Jean-Claude Juncker’s boast about the euro is an insulting fantasy

CapX, January 4, 2019

History may or may not repeat itself, but hubris certainly does. In April 2008, as the euro approached its tenth birthday, Joaquín Almunia, the EU’s then Commissioner for Economic and Monetary Affairs, recalled how its construction had been accompanied by “dissenting voices”. “One economist” had jeered that it was “at best, an act of uncertain merit”. Another had denounced it as a “great mistake”. Fools! Almunia bragged that “the euro [had] proved an economic success”.  Within 18 months Greece was in crisis.

Earlier this week Jean-Claude Juncker marked the euro’s 20th anniversary of with words seemingly so far removed from reality that not even sciatica could explain them away: “The euro has become a symbol of unity, sovereignty and stability. It has delivered prosperity and protection to our citizens…”

Goebbels once wrote that “the English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous”. However, he would not have expected the English to mock those who they were trying to convince.

Juncker, no Englishman, but known to some as “the master of lies”, has rarely shown much concern about appearing ridiculous. Nevertheless, boasting that that the euro has delivered prosperity insults almost every member state other than Germany, particularly those hit hardest by the bursting of bubbles wholly or partly inflated by the single currency. Most may have crawled out of the A&E (or in Ireland’s case done rather more than that), but memories of what they went through are fresh. And in some instances, they aren’t even memories. Youth unemployment in Greece has only recently fallen below 40 per cent. GDP per capita in Italy (where the euro’s corrosive effect is real, but more difficult to assess) stands roughly where it did in 1999.

On the other hand, Juncker’s claim that a currency which has brought chaos and division in its wake is a symbol of “unity” and “stability” may seem equally absurd, but seen from Brussels, it makes good sense. To appreciate why, note the reference to “sovereignty” as another of the qualities symbolised by the euro. A country that relinquishes its own currency gives up some of its sovereignty, but Juncker was focused on where that sovereignty had been transferred. And that was to “Europe”. Having its own currency represented a major advance in the EU’s step-by-step assumption of sovereignty, and with it, the attributes of a state.

Now adopt that same Brussels perspective to understand what Juncker meant by unity. Despite sharp disagreements, those running the Eurozone stuck together through the crisis, trashing treaty obligations, promises to voters, a referendum result, the integrity of the European Central Bank, economic logic and basic democratic norms to keep the currency union intact. They succeeded in a display of unity that also delivered Juncker’s notion of stability — a Eurozone that weathered the storm — as well as a strong indication that it will continue to overcome the challenges that come its way.

Part of the reason for that, is that once in the euro, there is no easy exit. “Ever closer union” are perhaps the three most important words in the EU’s definition of itself: They imply that there is no reverse gear. Nowhere is this more the case than, as its creators intended, with the single currency, described in 2012 by one top German civil servant as “a machine from hell that we cannot turn off” — words to remember amid current talk of widespread support for the euro.

But back to hubris. Like so much central planning, the euro was born of arrogance, over-confidence, conceit and ideological obsession. Cramming a large number of diverse economies into a necessarily Procrustean currency union made little economic sense—the savings flowing from the removal of foreign exchange risk were somewhere between minimal and illusory. It was also an invitation to disaster, made riskier still by the absence of any degree of fiscal union, something which might have provided a safety net, but would not have been politically acceptable in many of the countries signing up for the new currency.

One example of hubris overlapped with another. Some of those in charge of putting the euro together were aware of its innate flaws but expected that they would eventually lead to—as the phrase in Brussels goes— a “beneficial crisis”. This would be the catalyst for forcing through the fiscal union that had always been the logical counterpoint of monetary union and would also constitute a giant leap forward towards ever closer union. The hubris lay in believing that such a crisis would be manageable in the manner that Brussels hoped.

It wasn’t. Even allowing for its starting point, Juncker’s perception of unity is based on turning a blind eye to some highly inconvenient truths. Made even more destructive by its intertwining with the financial crisis, the storm that tore into the Eurozone essentially divided the currency union’s member states into two antagonistic camps, creditor nations in the north and debtor nations in the south.

The north’s distrust of the south, and the south’s resentment of the north, along with economic distress and the realisation that Brussels and its allies bore much of the blame for this mess (but had no interest in changing direction) also boosted political parties once confined to the fringe or triggered the formation of new parties that would once have found a home there. Those forces were given additional impetus by an unrelated issue— mounting unease over immigration and its longer-term implications. What’s more, many continental eurosceptics have been transformed from naysayers opposed to further integration into a force that actively wants to reverse the direction of ‘ever closer union’. Populist governments (of very different hues) have come to power in Greece and Italy.

Germany and other ‘northern’ states are now even more firmly set against fiscal union, rightly regarded as a device to milk their taxpayers in perpetuity. In the Eurozone’s south, meanwhile, there is increased resistance to Germany’s insistence on enforcing its sometimes counter-productive brand of fiscal discipline on everyone else. It’s significant that, with Emmanuel Macron’s own plans for fiscal union floating face-down in the Spree and gilets jaunes roaming France’s streets, his government will now be breaching (just a one-off, of course) the EU’s budgetary rules.

All that said, betting against the survival of the euro is unwise. The political will to keep this vampire currency going should, as the last ten years have shown, not be underestimated and populist parties are just as conscious as their more orthodox rivals of the general public’s fear of ‘something worse’.

But European growth prospects are deteriorating despite years of the ECB doing “what it takes”. The economies (and balance sheets) of many of the Eurozone’s weaker member-states continue to suffer from the after-effects of the last crisis and remain confined to the straitjacket of a one-size-fits-all currency:  They will not be well placed to cope with a fresh slowdown. It’s hard to avoid the conclusion that another Eurozone drama may well be approaching, with political consequences that are likely to be much trickier than last time around.

One way to head off some of the worse of what might lie ahead would be by splitting the single currency into ‘northern’ and ‘southern’ euros which would better reflect the economic realities of the domestic economies they serve. This would be far from straightforward, but it beats sticking with a status quo that offers much of the Eurozone little more than stagnation at best, and catastrophe at worst.

But such a split runs against the idea of the irreversibility of ever closer union. It’s never going to happen.

Don’t believe the EU – Greece’s crisis is nowhere near over

CapX, August 17, 2018

With Nemesis dodged, however ruinously, it has not taken too long for Hubris to reemerge from under the rubble.

“The Greek crisis ends here tonight,” declared the EU commissioner for Economic and Financial Affairs within minutes of the conclusion of the June meeting at which it was agreed that Greece would receive the final slice (€15 billion) of its third Eurozone bailout this August.

Even though Greece’s graduation from rehab had been sweetened by its Eurozone creditors extending the repayment date of almost €100 billion of debt (about a third of the total) by ten years, this claim of victory was both tasteless (youth unemployment currently stands at nearly 40 per cent) and premature. Greece will be left with a cash cushion of €24 billion, which should enable it to avoid having to approach the financial markets for around two years — a handy breathing space, to be sure, but one that is more likely to be a respite than the preamble to a cure.

The country’s GDP expanded by 1.35 per cent in 2017, after almost a decade of annual declines interrupted only by the annus mirabilis of 2014, the one year when it eked out a positive return, a miserly 0.74 per cent. The IMF reckons that the pace will pick up to 2 per cent in 2018 and 2.4 per cent in 2019, which is at least something, if less than hoped earlier.

Perhaps that might happen — if the global economy keeps ticking over (and the neighbourhood remains calm: let’s not talk about Turkey and Italy) — but it’s impossible to miss the subtext lurking within the IMF’s recent report on Greece. Has a slump as deep as America’s Great Depression, but more prolonged, left behind enough of a country to make its own way? And will, as the IMF clearly worries, the continued policing of Greece’s finances by its reluctant rescuers be so severe that it shrinks the scale of a desperately needed recovery?

Formal exit from the bailout regime will mean an end to the harshest of the austerity measures that went with it, but Athens will still be required to maintain an annual “primary” (i.e. before debt servicing) budgetary surplus of 3.5 per cent until 2022. The straitjacket will then be loosened — somewhat. The government will be expected to achieve an average annual primary surplus of 2.2 per cent until, well, 2060.

Adding a culturally appropriate touch of Sisyphus to this already implausible undertaking (the IMF diplomatically talks of “very optimistic assumptions”), any new funding from the markets will be priced on far less generous terms than Greece’s rescuers have been charging.

And there’s no reason to be sanguine about that existing debt. It may be cheap and the timetable for its repayment leisurely, but its sheer size (some 180 per cent of GDP) means trouble ahead. After all, this is not a drachma-denominated liability that Greece once might have printed away. And it wouldn’t be a drachma-denominated liability even if Greece readopted the currency it should never have abandoned. A reborn drachma would plummet so far that the dream of repayment would quickly be replaced with the reality of default.

Brussels’ convenient conceit is that the EU’s new and improved Greece will grow out from under this burden, an unlikely prospect made more unlikely still by overly onerous budgetary constraints and the structural problems that should have made the country ineligible for the euro in the first place.

To start with, there is the matter of ensuring the economy can keep up with the rest of the Eurozone, not easy given the country’s persistently low productivity. Back in the days of the drachma, Greece could at least devalue its way into some approximation of competitiveness. With that option off the table, the conventional alternative, a domestic squeeze — an “internal devaluation”, to use the jargon — has been tried since the early stages of Greece’s long Calvary, and it is still being tried. But whatever its merits as a device to eliminate some of the worst aspects of the Augean state, there is scant evidence that it has done very much to sharpen the country’s competitiveness.

Indeed, in some respects it may have made things worse. Destruction can be creative, but sometimes it is just destructive. GDP stands at 2003 levels and at less than 60 per cent of its 2008 peak. Disposable income has fallen by about a third since 2010 and the private sector has been devastated. The banking sector is under-capitalised (credit is still contracting).

In short, so much has been smashed up that it is difficult to see where the type of turnaround Greece needs can come from. Three hundred thousand Greeks, including many of the nation’s best and the brightest, have emigrated in the last eight years, a move made easier by their right to settle anywhere within the EU. How many will come home?

A similar question can be asked about capital, which also moves freely throughout the EU and, as between the different countries of the Eurozone, with (the danger of eurogeddon apart) no currency risk: A French euro is a Finnish euro is a Greek euro. If a euro invested in Greece cannot offer the returns available from a euro invested elsewhere in the Eurozone, the country will struggle to attract investment, whether domestically or from abroad.

Rather than promote the economic convergence of its constituent parts, a currency union could well have the opposite effect. Capital will tend to flow to its winners and away from its laggards, a process that could doom Greece to ever more peripheral status. This slide will be accelerated by the unwillingness of the Eurozone’s member-states to agree to supplement their monetary union with a fiscal union that would, as in the US, establish the automatic transfer of resources from richer to poorer states that operates as a brake on a currency union’s natural centripetal pull.    

