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EUROGEDDON: As a Nobel winner warns the euro is doomed, why the political elite's refusal to admit the misery it's causing means there's far worse to come

The leaders of the EU returned to centre stage last week, strutting across the deck of an Italian aircraft carrier like modern-day masters of the universe.

And if you thought Britain's vote to leave the EU might have shaken their confidence in the inevitability of federal union, their elaborately staged photo opportunities told a very different story.

To kick off their summit, the leaders of the eurozone's three biggest powers, Angela Merkel, Francois Hollande and Matteo Renzi, first visited the island grave of a Communist politician called Altiero Spinelli.

In 1941, while imprisoned in a fascist camp, Spinelli wrote a manifesto calling for a federal Europe and insisting that the days of national sovereignty must be consigned to history. He survived World War II, and ended up on the Brussels super-state gravy train as a European Commissioner in the Seventies.

Once the Continental trio had paid their respects to their federalist godfather, a helicopter flew them to the deck of the Giuseppe Garibaldi, which usually spearheads the Italian naval mission to intercept refugees in the Mediterranean.

Yet again the symbolism was excruciatingly heavy-handed, since it was named after Garibaldi, the guerrilla leader who fought for Italian unification back in the 1860s.

Some people, conceded Renzi the Italian prime minister, had suggested that 'after Brexit, Europe would come to an end'. But, he said defiantly, the summit proved this 'is not the case'.

Yet even as the EU's governing triumvirate were posing for the cameras, one of the world's most respected intellectuals was issuing a bleaker prediction.

'Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis,' writes the Nobel Prize-winning economist Joseph Stiglitz, in the very first sentence of his new book The Euro And Its Threat To The Future Of Europe.

His subject, of course, is the great untouchable pillar of European unity, the perennial elephant in the room, the symbol both of soaring Continental idealism and of crushing economic failure.

British holidaymakers may just see it as another foreign banknote. But to Professor Stiglitz, the euro is the EU's original sin, the 'underlying mistake' that has turned optimism into disaster.

The euro, he argues, was a mistake from the beginning, and the 'social and political consequences' of the European elite's folly 'have been disastrous'.

Founded amid intense utopian excitement, it has plunged much of southern Europe into the deepest economic misery in living memory, throwing millions on to the scrapheap of unemployment and handing far-Right extremists the perfect gift.

That may sound melodramatic, but Professor Stiglitz's expertise should not be blithely brushed aside. Currently professor of economics at Columbia University in New York, he was formerly the chief economist of the World Bank and chairman of the U.S. President's Council of Economic Advisers.

So when Professor Stiglitz warns that the EU's current path will lead to catastrophe, the Continent's political elite really ought to listen. Indeed, last month he told one interviewer that the most likely future for the eurozone is a 'politically cataclysmic event' that would tip it towards outright financial Armageddon.

In particular, he pointed to this autumn's Italian referendum on constitutional change — which seeks to reorganise how Italy is governed — on which Mr Renzi has staked his entire political future.

If the vote goes against the Italian prime minister, Professor Stiglitz believes the ensuing loss of confidence could shatter Italy's fragile financial system, which in turn could knock over a series of economic dominoes across the continent, and so bring a brutal end to the Euro experiment.

Astonishingly, though, none of this seemed to trouble the European leaders parading on deck. Nor did they seem discombobulated by the Brexit vote, despite the fact that it represents the biggest rebuke to the federal project since the foundation of the EU.

Indeed, it was almost as if the British vote had never happened. At one stage they even discussed plans for a united European army — precisely the kind of thing that seems to confirm all the worst stereotypes of obsessive Euro-federalism.

In Brussels, meanwhile, it was business as usual.

The European Parliament, for example, has been busy producing a ludicrous graphic showing that the EU had 'won' the Rio Olympics, with a total of 325 medals.

Almost unbelievably, Europe's parliamentarians even had the gall to include British athletes in their total. How, I wonder, do our gold medallists feel to be told that far from representing Great Britain, as they had imagined, their performances had been hijacked by the EU?

What all this reflects, of course, is the EU elite's blanket refusal to recognise the implications of Brexit. Instead of seeing it as a salutary warning that their project has spun out of control, they prefer to treat it as a crime to be punished.

And although it is still early days, they ignore the fact that more and more economic data suggests that those predictions of dire outcomes for Britain's prosperity may be wrong — while disregarding the growing chorus of experts who say Brexit should lead to wholesale reforms in the EU.

As always, the greater good of European unification trumps everything else. Democratic accountability, economic hardship, political turmoil — these must simply be brushed aside.

In this context, Professor Stiglitz's book could hardly be better timed. For if there is one thing that really epitomises the arrogant indifference of the Continent's political elite, then it is the single currency.

The euro was a recklessly foolish idea from the very beginning. It was utter madness to introduce a single currency for more than 20 countries, without any fiscal union to ensure that everybody was playing by the same rules. As the professor argues, it was madness, too, to yoke together countries with vastly different economies as though they were merely the European equivalent of American states like California and Connecticut.

