Saturday 11 April 2015

Don’t turn the UK into the Eurozone.

If North Koreans, by some good fortune, were able to rid themselves of tyranny what would be the result? Well just as in 1989, when the Berlin Wall came down, there would begin a process of reunification with South Korea. Why? It would happen simply because the Koreans speak more or less the same language and have a shared history that goes back hundreds of years. They would see themselves as family rather than foreigners. It would not matter at all that technically they had been at war for decades. Whatever harsh words may have been spoken by one side about the other would instantly be forgiven and forgotten.

We already know what would happen during such a reunification because we can look at the example of Germany. The process by which Germany became one united country again was carried out by a number of steps. The border was opened and there was free movement of people. A single currency was reintroduced. Each Eastern mark was found to equal each Western Mark even if the former traded massively below the latter. There were massive transfers of money from West to East that have gone on for decades. Why were people in Western Germany willing to transfer billions or Marks to the East? For a simple reason. They viewed those people as compatriots.  It didn’t matter that Bavarians, Hessians, Prussians and numerous others had been living in separate nation states until 1871 and had fought a war against each other as recently as 1866No one in Germany celebrates a war against the “old enemy”, even if Germans still sometimes make jokes about each other.

The single currency of the reunited Germany was a currency union that covered not just two formerly independent states (East and West Germany), but going back a little further literally dozens if not hundreds. If I were a German I could describe my country in any number of ways. Almost everywhere at some point or another was an independent country, some remarkably recently.  Imagine if Germans were to try to re-establish the borders of 1707. We would all struggle to name all the new countries that would result.

People then can see themselves as forming a family even if they once lived in independent states. This fundamentally is the reason why they are willing to transfer money to each other. In the same way as most of us care more for our children than someone we’ve never met, so we care more for a compatriot than someone from abroad. This is human nature and there is no changing it. It is the reason why it was possible to introduce a single currency in Germany in 1990 without too much difficulty. It is also the reason why it will ultimately prove impossible to introduce a single currency across the European Union, unless and until people in member states across the Eurozone view each other as compatriots.

The fundamental reason for the crisis in the Eurozone is that Germans are unwilling to transfer massive amounts of money from Germany to Greece. They were willing to give without limit to the former East Germany, but they feel no such obligation to Greece. Why? Because Greeks are not compatriots.  It’s as simple as that. But a currency union without a transfer union is bound to fail ultimately. What would have happened if the West Germans had refused to transfer money from West to East following reunification? The problem was that East Germany could not have competed on international markets with a currency as strong as the D-mark. It would have required devaluation in order to become competitive. But it could not devalue owing to the fact that it was in a single currency. Exactly the same situation obtains in Greece, which desperately needs to devalue its currency, so as to make exports more competitive and holidays cheaper. Greece is faced with a choice. Either devaluation or transfer union. The logic of the Eurozone is that it must begin acting as a single country or it must break up. There isn’t a third alternative.

If there had not been a transfer union in Germany after reunification, there would have been radically different standards of living in East and West with no prospect of the differences narrowing. There would have been more jobs in the West and given an open border, the same language and free movement of people there would have been depopulation in the East. People would literally have voted with their feet.  A transfer union is the only way that a currency union can work long term. In the end Germans must treat Greeks the same as Germans or else they must accept that they must break up the Eurozone.

The UK just like Germany is formed from places that once were independent, some like Scotland a long time ago, others like DálRiata a very long time ago. At one point, no doubt we all lived in independent tribes and villages and painted ourselves blue. Since coming together the various parts of the UK have had different economic circumstances. It’s only necessary to read Thomas Hardy to realise that quite recently parts of the south of England were very poor. They must have looked on with envy at the wealthier northern parts of Britain at the height of the industrial revolution. These things tend to go in cycles. Scotland had an oil boom in the 70s and gave more than we received, now the boom is over and we receive more than we give. This is usually called sharing. What is necessary to keep standards of living in the UK reasonably equal is a transfer union. It is this transfer union that guarantees that everyone gets a similar level of benefit, a similar level of healthcare and education, no matter where we live. The people living on a small island off the Scottish coast with a tiny population have a teacher and doctor which they simply could not afford without money being transferred from the other parts of the UK. Without the transfer union that exists in the UK the rich parts would get richer, the poor parts would get poorer.

The proposal that Scotland gains Full Fiscal Autonomy (FFA) is being proposed by the SNP and Iain Martin suggests the Conservatives might agree with them in order to get English Votes for English Laws (EVEL). It is bizarre that this proposal is even being considered seriously.  For fundamentalist nationalists who want independence at any cost, there is a certain logic for FFA inevitably leads to independence. There would be no need even to have a second referendum as FFA would break up the UK in and of itself. No country in the world has a part which has FFA for the simple reason that it is incoherent economically.

