24 June 2016

Why Wasn't it Greece?

Yesterday the United Kingdom voted to leave the European Union, or should I say England and Wales voted to leave the EU; Scotland and Northern Ireland (not to mention London and Cardiff) voted overwhelmingly to stay.

Some have argued that this is a good thing, or at least less of a bad thing because of how terrible the EU has been since 2010; the ECB clearly made a foolish mistake by raising rates in 2011 and post-2010 austerity has been a major drag on European, especially Southern European, countries. Britain leaving, therefore, sends a message to the undemocratic, inept EU and signals for either future reform or for the gradual collapse of the European Union.

Except the UK was affected by none of this. Britain wisely refrained from joining the Euro, so the Bank of England was free to hold rates constant while the ECB tightened monetary policy. Also British austerity was self imposed; no one in the EU forced George Osborne to slash deficits during the last government and the UK gave the Conservatives more support in 2015 than they gave them in 2010 -- the Conservatives came out of the 2015 general election with a full majority in the House of Commons.

So not only was the UK unaffected by the terrible policies of the EU over the last few years, it's populace handed a majority government to the very people who did impose austerity. Yesterday's result was not a victory for democracy, nor was it Britain's independence day; bar an early general election (which I would welcome), the UK is stuck with the same bad policy they supposedly voted to get rid of.

The people who should have been voting against EU membership yesterday are the millions of unemployed people in Spain, Portugal, Italy, Ireland, France, and Greece. In these countries, especially Greece, the electorate has denounced austerity with the rise of radical parties like Syriza in Greece, Podemos in Spain, and the National Front in France, yet the stability and growth pact dictates fiscal policy in these countries, not their legislatures.

On top of this Euro membership has removed any means of exiting recession with monetary stimulus; now countries hit harder by the financial crisis must go through an internal devaluation, in which their real exchange rate must fall, but their nominal exchange rate is pegged leaving prices and wages the only means of adjustment. Price stickiness and wage rigidity make this incredibly painful, hence the record unemployment.

Of all the member states of the European Union, the UK had the least reason to leave, but here we are. Yesterday should have been Grexit, but we got Brexit instead.

1 comment:

  1. because referendum was focal point for many frustrations by those left behind by globalization. EU equals immigration in minds of leave voters.