The task of modernising the Greek economy is, to put it mildly, incomplete, and there must be some doubt as to how much further its government is prepared to go down that route. The authors of the IMF report refer politely to “reform fatigue”. “Political pressures,” it warns, “to roll back reforms may intensify ahead of the 2019 elections”. Indeed they may, not only because of the agony associated with these reforms (made even more painful by outcomes with a tendency to disappoint), but also because of the largely accurate perception that they have been imposed from outside.

A good number of the real culprits — most notably those who took Greece into a currency union for which it was not ready and then squandered the opportunity it might have represented— are home-grown, but that’s not how it appears to many voters. Under the circumstances, it will not be surprising if some politicians are tempted to suggest to them that Sisyphus should shrug.

But even if Greeks do vote to stay the course — and the best guess is that they will, if only, in many cases, because they fear the alternatives —  and even if Italy’s new government does not trigger a broader Eurozone fracas, economics will eventually reignite the Greek crisis and, probably, sooner rather than later.

One of the rare, if partial, concessions to reality in the arrangements negotiated in June was that the Eurozone’s leadership will take another look at Greece’s situation in 2032 (2032!) to see if further debt relief is required. Well, it will be — and quite some time before then, because, in the end, nothing has really changed. Greece will continue to pay a terrible price for membership in a currency union for which it was, is and will be completely unsuited, but is understandably terrified to leave.

Its creditors, meanwhile, particularly in the Eurozone’s richer north, are terrified about the damage a Grexit could do to a Eurozone built on unstable foundations that they don’t want to complete, demolish or remodel. And so, after a re-run of a drama that will be stale before it has begun, there will be a fourth Greek bailout – and that won’t change much either.

A March of Folly

Ashoka Mody - EuroTragedy: A Drama in Nine Acts

National Review, July 26, 2018 (August 13, 2018 issue)

Near the beginning of his convincing, readable, and satisfactorily acid account of the rise and who-knows-what-now of the euro, Ashoka Mody cites basic monetary theory and grumbles that the European Union’s leaders “should have been aware that a single currency could not [by itself] deliver . . . prosperity.”

The EU owes its existence to the notion that Europe should avoid repeating the catastrophes of its 20th-century past. Yet by imposing a single currency on a large number of very different countries, it was blending elements of two lesser disasters — fixed exchange rates and central planning — into a combination that history (and some distinguished Cassandras) suggested would end very badly indeed.

No matter. Political ambition trumped economic risk on grounds that fail to persuade Mody. After all, the economic tensions built into a shared currency of such scope were more likely to divide than unite. But Mody overlooks the centrality of the three words “ever closer union” in the preamble to the 1957 treaty that paved the way to the EU. They set the course of the European project in only one direction — forward. To Brussels and its allies, the key attribute of monetary union was that it threw away the key: There was no easy way to check out. Under the circumstances, the governments signing up for the new currency should have paid more attention to flaws in its design that added to its already considerable risks. Perhaps most dangerously, in the absence of political support for a fiscal union to act as a safety net, the euro was launched without one. Once again, no matter: If a crisis developed, it would, enough of the right people evidently believed, overwhelm opposition to that fiscal union. The ratchet of integration would turn again.

This was not a novel idea. When the single currency was first formally proposed back in 1970, “falling forward” was to be “its guiding philosophy,” Mody writes. “Crises would make Europeans more determined to move forward. . . . Europe would emerge stronger and more vibrant.” This cynical strategy has worked well for Brussels in other areas, but, with the single currency, it was pushed too far. The EU emerged neither stronger nor more vibrant, but hobbled, embittered, and lopsided.

Mody, an economist and a visiting professor at Princeton, has worked at the World Bank and the International Monetary Fund. At the latter, his role included acting as a deputy director of its European Department, and he was responsible for the Fund’s relationship with Ireland during its euro-zone nadir. He is thus well equipped to describe the euro’s curious political and intellectually indefensible origins, as well as the new currency’s grubby gestation, the bubble the euro facilitated, and the bust that came close enough to breaking the euro zone apart. Mody recounts how the currency union was held together, before turning his attention to a recovery that may be no more than the calm between storms. Overall, he tells a tale of warnings ignored, of groupthink, of deception and denial, of both recklessness and an excess of caution, of myth, magical thinking, and technocratic illusion — and of reality’s relentless revenge.

For all Mody’s meticulous chronicling of events, he has room for broader themes too. These include a sustained attack — not without cause — on the German-led fixation on budgetary targets and, in particular, an overly emphatic insistence on “austerity” as the cure for the euro zone’s troubles. It is not an endorsement of fiscal profligacy to argue that, in certain cases, the screw was turned too tightly too soon. Compelling Greece, in essence, to try to deflate its way back to better days was already to ask a great deal. To be sure, the Baltic states (by then de facto members of the currency union) managed to do just that. But there were specific reasons that they could, just as there were specific reasons that Greece could not. And these were distinctions that could not be given the recognition they deserved, thanks to a one-size-fits-all financial regime that was taken far further in the euro zone — and, after the crisis erupted, applied more harshly — than sharing a currency would already necessarily imply. 

To understand why Berlin wanted the purse strings kept drawn so tight it is necessary to examine what lay behind what at first seems like purely habitual stinginess. Of course, it is unsurprising that German politicians thought that their successful homegrown model — a degree of frugality — was the right one to follow, but there was more to it than that. Berlin simply had no confidence that its partners (notably those in the south of the euro zone) had the willingness or ability to run their finances appropriately, a concern that Mody might have stressed more. This lack of trust may or may not have been merited, but it was a symptom of a monetary union flung together without enough regard for the psychological or political readiness of its member states for such a step. Even the requirement (reflected in the Maastricht Treaty) that they should converge economically turned out to be a joke, at best largely meaningless, at worst a sham.

Germany’s leadership was also nervous about the consequences of their voters’ having to pick up the tab for a currency union they had never wanted, a bill their politicians had assured them they would never have to pay. Mody is clearly conscious of these issues and, pointing to America’s experience during the Great Depression, highlights the fact that the U.S. government had both the “legitimate political authority and the concurrence of sufficient numbers of the country’s citizens” it needed to help struggling states. It still has. Its counterparts in Germany (and the euro zone’s other “creditor” nations) had scant justification for claiming that they had either. There was one other vital distinction: Americans were being asked to help their compatriots. Notwithstanding grand proclamations of a shared EU “citizenship,” the tie between Michigan and Missouri is infinitely more binding than that between Germany and Greece.

Meanwhile, the stakes for countries beyond Germany — especially in the euro zone’s hardest-hit nations — were raised by the legacy of Berlin’s stipulation that the European Central Bank (ECB), like the Bundesbank before it, should (at least nominally) be free of political interference and, unlike the Federal Reserve (which also has to foster employment), focus solely on price stability. That can work, as it did in Germany (where memories of Weimar’s inflation linger), with sufficient popular consent, but, in countries where that consent does not exist, it can be an invitation to radicalization when tough times come calling — and they did come calling. That invitation was made even easier to accept by the way that the unaccountability of the ECB is reinforced — as Mody demonstrates in some of the most disturbing passages in a frequently disturbing book — by the EU’s high-handedly technocratic ethos. It is an essentially post-democratic approach, and as Mody (without resorting to that adjective) shows, it bears no small part of the blame for the euro-zone fiasco.

The effects of this ruinous monetary experiment have not been confined to political radicalization (a phenomenon not reserved to the euro zone’s weaklings) or the stirring up of antagonism between the nations it was designed to bring closer together. The currency union’s laggards have suffered immense economic harm, and the damage, warns Mody, to their potential for growth may endure long after the current trauma has receded. This implies that the chance of genuine economic convergence within the euro zone — never much of a likelihood despite all the promises — will slip even further out of reach. The natural tendency of a currency union to draw economic activity away from its periphery (a topic discussed by Joseph Stiglitz in his 2016 book on the euro) could make matters worse still — not a pretty prospect when that periphery includes entire nations.

The euro-zone drama still has a long way to run. Some months after Mody’s manuscript went to press, a coalition government of populist Right and (sort of; it’s hard to explain) populist Left, with a suspicion of the euro and a distaste for Teutonic austerity in common, took office in Italy. Much larger than Greece, Italy is, Mody contends, the “eurozone’s fault line.” He may well be correct, but don’t expect a cataclysm quite yet. The most impressive thing about this misbegotten currency union is the political will to keep it in one piece.

Mody himself peers into the future towards the end of the book. One supposedly brighter vision features debt forgiveness, a loosening of the euro zone’s fiscal fetters, improved sovereign-bond issuance, and standard panaceas from education to technology. Much more intriguing is a suggestion tucked away in Mody’s description of a (more plausible) downbeat scenario in which, broadly, those steering the currency union do little to change course.

Amid dark talk of sluggish growth and vulnerability to new shocks — not to mention the cascading defaults that could follow an Italian exit from the euro zone — Mody floats the happier alternative that Germany might either readopt the deutschmark or form a new currency bloc with other like-minded “northern” countries. Meanwhile, those states remaining in the old euro zone would still be able to repay their debts in euros, thereby dodging default while benefiting from the increased competitiveness created by a currency that would undoubtedly devalue sharply once the virtuous had left the picture.

Put another way, the best way out of the euro-zone mess remains, as it has been for years, partition. Such a move, however, would represent more than a few steps backwards in what is meant to be a perpetually forward march.

And that would never do. 

A Tragedy of Errors

The Weekly Standard, January 26, 2018

In July 2016, Theresa May won the Tory party leadership contest, and thus became the U.K.’s prime minister, for one simple reason. There was no one else. It was less than a month after the Brexit referendum had upended Britain’s political order. The only thing her predecessor, David Cameron, was running for was the exit. Her sole credible rival, Boris Johnson, long the party’s darling and the most prominent Conservative to campaign to leave the E.U.—May had been a tactically tepid “Remainer”—was the favorite for the job. But he was felled in a botched coup by his most important ally, Michael Gove, a Leaver with laughable dreams of 10 Downing Street himself.

And the lack of a credible alternative is why May is still at her post. In April 2017, she called a snap election intended to strengthen her hand in advance of Brexit negotiations that instead cost her the modest majority she had inherited from Cameron. The Conservatives can now govern only thanks to the support of Northern Ireland’s Democratic Unionists. But Johnson remains tainted by the referendum’s rancid aftermath and has not shone in his role as foreign minister. No other electorally plausible challenger has emerged.

