With the world still reeling from the result of the UK’s EU referendum, reactions seem to be polarising amongst different communities in Europe and particularly between the ‘haves’ and the ‘have nots’. The leaders of the ‘haves’, i.e. the EU Politicians and technocrats seem to be taking a tough stance and want to punish the UK for voting to leave. They wish to make an example of us to warn other wavering states that a life outside the EU is a fearsome and dangerous existence and should not be risked. On the other hand, the leaders of the ‘have nots’, the populist parties, such as UKIP, Front National in France, Five Star in Italy, Golden Dawn in Greece, are pushing for their own referendums. They see the UK vote as an opportunity to press ahead with their own separatist agendas.
The divisions within the communities are marked and in my opinion the next few months will determine whether or not the EU and the Euro as a currency can survive in their present form.
The reasons for the divisions between the ‘haves’ and the ‘have nots’ in Europe go back to the financial crisis and its after effects. The last 8 years of recession, low growth and low inflation have been good for the rich, the political elite, the EU technocrats and big business. Whilst they have been insulated from high unemployment and low wages, the ‘have nots’ have been suffering. Unemployment in some countries such as Spain and Greece is 25% and throughout Europe the young are particularly hard hit as the chart below confirms.
There are a growing number of people, particularly the young, who feel disenfranchised and envious of the wealthy elite.
The EU and the Euro is great for big business, particularly German big business. Whilst the successful northern countries like Germany push up the value of the Euro, countries like Spain, Greece & Portugal are pushing the value of the Euro down. The resulting relatively low value of the Euro allows German manufacturers like BMW, Daimler Benz and VW to export their goods at competitive prices across the world. It has been estimated that if Germany was to leave the Euro and go back to the Deutschmark, it would appreciate in value by 40% overnight. The consequence of this is that German goods would instantly become 40% more expensive, instantly decimating their economy.
The problem for the less successful parts of Europe is that the Euro constrains them and maintains their misery. If they were all like Germany it wouldn’t be a problem, but the sad reality is that they are not.
The populist parties are using the disquiet of the disenfranchised masses to further their own nationalist/separatist agendas and perhaps the result of the UK’s referendum will be the catalyst that leads to the end of the EU and the Euro.
In October, the Austrian Presidential elections will be re-run and there is a very real possibility that JörgHaider, the far right populist candidate will win. October will also see the result of the Italian referendum on proposed reforms, a loss by the government (highly likely) could mean that a new election is called soon after. On top of this both France and Germany are holding general elections next year. Supporters of the EU project are going to have their work cut out to maintain the status quo in my opinion.