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Migrants, Euro, Brexit: The EU at Risk

A recent headline on the leading Franch newspaper Le Monde said it all: “Migrants, the Euro, Brexit: The European Union is mortal.” And it’s true, the EU could actually collapse, given one or two more years of really bad decisions by the 28 national governments that make up the membership.

The most immediate threat is Brexit (British+exit), the possible result of the Yes/No referendum on British membership in the EU that is scheduled for 23 June. Prime Minister David Cameron promised this referendum three years ago to placate an anti-EU faction in his own Conservative Party (Cameron himself wants to stay in the EU), but it is coming at a particularly bad time.

Cameron doubtless calculated that the referendum would produce a large majority for staying in, and force the nationalist “Little Englanders” in his own party to shut up for a while. But the vote is actually being held at a time when many English people are upset by the large flow of immigrants into the United Kingdom and blame it on the policy of free movement for EU citizens.

That is only half-true: only half the foreign-born people settling in Britain are EU citizens who come by right. The rest are legal immigrants from other parts of the world, also attracted by the relatively prosperous British economy, and if the locals don’t like it they are free to change Britain’s own laws. But the half-truth that it’s all the EU’s fault has been vigorously promoted by the right-wing papers that dominate the British media scene.

The million-plus wave of refugees and economic migrants that has surged into the EU in the past year feeds the British panic even more, although Britain still controls its own borders and none of those migrants can enter the UK without London’s permission. The result is that the polls now show the “Leave” and “Remain” votes almost neck-and-neck.

The refugees and illegal economic migrants really are a problem for most other EU countries. The vast majority of them enter the EU through Greece and Italy, but they almost all want to travel on to the richer EU countries – which, with the admirable exceptions of Germany and Sweden, want nothing to do with them.

This is rapidly leading to a breakdown of the “Schengen” agreement, by which all the EU members except the United Kingdom and Ireland abolished their border controls with other Schengen countries. New border fences are now springing up everywhere as EU members try to keep the migrants out.

Dissent with EU policies is growing as some Eastern European countries refuse to accept any refugees at all, and ultra-nationalist parties are growing in strength almost everywhere. In Hungary, and now in Poland, they have even come to power.

Then there is the euro, the common currency shared by 19 EU countries including all the big ones except the United Kingdom. It was a bad idea from the start, because a single currency without a single government behind it cannot deal effectively with big issues like debt and inflation. It was bound to end up in crisis as the economies of the member states diverged – and they have.

The EU was transfixed all last year by the threat that Greece would crash out of the euro. The Greek crisis has been put on hold for the moment, but it is clear by now that Italy, Spain and Portugal, at least, would also benefit from leaving the euro zone. This is a currency that has no future, although its demise is not necessarily imminent.

So: three separate problems, none of them likely to be fatal to the EU on its own. The EU survived with separate national currencies for four decades before it adopted the euro; it could do so again, although the transition back would be painful and probably chaotic. The Schengen treaty was a nice idea, but not essential to the Union’s smooth functioning. And Britain’s departure could be nothing more than a spectacular act of self-mutilation.

It’s the fact that all these crises are hitting together that endangers the EU’s very existence. The only immediate and certain consequence of Brexit would be Scotland’s secession from the United Kingdom (so that it could stay in the EU), and nobody would have much sympathy for England’s post-Brexit difficulties. But the walk-out of the country with the EU’s second-biggest economy would trigger a political earthquake.

The various populations of the EU are seething with dissatisfaction about immigration and refugees, about the euro, about all the compromises and bureaucracy that must be tolerated to keep a 28-country “community” going. Mini-Trumps are cropping up everywhere, offering radical solutions that usually include an explicit or implicit commitment to leave the Union.

It could snowball. Where Britain (or rather, England) breaks trail, others might follow. We could end up with a severely shrunken EU, back down to the original six members plus a few others, while the countries of Eastern Europe try to get used to being once more the buffer between Russia and the West.
To shorten to 725 words, omit paragraphs 4 and . (That is…scene”; and “Dissent…power”)

South Africa – Is Zuma to Blame?

South Africa is now verging on the status of economic basket case. GDP growth last year was around half of one percent, the country’s currency has been in free fall for the past year, and its bonds face an imminent downgrade to “junk” status. So is the South African economy doomed to a long period of low or no growth no matter who is in charge – or is President Jacob Zuma to blame?