“She’s just not up to it,” one former Tory M.P. told me over Christmas—and he is far from alone in that thinking. To be burdened both by a second-rate leader and the complications of minority government would be hard going for the Conservatives at the best of times. These are anything but. Brexit is an immense economic, legal, and diplomatic task made infinitely more difficult by a political environment for which May must take the lion’s share of the blame.

By squandering the Tories’ majority in an ill-planned and tin-eared election campaign, May not only turned the parliamentary arithmetic against her but also trashed the aura of authority that had come with her leadership victory just the year before. A lame duck who is allowed to limp on remains a lame duck. Most ominously of all, the Tories’ poor performance made a mockery of the assumption that a Labour party led by the far-left Jeremy Corbyn was unelectable and has only accelerated his takeover of Britain’s main opposition party. In Britain, the opposition is rarely more than a recession or a fiasco away from government. With a bungled Brexit offering the prospect of both, betting against a Corbyn premiership would be unwise.

Brexit, the reversal of over 40 years of ever-deeper integration with the E.U., will be easy enough to bungle. Those four decades cannot be wished away. The Gordian solution, simply quitting the E.U. and trading with the bloc under the rules set by the World Trade Organization, is not as straightforward as the hardest Brexiteers are wont to claim. Such an arrangement would not, said the director general of the WTO in November, be “the end of the world,” and he should know. Nevertheless, its impact on the country’s intricate connections with the global economy would come with consequences that no one should wish to see.

Besides, it’s unlikely that such a stark break is what the majority of those who voted for Brexit wanted. The question posed by the referendum was deceptively simple: “Should the United Kingdom remain a member of the European Union or leave the European Union?” A vote to leave was a vote to leave, just that: It said nothing about the relationship that the country should maintain with Brussels after Brexit. The polling on this topic is muddled, and plenty of politicians have their own self-serving interpretations of what the voters “really meant,” but in the end it has been left to May’s government to resolve what Britain should aim for.

A starting point might have been recognition of the extraordinary rancor that the referendum has left in its wake. The vote was close: 52 to 48. Many Remainers— the more upscale voting bloc, with a higher percentage of those Britons used to getting their way—believe that they were robbed. A referendum, they argue, was not the way to decide such a complex matter, and the case for Brexit was dishonestly made. A smarter government would have acknowledged the strength and persistence of Remainer sentiment as it decided its next move.

That’s not what May did. To the extent that the Tories’ post-referendum strategy consisted of anything more than bickering amongst themselves (they are divided over the nature of the deal that should be cut with the E.U.), soundbites (“Brexit means Brexit”), and wishful thinking (claiming that countries were “queueing up” to do trade deals with Britain), they behaved as if 52 percent was a much larger slice of the pie than conventional arithmetic would suggest.

The most obvious solution was the “Norway option,” a shift to the status enjoyed by Norway, Iceland, and Liechtenstein, who are outside the E.U. but inside the “Single Market.” This is the plan that might have eased the anger of many Remainers. But May ruled it out, fearing trouble from her party’s hard Brexiteers and, perhaps even more, that accepting “Norwegian” immigration rules risked alienating blue-collar voters—especially those she hoped would follow up on their support for Brexit by switching more permanently from Labour to the Tories.

Despite encouraging noises from Brussels, there were some decent arguments against pinning too much hope on the Norway option. Perhaps the most important stems from the conflict between the E.U.’s insistence on the free movement of workers and British unease over immigration. Theoretically, the Norway option offers a significant exception (essentially an “emergency brake”) to the right of residents to move between Single Market states, which is not available to E.U. members. A British announcement that it was prepared to take full advantage of that exception might have sold the Norway option back home—though equally might have sunk it in Brussels. May’s speedy rejection of the Norway option means that we will never know. As so often during Britain’s long European entanglement, it was hard to avoid the suspicion that its government did not know what it was doing.

May’s failure to reach out to at least some of the 48 percent cost her party dearly in last year’s election. The Conservatives were hit hard by the defections of aggrieved Remainers in the affluent south, defections that lost them more seats than the number they gained due to increased support from Leave voters elsewhere. There’s been no recent British election more necessary not to get wrong. Instead, the Conservatives have set the stage for a drama in which their weak parliamentary position could easily combine with a bad Brexit deal and the growing strength of the hard-left Labour opposition to create a historic catastrophe.

There are many paths to disaster, but the central concern must revolve around the lack of a Conservative majority. May can insist on little in London and less in Brussels. And time is not on her side. When she filed notice under Article 50 of the Treaty of Lisbon on March 29 last year, formally beginning the U.K.’s exit from the E.U., she did so without any clear notion of the type of Brexit she either wanted or could realistically expect to negotiate. Nonetheless, she started the clock running. She should have waited until she was ready: If the U.K. has not finalized the terms of its divorce from Brussels and (not the same thing) agreed on the basis of at least an interim relationship with its ex by March 29, 2019, it will crash chaotically out of the E.U. The economic and political damage would take years to clean up.

That said, in December, Brussels and London agreed that they had made “sufficient progress” on a divorce settlement to turn the discussion to their relationship after Brexit. They reached this milestone by coming to agreement on the rights of E.U. citizens in the U.K. (and, up to a point, vice versa) as well as a basis for calculating how much the U.K. must pay (probably around $55 billion) to satisfy its existing obligations to the E.U. They have also found sufficiently vague and sufficiently optimistic wording to keep alive the fantasy (made more fanciful still by the rejection of the Norway option) that the whole of the U.K. can quit both the Single Market and the E.U.’s customs union without the necessity of reintroducing a hard border between Northern Ireland (part of the U.K.) and the Irish Republic (an E.U. member). Such a border would not only be economically disruptive in its own right but also cut through the blurring of divisions on the Emerald Isle that British and Irish membership in the E.U. had made possible and, as such, could represent a threat to the hard-won peace enjoyed since the 1998 Good Friday Agreement. More prosaically, it could trigger an Irish veto of a deal on the U.K.’s future relationship with the E.U., which will have to be approved by all the member countries.

Yet this is to assume there will be something to veto: But there is no chance of the U.K.’s both agreeing on and implementing its post-Brexit relationship with the E.U. by the 2019 deadline. At this point even the simpler Norway option couldn’t be adopted in time. As a result, the E.U. and U.K. are discussing a “transition period” during which Britain will be a de facto member of the E.U. without having any say in how it is run. It will be a rule-taker, not a rule-maker, which will infuriate harder-line Brexiteers, and not only them. May will have to watch her M.P.s carefully.

Quite when the basis of this transition agreement will be settled is unclear (the U.K. is hoping by the end of March)—as is what is required before it can enter into legal force. What does seem to be agreed is that it will last about two years. To think this will be time enough—trade deals are complex beasts, and this one has to be agreed on by 28 countries—is optimistic. It is just as likely that all the transition will achieve is to push the cliff’s edge two years into the future.

If Britain fails to close a mutually satisfactory deal by this new deadline, it’s uncertain whether it will be permitted to linger on in that humiliating transitional status while it renews its efforts to work something out. Britain’s increasingly uncomfortable position (and an approaching general election) might well mean that it is forced to accept the alternative identified by the E.U.’s chief negotiator last year, some variation of the bloc’s free-trade deal with Canada, the Comprehensive Economic and Trade Agreement (CETA)—a deal, incidentally, that took seven years to negotiate.

A “Canadian” solution would still have to be squared with the Irish border conundrum and would raise tricky legal and political issues arising out of the “most favored nation” status that various countries, including Canada, enjoy as a result of their E.U. trade deals if the U.K. tries for a sweetened deal. And it will: CETA’s benefits include eliminating some 98 percent of tariffs, knocking down barriers on bidding for public contracts, and easing rules on temporary transfers of workers, but it doesn’t have much impact on non-tariff barriers to traded goods, nor will it liberalize the trade in services, two areas of particular British concern.

The precise form an improvement might take remains elusive. More than 18 months after the referendum Britons know what May doesn’t want (Norway or Canada) but are left to guess at the nature of the “bespoke and comprehensive” deal she is looking to wrest from Brussels. Nervous about divisions within her party and unwilling to explain to the British public how hard a hard Brexit could be, May has been long on platitudes (a “deep and special relationship,” our “strongest friend and partner”) and short on precision.

Within her cabinet, the key division is between those, such as finance minister Philip Hammond, who want a deal effectively based on maintaining close regulatory alignment with the E.U. and those, such as Johnson, looking for a broad agreement that nevertheless gives the U.K. freedom to diverge from the E.U.’s regulatory structure. David Davis, the underwhelming “Brexit minister,” has recently edged closer to the Hammond camp. He has previously called for “Canada plus plus plus,” and an “overarching” deal. If that remains his goal, fairly close regulatory alignment will be part of it.

Where all these approaches overlap is in the desire to include services in any deal and to make trade with the E.U. as “frictionless” as possible. The latter ambition recognizes that potential barriers to trade can extend far beyond tariffs. They can, for example, include regulatory roadblocks and literal ones too: That long line at customs can wreak havoc.

As for the former, it’s not hard to understand: Services account for some 80 percent of Britain’s GDP and made up 38 percent of its exports to the E.U in 2016. The U.K. reported a $19 billion trade surplus in services with the E.U. the same year. It’s worth noting, because they will be a major presence on any British wish list presented to Brussels, that financial services, even narrowly defined, make up roughly 8 percent of the country’s economy, and that’s before the boost they give to other businesses, such as law, accounting, real estate, and, naturally, restaurants. Meas-ured by the trade surplus it generates, finance is the U.K.’s most successful services export.

London clearly accepts that any agreement will involve trade-offs (less alignment means less access and so on). That’s realistic enough, but the British government’s insistence that a favorable special deal is within the U.K.’s reach is not.

The E.U. sells many more goods to Britain than it imports: a surplus of $133 billion in 2016. This ought to offer an incentive to strike a more attractive deal with the U.K. (the sixth-largest economy in the world, after all) than Brussels is suggesting, including sufficiently generous provision for services. But to many members of the E.U., Britain’s negotiating stance looks like an attempt to have its cake and to eat it. Seen through continental eyes, infamously perfidious Albion is trying to grab privileged access to the Single Market without meeting the obligations that go with it, including, of course, the rules governing who can settle on the skeptic isle.

For the E.U. to accept such a regime would be regarded as a wasted commercial opportunity (especially the chance to take business from the much envied, much resented City of London). But the political hit would be worse, and in the trudge to “ever-closer union,” politics trumps economics. The notion that “the four freedoms”—the free movement of goods, capital, services, and labor—underpinning the Single Market are indivisible is, to Brussels, an essential element in the building of a united Europe. Its leadership won’t want to set a precedent by handing the Brits a deal that might encourage other malcontents to head for the exit ramp.

