A letter to our German friends

There is a thesis that Brexit is a move back to the past, with the UK dreaming that it is still the great power it was. According to this theme, we joined the EEC back in 1972, to break the thing up, create mayhem, and set everybody against everybody else. The thesis is encapsulated in this extract from “Yes Minister”, the late 1970s comedy on the ways and wiles of Whitehall .

https://www.youtube.com/watch?v=37iHSwA1SwE

Now the UK has voted Leave, the thesis is still alive and well. As Jean-Claude Juncker, EU Commission President, put it: “There can be no democratic choice against the European treaties”. If we believe this, then the EU and Remainers are all progressives, and the UK Leavers are reactionaries.

This is too simple a schema by far. As Roger Boyes, writes in The Times of June 29, 2016, Chancellor Merkel grasps the central point that Germany is No 1 on the continent, and becoming more so.This may prime Germany’s collective ego. But it has downsides, too. The Obama administration suggests Germany must now become the primary US conduit into the EU. Action is required to head off an Italian bank crisis, followed by a possible  Itaxit. Little can be done about France until it sorts itself out. A President Trump may insist that Germany be more serious about security. So for that matter may a President Clinton II.(On Italian attitudes see this Italian TV report on Brexit: https://www.facebook.com/DemocraziaVerde/videos/vb.212806992407636/275977272757274/?type=2&theater)

All of this is most uncomfortable for Merkel, says Boyes. “The fact is, though, that the whole of Europe is erupting with problems and the buck is all too often stopping with Merkel.” “We need to engage her fast and explain that a fair, undogmatic compromise on the single market and freedom of movement is not only possible but also in the wider interests of a troubled Europe.”

Some preliminary remarks.

There is an assumption behind this proposal: and that is that Merkel is ready to talk to the UK at all. It must be remembered that Merkel: in 2010 refused to countenance joint underwriting of EU bonds, thereby precipitating southern Euroland and France into recession/depression; she did not say no to the EU’s proposed associate status with Ukraine, which was the root of the Russian illegal annexation of Crimea; she said that free movement of people was intangible; she opened EU doors wide to unchecked immigration; and she was instrumental in giving Prime Minister Cameron crumbs.

Mind you, Cameron brought the UK exit from the EU on himself. As recorded in previous postings, he refused to provide the UK public any defence mechanism against the 3000 odd laws, regulations emanating from Brussels yearly. He could have easily altered the wording of the 1972 European Communities Act (ECA), putting a break on the clause allowing for EU law to take direct effect in the UK. He refused. That left him trying to defend the crumbs he got from the German-run EU; he had no reply to people who were concerned about the erosion of the UK’s parliamentary democracy; so he tried project fear. That failed. My summary of Cameron is that he is tactically smart, but a strategic idiot.

He is also, like many Remainers, a Little Englander. In his case, his knowledge about how the EU functions was deficient. He did identify an opportunity to forge a German-British alliance, given France’s declining status. But the pre requisite for that is to know something about Germany. One of the keys about Germany and Austria is its business culture. Successive German governments have been determined to protect and to promote Standort Deutschland, Germany as a production hub. They have done so ruthlessly when they felt it necessary: in 1992, the Bundesbank, worried about losing the DM, kicked the UK and Italy out of the ERM; in 2016, Berlin in effect did nothing to help Cameron keep Britain in the EU.

Why should it? Germany is now the dominant power in Europe, an imbalance of power is installing itself across the continent; Brussels is a Vorort of Berlin, and Germany  has a glorious opportunity, now that the UK is out, to fulfil its century-old dream of uniting Europe.

(For more detail on Germany in this blog see, The Euro crisis and Germany, A Gaullist Germany, The Politics and Markets of German Financial Services).

Now that the UK is out, or being shown the EU door, we should think of being out, whatever side you are on in the referendum, as a great opportunity. The opportunity is that decisions will now be increasingly taken in Westminster and by our Supreme Court. That will require consolidating the Union through decentralisation, and the creation of an elected Senate. It will mean reversal of years of underinvestment in infrastructure, the aim being to make the UK the best place in the world to do business. Not least, it means getting rid of a lot of flabby thinking on foreign policy(see my criticisms of Robin Niblett, from  Chatham House, on the “sovereignty myth”, and “Britain, Europe and the World”).

So here’s a start: it is quite clear that “Brussels”, represented in the 5 Presidents report, wants a Great Leap to a US of Europe(USE) and it is quite clear that the project, set up with the intention of creating a post-modern politics beyond power considerations, is in trouble. Germany is the key state. Germany is, it is said, a reluctant hegemon. We should query that. There is plenty of evidence that Berlin is rather enjoying being continental hegemon: dominating France, stamping on Greece, dispensing 6 years of austerity to southern Europe, telling an elected Polish government not to defend the religious concerns of its conservative supporters, deciding unilaterally about EU immigration policy, not least kicking the UK out of the EU.

A good time for straight talk with Merkel

So now is a time to talk to Merkel, assuming she wants to, not least because Commission President Juncker has forbidden any discussions between the Commission and Whitehall. Here are some of the points which the UK government has to make.

