Soros: Europe will now “disintegrate”

From George Soros at Project Syndicate:

Britain, I believe, had the best of all possible deals with the European Union, being a member of the common market without belonging to the euro and having secured a number of other opt-outs from EU rules. And yet that was not enough to stop the United Kingdom’s electorate from voting to leave. Why?

The answer could be seen in opinion polls in the months leading up to the “Brexit” referendum. The European migration crisis and the Brexit debate fed on each other. The “Leave” campaign exploited the deteriorating refugee situation – symbolized by frightening images of thousands of asylum-seekers concentrating in Calais, desperate to enter Britain by any means necessary – to stoke fear of “uncontrolled” immigration from other EU member states. And the European authorities delayed important decisions on refugee policy in order to avoid a negative effect on the British referendum vote, thereby perpetuating scenes of chaos like the one in Calais.

German Chancellor Angela Merkel’s decision to open her country’s doors wide to refugees was an inspiring gesture, but it was not properly thought out, because it ignored the pull factor. A sudden influx of asylum-seekers disrupted people in their everyday lives across the EU.

The lack of adequate controls, moreover, created panic, affecting everyone: the local population, the authorities in charge of public safety, and the refugees themselves. It has also paved the way for the rapid rise of xenophobic anti-European parties – such as the UK Independence Party, which spearheaded the Leave campaign – as national governments and European institutions seem incapable of handling the crisis.

Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible. Britain eventually may or may not be relatively better off than other countries by leaving the EU, but its economy and people stand to suffer significantly in the short to medium term. The pound plunged to its lowest level in more than three decades immediately after the vote, and financial markets worldwide are likely to remain in turmoil as the long, complicated process of political and economic divorce from the EU is negotiated. The consequences for the real economy will be comparable only to the financial crisis of 2007-2008.

That process is sure to be fraught with further uncertainty and political risk, because what is at stake was never only some real or imaginary advantage for Britain, but the very survival of the European project. Brexit will open the floodgates for other anti-European forces within the Union. Indeed, no sooner was the referendum’s outcome announced than France’s National Front issued a call for “Frexit,” while Dutch populist Geert Wilders promoted “Nexit.”

Moreover, the UK itself may not survive. Scotland, which voted overwhelmingly to remain in the EU, can be expected to make another attempt to gain its independence, and some officials in Northern Ireland, where voters also backed Remain, have already called for unification with the Republic of Ireland.

The EU’s response to Brexit could well prove to be another pitfall. European leaders, eager to deter other member states from following suit, may be in no mood to offer the UK terms – particularly concerning access to Europe’s single market – that would soften the pain of leaving. With the EU accounting for half of British trade turnover, the impact on exporters could be devastating (despite a more competitive exchange rate). And, with financial institutions relocating their operations and staff to eurozone hubs in the coming years, the City of London (and London’s housing market) will not be spared the pain.

But the implications for Europe could be far worse. Tensions among member states have reached a breaking point, not only over refugees, but also as a result of exceptional strains between creditor and debtor countries within the eurozone. At the same time, weakened leaders in France and Germany are now squarely focused on domestic problems. In Italy, a 10% fall in the stock market following the Brexit vote clearly signals the country’s vulnerability to a full-blown banking crisis – which could well bring the populist Five Star Movement, which has just won the mayoralty in Rome, to power as early as next year.

None of this bodes well for a serious program of eurozone reform, which would have to include a genuine banking union, a limited fiscal union, and much stronger mechanisms of democratic accountability. And time is not on Europe’s side, as external pressures from the likes of Turkey and Russia – both of which are exploiting the discord to their advantage – compound Europe’s internal political strife.

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  1. “…None of this bodes well for a serious program of eurozone reform, which would have to include a genuine banking union, a limited fiscal union, and much stronger mechanisms of democratic accountability. ..”

    When the program of ‘reform’ is to make the EU even more powerful no wonder “bodes” is not looking too healthy.

    EU and democratic accountability? That surely will not happen now that the people have shown they cannot be trusted to vote the way they are supposed to.

    No country needs to join a protectionist tradeblock to unilaterally reduce their tariffs on imports and their restrictions on the movement of people.

    No country need join a protectionist tradeblock to adopt standards for the provision of goods and services.

    The “common market” and its claims to improved trade and the movement of people has always been really about centralised political control of Europe using capital flows as the device to keep people in line.

    The claims to free trade and the movement of people is just a bit of sugar to help the medicine go down.

    About time we started called FTA more accurately FCFA

    Free Capital Flow Agreements.

    • “When the program of ‘reform’ is to make the EU even more powerful no wonder “bodes” is not looking too healthy.”

      Despite not liking the current form of the EU, Varoufakis was a supporter of Remain. He’s now worried about Germany’s finance minister.

      The only man with a plan is Germany’s finance minister. Schäuble recognises in the post-Brexit fear his great opportunity to implement a permanent austerity union. Under his plan, eurozone states will be offered some carrots and a huge stick. The carrots will come in the form of a small eurozone budget to cover, in some part, unemployment benefits and bank deposit insurance. The stick will be a veto over national budgets.