American states, he points out, share a common culture, a common banking system and a powerful sense of national solidarity. You can easily move from one to another in search of a job, for example, without anybody calling you an immigrant or even noticing the difference.

And although European policy-makers insisted the euro would encourage 'convergence' among member states, Professor Stiglitz shows that it has made divisions worse.

For example, Portugal's GDP was 57 per cent of Germany's when they adopted the euro in 1999. Today, it has fallen to just 48 per cent.

To put it another way, the euro has made rich countries richer, and poor countries poorer.

It has been wonderful for German exporters, who can flood the markets of southern and eastern Europe with their admirable (though, in Volkswagen's case after the emissions scandal, fraudulent) cars. But for businesses and consumers elsewhere, it has been a disaster.

In effect, the euro has reduced proudly independent countries such as Portugal and Greece —countries that often endured difficult and bloody times in the 20th century, and desperately yearned for peace and prosperity — to client states, dependent on the goodwill of Brussels and Berlin.

If it were merely an economic project, the euro would have been abandoned years ago. But of course it was never really an economic idea. It was always political — a tool to bind Europe together in the pursuit of a largely Franco-German federal ideal.

In its sheer rigidity — for example, the euro made it impossible for the cash-strapped Greeks to devalue their currency and become more competitive abroad — the euro is reminiscent of the gold standard.

This was the inflexible currency system that Britain and other countries adopted between the world wars, with the value of the pound fixed in terms of gold, which helped plunge the world into the Great Depression.

Like the euro, the gold standard became a kind of totem, to which politicians clung in total defiance of economic reality. Like the euro, it was seen in terms of prestige and political capital, with the leaders of the day ignoring the closing factories, lengthening dole queues and human costs. But the gold standard collapsed eventually, with Britain finally forced to abandon it in the summer of 1931.

And the euro would probably have collapsed, too — if only the peoples of southern Europe had had their way. Here, Professor Stiglitz is rightly withering.

As he shows, the so-called troika, the European Central Bank, the European Commission and the International Monetary Fund, backed by the German government, have contemptuously ignored not just the needs but also the democratically expressed wishes of millions of people. To give an obvious example, the Greeks have consistently voted against the punishingly austere terms imposed by the troika, but it has done them no good at all.

In July last year, Greek voters even explicitly rejected the terms of an EU bailout in a national referendum.

In response, EU leaders forced them to swallow the bailout anyway, and also demanded the resignation of the anti-federalist Greek finance minister, Yanis Varoufakis, who had earned their hatred by daring to criticise the policies dreamed up in Brussels and Berlin.

(As Professor Stiglitz notes, one reason the charismatic Mr Varoufakis annoyed the European elite was that he was the only finance minister who had been a professional economist, having taught at the University of Texas. To put it another way, he was the only one who actually knew what he was talking about). But at the heart of the European project, as Professor Stiglitz points out, there has always been a 'profound lack of commitment to democracy'.

'What does it mean,' he wonders, 'to be a democracy, where the citizens seemingly have no say over the issues about which they care the most, or the way their economy is run?'

It is telling, for example, that only two European countries, Denmark and Sweden, have ever held referendums on joining the euro. Both of them rejected it.

But the others never had a chance to vote, so they had to swallow it.

The same would probably have happened to Britain, too, had John Major not won an opt-out at Maastricht in 1992, and if Gordon Brown had not stood up to Tony Blair's euro-enthusiasm a few years later.

Mr Major and Mr Brown do not always get a good press. But in this we owe them a profound debt of gratitude.

In his final chapters, Professor Stiglitz suggests there are two possible futures for the euro.

O ne would be a more 'social Europe', with taxes harmonised across the eurozone, a common welfare system, a common banking system, and so on, all paid for, essentially, by the Germans.

This strikes me as so far-fetched as to belong in the realm of fairy-tales. For one thing, I am far from convinced that European voters actually want 'more Europe'. More importantly, there is absolutely no chance of the Germans paying for it.

The other solution, which seems much more realistic, would be simply to wind the whole thing up. 'The euro,' he writes, 'is just a 17-year-old experiment, poorly designed and engineered not to work . . . It is better to abandon the euro to save Europe.'

There is, however, a problem. And it is perfectly captured in those pictures of Mrs Merkel, Mr Hollande and Mr Renzi posturing on that aircraft carrier.

The truth is that the European elite have gone too far now to admit defeat. Mrs Merkel and Mr Hollande, in particular, have inflicted such damage on the economies and peoples of southern Europe that they simply cannot bring themselves to admit that they were wrong and start again.

They can't see the euro is not the God-given route to salvation, but, as Professor Stiglitz puts it, 'just an artifice, a human creation, another fallible institution created by fallible men'.

They would prefer to put their own political capital, and their vain, foolish utopian hopes, above the happiness and wellbeing of the Portuguese shopkeeper, the Greek fisherman, the Spanish doctor and the Italian housewife.

So they are doomed to drift on through their dream world, sailing merrily towards disaster. But one day, inevitably, reality will come crashing down.

And the losers will not be the politicians or the bureaucrats. The losers will be the European people.

[Source: By Dominic Sandbrook for the Daily Mail, London, 03Sep16]

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