Those who ask why this should count for so much to Britain—many countries trade quite happily with the E.U. without being part of the Single Market—need to remember that the E.U. is the U.K.’s closest neighbor and largest customer (in 2016 it accounted for 43 percent of U.K. exports). If Britain leaves the Single Market, its access to it will, by definition, deteriorate. That’s a very different trading challenge from the one faced by a country like, say, the United States, which has long since learned to make do with an imperfect trading relationship with the E.U. The suspension in 2017 of negotiations on a possible U.S.-E.U. free-trade deal, the Transatlantic Trade and Investment Partnership, may have been a setback for free trade, but it didn’t make life any more difficult for American companies.

By contrast, Brexit will change Britain’s economic relationship with the E.U. for the worse (and this, whatever hard Brexiteers might believe, will not be compensated for by expanded trade elsewhere any time soon). This is not just a matter of British companies risking a decline in their business in Europe. Over the decades, the U.K. has successfully exploited its comparatively deregulated economy to be a useful conduit for international companies wanting frictionless—that word again—expansion into the E.U. and a valued host to a valuable part of increasingly integrated European supply chains. Much of this business is well enough established to survive even a somewhat unsatisfactory Brexit deal, but it will struggle to grow.

All of this is good news for Labour. The weaker the economy, the greater the chance that Jeremy Corbyn can win a general election—the next is set for 2022, if the Tories can hang on that long. And the greater the chance that Corbyn will win, the less confident business will become, weakening the economy still further in a vicious circle that, with every turn, brings an extremist closer to 10 Downing Street. Labour is already polling slightly ahead of the Conservatives. The economy is slowing (GDP growth is forecast to decline to 1.4 percent in 2018, after approximately 1.6 percent last year), in part, I suspect, due to worries over Brexit, worries that the current confusion is doing nothing to alleviate. The Tories’ approach to Brexit is giving the entirely accurate impression of a party that is both divided and incompetent. Meanwhile, Remainers remain enraged, and the closer the end of the transition period comes to 2022, the fresher that rage will be. The hard left is licking its chops.

If Labour does prevail, there will be little that is moderate about the way it governs. Scarcely two years since Corbyn unexpectedly became its leader, the party has been transformed. An eccentric fanatic, he may not be the brightest, but he and his coterie have shown a sharp grasp of how to make the most of the opportunity he was so carelessly given. What mattered, they realized, was to take control of the Labour party, long the principal alternative to the Conservatives, and wait for the election victory that will come its way when voters want the Tories out—as one day they are bound to. Much of the party’s organization, including its commanding heights, has been taken over by the hard left. There has not so much been a long march through the institution as a blitzkrieg. The large number of new members who joined the party either to vote for Corbyn or to rally behind him have stood by their man, and Labour moderates in Parliament (still quite a large group) have largely been reduced to unhappy acquiescence.

Whatever he said in 2016, Corbyn, the leader of a party that supported Remain, has always favored withdrawal from the E.U. His halfheartedness during the referendum campaign, in one of the many ironies of that vote, almost certainly put Leave over the top. To Corbyn, the E.U. is an obstacle to socialism, and these days he is barely bothering to conceal what he really thinks (unlike an overwhelming majority of Labour party members, he opposes remaining in the Single Market). Despite his party’s commitment to “respecting” the referendum result, Labour has—through mood music, creative ambiguity, and the occasional tantalizing hint—managed to retain much of its appeal to Remainers. It is the Tories who are tarred with Brexit.

Many Conservatives who defected last year to punish their party for Brexit may be worried enough about the possibility of a Corbyn victory to come home the next time round, but that’s unlikely to be enough to save the day. In particular, under-45s have turned on a Tory party they see as old-fashioned (to many of them Brexit is an exercise in ill-judged, and probably racist, nostalgia), out-of-touch, and uncaring. Throw in wage stagnation, a housing market that makes it prohibitively expensive to buy, and an absence of historical memory of where the hard left, including Jeremy Corbyn, were trying to take Britain in the late 1970s, and it’s hard to see them changing their minds by 2022. That’s something of which business is also well aware, with the result that the vicious circle will make yet another turn.

Under the circumstances, if the Tories continue to handle Brexit in the way they are now doing, Britain will be Corbyn’s for the taking. Whether he would give it back is an interesting question.

It's Time For The Norwegian Option

CapX, July 17, 2017

Extricating the UK from the EU after over four decades of membership was never going to be straightforward. And yet, more than a year after the referendum, David Davis’s talk of moon landings aside, the Government’s approach has been dismayingly vague and delusionally blithe. It has no one to blame other than itself.

Once the voters had (correctly, in my view) “advised” Parliament that the UK should depart the EU, it was up to the Government to decide on the type of Brexit it would put to Brussels. Representative democracy was back. The various Leave groups were self-selected and even Vote Leave’s “official” status was derived from bureaucratic fiat — designation by the Electoral Commission — rather than any popular mandate. This group’s “promises” were what they were, but they were binding on no one. There is also the little matter of the 48.1 per cent who voted to Remain. If such a closely-fought referendum were to be truly advisory, the opinions of the losers ought to count for something in shaping Britain’s Brexit proposals.

Some confusion was to be expected after the referendum’s unexpected result, but, even allowing for the Tory brawl that ensued, not on the scale of the chaos that Britain has witnessed. The months that passed between June’s referendum and the Article 50 notification in March were squandered by a team that didn’t have a clue when it took charge, doesn’t seem to have much of one now and has now blundered further by throwing away its parliamentary majority.

Article 50 gives the two sides two years to work things out. If that deadline is missed (and no extension is agreed), what follows is the hardest of hard Brexits. The clock, as the serpentine Michel Barnier, the EU’s chief Brexit negotiator, warned last week, is ticking.

Theresa May has repeatedly argued that “no deal is better than a bad deal”, a mantra that could — in indicating a willingness to walk away from the table — be defended as a negotiating tactic, but only if the EU is convinced that May is actually ill-informed enough to believe what she is saying. Unfortunately that could well be the case, but awkward reality cannot be wished away. No deal would be bad for the EU, but disastrous for Britain, triggering major economic (and probably not just economic) difficulties at home and, Tory ultra-Brexiteers please note, opening Number 10’s door to Jeremy Corbyn—or some equally sinister successor.

Even if it can be cobbled together in time, a more flexible Brexit featuring some sort of free trade agreement (hopefully including services, but quite possibly not) will still be rough going for Britain’s exporters, used to the “frictionless trade” with the EU that would be torn away from them. Tariffs won’t be a problem, but more insidious regulatory barriers will be. The notion that the UK can bypass the latter by simply importing the relevant rules into its post-Brexit legislation is naïve. Regulations change constantly, and Britain will struggle to keep up, even — fingers crossed — if an increasingly mercantilist EU cooperates, and, if or when it comes to services, particularly financial services, “regulatory equivalence” will only be able to do so much in the face of a bloc that regards the City with a dangerous mix of envy and distaste.

The idea that a buccaneering Global Britain, sailing out into the blue on a smile and a shoeshine, will be able to make up the shortfall anytime soon is fantasy. To be sure, there will be free trade deals to be had, but they will take time and, with the UK not in the strongest of negotiating positions, they will come at a price. And the Britain that signs them won’t be so very buccaneering. There’s a great deal to be said for a post-Brexit UK that goes fully “offshore”, deregulating, cutting taxes, flushing the green crap, but the political party that says so will lose the next election: the buccaneers will be sunk before they can set sail.

If Brexit is to be a way out of Brussels’ ever closer, ever less democratic union, while protecting Britain’s access to the more positive aspects of European integration, the best route (as a growing number of observers are pointing out) runs, so to speak, through Oslo. The much-maligned, much misunderstood “Norway option” — continued membership of the European Economic Area (EEA), and thus participation in the EU’s Single Market, on a basis similar to that enjoyed by Norway and two other European Free Trade Association (EFTA) countries — could represent either a transitional arrangement or, arguably less desirably, a final destination in its own right.

Norway, whatever some critics of the Norwegian option may maintain, is not a member of the EU either legally or in practice. Norwegians have twice rejected the delights of EU membership and, judging by opinion polls, they won’t be changing their minds any time soon. Yes, it’s true that Norway does make payments (on a net per capita basis, a bit lower than that now paid by the UK into the EU) connected to its membership of the EEA, but they mainly consist of direct assistance by Norway to poorer parts of the EU, and Britain should expect to pay as well, perhaps — naughty thought — drawing on some of its swollen foreign aid budget to help do so.

It’s also true that remaining in the EEA will imply accepting (much) more of a brewed-in-Brussels regulatory burden than enthusiasts for laissez faire (me, for one), would like. That would be a bigger problem if Brexit promised a bonfire of controls, but, as noted above, with Corbyn at the door and the Tories as they are, it can’t. And Norway has more of a say in those areas of EU regulation that concern it than is often claimed, including, as a last resort (it would risk retaliation), a “right of reservation” enabling it to reject EU legislation.

Then there’s immigration. While Norway has to play by the Single Market’s free movement rules, it also has the right (subject again to the risk of retaliatory measures) to unilaterally apply a temporary emergency brake to immigration from the EU in the event of “serious economic, societal or environmental difficulties”, a right likely to be the subject of fierce debate ahead of any agreement to let Britain take the Norwegian option or anything like it. That said, occasional murmurings, admittedly not always from entirely reliable figures (Tony Blair comes to mind), hint that there might be slightly more room for manoeuvre on this topic than hitherto imagined.

It’s also worth adding that Britain’s membership of the EU has little to do with immigration from outside the EU, a net 189,000 people in 2015 alone, compared with a net 184,000 from the EU the same year. If the government wants to reassure voters that it is determined to cut immigration, more effective restrictions on non-EU immigration would be a useful step forward, a step that Theresa May has notoriously failed to take: in 2010, the year she became Home Secretary, net non-EU immigration stood at 217,000, a total not so very different from where it stands today.

And, for the avoidance of remarkably persistent doubt, membership of the EEA is not the same as membership of the EU’s Customs Union. Britain would essentially (there are some technical issues) be free to cut the trade deals it wanted with that excitingly wide world beyond the EU.

With administrative chaos quite likely to add to the pain that a hard Brexit could inflict, a Norwegian-style prix fixe solution also has the advantage of drastically reducing Brexit’s complexity. Given that, and the broader continuity it preserves, the Norway option ought to be welcomed by business, and (polling indicates) not just business, whether as a temporary fix or — a separate debate — a final destination. And for the EU, it safeguards more of the benefits that the status quo gives its members, while (in what would be a tremendous development for Brussels, if not for many of those living within the EU’s borders) removing that perennial British obstacle to ever closer union.

