June 24, 2016

Brexit and Beyond

With the signing of the Maastricht Treaty in 1992 Europe shifted focus from integration and inter-nation cooperation to the construction of a so called super-state. The European Union, which in the Maastricht Treaty replaced the European Communities, is not a "United States of Europe" as it is not a federation; it is a new nation-state. 

As a nation-state structure, the EU's existence is directly contradictory to the continued existence of nation states as its members. By logical and political necessity Brussels would have to become the real, and only, capital of Europe. It was this inevitable future that the British people rejected. They were wise in doing so, because their vote may cause a turnaround and partial or (less likely) complete reversal of the super-state project.

If the British people had voted to stay in the EU they would have been part of a project where three things would have happened, each one serious enough to sink the entire continent, economically and socially:

1. A revolt against the democratic deficit. The legislative and executive powers created with the EU are far from the people they govern. Without getting into the technical details of how legislative and executive powers are distributed within the EU, the best way to explain the democratic deficit is if, in the United States, the people elected the House of Representatives, if state legislatures appointed U.S. Senators and the president was elected by the House upon proposal from the Senate. Most of the legislative powers would then be placed with the Senate and the President, leaving the House behind as, basically, a watchdog organization.

At some point, when the EU has become powerful enough, it will exercise power over its people with such arrogance that there would be a massive protest wave against the democratic deficit. That, however, would be a disorganized, even disorderly protest, of which Europe has had plenty in recent years and needs no more of. The outcome of the Brexit vote has shown those who are skeptical of the EU super-state project that there is a constructive way out.

2. An increasingly costly welfare state. With permanent entitlement programs and permanently high and progressive taxes the welfare state puts income "equality" above growth and overall expansion in prosperity. In terms of fiscal policy the EU has the same redistributive goal as its member states, namely to take money from the "rich" and give it to the "poor". The difference between the member-state welfare states and that which has emerged at the EU level is that the latter primarily redistributes money between member states. Its involvement in individual-enrollment entitlements is very limited.

Because the EU redistributes between countries, it relies on a proportionate balance between "rich" countries and "poor" countries. However, just like with the normal welfare state the net payers - of which the UK is one - are discouraged from participating while the net countries are discouraged from getting out of their dependency. Since the wealthier member states over time pump in less money proportionate to the entitlements at the other end of the entitlement pipeline, the EU will eventually run persistent budget deficits, just like far too many of the member states.

An EU-level deficit would lead to EU-level austerity, mandated under the EU's own balanced-budget rules. Such austerity would have devastating effects on a continent with half-a-billion people. The economic stress would be enough to cause ruptures within the EU, not unlike those we saw during the height of the "austerity season" of 2011-2013.

3. EU expansion. The planned growth of the EU includes Turkey, which is a country without a Western cultural and political heritage, and an assortment of very poor nations on the Balkan. All of them would be eligible for generous EU funds, paid for by, among others, Britain. To afford more entitlements for poor member states the better-off states would have to - yes - raise taxes. That in turn would put even more of a damper on middle-class earnings and drift the entire EU even further into the economic wasteland where it has been dwelling ever since the depth of the Great Recession.

The bottom line, then, is that the European Union has no future. Without the Brexit vote the collapse and disintegration of the EU would have come in a disorganized, disorderly fashion. Now, Britain is showing that there is an orderly way out. Let us hope it works out well, and that the decentralization era that has now begun will benefit liberty, prosperity and peace.

Let us hope that traditional European democratic values lead the way out of the EU. If they don't, the darker elements of European politics - spearheaded by Marine Le Pen - will seize the moment. If they do, then the democratic deficit of the EU will be replaced with a new political order where democracy will, at best, be reduced to a punchline.

The British people have shown great courage and wisdom in their vote. Let us hope they also show leadership and set a peaceful, democratic example for the rest of Europe to follow.

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