“Zuma is no longer a president that deserves respect from anyone,” said Julius Malema, leader of the Economic Freedom Fighters (EFF) party, in South Africa’s parliament last month. And as Zuma tried to give his eighth State-of-the-Nation speech (he became president in 2009), the EFF members of parliament chanted “Zupta must fall”. (“Zupta” is a reference to Zuma’s close ties with the immensely wealthy Gupta family).

Julius Malema does not qualify as an unbiased observer, but his view of Zuma is shared right across the political spectrum in South Africa and beyond. “No-one believes anything he says,” concluded veteran political analyst William Gumede. And yet Zuma continues to be in charge of Africa’s largest economy – which is now deteriorating practically by the day.

Post-apartheid South Africa was never a great economic success. After the end of apartheid in 1994, there were high hopes that the economy would grow at 6 percent annually or better and create half a million new jobs a year. In reality, growth averaged just over 3 percent in the next decade – and then fell off a cliff after the global financial crisis of 2008.

South Africa joined Brazil, Russia, India and China as a member of the BRICS in 2010, but it didn’t really qualify. While its fellow BRICs powered through the great recession of 2009-2012 with undiminished growth rates, South Africa’s economy fell to 2 percent growth a year,, then one percent, and now half a percent.

It is no crime that Zuma was born poor and never went to school. Neither is it a crime that he has never worked in the private sector: all his jobs, from the age of sixteen, have been in the service of the now-ruling African National Congress (ANC). But it is remarkable, given these facts, that he has nevertheless become very rich (at least $20 million).

Zuma has never been jailed for corruption, but his principal financial adviser, Schabir Shaik, was sentenced to 15 years in prison in 2005 for corruption and fraud. The judge said that the evidence of a corrupt relationship between Shaik and Zuma was “overwhelming”, and Zuma was immediately fired as deputy president by then-president Thabo Mbeki.

Police raids on two of Zuma’s homes yielded evidence that led to charges of money-laundering and racketeering in connection with a multi-billion dollar arms deal. Just three days before Zuma was installed as president in 2009, the charges were dismissed on grounds that the evidence had been tampered with, but a recent High Court decision has reinstated the charges.

Then there was the Nkandla scandal, in which Zuma got his government to pay for the $23 million expansion of his country home in KwaZulu-Natal. (He was eventually forced by the courts to pay back some of the money.)

Or consider the astounding events of last December, when South Africa had three ministers of finance in the same week.

The first finance minister, the widely respected Nhlanhla Nene, had annoyed Zuma by refusing to approve some very large contracts in nuclear energy and the state-owned airline. (Nene may have suspected that big kickbacks were involved.) So he was dismissed.

The second finance minister was David van Rooyen, an unknown party wheelhorse with no financial experience. It was soon discovered that he had close ties to the Gupta family, which gave rise to speculation that Zuma was helping the Guptas to capture control of the state’s financial policies. He was forced to resign after four days.

The third man, Pravin Gordhan, was respectable and competent, but by then South Africa’s stock market had collapsed, its currency had tanked, and the Standard and Poor’s ratings firm had reduced the country’s credit rating to just one notch above “junk” status.

So Zuma does bear the blame for the collapse in international confidence in the South African economy – but not for its long-term failure to grow as fast as was expected. What is to blame for that?

South Africa was already a developed country when apartheid ended. It was a very strange sort of developed country, with around ten million people living in a modern economy among thirty million others who filled menial roles or lived by subsistence farming. But it was already urbanised, already industrialised, and therefore not eligible for the once-only bonus of high growth that some big “emerging economies” enjoyed.

The best that South Africa could ever have expected was the 3 percent growth that it had in 1996-2008. That would have been barely enough to meet popular expectations for rising living standards. The main cause for its failure to meet those expectations, and for any political upheavals that may subsequently ensue, is Jacob Zuma.
To shorten to 725 words, omit paragraphs 8 and 9. (“Police…money”)

Petulance: The English Way

What would you call a country that called for “a structure under which [Europe] can dwell in peace, in safety and in freedom… a kind of United States of Europe” at the end of the Second World War (Winston Churchill, 1946), but refused to join that structure when its European neighbours actually began building it (European Economic Community, 1957)?