Sadly, there is no guarantee that the Norwegian option (or something like it) is available for Britain to take up. Far from it. The moment may have passed — or been frittered away — if it ever existed, but for the UK even to propose it would suggest a seriousness about what Brexit involves and what Britain wants from it that has, up to now, been lacking. And that, at least, would be a start.

Corbyn or ‘Soft Brexit’: Choose One

National Review Online, June 12, 2017

Theresa May has just three key matters to attend to in what ought to be the death throes of her shattered premiership. The first is to cut a deal with Northern Ireland’s Democratic Unionist party good enough to give her a de facto, if precarious, parliamentary majority. As I write, that’s nearly, probably, maybe there. The second is either to postpone the first round of the Brexit talks with the EU (due to start in a few days) or to ensure that they proceed without any blow-ups. The third is to announce that she is resigning as leader of the Conservative party and will leave 10 Downing Street as soon as her successor is chosen.  

As she sorts through the statistics of her defeat — and even if the Tories emerged as the largest party, it was a defeat — there are some scraps of comfort. The Conservatives’ share of the vote (42.5 percent) was the highest since the 43.9 percent that Margaret Thatcher, still basking in Falklands glory, secured in 1983, and the Tories did better than they had in Scotland for a very, very long time, thanks mainly to the efforts of its charismatic Scottish leader, Ruth Davidson, someone who both adapted Conservatism to local conditions while preserving its essence and, while she was at it, helped take a second Scottish independence referendum off the agenda for quite some time.

But none of this counts for much when measured against the scale of the disaster that May has inflicted on her party and on her country. She has thrown away a small, if not entirely reliable, majority and (if she’s lucky) replaced it with a fragile less-than-coalition. She has greatly complicated the treacherous Brexit process. She has squandered one of Margaret Thatcher’s greatest legacies: The hard Left is now dangerously close to power. Labour won some 40 percent of the vote last week, its highest share since Tony Blair’s heyday, an era when it was a very different party.

Calling a snap election was a forgivable gamble, forgivable because it looked like a safe bet. Burdened by an extremist and in some cases none too bright leadership, Labour was vulnerable. A popular figure (particularly when compared with Labour’s Jeremy Corbyn), May seemed set for a substantially increased majority, maybe even a landslide, something that would have strengthened her hand at home during the Brexit negotiations.

 Meanwhile, pushing out her mandate to 2022 would buy her potentially valuable breathing space. Under the timetable set in motion when May gave notice under Article 50 of the EU treaty in March (an act of extraordinary irresponsibility if she was already contemplating an election), the two sides have two years to work out the terms of their divorce (which does not, incidentally, include sorting out what their post-separation relationship should look like). If they don’t come to terms, there is (in the absence of an extension or transitional agreement) simply a break, after which trade between the UK and the EU would be governed by, to use the shorthand, WTO rules. Whatever some Brexiteers like to claim, that would not be a happy state of affairs. There are signs that uncertainty over what may lie ahead is beginning to unsettle business. That uncertainty — exacerbated by May’s unwise decision to opt for a “hard Brexit” rather than one of the gentler “prix fixe” alternatives — will weaken the economy, at least for a while. May presumably calculated that by 2022 the worst of this turbulence would be behind her.

A gamble is still a gamble. Good odds are no reason for carelessness, for stupidity, or for hubris. May’s campaign displayed all three in abundance. One survey has shown that 57 percent of Labour voters swung behind the party in the last month before the vote, 26 percent in the final few days. To butcher a storied Sun headline: It was the campaign wot lost it.

Among many blunders there were two that stood out. The first was proposing changes to the rules governing state-funded “social care” (including plans for a predatory “dementia tax”) that were seen as an attack on the elderly (typically among the Conservatives’ most loyal supporters), especially those who had the effrontery to own their own homes and the desire to pass something on to their children, achievements and aspirations that once were at the core of Thatcherism. It was a gesture that might not have delighted those children either: According to one poll, 50 percent of 35- to 44-year-olds voted Labour, but only 30 percent for the Conservatives.

Throw in the suggested changes to a free schools meal program and, in just a few self-destructive paragraphs in a manifesto that was ill-conceived enough as it was, May had revived the legend — one of the most powerful in British politics — of the Tories as the “nasty party” (a phrase, ironically enough, that she had made famous).

Then there was the decision to base so much of the campaign on May. Say what you will about Stalin and Mao, mass murderers and all that, but they earned their personality cults. May, by contrast, had been prime minister for less than a year, and before that a home secretary (interior minister) whose time in office was notable primarily for its longevity and failures over immigration. What’s more, by becoming the centerpiece of her own campaign, May seemed to repudiate some of the qualities that Brits most appreciated about her — understatedness and, by politicians’ standards, self-effacement. Then, in a cruel paradox, she was brought low when those aspects of her character proved to be all too genuine. Awkward in the spotlight, she stalked from Potemkin event to Potemkin event, too grand or too unsure of herself (take your pick) for debate and serious questioning. Voters were offered the repetition of slogans (“strong and stable leadership”) and evasive sound bites that grew emptier and more embarrassing by the day. She was a more likable robot than Hillary Clinton, but one with even less vim.    

She also chose the wrong battleground, casting herself as the defender of the Brexit she had (tepidly) opposed, a battle that has already been won. (Most Britons now accept, if in many cases reluctantly, the referendum’s outcome.) And she did so not solely on the strength of her (much bragged-about but largely untested) negotiating skills, but also by promising that she would be going for a “hard Brexit.” That includes withdrawal from the “single market” in which Norway and other non–EU members happily participate, a promise that would not only prove economically expensive but also cost May dearly at the polls. Yes, the half-truth that “hard Brexit” would be hard on immigration delivered the Tories votes and some seats in working-class areas not previously known for their enthusiasm for May’s party, but the extra twist of the knife it applied to resentful Remainers in the south of England cost the Conservatives more.

With the Tories facing a Labour party led by Jeremy Corbyn, this was an election that needed to be about more than Brexit and May’s managerial skills. Corbyn, a man of the hard Left, an extremist ably backed by extremists rather brighter than he is, should have been confronted on his record and on his ideology. But despite some tabloid venom, Corbyn was treated by the Tories with disdain rather than subjected to the more forensic treatment that was called for. The result was that this courteous fanatic was able to get away with being repackaged as a genial old codger, progressive, pleasantly eccentric, and principled. The last, at least, was true, but those principles — atavistic, intolerant, and irreconcilable with respectable democratic practice — were never properly examined. To be sure, a good number of people liked what they saw of Corbyn’s program, but many were either beguiled by its mood music — “hope,” “fairness,” an end to “austerity” — or just used a vote for him as a vehicle to express annoyance with May and a more general resentment, sometimes justified (for example, real wage growth has been dismal for years), sometimes not.

That resentment is strongest among young voters, and it delivered them to Labour. Convinced that coffin-dodgers and boomers are robbing them of their future, whether by voting for Brexit or by imposing tuition charges for university or by driving up house prices beyond their reach, “generation rent” hit back, its choice of weapon — a vote for Labour — unaffected, willfully or otherwise, by any understanding of Corbyn’s past association with terrorism or, for that matter, of where his brand of socialism will lead, an ignorance reinforced by left-wing bias in the educational system and a convenient forgetfulness of what the 1970s were really like.

This rejection by the young means trouble for the Tories for a long time. But they have horrifying short-term problems to contend with too. Should May’s government fall any time soon, the momentum behind Labour is likely to sweep Corbyn into power. The most immediate threats revolve around Brexit and the search for a new Tory leader, two closely connected conundrums. Whatever she might think or hope, Theresa May is finished, and her party does not have much time to find a replacement. The idea that May would ever be able to negotiate a satisfactory “hard Brexit” was always, to put it mildly, unconvincing, but with the EU fully aware of her weakness, it’s now impossible. And there is no fallback. May has argued for a while now that “no deal is better than a bad deal,” a characteristically vacuous argument that sidesteps the distressing reality that “no deal” (which would mean trading under those WTO rules) is a bad deal, a very bad deal indeed.

A breakdown of the Brexit talks would create chaos in Parliament and trigger the election that would take Corbyn to Number 10. As mentioned above, May should, given the circumstances, try to suspend the negotiations for now, and there were signs over the weekend that the EU is expecting just that. Failing that, begin the talks, and do everything possible to keep them going. In the meantime, the Tories must pick a new leader, a process complicated by the small matter that, at the time of writing, the incumbent shows little sign of wanting to go. But assuming that she can be prevailed upon to accept the inevitable, there are a number of alternatives.    

Naturally there is talk that Boris Johnson (the former mayor of London and current foreign secretary) is “on maneuvers.” Naturally, he has denied it. But Johnson has been left badly tarnished — a joker turned into a knave — by his role in the Brexit campaign and the turmoil that followed it. He’d be unlikely to tempt errant Tory voters back into the fold, and as he appears to be loathed by much of the EU leadership, his chances of striking a decent Brexit deal would be minimal. David Davis, the tough and intelligent Brexit minister, would normally be someone to consider, but his bewildering failure to master his EU brief ought to rule him out — although it may not. In the last few days Davis has, intriguingly, edged — just a bit — away from hard Brexit. Ruth Davidson’s triumph in Scotland saved May on Election Day, but she still has plenty to do in her home country. She has also said that she’s not interested in the national leadership, for which she’s not, in any event, eligible (as she doesn’t sit in the British parliament). Davidson, who like most of her compatriots favored remaining in the EU, has now suggested that the Tories should consult with other parties on the shape that Brexit should take. Those other parties would probably run a mile, but in principle she’s not wrong.

If I were in a position to choose the next Conservative leader, I’d either skip a generation and opt for, say, a promising up-and-comer such as Priti Patel or — spoiler alert, crazy thoughts ahead — perhaps look for a Nixon to go to China. Ken Clarke may be 76, a euro-fundamentalist and a man on the Tory left, but he was an effective chancellor of the exchequer (finance minister), and he’s a well-liked figure both in the UK and, I would imagine, within the EU’s hierarchy. If Clarke could be persuaded to stand (unlikely) and to endorse a soft Brexit (maybe less unlikely), he — or if not him someone of similar views, such as Dominic Grieve (a former attorney general, respected in Parliament on both sides of the aisle and a holder of the Légion d’honneur, no less) — might be best placed to deliver the “soft Brexit” (of which the ‘Norway option” continues to be the best variant) that is the only realistic way for the country and the Tory party to get out of the current mess.

Even suggesting those last two individuals (however improbable it is that they would want the job) will shock euroskeptic readers, but whoever the new Conservative leader turns out to be, the reality of what lies ahead is clear. Corbyn or “soft Brexit”: Choose one.

