage, ultimately because of foolish legislation and policies passed in the national parliament?

    I agree with 'gastro george' above. Decision making needs to be placed at an appropriate level, and I am content that some of these decisions are made at a European level.

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  14. «"ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error."»

    Among the crass nonsense or shameless lies that I have seen about the EU issue this is a true gem: the UK member of the Council of Ministers (and even more so in the Heads of Government Council) has in almost all matters a veto. The UK could block virtually all EU business by the democratic will of the elected UK government, even when all other member democracies wanted that business done.

    I am pretty sure that A Evans-Pritchard is fully aware that nothing of substance can be done by the EU if the UK is against it. If anything the EU institutions are too weak and too easy to block by any member state, rather than viceversa.

    Also, the UK member of the council can be removed by UK voters at any election, by switching to another government; the other members can be removed by the voters that elected them. This is quite the same to voters for one constituency being unable to remove the members of parliament elected by another constituency.

    I don't understand why the "Remain" camp never mentions the veto power of the UK over any matter of substance, as that removes any concerns about sovereignty and loss of control.

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    1. If you fail to use a veto in the EU, then it is enshrined in law for ever more and you can’t change it at all. The system is designed to prevent change and move towards the goal of a United States of Europe run on corporate creditor lines.

      Every time a proposal goes to the civil service they say: “That’s very nice minister, but unfortunately that would breach EU treaty rules”.

      The EU is a way of hog-tying parliament so that it can no longer protect its citizens from the ‘market’. That is by design. The process will continue until the power the individual member states have will be somewhat similar to what the Welsh assembly has, or perhaps a town council.

      In simple terms the UK parliament has no mechanism, other than leaving the EU, to overturn a decision of the European Court of Justice on the interpretation of the EU treaty. Since the tendency of the court is to over interpret the provisions and under interpret the restrictions what you get is creeping federalisation.

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    2. "the UK member of the council can be removed by UK voters at any election, by switching to another government; the other members can be removed by the voters that elected them. This is quite the same to voters for one constituency being unable to remove the members of parliament elected by another constituency."

      Ok. Explain how the Viking ruling of ECJ can be overturned. The EU has no Parliament Act.

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  15. «democracy was overridden in Greece so cruelly was not the result of actions of unelected bureaucrats, but of elected finance ministers from the other union countries. One reason these finance ministers refused to write off any debt was because of pressure from their own electorates.»

    Several times in history local governments in the USA, even some much bigger (population, GVA) than that of Greece, have been let go bankrupt by the USA federal government because the Federal Reserve refused to sent them a huge helicopter drop, and the elected representatives of other parts of the USA refused to bail them out, and in democracy the majority wins and the minority loses the vote.

    Is the USA a cruelly undemocratic country?

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  16. Mmm, how about getting the EU (or here in the USA, the federal government) to allow selective and partial withdrawal? Say Brussels decrees that all electric wall sockets have to be of one design. A government, or even a company, that wants to do things differently can do so provided they cover the boxes they sell sockets in with warnings "We choose not to conform to EU standards." / As for currencies, I've seen Filipine taxi drivers accept US dollars. Why not let countries allow free use of gold, silver, and foreign currencies along with the local stuff? Competition would keep the central banks honest: debase your own product and no one will use it, because in a free market good money will drive out bad. (Andrew Lohr, husband of "dibzz")

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  17. A relevant, but parallel question - can the technology of reliable machine translation of human languages enable greater economic European - and eventually world - integration ?

    Decided to ask here because European nations, in many ways, are defined linguistically.

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    1. I think it might help at the consumer level, but there is more to communication than just words. I suspect the nuance needed in negotiations requires real people talking. In would like to see more people learning at least a second language well. I am very interested in translation issues.

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