What would you call that country if it changed its mind and asked to join the EEC in 1961, a goal it finally achieved in 1973 under Conservative prime minister Edward Heath – only to demand a renegotiation of its terms of membership and hold an In/Out referendum on EEC membership under a Labour government two years later?

What would you say if that country then demanded another renegotiation of the terms of membership under Conservative prime minister Margaret Thatcher in 1984, and insisted on opting out of the planned single currency when the countries of the European Community (as it now styled itself) signed the Treaty of Maastricht in 1992?

And what would you say about that country’s behaviour if another Conservative prime minister, David Cameron, demanded ANOTHER renegotiation on the terms of membership in what is now called the European Union in 2013, and promised ANOTHER referendum once the results were known?

The word “ambivalent” would certainly spring to mind. “Capricious” also has a strong claim to be the right word. But the adjective that really sums up Britain’s behaviour in its 70-year love-hate relationship with the European project is “petulant”.

There’s going to be another referendum on whether the United Kingdom should stay in the European Union on 23 June. Not that Prime Minister Cameron wants to leave the EU, of course. His 2013 promise of a referendum was mainly an attempt to steal votes from the United Kingdom Independence Party, which did indeed want to leave, in the 2015 election.

But Cameron couldn’t walk away from his promise after he won the election, because half of his own party wants to leave the European Union. Jeremy Corbyn, the new leader of the Labour Party, is at best lukewarm about the the EU, viewing it essentially as a capitalist plot that has some positive side-effects. And recent opinion polls suggest that the referendum could go either way.

These are not the best of times for the EU. It has not responded well to the wave of mostly Middle Eastern refugees that began rolling across its frontiers early last year. It is suffering from chronic low growth and high unemployment (although the United Kingdom itself is doing quite well on both fronts). It is becoming clear that the adoption of the euro common currency by nineteen EU countries was a major mistake.

There is therefore a lot of disillusionment about the EU even among its core members on the European mainland, and some people fear that “Brexit” (a British exit from the Union) would start to unravel all the other deals and compromises that went into the construction of this historically unlikely structure. But why are the British always the most disaffected ones?

All the countries on the west coast of Europe lost their overseas empires in the decades after the Second World War, and Britain is not the only one to cling to delusions of grandeur in the aftermath. France, too, has a highly inflated view of its own importance. But the French understand the cost of European disunity much better than the British, because they paid a higher price.

It has to do with the fact that Britain is an island. Almost every other European country except Switzerland and Sweden has seen serious fighting on its own soil in the past hundred years. Many of them have seen it several times, and about half of them have been partly or wholly occupied by foreign troops for long periods. Whereas Britain has not been successfully invaded for almost a thousand years.

Britain is not alone in seeing the follies of the EU bureaucracy and resenting the cost of the compromises that have to be made to keep the enterprise alive. It IS alone, or almost alone, in seeing European unity purely as an optional project, to be reassessed from time to time by calculating its economic benefits and weighing them against its political and emotional costs for Britain.

EMOTIONAL costs? Yes, and this is where the petulance comes from. There is a fantasy, still quite prevalent in England, that the country could have a much more satisfying future as a fully independent player, unshackled from the dull and stodgy European Union and living by its wits as a swashbuckling global trader. To which one can only say: Good luck with that.

This romantic vision is not shared by the Scots, who would certainly break away if English votes took the United Kingdom out of the EU. But an independent Scotland might find it hard to claim EU membership after the divorce, as Madrid would not want to establish a precedent that Catalonian separatists could use to argue that breaking away from Spain would be painless.

Most British leaders have worked hard to manage the inflated expectations of English super-patriots and keep the country more or less on track. Cameron has dropped the ball, and the consequences for both Britain and Europe may be quite serious.
To shorten to 725 words, omit paragraphs 10 and 14. (“All…price”; and “This…painless”)

Greece and the Euro: What Now?

In theory, it could still work. It only requires three miracles.

Maybe the resounding “no” to the eurozone’s terms for a third bail-out in Sunday’s referendum in Greece (61 percent against) will force the euro currency’s real managers, Germany and France, to reconsider. French President Francois Hollande is already advocating a return to negotiations with Greece.

