Home > Uncategorized > Brexit or the burden of being part of an optimal currency zone but not of the currency union itself

Brexit or the burden of being part of an optimal currency zone but not of the currency union itself


Source: ONS. According to the same ONS: Looking at the estimates by country of birth, between January to March 2015 and January to March 2016:UK born people working in the UK increased by 94,000 to 26.25 million. Non-UK born people working in the UK increased by 330,000 to 5.24 million

Some months ago I was in London. The subway was populated by a mix of Asian looking super models and Polish construction workers. And by the occasional tourist, heading, with his son, 14, to a football game (Westham United – Aston Villa, 2-0). Close to the football stadion (the now deserted Boleyn Park) was an amazing ‘minorities’ market which, according to Wikipedia, was founded more than a century ago by Jewish pedlers and where I saw not one but three kinds of tropical fruit I’d never seen before! Around 23:30, after the game, 5.000 or so lily white supporters of Westham United and Aston Villa walked a mile or so and side by side to the next subway station, as the Upton Park station could not handle the amount of people. The atmosphere was very friendly.

We were staying in a new, Gujarati driven hotel near West-Kensington. Now, I love Glory Bygone, so I was totally happy that The Three Famous Kings (3FK) pub was close by (they even served ‘toad in the hole‘, if you’re there I advise the basement, we were served by foreign students). Junior however kept pressing for USA style KFC and not one of the less well-known but numerous halal chicken joints. Which, alas, was close by too. By the way – no food deserts in London. The city is (unlike at least some USA cities) littered with small high quality super markets, selling the latest tomatoes and peppers from Holland! Aside – during one walk (junior was attending his smart phone) I actually spotted a small park with some date palms (Phoenix dactylifera). These British really love to pretend this is not England!

The idea of the piece above will be clear. Ideas about closed borders and homogenous, stable national cultures are: bogus. So much for the mind set of many Brexiteers. On the other hand – when we look at the graph it becomes clear that after 2008 the UK became a received much of the ‘fall out’ of austerity politics in the rest of the European Union. After the bust in the Baltic countries (Estonia, Latvia, Lithuania) many of the unemployed (and employed!) left for the UK, just like many Polish people did. Surprisingly (at least to me), the number of non-EU nationals did not increase anymore! In a sense, UK open border policies enabled the Euro to work (more precise: to fail slightly less abysmally).  The EU is modelled to be an ‘optimal currency union’, which includes not just unbridled capital markets but also free movement of labor across borders. I am, with some important qualifications, a proponent free movement of labor. One of these qualifications is that, when you’re like the UK part of the ‘free labor’ zone of a currency union, but not part of the single currency union itself, you should have a decisive voice in the monetary and fiscal policies of the members of the currency union. As this is not really the case, the UK has, in my opinion, a reason and a motive to restrict the inflow of European labour. Do you really want your country to become the employer of last resort for other countries, solving the problems caused by their macro-economic policies failures? In my (in this case: humble) opinion I do think Brexiteers have a point here. Even though their mind set often is retarded.

Mind: at this moment British unemployment is lowish and participation is at a record high (albeit with a small margin). Also, post 2008 in many countries the ratio of male unemployed to female employed increased quite a bit (more on this in another post). Males disgruntled at the demise of ‘positive white male discrimination’ really had a point – this demise was and often is real. But after an initial rise in 2008-2009, this ratio however started to decline in the UK and is at this moment lower than it used to be (in other words: the decline of unemployment was to a disproportional extent caused by a decline of male unemployment). Which is not what happened in many other countries! The large inflow of other EU citizens (those Polish construction workers) has i.e. not led to (or: ‘developed in tandem with’) to higher (male) unemployment. No reason for disgruntlement here. Though we still have the ‘crappy jobs’ argument. In my opinion, the best remedy against that (a very serious problem – your job is an important part of your life) is a tight labor market. It might however well be that ‘Europe’, which continues to press for labor market deregulation, austerity and even policies aimed at outright deflation is not the best ‘job guarantee’ either.

Dear readers, this all goes against my European convictions. But the logic of the facts really leads me to these conclusions. ‘Europe’ is not up to the macro-economic challenges of a Union.

  1. jlegge
    June 19, 2016 at 4:26 pm

    Sitting on the fence too long will give a bloke a vasectomy.

    Yes, the EU’s macro policies stink.

    BUT can the UK do more to correct this wailing from the other side of the ditch or as part of the management? AND if Brexit wins and a different Old Etonian replaces Cameron, will it change the enthusiasm with which a Tory government inflicts austerity?

  2. June 19, 2016 at 7:18 pm

    In his interesting book “Imbeciles” Adam Cohen tells the story of how imbecilism and moral crusades were used to deprive thousands in the US of liberty, happiness, and in some case even life itself. Under the banners of moral reform, charity, and medical need Americans were institutionalized in asylums and prisons, robbed of basic rights of choice, and demonized as a means to make life for the “better” people more settled and predicable, and less troubling. An orphan who grew too old to benefit the household who took her in as a servant and then became pregnant without marriage, an old man who gave the town a “poor image,” a boy who would not obey his elders, a teenager who sought out the wrong companions are just a few of the examples of those tagged with the name imbecile and then “put away” for life. These were as the descriptions all suggest poor or people of moderate economic means with little formal or chance for formal education. It was simply easier for those “in charge” to put them away, and thus out of sight. Economic austerity shares a common history. As Florian Schui points economic austerity is justified most frequently not by economic arguments, however flawed those may be, but rather by moral and political considerations about which peoples should be made to suffer, as morally flawed and unable to exercise self-control over their adherence to economic rules. These peoples never include the rich, no matter how eccentric their spending habits or excessive their drains on the common resources. Nor do they include the political elites or economists, who have certainly destroyed many economies with their policies. Nor are most business executives and market “traders” “put on a budget” to correct their moral flaws. The moral flaws that lead to economic failures and greater unemployment all seem to reside in the dark souls of ordinary working people and their families. Forcing these people into economic desperation thus not only improves their souls but improves the overall wealth and happiness of the nation. Only, of course as a hundred years of experience demonstrates it does not improve anything. Its great virtue is then forcing ordinary people into economic fear and desperation. It does that quiet well.

  3. Hepion
    June 19, 2016 at 7:59 pm

    I would quess that this ‘free movement of people’ idea was invented in an era when EU comprised of wealthy western european nations with low unemployment. In that era, and in that union, that idea made sense.

    Then it was taken out of that context and applied to, well, just about anywhere. First poor post-communist europe, now some are saying Turkey should join, what’s next, Africa and India? When does it end?

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