Macron’s Moment

National Review Online, April 24, 2017

The news that Emmanuel Macron, the nice centrist candidate, was going to win the first round of France’s presidential election was greeted with undisguised delight by the European Union’s ruling elite. Jean-Claude Juncker, the president of the European Commission, is not meant to weigh in on elections that are still underway in EU member states, but rules are for little people. He was quick to pass on his congratulations and wish Macron well in the run-off against the National Front’s not-always-so-nice Marine Le Pen two weeks from now. Juncker’s ‘foreign minister,’ Federica Mogherini, gushed that seeing the EU and French flags fly at Macron’s victory celebration was “the hope and future of our generation.” Michel Barnier tweeted that, as a “patriot and European,” he was confident about Macron’s prospects on May 7, and added that “France must remain European.” What Barnier, the faintly sinister former European Commissioner and member of France’s defeated Republican party who will serve as Brussels’ chief negotiator in the Brexit negotiations, meant by “European” was that France must remain in the EU, something that Le Pen might well put in jeopardy. That’s what really mattered.     

Unemployment in France is approximately 10 percent, more than twice German levels. About a quarter of those between the ages of 16 and 25 are unemployed. French GDP growth has been sluggish for years, and government spending accounts for around 57 percent of GDP, compared with 44 percent in Germany.

Then there is terror: the Charlie Hebdo murders that began 2015, the massacre in Paris that ended it, the truck plowing into crowds celebrating Bastille Day in Nice last year, and, most recently, the shooting in the Champs-Élysées that left one policeman dead and two other people seriously wounded just days before Sunday’s vote. These attacks are part of a wider Islamist assault on the West, but they are also symptomatic of failings in the effort to integrate France’s large Muslim minority, failings with consequences that have done more than their bit to contribute to the growth of the hard right. In 2016, Patrick Calvar, the head of France’s General Directorate for Internal Security, told a parliamentary enquiry that he feared a “confrontation between the far right and the Muslim world.”

And Federica Mogherini is cheered up by some flags.

Observing the behavior of the Bourbons and their aristocratic entourage on their return to France after the fall of Napoleon, the French statesman Talleyrand is said to have remarked that the king and his entourage had “learned nothing and forgotten nothing.” For some reason that quip came to mind as I read those tweets and other celebratory commentary from, it seemed, every corner of Davosworld,

Looking at Emmanuel Macron, it’s not difficult to understand why. He is one of them — likable, clever, the son of a professor and a doctor, with degrees from the right places, impressive stints in both investment banking and government to his credit, and a fondness for the EU, free trade, and the politics of the Third Way or whatever the old Blairite snake oil is known as these days. As a Socialist minister of the economy, he put together the Loi Macron package of reforms in 2014 and 2015 as a modest — very modest, and it says something about French politics that they had to be forced through by decree — step in toward deregulation. At about the same time, he left the Socialist party, before quitting the government the following year amid speculation about the independent presidential run that duly came to be.

There’s another problem for the tale of populist retreat: Between Le Pen’s share of the first-round vote (roughly 21.5 percent) and that of Jean-Luc Mélenchon, left-wing maniac and standard-bearer of France Unbowed (about 19.5 percent), four out of ten first-round ballots were cast for champions of the hard right and left. At 23.9 percent, Macron came out ahead of both of them, but not that far ahead. As establishment triumphs go, this looks a touch thin, even more so after you remember that neither of the two main parties managed to get their man into the final round. Former prime minister François Fillon, of the center-right Republicans, had looked at one point to be a strong challenger, but his campaign was dragged down by scandal. He is under criminal investigation, as is his wife, so the fact that he still managed to reach nearly 20 percent of the vote gives a hint of what might have been. As for the official candidate of the Socialist Party, poor Benoît Hamon, he was eclipsed by Macron and left with barely more than 6 percent of the vote.    

So what now? Le Pen will press on, as candidates described as far right so often do, with a mix of policies from both ends of the political spectrum, a mix that has not harmed her blue-collar appeal. Her tough line on immigration and Islamic extremism is accompanied by a somewhat protectionist economic platform designed to appeal to those who have found themselves struggling to keep up. This blend runs through into Le Pen’s Euroskepticism, driven from the right by nationalism and from the left by her suspicion of the EU’s attachment to what is, by French standards, an over-fondness for the free market. Oh yes, she’d also pull France out of NATO.

When Macron (who has been endorsed by Fillon and Hamon, but not, interestingly, by Mélenchon, who has said he won’t be endorsing anybody) wins in the second round — and he will — the next hurdle he’ll face is the parliamentary elections in June. No one knows how his fledgling party, En Marche! (echoes of Jeb!) will fare, but assuming that coattails and a honeymoon work their magic, enough of his team may make it into the National Assembly to form the nucleus of some sort of centrist coalition. But putting that together is still likely to involve horse trading of a type that won’t make it easy to build even on the meager reformist achievements of the Loi Macron, let alone address the mess in which France — statist, sclerotic, and stuck with the Euro — now finds itself.

Away from the economy, Macron appears to believe that there is not that much that can be done about mass immigration (climate change is, he explains — of course he does — one of its causes). This is not something that appears to worry him much, and it’s not only National Front voters who will find his lack of concern off-putting. As for doing a better job of integrating France’s Muslim minority, it’s far from clear that Macron has anything new to offer. The same may hold true of terrorism. “This imponderable, this threat,” Macron explained after the Champs-Élysées shootings, “will be a fact of daily life in the coming years.”

France’s next presidential election isn’t until 2022, but Marine Le Pen — or someone like her — will be waiting, and that wait may not be in vain.

How Not to Fix the Euro: More Leftism

Joseph E. Stiglitz - The Euro: How A Common Currency Threatens The Future of Europe

National Review, October 10, 2016

Imagining that a large number of very different economies could be squeezed into a single poorly constructed currency was one fatal conceit. Imagining that the story of what happened next could be squeezed into one rigid “narrative” was another — but that’s what economist Joseph Stiglitz has done in The Euro, a badly flawed book about a disastrous idea.

Stiglitz, a Nobel laureate and a Columbia professor, has been crusading for years now against the wickedness of “neoliberalism,” a term that, like “late capitalism,” says more about the person using it than about what it purports to describe. Check out the titles of some of his more recent books: “The Great Divide: Unequal Societies and What We Can Do about Them,” “The Price of Inequality,” “Freefall: America, Free Markets, and the Sinking of the World Economy.” The Euro is the latest installment in a long leftist tirade.

Stiglitz has valuable points to make on the EU’s dangerous monetary experiment, but it’s easy to lose sight of them amid all the pages devoted to his insistence that the devastation caused by the single currency is another example of the havoc that “market fundamentalism” has wrought.

Yet the euro was, at its core, an exercise in central planning. Stiglitz concedes that it was a “political project” to accelerate the process of European integration. But more than that, it was to be a challenge to the supremacy of the dollar and a permanent brake on the unruliness of foreign-exchange markets, ambitions far removed from market fundamentalism. Indeed, one of the earlier critics of the proposed new currency was Milton Friedman, not that Stiglitz finds the room — or the grace — to mention it.

Stiglitz questions the economic rationale behind the euro (arguing, intriguingly, that, contrary to the claims of its advocates, it was always likely to operate against convergence within the bloc) and the way that it was put together: The structures needed to make it work properly weren’t there. Yet his list of those responsible for the inevitable crisis is tellingly incomplete. To be sure, he acknowledges the important (and often overlooked) fact that individual governments could — even within the constraints of the euro zone — have done more to head off disaster than conventional wisdom now suggests, but, for the most part, he blames the Left’s preferred bogeymen, greedy bubble-blowing bankers and their accomplice, light-touch regulation.

But while there were undoubtedly areas in which regulation was too lax, the greater problem was that regulators were nudging financiers in wrong directions, whether it was toward real-estate-linked lending or into the belief that Greek sovereign risk was not that much greater than German. In the early years of the euro, Greece had to pay (on average) less than 0.3 percent more to borrow than Germany. That was nuts, but those steering the euro zone had persuaded themselves that the economies of the countries now locked into the currency union had truly converged. They hadn’t. And, crucially, the warning signals that would have been sent by the currency markets of old — a drachma crash, say — had been silenced. Ideology trumped reality, politics trumped markets, and the result was catastrophe. There’s a lesson in that, but Stiglitz doesn’t appear to see it.

Stiglitz is on safer ground criticizing the steps, from bullying the Irish government to assume private bank debt to the indiscriminate emphasis on “austerity,” taken by the euro zone’s leadership after the crisis erupted. The former is very hard to defend, and the latter was, in some cases at least, overdone, poorly timed, or both: There’s a limit to the extent to which a country can be expected to deflate its way to recovery. But to attribute — as Stiglitz does — the tough love shown by the “Troika” (the European Central Bank or ECB, the European Commission, and the International Monetary Fund) responsible for the euro zone’s bailouts to market fundamentalism is, to put it at its kindest, a misreading. What drove it was the complex internal politics of the currency union.

Stiglitz rightly highlights the difficulty of reconciling the management of the single currency and basic democratic principle. As he notes, voters in the euro zone’s laggards were offered no serious alternative to the harsh and sometimes questionable treatment prescribed for their countries. Beyond that essential but unremarkable insight, he touches on a broader, somewhat neglected issue: what it means when a democracy transfers the oversight of key areas of the economy from the legislature to technocrats and, specifically, to “independent” central banks such as the ECB, a practice Stiglitz attributes to the then (supposedly) prevailing “neoliberal ascendancy.”

That’s a debatable proposition to start with and it has next to nothing to do with the independence of the ECB, which echoes (as Stiglitz recognizes) the traditions of the Bundesbank (Buba), Germany’s legendary central bank. Far from being the product of late-20th-century neoliberalism, Buba’s independence — and its inflation-fighting mandate — date back to its origins in a ruined country that believed it knew where debauching a currency could lead.

Without Germany, there would have been no euro. But, proud of their Deutschmark, German voters didn’t want to switch to a new currency. Sadly, they were never given the chance to reject it, but assurances from their government that the ECB would, for all practical purposes, be a Buba 2.0 were part of a package of promises (no bailouts was another) designed to soothe their unease. Stiglitz discusses the fact that Germany shaped the ECB but fails to give enough weight to the democratic concerns that help explain why.

In any event, those promises were broken, and not just by a series of bailouts. Whether by effectively permitting local central banks to “print” new euros, or by allowing unpaid balances to mount up in its clearing system, or, belatedly (Stiglitz would argue), by a series of increasingly elaborate market operations culminating in the European version of “quantitative easing,” the ECB has turned out to be far less stingy a central bank than German voters had been led to believe it would be.