Maybe the International Monetary Fund will publicly urge the eurozone’s leaders to cancel more of Greece’s crushing load of debt. Last Thursday the IMF released a report saying that Greece needed an extra 50 billion euros over three years to roll over existing debt, and should be allowed a 20-year grace period before making any debt repayments. Even then, it said, Greece’s debt was “unsustainable”.

And maybe Greek Prime Minister Alexis Tripras will accept the terms he asked Greek voters to reject in the referendum if he can also get a commitment to a big chunk of debt relief – say around 100 billion euros, about a third of Greece’s total debt – from the eurozone authorities and the IMF. It’s all theoretically possible. It even makes good sense. But it will require radically different behaviour from all the parties involved.

Tsipras has already made one big gesture: on the morning after the referendum victory, he ditched his flamboyant finance minister, Yanis Varoufakis. The hyper-combative Varoufakis had needlessly alienated every other eurozone finance minister with his scattergun abuse, and it was hard to imagine him sitting down with his opposite numbers again after calling them all “terrorists” during the referendum campaign.

The IMF’s gesture was even bigger, if much belated. It knew the eurozone’s strategy was wrong from the time of the first bail-out in 2010, and it is finally getting ready to admit it.

Normally, when the IMF bails out a country that is over its head in debt, it insists on four things. There is always fiscal consolidation (cutting spending, collecting all the taxes, balancing the budget) and “structural reform” (making labour markets more flexible, ending subsidies, etc.). All the current Greece-eurozone negotiations have been about these issues. But the usual IMF package also includes devaluation and debt relief.

There was no debt relief at all in the 2010 bail-out, and only private-sector creditors were forced to take a “haircut” (around 30 percent) in the second bail-out in 2012. Most of Greece’s debt was owed to German and French banks, and that wasn’t touched. Indeed, 90 percent of the eurozone loans Greece has received go straight into repaying European banks.

Greece’s debt is not decreased by these transactions: it is just switched to European official bodies including the European Central Bank So the Greeks are getting no real help worth talking about, and European taxpayers are getting screwed to save European banks.

Why didn’t the IMF blow the whistle on this long ago? Because it was not taking the lead in these negotiations, and after it took part in the 2010 bail-out anyway it was deeply embarrassed. It had broken its own rules, and found it hard to admit it. It was also aware that devaluation, usually a key part of IMF bail-outs, is impossible for Greece unless it actually leaves the euro (which Greeks desperately don’t want to do).

So the usual post-bailout economic recovery didn’t happen. Over five years Greece’s debt has increased by half, its economy has shrunk by a quarter, and unemployment has risen to 25 percent (50 percent for young people). The referendum question was deliberately obscure and misleading, but most Greeks know that the current approach simply isn’t working. That’s why they voted “no” in the referendum. It was a valid choice.

If the eurozone authorities know that much of Greece’s debt can never be repaid (which they do), why don’t they just give Greece the debt relief it needs? Partly because Chancellor Angela Merkel knows that her own German voters will be angry at more “charity” funded by their taxes, whereas they stay fairly quiet so long as the debt is still on the books. And partly because other eurozone countries would see it as special treatment for Greece.

Italy, Spain, Portugal and Ireland have also been through harrowing bail-out programmes, and are still making proportionally bigger interest payments on their debts than Greece. Some other countries using the euro – Estonia, Portugal, Slovakia and Slovenia – have about the same GDP per capita as Greece, and Latvia is even poorer. They don’t see why they should pay for Greece’s folly in running up such huge debts.

“I really hope that the Greek government – if it wants to enter negotiations again – will accept that the other 18 member states of the euro can’t just go along with an unconditional haircut (debt write-off),” said Sigmar Gabriel, Germany’s vice-chancellor. “How could we then refuse it to other member states? And what would it mean for the eurozone if we did it? It would blow the eurozone apart, for sure.”

So it really isn’t possible to predict whether Tsipras and Greece will be offered a better deal or not. It’s equally impossible to say what will happen to the euro “single currency” if there is no deal and Greece crashes out of the euro in the next couple of weeks, although the eurozone authorities insist that they could weather the storm.

We do live in interesting times.
To shorten to 725 words, omit paragraphs 7, 9 and 14. (“Normally…relief”; “Greece’s…banks”); and “I really…sure”)