This was the most difficult question I was asked on Thursday following my lecture in Oxford.
My reply reminded the audience that so far the EU elite had been proved wrong about the economics. Their plan to bring the economies together through the Exchange Rate Mechanism was shattered by the markets. Instead of proving the economies of western Europe were converging, the ERM reminded all but the most ardent federalist that the economies of western Europe are very different. They had different growth rates, inflation rates, and public debts. In consequence their currencies fluctuated and changed when allowed to do so, and burst out of a scheme designed to restrict them. They thought the ERM would bring together inflation, debt, performance. The opposite happened.
Instead of accepting the warning, the EU decided to leave out the necessary long period of encouraging convergence of performance and move directly to a single currency. They reasoned that this was the ERM countries could not be forced out of. If the problem with the ERM was the market ability to sell currency A and buy currency B against the wishes of the EU, then if they removed those currencies the new scheme would be market proof.
Some of us warned them that the new pressures were bound to arise elsewhere. Some of the pressures would be painful in the real economy. Some areas would have very high unemployment. Others would have high inflation and hyper activity or bubbles. So it proved. We also warned that if they did not keep to their promised debt disciplines there could be similar pressures in the debt markets to the ones which had destroyed the ERM in the currency markets. So it proved. We are now living through just such a crisis. There are unwanted new built homes in Ireland and Spain, huge debts throughout the southern countries, and the aftermath of a bank and property bubble in several countries. So my answer as to whether they can be right was simple. No, they were not right in the past, and they are clearly not right today.
So why then do so many powerful and intelligent people, officials and governments want to be wrong? Why do they revel in being wrong? Why do they specialise in ridiculing and belittling their critics, who have been proved comprehensively right so far on the economics of their various schemes for merger?
The answer lies in the politics. There are many who strongly want a united Europe. They decided the trade, financial and monetary route was the best way of doing it. They did not fancy their chances of holding a series of referenda in members states to gain approval to the establishment of a new country called Europe. They decided on a crab like sideways approach to union. They still want it. They plan to use the crisis of the Euro not to break up the EU but to have more EU. They see it as an opportunity, a chance to persuade the cowed and frightened peoples of Europe that more EU is the only option.
There is now the immense power of vested interest. The EU commands substantial resources. It makes many grand sounding and well paid appointments. Many in the political elite exchange jobs with those in the administrative EU elite. Why would they want to damage that? That’s why when the EU says all member states must cut their own budgets, they put the EU budget up. That’s why, when the markets say no-one should go on lending to some of these countries, the EU belatedly decides to lend, having secured control of the member state’s economy first. That’s why , when countries vote “No” in a referendum they are told to vote again. That’s why now the EU favours unelected governments, and moves rapidly to deny any referendum.