The SNP have spent the last few years complaining bitterly about wicked Tories introducing austerity. They want the next UK government to end austerity and spend £180 billion more than either Labour or the Conservatives intend. Yet FFA would give rise to eye watering levels of austerity in Scotland. People who don’t understand this fact simply have not seen the figures, or more likely don’t understand them. FFA would massively increase taxes in Scotland and massively cut public spending. The poorest would be hit hardest. Do nationalists really believe it is worth paying this price just to obtain independence? This isn’t “Devo-Max” it’s "Austerity-Max". This is simply fanaticism. I begin to wonder if my country has literally become so drunk on nationalism that it has taken leave of its senses.

Logically if Scotland had FFA, it would hardly make sense for us to send MPs to Westminster at all. What would they have to do there that would have anything to do with Scotland? Foreign affairs, defence? These are not exactly issues that we have spent much time debating in the General Election. This isn’t devolution its independence in all but name. We voted against that remember.

Would the Tories really sell Scottish No voters down the river just to get EVEL? Who can tell? There’s a short term cunning about some present day political leaders which I find hard to understand. Statesmen look at the long term interest of our country and work for that. It was Cameron’s fatal underestimation of Scottish nationalism that got us into this mess in the first place. He can still go down in history as a rogue if his future actions are seen as breaking up the UK.

It should however be made clear that FFA is not in the interests of anyone in the UK. The reasons for this have already been made clear. FFA turns the Poundzone into the Eurozone. The Poundzone only works because we have for centuries had a transfer union between the various parts of the UK.  FFA takes away the transfer union and turns Scots into Greeks in relation to the UK’s Germany.  If the UK is unwilling to transfer money to Scotland and vice versa it would be treating Scots in the same way that Germans treat Greeks. Scots would no longer be compatriots, i.e. people we share with without question. Scots would already be foreigners. But the same logic that applies to the Eurozone would immediately start to apply to the Poundzone. Either we would have to start behaving like a single nation state or we would have to split up. To start behaving like a single nation state we would have to begin our transfer union again (which we just stopped with FFA!). Alternatively we would have to break up our currency union.  There isn’t a third alternative. Does anyone really fancy bringing the economics of Grexit to the UK? What would we call it Scoxit or Engxit?

Do people in the rest of the UK really want to go down this route? Moreover, if FFA is given to Scotland, why not to Wales and Northern Ireland? Once we start going down the route of breaking up our country, why shouldn’t London and the South East demand FFA? They would be far richer if they didn’t have to share their wealth with the rest of England? By some calculations Londoners wouldn’t have to pay tax at all if they kept all the money earned in London to themselves. Why moreover, should not Aberdeenshire have FFA? We’re far richer than people in the Central Belt. Why should we have to share our money?

Nationalism is poisonous because it divides people who until that point thought of themselves as the same. Look at how it has already divided our country, not only within Scotland, but also in the UK. Where previously we all thought of ourselves as compatriots who had a duty of care to each other, nationalism would divide us and then divide us further.  I have seen what nationalism can do to a country like Ukraine. It leads people to act irrationally. They cease to act in terms of basic self-interest.  But equally a people that would vote to make itself poorer, that would joyously embrace "Austerity-Max" is capable of anything. When nationalism trumps every other political policy, I begin to get very scared, for it is just this kind of nationalism and fanaticism that led Ukrainians to destroy their country. Nationalism is the most powerful political card that can be played, therefore it should never be played. It appeals to something instinctual in human nature and base. Blair is right:

“National pride is a great thing. Nationalism, as a political cause in the hands of parties like [the SNP], is almost always ugly and, despite being wrapped in the garb on high-sounding phrases, can never disguise its essentially mean spirit.”

But Blair is ultimately responsible for the rise of nationalism in Scotland. It’s growth can be traced to his time in Government. The other Prime Minister most responsible for the rise of nationalism is David Cameron. It was his folly and miscalculation that gave the SNP their chance. Now is the time when both Labour and the Conservatives must make amends. Don’t play the nationalists game. Don’t make short term political calculations that risk our country’s future. Don’t make deals with separatists. Rather find a long term strategy that will bring our country together again. Above all else don’t turn the UK into the Eurozone.

If you like my writing, you can find my books Scarlet on the Horizon, An Indyref Romance and Lily of St Leonards on Amazon. Please follow the links on the side. Thanks. I appreciate your support.