Wednesday, September 28, 2011

EU - the empire has no clothes

Will the EU monetary union continue? It may be so difficult to unravel the union that the euro may limp along as slow and gradual policy changes continue to try and stop the fall-out from the weak sovereigns like Greece. The gradualism will try and do the minimum required at the lowest cost. Note that the value of the euro is still much higher than what was seen ten years ago, so the idea of a euro panic is still not present.

The EU is an empire with no clothes. It is a financial and economic empire without a central command and without power to maintain discipline and redistribute wealth across countries. EU countries cannot leave the union by treaty but the coercion is limited. Greece can be told that it will not receive funds without a change in behavior, but those funds have to be raised somewhere else in the empire. The collection and distribution of funds is not controlled like a normal empire.

 Most empires will impose financial and legal control over its domain. It will employ taxing power to pay for the services of the empire. It will also collect the taxes. It will control the finances. It will set regulation across all cultures and former countries it controls. An empire may be allowances for cultural and country differences, but control will still rest with a central authority. In the case of the EU, there is no central authority that impose control on member countries. Financial democracy will not work because self-interest and nationalism will be the driver of votes. Empires do not allow for nationalism. Federalism is not available because the common control still does not exist and there is not a common belief in the idea of being a European. The US Federal experiment (the Articles of Confederation) did not work until there was central taxing and fiscal control. This lack of central control will cause the continued limping along.

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