The first of countless commentaries have been written, all fretting over the forthcoming referendum on United Kingdom’s membership of the European Union.
It is commonly supposed that "Brexit" carries huge risks for Ireland. That's perfectly understandable but quite possibly dead wrong. Best guesses at this stage are that Angela Merkel will throw a few bones David Cameron's way, which he in turn will present as negotiating triumphs and the British electorate will duly endorse.
I hesitate, for obvious reasons, to point out that opinion polls currently suggest that a majority of UK citizens will, in fact, vote for continued membership. I suspect that the referendum will generate a lot of noise but will not result in any dramatic changes.
And even if Britain does decide to leave, it may not be that big a deal.
As it stands, the EU is a busted flush. Nobody is quite sure what it currently stands for. As a political construct it has achieved its founding goal, peace between Germany and France. But what is it supposed to do next? It has utterly failed to achieve its other main ambition which was to head off German dominance of Europe. At the end of the day, Cameron will be negotiating with Merkel, not Brussels.
The challenge facing the EU is a political structure utterly unfit for purpose. The next economic problem – crisis is now an over
used word – is already discernible. So- called German ordoliberalism is a fetish for a constitutional lock on balanced budgets and the accompanying refusal to build any new roads or bridges (let alone repair existing ones).
The build-up of a truly massive German balance-of-payments surplus is as a big a threat to the European economy as any property price bubble was previously.
Economics is a tough subject to master. That’s not because the profession has become dominated by second-rate mathematicians but because the insights of proper economics are often so counterintuitive.
Keynes is unfairly famous for advocating fiscal deficits: he was in fact a firm believer in balanced budgets. But, unlike ordoliberals, he understood that the government is not like the household. He pointed out the good that temporary fiscal activism can do when economies get trapped in periods of high unemployment.
He also understood the harm that is done when governments join the private sector and tries to invest as little as possible. Which is what we observe today, pretty much everywhere (notice the emphasis on investment rather than simply bumping up public-sector wages with more borrowed money).
Most counterintuitive of all was Keynes’s notion of a liquidity trap: when interest rates get stuck at zero, the central bank can print unlimited quantities of money without generating inflation. There are probably more people who understand quantum mechanics than truly get the peculiarities of money.
The orthodoxy that dominates the EU today, via Berlin, explicitly rejects all of this. EU conventional wisdom is the economics equivalent of creationism. This will, of course, eventually come back to bite us. That German balance-of-payments surplus is a much bigger problem than Grexit or Brexit. It will almost certainly involve somebody refusing to pay back money lent to them by German institutions. Sound familiar?
The EU and the euro survived the great financial crisis. That speaks to a peculiar kind of robustness. But what is unsustainable has to change sooner or, as in Europe’s case, later. What seems most unlikely is an adjustment that involves Germany deciding that lending money to foreigners (the necessary counterpart to that balance-
of-payments surplus) is a mugs’ game and that they would be better off repairing their crumbling infrastructure.
The much bigger deal facing our nearest neighbour is the future of its union. Paul Mason, a commentator with Channel 4 News, hit the nail on the head when he analysed Cameron's success in terms of Tory persuasion of English voters that the SNP are a Scottish version of Sinn Féin, particularly when it comes to tax and spending policies.
Middle England recoiled at the economic consequences of all of this – the politics, Scottish independence. It leaves the English cold and muttering "Good riddance". Keeping the union together will, I fear, prove harder than keeping the UK in Europe.
