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July 10, 2017

EU in self-destruction mode

Fintan O’Toole writes that Brexit is a wake-up call for the European Union, which is facing its own demise. Don’t blame the British for Brexit, remember the two founding nations France and the Netherlands came very close to have their version of Frexit or Nexit, and Italy is still flirting with Itexit. This is a much more profound crisis of the EU. O’Toole writes that, unlike nations, the EU is based on ideas and values, but it fails to deliver on them because it lacks the power to do so. This contradiction is not easily solved as voters mistrust the EU technocracy, and are reluctant to pass on more power to the EU. Going back to basics, O’Toole has this intriguing observation about why the EU exists:

"The EU is one of the very few examples of a political project built on fear that is positive and inclusive. It came about because of fear of fascism and communism on a continent that had been torn apart by one and split in two by a totalitarian form of the second." 

The EU was there to provide the basis for a dignified and secure life in Europe. As the threat of totalitarianism and communism receded, so did the rationale for the EU. At the same time, income inequality rose over the last few decades: In the 1980s the average income of the richest 10% of Europeans was seven times higher than that of the poorest 10%, today it is about 9.5 times higher. The young are now more likely than the elderly to be at risk of poverty. This is not a healthy foundation for the future. