The eurozone’s coming recession will confirm Brexiteers’ warnings
As the EU slides into yet another economic crisis, voters will remember why they wanted to leave
Remind me: what’s so great about the single market and the single currency again? The latest economic statistics from the eurozone are appalling, and point to a continent that is sleepwalking into a catastrophic recession. Our own establishment is too busy self-flagellating to have noticed, even though a eurozone meltdown would not only hurt British businesses and workers but could transform the Brexit negotiations.
Like the eurozone crisis which destroyed Greece and crippled Cyprus and Italy, this sudden economic storm could change everything. That earlier episode, a near-death experience for the euro, was a seminal moment in the rise of British Euroscepticism. It mattered almost as much as the migration crisis, a point that few Remainers understand because they cannot accept that Brexiteers care about economics, not just sovereignty.
To Eurosceptics, the quasibankruptcy of the Club Med economies in the mid-2010s was the final confirmation that the EU was no longer a land of milk and honey, as it had appeared to be in the 1970s and early 1980s, but an economic basket case with terrifyingly authoritarian tendencies. The French Trentes Glorieuses, the Wirtschaftswunder in Germany and the Auf Wiedersehn, Pet phenomenon – when British workers moved to Europe for employment: all belong to a distant past.
The issue isn’t so much British strength as European weakness: Brexit voters know that there is much that is wrong with the UK economy but they rightly no longer believe that the EU has any of the answers. Their critique is rational and forward-looking: it is the Remainers who are emotional and obsessed with past dreams, and who still see sunshine, prosperity and peace when they look over the Channel, rather than gilets jaunes and criminal levels of youth unemployment.
Between 1999, when the euro was launched, and the start of 2017, the latest period for which IMF data is available from Bloomberg, the eurozone’s GDP grew by 26 per cent, against the UK’S 44 per cent and
42 per cent in the United States. Italy is up by just 6.7 per cent and Greece by 1.3 per cent; both have suffered two wasted decades. If being part of the single market and customs union mattered so much more than any other policy, the eurozone would have boomed. Yet it didn’t, and the voters know they have been sold a pup.
If you want to see proper growth, you need to turn to the emerging world, to China (which has multiplied the size of its economy in extraordinary fashion), to India, to Singapore, to Israel (up 98 per cent). Of course, the UK has underperformed these past two years; and yes, Brexit uncertainty, compounded by the Government’s incompetence, was one important reason. Yet this brief period of EU overperformance is ending. Eurozone industrial production was down a calamitous 4.2 per cent, year-on-year in December, led by a 6.7 per cent collapse in Spain, 5.5 per cent in Italy and 3.9 per cent in Germany. French industry’s crisis was less pronounced at minus 1.7 per cent; Britain did slightly better again, by shrinking only 1.2 per cent.
How is any of this possible given that leaving the EU, we are told, is the only explanation for any and all bad economic news? I’m being facetious, of course: China’s downturn, dearer money in the eurozone and America, a general turning of the cycle after years of expansion, as well as some jitters about Brexit, all help explain the looming euro-recession.
Yet listening to Remain propaganda, the EU ought to have discovered the secret to perpetual growth by now. The reality is, it is still the weakest link in the developed world, a precarious, unsustainable, stagnant construct, its cultural and geopolitical power drained by its inability to grow its economy. No wonder Brexiteers just don’t accept leaving will make us permanently worse off.
The two big economic experiments that underpin European integration have failed spectacularly.
The creation of the single market and its unified regulatory zone has delivered pathetically small results. A decade ago, the EU Commission calculated that it had only increased Europe’s economy by 2.1 per cent, a trivial number. It is likely that the UK will have gained even less: we don’t rely as much on EU markets, we specialise in services (where the single market is less complete), and we already had a more pro-competition environment.
The euro’s failure is even more disastrous. The huge boost to growth it was meant to generate by eliminating
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transaction costs and uncertainty never materialised. There was no free lunch, no spurt, no permanent upward shift in performance. The downsides have been cataclysmic – mad booms and busts in peripheral economies and the incompatibility between national social democracy and European fiscal policy exposed for all to see.
One thing is certain: another eurozone crisis would strengthen the Brexiteers’ resolve, even if Britain is also affected. As a tangible EU failure, it would more than cancel out the warnings of Project Fear. It would make Eurosceptics even more sanguine about a no-deal departure. The inevitable short-term costs of leaving the EU would be attributed – in some cases unfairly – to the eurozone crisis. If French and German factories are shutting, then why blame Brexit for what is happening to Nissan or Airbus?
All of this would also make it harder for the likes of Emmanuel Macron to play hardball: it is one thing to deliberately hurt one’s own economy in order to impose a punishment beating on Britain when that economy is growing; it’s another thing to do so when unemployment is beginning to rise. Time is actually on our side, for once, assuming that the eurozone doesn’t suddenly bounce back.
If we had a competent government, these are the sorts of discussions it would be having. The Treasury would be trying to mitigate the contagion from a eurozone recession; and No10 would be seeking to strengthen its hand. Instead, there is nothing: no plan, no strategy, no reaction. But at some point, and soon, the British public will notice what is happening to the eurozone, and it will remember why it voted Leave.
Woe betide the Tories if they betray Brexit under such circumstances.