Europe: saved or lost?

Richard Barwell is a senior analyst at the Royal Bank of Scotland, a large British banking group. He covers Europe and his latest piece, published this week, is entitled “The crisis is over, the recovery is underway. Long live the euro”. In this review of 2013 and preview of 2014., Barwell adopts a triumphalist tone, as the title indicates, and delights in listing the achievements of the EU in general and the ECB in particular, as well as highlighting the positive data coming from many of the peripheral countries (PIIGS is a nasty, pejorative term) that were in such dire straits last year and the year before.

The doomsayers have been proven utterly wrong, he crows, as the euro has not collapsed, the eurozone has seen no exits, the European banking system has held up and, overall, an apocalypse has been notably absent. On the contrary, there has been stability and an ongoing process of repair, with important developments that drive the long-term European project forward — such as the banking union — making good progress.

Almost every word of Barwell’s analysis is correct, as far as it goes. President Mario Draghi’s dramatic intervention at the depths of the crisis in August 2012 did indeed mark the nadir and since then things have improved dramatically.  The eurozone has even merged from recession and is chalking up growth, albeit minimal. As for next year, Barwell is — as you might have guessed, very optimistic that things will continue to get better.

Meanwhile, in some parallel universe, British premier David Cameron has made clear that he will demand from his EU partners at an upcoming meeting devoted to this subject, that the rules governing the freedom of movement of labour within the EU be changed, meaning that restrictions be imposed. His goal is to prevent a surge of emigration from Eastern European members Rumania and Bulgaria into Western Europe and the UK, when this becomes legal at the beginning of 2014.

This is not just another example of the Brits being snotty towards Europe, or mere Eurosilliness — of the sort that Cameron indulged in this week during a visit to China. There he airily proposed a free trade agreement between the EU and China, without having consulted EU partners — who are engaged in negotiating a complex free trade agreement with the US — and also ignoring the fact that it is Brussels that should initiate and negotiate moves of this sort.

The demand to amend freedom of movement of labor is far more significant, because it goes to the heart of the European project. It is one of the four freedoms that are the pillars of the Single Market, which is itself the centerpiece of the entire EU edifice. These are the free movement of trade, of services, of labor and of capital. Once you start chipping away at those, the European project is in danger.

Cameron must know this, but he is deliberately putting his party’s and — he would say — his nation’s interest ahead, not just of European policies but of European principles. However, this is not as dramatic as it sounds, because those principles are being trampled upon with increasing frequency. Freedom of movement, for example, has been eroded by several states which have re-established border controls between themselves and other EU countries – in an effort to reduce the flow of illegal immigrants. Cameron now wants to go a step further, by reducing the flow of legal immigrants. Put another way, he wants to make legal migration illegal.

Even this is only a proposal, however. Far more dramatic was the erosion infliected on the free movement of capital, and this occured — goodness me, in 2013! The unfortunate event of Cyprus going bankrupt and then seizing deposits held by both Cypriots and foreigners in Cypriot banks, was accompanied by the imposition of  severe restrictions on withdrawals of cash and transfers of money. All that represented a massive and unprecedented massive breach in the principle of free movement of capital and also created a situation in which a euro in Cyprus became a different entity, governed by different rules, than a euro on the continent. Imagine, for example, that the state of Ohio prevented people sending dollars to other parts of the US and you get the scale of the rupture.

Barwell, in his gleeful good news account of 2013, glosses over the Cyrpus debacle and its far-reaching implications. Even the promises made at the time, that it would be a unique event and have no bearing on future crises, has been trashed. It is now clear that the official policy towards bank failures is going to be based on no more bailouts by governments, but rather ‘bail-ins’ — meaning that bondholders and depositors will make good the losses of the failed bank.

That’s just the alternative view of the financial sector, which is what concerns Barwell and his ilk. As for the record unemployment across Europe and the deepening gloom driving young people to emigrate even from Franc – well, that’s all going to get better next year.

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