  1. The EU sold its promise in the Maastricht and Lisbon Treaties on a false prospectus. Growth has not picked up, and the European family is seriously at odds with itself. Brexit is a shock, but only one in many other shocks that keep coming the EU’s way. The reason is that the EU is trying to mould Europe into something it is not, and Europe is resisting.
  2. The EU is delinquent in implementing the commitments it signed up to in the Lisbon Treaty: free movement of peoples went with a commitment to the security of its peoples; high levels of unemployment have been achieved rather than high levels of employment.  Security is jeopardized by free movement, and the austerity imposed by north on south Europe is, well, since we want to call a spade a spade, a scandal. Some modesty by the EU would have conceded border controls for a period to Prime Minister Cameron, and Nigel Farage’s balloon would have been pricked. But that is all water under the bridge.
  3. The German Constitutional Court judgement on Lisbon underwrites the inalienable rights of German citizens to shape their own national policy. It also states that the EU is not a supranational entity, but an alliance of states. This judgement could provide the basis for a re-foundation of the European alliance, with all supreme courts duplicating this affirmation, while challenging the claims of the European Court of Justice (The ECJ has no treaty based powers whatsoever. It is, Ms. Merkel, a convenience, but no more).
  4. Germany is now No 1 and a de facto champion of a Europe of the states. Despite Latin efforts to conjure transfers southwards via the TARGET 2 mechanism, the German public remain adamant against a Transferunion. Ditto The Netherlands. But Germany also claims to champion a federal Europe, thereby playing on all available chessboards. The German public is scarcely less enamoured of the EU than the UK public,and, by the way, the French public is positively hostile.
  5. Anti-EU political forces are sprouting everywhere. Call them populists, neo fascists, racists, whatever you like, this is a fact. Along with their rise is the very sharp decline in the popularity of the EU project. These “populists” are European citizens, and their loyalties must be re-channelled into their own national institutions. Depriving their institutions of real powers will stoke much more serious political ructions than hitherto observed. In any event, we cannot have two standards, one set by the GCC, and the other by the EU integration process.
  6. The underlying rationale for the EU remains valid: that it is a peace project; that ever closer union between the peoples(facilitating visits, tourism, student exchanges, de facto promoting inter-marriage, trade and business..)is desirable; that Europe’s diversity and cultural inheritance be fostered; and that its ethos should foster freedoms, tolerance(including tolerance of those as Martin Schulz reminded the European Parliament during its Brexit debate with whom you disagree).
  7. The fundamental problem of the EU is that it helps to suck powers out of the national parliaments and governments, while reallocating them to “Brussels”.  “Brussels” has demonstrated that it is congenitally incapable of managing the affairs of such a diverse and complex continent. The only way is through inter-national co-operation. More “integration”, as various political forces propose, is not a good idea right now, if ever.(Never, in my view).
  8. It follows from this that the simple categorisation of opponents of the direction of EU travel as “nationalists” is an affront to our intelligence. It is perfectly obvious that one side of the coin of nationality is that it differentiates, but the other side of the coin is that nations, or nations of nations as are the UK, Spain and Belgium, are actually complex institutional and democratic entities. That is where loyalties and legitimacy lie.
  9. All existing member states of the EU are constitutional democracies with their own special characteristics, histories, language or languages, tax arrangements and not least relations with the rest of the world. Bulgaria for instance has naturally close relations with Russia, as does Portugal with Brazil and Angola, or the UK with Jamaica, New Zealand, Canada or Australia. These should all be exploited via the accentuation of networking among Europeans and globally. Let us network more densely among ourselves than we network with the rest of the world.
  10. Straight talk with Ms Merkel would go on to point out that the integration model pursued by the EU is the equivalent of the Fordist production model of the 1920s to the 1970s. The model proposed mass production facilities, uniform products, and large “internal” markets Since then ever faster technological changes have made possible batch production, hugely intensified networking via the internet, and allowed for a density of interaction between people that is without precedent in the history of humanity. The market is now the world. You don’t need to “integrate” to get rich, vis Canada, Australia or Singapore.
  11. Straight talk would point out that further travel by the member states along the path chosen by the “ever closer” brigade is most likely to further divorce the peoples of Europe from their governments, not lead to quick solutions to urgent problems, and most importantly give priority to “the project” over the lives of flesh and blood people. There has to be an EU statement, followed by visible action, that the project takes third, fourth or fifth place to the real needs and interests of flesh and blood people.
  12. In order to sweeten the pill, we could go on to say that we understand the nobility of the ideas that drive those who aspire to a USE, but that we consider we can achieve much  at far lower cost, far sooner, and without the regiments of Brussels based lawyers and lobbyists acting as European ventriloquists. We can understand simple things, simply said. The EU is opaque precisely because it is jargon-rich.
  13. We can also go on to say that the reason the UK voted, with a small majority, for Leave, is overwhelmingly to protect our constitutional arrangements, which have been under ever greater threat from the EU, and from Whitehall’s closet supranationalism. We have felt aggression: over fisheries, over auctions; over unnecessary product standardisation; over the tin ears that has been constantly turned the UK way whenever the UK has sought to make clear that, like all other member states, it is different.
  14. We are therefore not going to take kindly at all to any threats that come our way to negotiate a new agreement. We listened carefully, Ms Merkel, to your statement to the Bundestag that -the remark referred to the UK, but may have been addressed to your MPs-, that the days of “cherrypicking” EU rules is over, and that non-members are not to be as well treated as members. We heard, you, Mr Hollande, say that the City would suffer outside. But, frankly, what can we expect from you.
  15. We can suggest a suspension of verbal hostilities, the danger of which is that they can quickly translate into guerrilla trade wars and worse. We could remind Ms Merkel that this is in Germany’s own interest: if ever there has been a cherrypicker, it is Germany(2003 budget; the 2010 rejection of joint underwriting of Eurobonds; the Volkswagen catalyser scandal; the exclusion of Landesbanken from the so called Banking Union…). Better to drop the name calling before the going gets rough(for instance, the EU as reparations to France for liberating it. No we won’t go there).
  16. We could also remind Ms Merkel that there is no rule in international law that you treat outsiders worse than your own business-a statement which we heard her make in the Bundestag. One of the key rules of the WTO is equal treatment. To sugar the pill, we can chortle that of course our deficient German may have meant that we misunderstood. We can ever put this down, humbly, to British failings to invest heavily enough in modern language skills.
  17. Having navigated these minor rapids, we can get to the meat of the discussion. We agree with Germany on: Europe as a peace project; on open markets and exchanges; on the inalienable rights of citizens to sanction the policies of their lawmakers; on the EU as no more, nor less, than an alliance of sovereign constitutional states. We also observe that Germany has done very well out of the EU, and so, by and large, has the UK.
  18. We can also observe that despite all of the institutional creativity demonstrated by the Europeans, Americans and Canadians since 1945, the state structure and diplomatic reality of Europe in 2010 resembles, as Christopher Clarke, the author of The Sleepwalkers: How Europe went to War in 1914, very much the Europe of a century ago.  None of us want to revisit this past, but nor do we subscribe to the simplistic idea that the first world war broke out because of “nationalisms”. It had many causes, as do Europe’s present discomforts.
  19. Clarke writes also that the EU is one of the most imaginative creations of the second half of the twentieth century. We can defer to that judgement, but in order to point out by keeping EU, and German, political attention on the distant objectives of the project, we are sacrificing people, and worse, endangering the prosperity and peace of Europe. We should all recognise that we can go as far as we can possibly imagine in creating a USE, as long as we have the deep consent of its peoples. We are light years from achieving that.
  20. So let us do what we can now: as Abraham Lincoln said, “You cannot escape the responsibility of tomorrow by escaping it today”. Our suggestion is to start yesterday to convert the EU into a European alliance of democracies, giving key powers to national parliaments, preserving the single market and its policing, emphasising cooperation especially in security and defence, and with the presumption of prior loyalty among the member states. Along with this is the need to step away from ideology, such as the free movement of this or that, and accept that Europe, being diverse, needs a governance regime that allows for its diversity. We must be clear that we favour an end to one-size-fits all policies. If ever there is a OSFA policy it is the Euro, and we should remind Ms Merkel that the UK, as a good European, consistently warned against it. Still, that is not our baby, though we wish it well.(It definitely could do with some positive thinking).