Stiglitz does not seem too bothered by this: Some democratic failures are evidently more equal than others. He is (legitimately) angry about the way that the Troika forced out the socialist Greek premier George Papandreou (his “long-term friend”), but he has nothing to say about the not-dissimilar putsch that replaced a less ideologically sympathetic figure, Italian prime minister Silvio Berlusconi, with an unelected, obedient proconsul.

Then again, this is the Stiglitz who claims that the objectives of European integration included “strengthening democracy” — a revealing interpretation of a project born of the notion that Europe’s voters could not be trusted to keep the peace. The idea behind what became the EU was that power should be transferred away from democratic nation-states to a supranational authority staffed by largely unaccountable technocrats. And over the decades, it was, often by the sleight of hand made necessary by European electorates’ stubborn suspicion of Brussels’ relentless drive toward ever closer union.

But a new currency was not something that could be introduced on the sly. People would notice. To a greater or lesser degree, the inhabitants of the future euro zone would have to consent to such a change, and to a greater or lesser degree they did. But they were not prepared to surrender enough sovereignty to give the euro a better chance of success. As much as Stiglitz might wish otherwise, that hasn’t changed. If there is to be any realistic prospect of keeping the current euro zone intact while restoring prosperity to its weaker brethren, it will, one way or another, involve a pooling of resources, but the richer countries won’t agree to that on terms that the poorer could accept. This impasse owes nothing to market fundamentalism and a great deal to the absence of a shared identity: Germans are Germans, Greeks are Greeks; neither are Eurozonian. They lack the needed sense of mutual obligation.

Stiglitz maintains that if the euro zone’s members won’t agree to a more comprehensive monetary union, big trouble lies ahead, threatening not only the euro but, maybe, the broader European project. I’m not convinced: “Muddling through” with what Stiglitz labels a blend of “temporary palliatives” as well as some “justly celebrated” deeper reforms has kept the currency going so far, albeit at a terrible cost. It could continue to do so for quite a while yet. And, despite the best efforts of the rebellious Brits, the EU seems set to endure too.

It’s worth adding that Stiglitz’s definition of that more comprehensive monetary union begins, understandably enough, with a credible “banking union,” debt mutualization, and the like, but then spills over into a vision of a command-and-control euro zone that — if that is what is really required to make the currency union work well — is another good argument for putting a stake through it once and for all.

A different way to go could, reckons Stiglitz, be the creation of a system under which euro-zone countries (or groups of countries) adopt “flexible euros” that trade against each other within a (much) more tightly managed version of Europe’s earlier exchange-rate regimes. He also puts forward yet another solution, some form of “amicable divorce”: Either Germany (alone or in conjunction with other northern European countries) should quit the euro zone, or the currency should be divided into new euros — northern and southern, a division that has, in my view, long been the right way to go. What unites these alternatives is the welcome recognition that one size does not fit all: A currency must reflect the realities of its home economy. Tragically, there’s no sign that the central planners in Paris, Brussels, Frankfurt, Paris, and Berlin agree. After all, they tell us, the euro-zone crisis is over.

We’ll see

The End of the Beginning

The Weekly Standard, July 22, 2016

It was the mayhem that made Theresa May. Britain’s unexpected vote to leave the EU crushed financial markets and plunged some Remainers into angry, unhinged, and tellingly snobbish mourning: It was, one author explained, "the revenge of the Brownshirts, a dictatorship of the illiterate and the opportunistic." The political class went into shock. Prime Minister David Cameron decided to quit, as, confusingly, did the leader of the Euroskeptic United Kingdom Independence Party (UKIP). The Labour party resumed its civil war, and the Tory contest to succeed David Cameron veered wildly off course, culminating in the defeat of a lightweight Leaver by May, Cameron's long-serving home secretary. May was a Remainer but widely credited with the safe pair of hands a nervous nation craved.

Dour and quiet, a gradualist, Theresa May shouldn't be underestimated. An effective bureaucratic in-fighter, she celebrated her appointment as prime minister with the most brutal ministerial reshuffle in recent British political history. Scores were settled, and not without—Britain being Britain—a hint of class warfare. Most important, May signaled this was her government, not Cameron 2.0.

She won't be Maggie 2.0 either. Mrs. Thatcher was more pragmatic than the legend goes, but at her core she was a classical liberal wrapped in patriotic, traditionalist guise. May's views are hard to pin down, but they are possibly rather closer to continental Christian Democracy. Her response to enthusiasm for Brexit amongst Britain's blue-collar "left behinds" included talk of an "industrial strategy," hardly the language of laissez-faire.

More generally, May is less fussed with the sovereign individual or, for that matter, the sovereign nation. She struck a blow against both when she corralled the U.K. into the EU's notorious arrest warrant regime. But she's no Eurofundamentalist: Her (understated) role in the Remain campaign owed more to political calculation and risk aversion than any embrace of the European ideal.

If May resembles any prominent female leader in method, ideology, and personality, it's Angela Merkel, another undemonstrative and authoritarian clergyman's daughter with no great fondness for boys' club politics. That might help Britain cut a decent deal with the EU, the decent deal on which the success of the May premiership will depend, the decent deal that has yet to be defined.

A Remainer needing to reassure Leavers, May has promised that "Brexit means Brexit," whatever that means. Forced into the referendum's crude binary, Britons chose to quit the EU, nothing more, nothing less. Their vote said nothing about how. The best way out, if it's available (and in the end, it probably would be), is some variant of the much-misunderstood status known as the "Norway option." This would allow continued participation in the EU's "single market," via membership (like that enjoyed by Norway) in the European Free Trade Association. As a reminder, the EU takes over 40 percent of the U.K.'s exports in goods and services, including those of Britain's vital financial sector.

Such access would come at a price, including, critically, the U.K.'s commitment to the EU's rules on free movement of people within the European Economic Area (EEA), the territory in which the single market applies. That's a highly sensitive topic, given the degree to which alarm over immigration boosted the Brexit cause. The Norway option does, however, provide for an "emergency brake" on inflows of people from elsewhere in the EEA, which might, properly sold and properly applied, soothe voter concern.

It's a solution, polling suggests, that would win the support of a plurality of Brits, if not most Brexiteers. It would play well in restless Scotland (where 62 percent voted to stick with the EU). As a package deal, "Norway" is reasonably straightforward and, crucially, can be implemented relatively quickly, minimizing any Brexit-related hit to investment in the U.K. It could be either a final destination or a convenient way-station along the route to a more definitive break with the EU.

But when May's team talks about winning access to the single market, it does so in a way implying a tougher line on immigration. That will be a difficult deal to secure. To be sure, mutual self-interest argues for a compromise (the U.K. is a large market for the EU), but, as the Swiss (who have their own separate arrangement with the EU) are learning, the EU is reluctant to give ground on free movement, a principle central to its sense of itself. There are also fears that too gentle a divorce might tempt other less enthusiastic EU member-states to follow Britannia's lead.

There are other alternatives, such as a bespoke "customs union" with the EU, and one better surely than Turkey's, if still far short of the single market. David Davis, May's Brexit minister, seems remarkably sanguine. He has even argued that "in the improbable event of the EU taking a dog in the manger attitude" to British access to the single market, he could live with a "hard Brexit"—trade with the EU under World Trade Organization rules. I'll spare you the technicalities, but let's just say that those rules are less favorable for exporters than usually understood. Even then, it will not be as easy for Britain, which currently dwells in the WTO under the EU umbrella, to take advantage of WTO rules as many Brexiteers believe.

It's true that, once out of the EU, Britain will be able to conclude its own trade deals with the rest of the world, but such agreements typically take years to finalize. And the U.K. has to quit the EU before it can sign (or, strictly speaking, even talk about signing) anything. So far it hasn't even initiated the exit procedure. That involves giving notice under Article 50 of the EU treaty. The U.K. and EU will then have two years to agree on the technical details of their separation. If it intends to avoid the hardest of hard Brexits, Britain will also have to agree on its new trading arrangements with the EU at the same time, a tall order, and one not provided for in Article 50—something else that points to Norway, at least as an interim measure.

Keen to end the uncertainty and, doubtless, to exploit the edge that a fixed timetable brings, the EU wants to start the clock. It won't agree to formal discussions beforehand . Britain, however, insists that it has to decide what it wants from Brexit first. This stalemate could quickly turn nasty. Nevertheless, London won't trigger Article 50 before 2017. Elections in France and Germany that year won't make matters any easier.

No one really knows what comes next, but May's team has begun to take soundings abroad and, I assume, is calling in the experts (to the extent that they exist) at home. The need for the former is obvious; the need for the latter is pressing. The Cameron government blocked the civil service from considering any serious contingency plans for Brexit, and, with some notable exceptions in think-tank land and, yes, the blogosphere, most leading Brexiteers, including Davis, have been just about as cavalier. There is no plan. To pull a Melania on Otto von Bismarck, putting one together will be a matter of "the art of the possible .  .  . the art of the next best." Discovering the possible may be a rude awakening for some Brexiteers. The "next best" might even turn out to be located somewhere near Oslo, particularly if there are signs of sustained economic weakness.

The domestic politics of Brexit should be easier to navigate for now, despite May's narrow parliamentary majority. The next general election is not due until 2020. Helpfully for May, Labour is still preoccupied with a probably doomed attempt to unseat its leader, Jeremy Corbyn, a man almost certainly too left-wing and too strange to make it to 10 Downing Street. Meanwhile, with Brexit underway, the Conservatives need fret less about UKIP, their bugbear of the last decade: Busily reinventing itself as the party of the "left behinds," UKIP is increasingly focusing on Labour.

Wisely, May is courting the independence-minded Scots, though it's far from a given that Brexit means Scexit. To start with, Spain (worried about secessionist Catalonia) will block Edinburgh's path to Brussels. And even if it didn't, the EU would be a less attractive safe haven for mutinous Scots than is often imagined, involving as it would the prospect of austerity (low oil prices haven't helped Scotland's shaky finances), the euro, and tariff barriers with the rest of the U.K. But Scotland is not the only place where the U.K.'s Celtic fringe may be fraying. In Northern Ireland, somewhere that no British prime minister can comfortably ignore, nearly 56 percent voted for Remain.

British voters rejected Brussels for any number of reasons but, above all, they wanted their country back. The difficulties (many more than I have mentioned) associated with Brexit are the result of over 40 years of entanglement in an "ever closer union," an entanglement that was only going to get worse. They are confirmation that Britain is leaving not a moment too soon. But that will be cold comfort if the consequences drag the economy down for any length of time. If the mechanics of exit are mishandled, they will. Britons have voted for Brexit, but the intricate, painful, and dangerous job of carrying out their wishes has barely begun.

Cross-Purposes: The Long Road to Brexit

National Review Online, June 28, 2016

The Red Lion, Whitehall, London, March 2016 ©  Andrew Stuttaford

Last week, Britons voted themselves out of the European Union, but the seeds of Brexit were planted decades ago.

