Not thinking the thinkable

Euro
With love from Germany. Image by aranjuez1404 via Flickr

Chris Dillow’s excellent post yesterday expresses two arguments that are barely heard or discussed in the press – first, that Murdoch’s decision to pull out of the BSkyB bid was bad for the economy and for liberty; the second that the EU could solve the current Euro crisis by taking a big step towards political union, at least within the Euro zone.

He says this not because he agrees with the positions, necessarily, but by way of illustrating

the tyranny of the majority. Because these opinions oppose the view lots of vocal people, “men of judgment” are scared to express them for fear of seeming out of step with the public mood. Regardless of the intellectual merits of these arguments, they look eccentric.

This is an excellent illustration of the “Overton Window” (not the hideously bad novel by Glenn Beck, but the political concept). The Overton Window is the scope of “reasonable political view”, which can shift or be shifted by all sorts of factors.

The crisis in the Eurozone has shifted the Overton window such that gleeful right-wing columnists are shouting about the imminent collapse of the Euro, and rhetorically demanding apologies from anyone who could possibly have thought it was a good idea for the UK to join.

This rightwards lurch of the European project’s Overton window has obscured the possible route out of the crisis that Chris mentions, and which I would say is at least as likely as a break-up of the Eurozone. Collapse or fiscal union (increasingly the only two options) would both be huge shifts, and both would produce massive political shockwaves, but the first leads to crashes in poor countries and heaven knows what geopolitical consequences, while the second keeps Greece, Portugal, etc inside the tent, and slightly impoverishes an already-rich country.

This big step to fiscal union might not happen, but what if it does? Is the UK ready for such a big shift of political and economic power right on its doorstep? Is it happy to sit outside the room while the big economic decisions are taken inside? What will its position be if those changes are proposed? What if they need treaty changes? Will the referendum lock take effect? If it does, how can we justify holding a veto over necessary changes that don’t primarily affect us?

No UK politician or commentator has said a word about any of that, as far as I can see – the only rhetoric is about keeping out, keeping away, staying clear, not contributing unless we have to. But what of the scenario where this big fiscal jump happens, the Euro crisis is solved, UK growth stutters, and the bond markets turn on us?

The answer is, obviously, that as soon as something of that magnitude happened, the Overton window would shift again, but not without showers of sparks and metallic squealing. Here’s Orwell on a similar moment in 1939:

It is curious to reflect that out of all the ‘experts’ of all the schools, there was not a single one who was able to foresee so likely an event as the Russo-German Pact of 1939. And when news of the Pact broke, the most wildly divergent explanations were of it were given, and predictions were made which were falsified almost immediately, being based in nearly every case not on a study of probabilities but on a desire to make the U.S.S.R. seem good or bad, strong or weak. Political or military commentators, like astrologers, can survive almost any mistake, because their more devoted followers do not look to them for an appraisal of the facts but for the stimulation of nationalistic loyalties.

I found this morning a brilliant illustration of the distance that these windows can move, in a report by a European task force set up in 1976. The task force, led by a British economist from, of all places, the CBI, was asked to look at the role of fiscal policy in a future European Monetary Union.

The whole summary is worth reading – not least because it describes the progress to the current state of affairs rather well – but here are edited highlights, to show the sorts of things that British-led committees of industrialists and economists were discussing while Jim Callaghan was in Number 10:

As well as redistributing income, public finance in existing economic unions plays a major role in cushioning short-term and cyclical fluctuations. … If only because the Community budget is so small, there is no such mechanism in operation on any significant scale between member countries and [without it] monetary union is impracticable.

It is possible to conceive, presumably at some distant date, a Federation of Europe, in which federal public expenditure is around 20-25% of GDP, as in the USA and Germany.

An earlier stage would be a federation with a much smaller federal expenditure of 5-7% of GDP. An essential characteristic of such a federation would be that the supply of social and welfare services would nearly all remain at national level. … There are various degrees of confidence as to whether this would in practice be feasible.

We have concentrated on “pre-federal integration”, where the Community’s political structure is being gradually built up, partly with the direct election of the European Parliament. We can envisage Community expenditure of about 2% [Note: the current level in 2011].

The report’s recommendations for building up the Community’s fiscal heft included:

  • Setting up a single European development aid pot;
  • A European role in vocational education;
  • Reduced spending on the Common Agricultural Policy; and
  • A European Unemployment Fund, where part of social security taxes are put into a European pot, and paid out of it at times of high unemployment;
  • A system of central grants, varying with the economic cycle, to prevent poorer states falling behind economically.

Thirty-five years on, with one of the report’s junior policy officers now Vice-President of the European Bank for Reconstruction and Development, we might be about to see some of those recommendations put into practice – but let’s not talk about that now.

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Published by Anthony Zacharzewski

Anthony Zacharzewski was one of the founders of Demsoc in 2006. Before starting work for Demsoc in 2010, he was a Whitehall civil servant and a local government officer.