This weekend the UK PM David Cameron was at the G8 in the USA. He’s widely reported to have been issuing instructions to the Eurozone on how to deal with their issues, and telling Greece in particular that it better watch its P’s and Q’s.
The general view in the Eurozone is that he’s got a cheek, and rightly so. The UK isn’t even a member; its prime minister is decrying EU fiscal policy while not really saying much, in fact the UK might not even be in the EU at all if Mr. Cameron was a man of his word. If he had given the UK the membership referendum he promised before taking power.
Add to this the UK’s unmitigated disaster of government debt, with levels that make Greece’s positively microscopic, and any emanations by Westminster are decidedly for home consumption only. They carry little to no weight in the EU.
The plain English side of the EU conflict, for such is what its shaping up to be, is most easily set out in a Game of Houses. Allocating house sizes and tax bands to each country will show us exactly where the problems lie. Like the UK however, to get to the root of the problem it’s necessary to go into the history of the modern pan European treaties. The root causes are almost identical, within the EU to within the UK, but this time we’re just dealing with half a century instead of three centuries and counting.
The EU began about fifty years ago with six nations entering a common market. No trade barriers, no duties, no taxes between the nations. It worked, it was a wonderful concept and it enriched lives across the EEC. The reason it worked was threefold; the nations concerned were all northern European nations sharing similar, although rarely amicable cultural heritages, they all had similar standards of living and pricing structures, their social benefits and mobility were largely the same.
The problem with the EEC was it succeeded, and as is the way with things human it expanded, but it expanded without limitation [the EU, as it became, ignored its own fiscal policies for admission to the Euro] and decided to implement the Euro project on a massive scale.
The Euro project is an unmitigated disaster, which was pre-ordained. It was still forced through by bureaucrats in Brussels.
Imagine each nation in Europe as a single house, each in the same village. The tax bands go from A-H, so does the influence within the EU. Greece would be a tax band-A But n Ben, Germany a tax band-H palatial mansion. Greece raises £1,000 a year for the EU; Germany raises £10,000 a year. The UK is somewhere around a band-D, raising about £5,000, but nobody is really certain because nobody else in the EU is sure of the UK commitment – the UK to the EU is like the over mortgaged council house on the outskirts that keeps arguing for the village to redraw its boundaries, without the UK inside, but at the same times likes to tell the rest of the village what to do and how to run the village council.
The village council is getting fed up.
The problem is that the EU doesn’t work; the diversity of socio-economic structure is far too wide. The EU is like the developer putting the Band H structure inside a scheme containing band A’s and Band B’s. That band H will see its value dragged down by the A’s and B’s while the A’s and B’s will see their value lifted by the band H. People won’t pay more for exactly the same band A house they can buy somewhere else unless someone gives them the extra money to pay for it, it’s called a subsidy.
The only place the subsidy can come from is the band H house, they’ll pay the same taxes but see their services shared by the band A’s. The people in the band A’s are now dependant; the people in the band H are now upset. The band A’s are also restless because they now know that if the band H’s ever decide to stop the subsidy they’ll lose their homes. Friction ensues.
The reason the original EEC worked was that everyone was in Band F’s through Band H’s, and everyone had a chance in a few years to upgrade. The diversification of bands in the current EU means it’s almost impossible to go from band A to band H without winning the lottery of nations, for example by discovering oil and keeping the revenues. Even this opportunity is vanishing as the EU continues to legislate in an attempt to make oil an EU resource. The EU to Greece is then like the UK to Scotland, it drains the wealth and leaves the misery behind.
In a circumstance like this, where Greece were fortunate enough to discover oil, if the EU had its way the revenues would be divided across the entire EU, with the houses in the biggest tax brackets getting most benefit. Germany would get ten times more benefit from Greece’s oil than Greece. It’s exactly the same in the UK. It’s called pro-rata division of assets. It’s a wonderful concept when you have nothing but a proportionally huge population.
Greece, and to a lesser extent Italy, Ireland, Portugal and Spain are all in the band A’s and B’s. They’re all dependant. They’re all in a place, i.e. a Union, they shouldn’t be in. They’re all in trouble. Ditto Scotland, arguably we have two layers of problems.
The fact that Germany, our band H, is only 10% of the total tax doesn’t matter, the other 90% can’t outvote her because Germany, and perhaps a couple of the band G’s are the only one’s without a mortgage in the village. Not only that but they underwrite the mortgages of the band A’s through band C’s. The smaller homeowners can’t afford to upset the mortgager because the only way they can pay the mortgage is with more loans from the band G’s and H’s.