‘Nothing,” wrote the Duke of Wellington, “except a battle lost can be half so melancholy as a battle won.” The vote for Brexit was a necessary victory. And that it was necessary is a tragedy.

Its origins lay in the fact that many Britons never fully grasped the nature of the European project into which they had been enrolled. They saw it as a trading bloc with extra benefits (and, yes, some annoying costs and meddling regulation). It was a misunderstanding encouraged by those who took the United Kingdom into the “Common Market,” a misunderstanding that left a legacy that bedeviled Britain’s domestic politics and soured the country’s relationship with its European partners.   

The entities that evolved into the European Union were inspired by two world wars within a single generation, and they were about a great deal more than trade. Their most important founding fathers (men like Jean Monnet) believed that the nation-state could not be trusted to keep the peace. What was needed was a post-national federation, not exactly the superstate of sometimes fevered euroskeptic imaginations, but something softer, subtler, and, arguably, more insidious. People liked the nation-states they already had; the post-national would have to be built by the post-democratic. As Monnet anticipated, this was a process that would have to be patient, and, often, oblique (“by zig and by zag”), and that’s how it’s turned out. Piece by piece, swaths of domestic policy-making have been transferred to “Brussels,” safely beyond national democratic control.

Monnet recognized that voters in the six founding members (France, West Germany, Holland, Luxemburg, Belgium, and Italy) of what eventually became the EU, countries that had known military defeat and occupation, would be reluctant to jettison their nation-states. What then would be the case with Great Britain, a kingdom comfortable, even too comfortable, with its past?

Well, according to one poll, the most important reason given by 49 percent of those who voted last week to quit the EU was that “decisions about the UK should be taken in the UK.” That thinking shades, I suspect, into the second-most popular (33 percent) first choice (leaving “offered the best chance for the UK to regain control over immigration and its own borders”) and the third (13 percent): Sticking with Brussels would mean being left with no choice “about how the EU expanded its membership or its powers.” The top reasons why Remainers wanted to stay in the EU were primarily economic. Only 9 percent cited “a strong attachment to the EU and its shared history, culture and traditions.” After more than 40 years in the Brussels club, national still trumped post-national.

Some of those who led the U.K. into what were then the European Communities in 1973 understood their true nature. Others convinced themselves that talk of “ever closer union” was grandiloquent continental verbiage, nothing more. The refusal of the English, wrote George Orwell, “to take foreigners seriously, is a folly that has to be paid for very heavily from time to time.”  

Despite the best efforts of more erudite opponents of membership, the debate over whether Britain should join and (after the question was put in a 1975 referendum) then stay in the “Common Market” largely revolved, as that misnomer suggests, around trade and the economy, leaving far too much that needed saying unsaid, an omission with consequences. In the 2013 speech in which he agreed to hold his fateful referendum, David Cameron noted how many Britons were asking “why can’t we just have what we voted to join — a common market?” The problem, of course, was that they had, in reality, voted for something that was very much more than that. Forty years later, the memory of what they thought they had voted for still haunted Britain’s political landscape.

People felt, claimed Cameron, “that the EU is heading in a direction that they never signed up to.” It would have been fair to add (although he didn’t) that British politicians had done their bit to set — or at least go along with — that course. For example, Margaret Thatcher helped push the union toward a greater acceptance of economic liberalism. This led to the EU’s Single Market, a major achievement, but it came with a catch, the Single European Act, a new EU treaty that diluted the veto power of individual member states. Mrs. Thatcher believed that the sacrifice of another slice of sovereignty was worth it. Yet again, economic promise trumped political price. The pace of integration duly picked up: No need to zig or to zag on this occasion.

By the time of her famous speech in Bruges in 1988, the lady was beginning to turn. Brussels was using its expanded powers to pursue an interventionist (and integrationist) agenda that Thatcher did not appreciate. Even so, to reread that speech is to notice that, like so many of her countrymen, she still didn’t get it: “The [European] Community,” she said, was not “an institutional device to be constantly modified according to the dictates of some abstract intellectual concept.” On the contrary, it was, and it always had been — and there was nothing “abstract” about the “intellectual concept” that underpinned it. “Ever closer union” meant what it said.

The Bruges speech (essentially) set in motion the conflict that toppled first Thatcher and, indirectly, her successor, John Major. Trivialized by the media and opposition as an internal squabble, the “Tory Wars” were the result of a serious attempt by some Conservatives to come to grips with where the European project was going. They were at their bloodiest in the aftermath of Major’s signature of the Maastricht Treaty in 1992. Maastricht turned the European Communities into the European Union and paved the way for the introduction of a single currency. Major negotiated an exemption from any obligation on Britain to sign up for what would become the euro, at least. But he didn’t use his veto power to try to force through a deal that might have carved out a niche for the U.K. that was more realistically aligned to the aspirations of its people. It was a missed opportunity.

Instead the ratchet of ever closer union had turned again — and a Tory government had helped out. Frustrated by all this, a small euroskeptic group reinvented itself as the United Kingdom Independence Party. One of UKIP’s founders was a Thatcherite commodities’ broker named Farage. Few noticed and fewer cared.

Making matters more difficult for Major, a modernizing Labour party had embraced the EU both as handy post-democratic bulwark against Tory reform and as a branding device: New Labour not Old, united (unlike certain parties) and forward-looking (unlike certain parties). But what Labour had not done — at least to any significant degree — was buy into the integrationist dream. Its interest in the EU was as a cudgel to batter the Tories.

To be sure, Tony Blair was a genuine europhile (he would have taken Britain into the single currency if he could), so it’s perversely appropriate that he accidentally prepared the ground for Brexit, starting with the decision to give the right to work to migrants from the bloc of formerly Communist countries that joined the EU in 2004. Most EU member-states insisted on a transition period. Blair’s Britain did not. The initial estimate was that there would be a net 5–13,000 new arrivals a year. That’s not how it worked out. The cumulative net total is (conservatively) thought to have exceeded 400,000 people between 2004 and 2012, just part of a huge influx of immigrants from elsewhere in the EU and beyond. This played poorly with the U.K.’s working class, and Brussels took the rap. That was partly (I suspect) because — in an era of political correctness — Brits were wary about criticizing immigration from further afield, and partly because the EU’s freedom-of-movement rules meant that EU migrants could only infrequently be turned away. Their numbers were not only large, but, effectively, uncontrollable.

#share#Immigration was the topic that transformed UKIP from (more or a less) a single-issue euroskeptic party to a far more potent force and propelled it into Labour’s old heartlands, territory where it had hitherto rarely been seen. German chancellor Angela Merkel only fueled the fire, whether bungling the migrant crisis last autumn or refusing to cut Cameron some slack on the EU’s immigration rules during his disastrous “renegotiation” earlier this year. The chickens came home to roost on Thursday: Seventy percent of Britain’s skilled working class supported Brexit.

And it was Merkel who pushed through the Lisbon Treaty as a substitute for the EU constitution that had been rejected by referendums in France and Holland, a brutal reminder that the cause of European integration trumped democracy. Britons had also been promised a referendum on that constitution, but the constitution had been killed off before they could vote. When it was (for all practical purposes) revived in the form of the Lisbon Treaty, Blair’s referendum promise was not. To repeat the message: Ever closer union meant ever less democracy. Walking away from a referendum was also a wasted opportunity: It would have been a relatively (compared with what was to come) low-stakes chance for the U.K. (which could have vetoed the treaty) to consider what it wanted from the EU. Oh well. Blair’s successor, Gordon Brown, signed the treaty, seemingly unconcerned that it reduced Britain’s shrinking ability to block additional integration, a fact that forced more euroskeptics into the “out” camp.

Meanwhile, opposition leader David Cameron had reined in Tory grumbling about the EU. A modernized party had to stop “banging on about Europe,” he said. Divided parties lose. Voters were bored with the issue. Euroskepticism gave a bad impression: It was retrograde, nostalgia tainted with poison. To be sure there was UKIP, but they were “a bunch of fruitcakes, loonies and closet racists, mostly,” Cameron said — cranks who were not to be taken seriously. As a political tactic, Cameron’s approach made some sense, at least in the short-term (he became prime minister in 2010), but it alienated euroskeptics still further. And there were more of them than in the past, their number boosted by the crisis in the euro zone, a crisis accompanied by the insistence that the only solution was more Europe, not less. It was a demand made all the more alarming by the British eurofundamentalists who claimed that there could still come a time when the U.K. might adopt the single currency. Britain had its safeguards against that, but would they survive the election of a europhile government?

In 2012 Jacques Delors, one of the European Union’s most distinguished senior statesmen, appeared to accept that Britain and its partners would never agree on what the EU should be. He floated the suggestion that “if the British cannot support the trend towards more integration in Europe, we can nevertheless remain friends, but on a different basis.” He could imagine, he said, “a form such as a European economic area or a free-trade agreement,” and as Conservative MEP Dan Hannan recalled last week, it was not the only such deal being touted. Finally, Brussels was signaling its willingness to try to solve its “British problem” in a constructive and innovative way.

Cameron should have jumped at the opportunity — a get-out-of-jail-free card if ever there was one — but this surprisingly unimaginative politician still believed he could play the game by the old rules, throwing a few scraps to the euroskeptic rabble at home, while continuing with business as usual in Brussels. He even neglected the chance to wring a few concessions out of Britain’s EU partners in exchange for agreeing to a change in the Lisbon Treaty prompted by the euro-zone crisis.

He was wrong to be so complacent. Euroskeptic attitudes were hardening in Britain and with UKIP on the rise, euroskeptics had somewhere to turn. Indeed, it was to head off the UKIP threat to the Tory vote that Cameron committed to the referendum he had never wanted — a referendum he could quite possibly have junked in the event of a renewed coalition government with the eurofundamentalist Liberal Democrats after the 2015 election. But remarkably, the Conservatives won an outright majority. The referendum couldn’t be dodged.

\Then Cameron blew his last best chance. The threat of a pending in/out referendum ought to have given him the leverage to cut a better EU deal for Britain. After all, he presided over the union’s second-largest economy and the U.K. made the third-largest contribution to the EU budget. But his much-vaunted “renegotiation” failed to secure any significant changes. Perhaps, thinking like almost everyone else (including me) that the Brexiteers had no chance of winning, Cameron didn’t press the EU hard enough. Perhaps the EU’s leadership, confident that they too had little to risk, felt that they could get away with tossing no more than a few crumbs London’s way. Or, perhaps, realizing that the Brits would always stand in the way of ever closer union, they no longer cared.

Whatever the reason, Cameron was left with a renegotiation that proved the EU would concede no more to Britain. The rest is history.