And finally, we are ready to negotiate in good faith to achieve a deal agreeable to all. But if there is the merest signal of a desire to seek vengeance on the UK, or to damage UK interests, we are perfectly prepared to take off the gloves. That being said, let us endeavour to work in the best interests of all. The much abused Nigel Farage put it well in the  European Parliamentary debate on Brexit, to the effect that the UK will be the EU’s best friend. The challenge is to seize the crisis, and make it an opportunity to shift the whole of Europe onto a more sustainable path.

And one final, final, point, Ms Merkel. Forgetting all the discourse about a European Germany or a German Europe, the evidence if we just look at what Germany does, not what it says, is that Germany said back in 2010, we, Germany, want the EU on our terms only. The non-dit is that Germany is thinking of alternatives. The alternative, which would have plenty of support across Europe, in Germany, and in the UK would to be to have the EU morph into a European alliance of democratic states. There is still a chance that having tried every other alternative, but this one, we could end up with something very like it.

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About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) (www.chinauncovered.net) His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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5 Responses to A letter to our German friends

  1. Philip Lingard says:

    The two fundamental problems are : Germany breaks European rules as it wishes and without cost to itself. It was the first to transgress Maastricht debt ratios and its continued trade surplus of more than 10% is in flagrant breech of Lisbon. The second is that it continues to drive a neo liberal economic policy, an economic system as thoroughly discredited by 2008 as state socialism was by 1989. Germany can either have the European dream or its addiction to its beggar it’s neighbours domestic economic policy but it is proving it cannot have both.

    Liked by 1 person

  2. This article from Spiegel.eu seems to suggest that Germany (and Merkel) actually is a lot more friendly to the idea of a Europe of the States. http://www.spiegel.de/international/europe/brexit-triggers-eu-power-struggle-between-merkel-and-juncker-a-1100852.html

    Like

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