Sooner or later the folks in the big house are going to say “enough is enough”, go earn the money to pay your mortgage. If you can’t earn more, spend less. This is where we are today.
So the band A’s and band B’s try to make more money, but can’t because the band G’s and H’s won’t lend them any more money to make money with. All the money the band A’s and B’s are making goes to the mortgage. It’s still not enough.
The people in the little houses, who can’t borrow [and the UK is perilously close to that now] find they still have the onerous mortgage burden. They have to look for savings if they can’t make more money, so they do everything possible to save money. They stop paying for healthcare, for their children’s education, for helping their elderly and infirm. They do it to themselves simply because they need to make those mortgage payments. They do it to themselves simply because it’s better than having somebody else do it to them.
It’s called self imposed Austerity. The UK, now demoted to band B is in that period of self imposed Austerity, if it was in the Euro it would simply be Berlin imposed Austerity.
Meanwhile the Band G’s and Band H’s keep getting wealthier.
This is Europe today under the EU, a microcosm is Scotland under the UK, Scotland is the Band H in potentiae existing as, optimistically, a band B.
The solution, it’s simple. The folks all need to realise they’re all one village, one community, and share. This means a relatively sudden and dramatic drop in living standards for Band H’s and Band A’s seeing a dramatic rise. Eurobonds would achieve this. Direct funding would achieve this. Neither will happen.
The Germany’s, the wealthy of the world will not impose upon themselves the reductions needed to help the poor, the Greeks. This is why the EU in its present form should never have happened, though it might have worked if limited to the original EEC partners with similar histories, social structures, standards of living, economic productivity and laws.
The only foreseeable outcome without the high value nations diminishing themselves is anarchy. Anarchy takes many forms, the obvious first of which we’re seeing now. Default.
It doesn’t matter the verbal window dressing, by not paying all its creditors Greece has already defaulted. Greece has not fixed the underlying problem; it’s had no significant help from the village. Greece still owes more than it can afford to pay, and it’s just had a 30% pay cut.
Greece will default again; it has no option without massive cash injections and complete debt forgiveness from everyone in the village. Greece needs to be helped into a job where it can recover not just its lost 30%, but make 30% more. The village can just about afford to help Greece, but it won’t. Greece won’t get what it needs because helping Greece would exhaust both the wealth and the borrowing power of the band G’s and band H’s. Their mortgages go up.
The band G’s and H’s aren’t bad folks, they might be inclined to help Greece, the band A, except they know all the band B’s aren’t much better off than Greece, and each band B has a bigger house, bigger commitments, bigger debts, bigger needs. They can’t help even one band B without selling their own homes, and that’s something their own families just aren’t going to allow.
The problem is that the families in the big houses are already on the hook for Greece, they’ll have to pay for her debts in the end. All we’re seeing right now is the heads of household in the Band G’s and H’s delaying the day of reckoning as they try to work out the best payment terms for those inside their walls. The forlorn hope is that the longer the collapse can be postponed the better the terms might end up being.
It’s called delay and pray, pray for a miracle.
This affects the UK and it impacts the lives of each and every one of us. I’ve seen my income cut by 30% and more since 2008, the pound was at $2:10+, now it’s bouncing around between $1.55 and $1.60. Add in inflation compounding at 3.5% per year with a drop in what the pension pot is worth and in four short years I’ve seen the real buying power of my income reduced by almost 50%. Everything imported has gone through the same cycle. Every one of us to greater or lesser extent has suffered. The suffering will continue within the UK.
In the last week the pound fell 4 cents, because of the Euro we’re told, that’s the spin. It fell because the UK has far less than 1 in 5 people actually making anything anymore, the UK relies on finance, and finance is illusory wealth. As soon as people can’t pay anymore the financial houses come crashing down – last week’s 4 cent loss, pound against dollar, was the international market pricing in the City of London’s Greek losses to the pounds value. Yes, it is that dramatic, as goes the City of London so goes the pound, we in the UK are that reliant upon financial services. This is where the power of the City originates, this and the debt.
Germany, if it had the mark, would not have seen such dramatic movement because it is nowhere as near reliant upon financing, it still has industry. It still has a positive balance sheet.
Every UK Prime Minister since Harold Wilson owns the problem and none will acknowledge that the City of London, with the UK economy is just lasting longer than expected on its deathbed. Greece and the failure of the Euro will simply administer the last rites, but neither Greece nor the Euro is to blame, that accounting lies squarely in London’s houses of Parliament.
It’s time for Scotland to put an end to the UK electoral cycle, to that ignominious game of thrones centered on number 10 Downing Street.