      If I am right, and Brexit leads to the construction of a permanent austerian iron cage for the remaining EU member states, there are two possible outcomes: One is that the cage will hold, in which case the institutionalised austerity will export deflation to Britain but also to China (whose further destabilisation will have secondary negative effects on Britain and the EU).

      Another possibility is that the cage will be breached (by Italy or Finland leaving, for instance), the result being Germany’s own departure from the collapsing eurozone. But this will turn the new Deutschmark zone, which will probably end at the Ukrainian border, into a huge engine of deflation (as the new currency goes through the roof and German factories lose international markets). Britain and China had better brace themselves for an even greater deflation shock wave under this scenario.

      • How does a currency going through the roof and a loss of export markets generate deflation?

        If the Eurozone dissolves and Germany returns to the Deutschmark it will only he able to hold down the value if they export capital by the bucket.

        Other countries can refuse to import that capital and Germany will just have to deal with a currency that reflects their trading performance.

        Yanis has always liked the idea of the EU – he just wants a democratic and fair one with oodles of transfer payments.

        I think that is wishful thinking whilst the people of Europe are practising their Esperanto.

    • Stewie GriffinMEMBER


      …and the other side of the Free Capital Flow Agreement, is of course the Free Flow of People. Neoliberalism seeks both, the first explicitly, the 2nd implicitly, although never directly stated other than love letters posted by their various “Think tanks” and propoganda arms, like the Cato Institute and The IPA.

      The masses may not understand the true meaning of free movement of capital, in terms of the impact on their quality of life, but they certainly understand the impact of free movement of people, on their ability to earn an income.

      • “Neoliberalism seeks both, the first explicitly, the 2nd implicitly…”

        Dunno about that implicitly bit. Plenty of EU voices have been making it clear that the UK / Britain / England or whatever’s left in a few years time can’t/won’t have free capital movement without accepting free labour movement.

    • “No country need join a protectionist trade block to adopt standards for the provision of goods and services.”

      This remains to be seen. If the UK abolish the Bendy Banana Laws i.e. Commission Regulation EC No. 2257/94 it will be a real disaster /sarc off

  2. He’s made a metric shit-ton of money this past few days. Long gold, short pound, and now short euro. Soros, like all these financial titans who get quoted endlessly by the media, is posting this “concern troll” style article to help his position along.

  3. Couldn’t be further from the truth. Britain will be crushed in its exit negations, Scotland will be actively encouraged to separate by the EU and don’t surprised if a market shock develops scare the people of European into understand the dire consequences of leaving. You can be assured that Soros is talking his book which is talking about risk of leaving, but betting in practice it will lead to integration, Meanwhile the England (and it will only be England) will talk about the new exciting opportunities it has with its new free trade agreement with Chad.

    • adelaide_economist

      I guess that’s possible but extraordinarily unlikely in relation to England.

      England (by itself) is a country of 53 million people with a per capita income after stripping out underperforming parts of the union as high as Australia. They are one of the key net funders of the EU and run a trade deficit with most of the EU. The UK (and England itself) has a huge diplomatic and historical network – I doubt they will have much trouble negotiating FTAs – and if they do – well, England’s manufacturing revival will be truly massive.

      Attempting to ‘punish’ England would be a dangerous proposition for the Germans to pursue precisely because there is so much sentiment for separation across Europe.

      The truth is none of us, not even the leaders of either the UK or the EU, know how this is going to pan out right now.

    • Scotland may double its population in a couple of years, could be good for its construction industry…. I remember reading a while back that there is 200k Bulgarans and Romanians alone in the UK, I wonder how many Europeans in general.

    • “I doubt they will have much trouble negotiating FTAs – and if they do – well, England’s manufacturing revival will be truly massive.”

      Why would manufacturing be better off than it is now given that the UK has its own currency?

      • adelaide_economist

        The argument by the scare mongers is that the UK (or what’s left of it if some countries leave) is supposedly at risk of being cut off from existing FTAs. Well, FTAs involve giving up tariffs on both sides – so being cut off would imply the UK suddenly no longer able to access cheaper imports, particularly from Europe. Given the importance of location to trade volumes, it would seem likely would it not that (for any given exchange rate) the re-imposition of trade barriers would necessitate a (positive) response in home manufacturing?

  4. roylefamilyMEMBER

    I am told that tax collection in Scotland don’t match welfare expenditure. If so the UK(Thatcher) has turned Scotland into a failed state. Are the EU going to accept a net liability?

    • adelaide_economist

      Scotland is banking on a return of oil prices and hoping the North Sea oil continues for a very long time.

      They also like the idea of continuing to receive large EU development funds. They may not be so keen on EU refugee settlement policies but I suspect those realities are not figuring too much into the current SNP posturing.

      I would suggest the Germans would be keen to have them (as a FU to England) but obviously countries like Spain with restive provinces would not like the precedent at all. Germany could use its fiscal power to get its way, no doubt, but I would not like the implications of this for increasing demand for future attempts at exit of the EU.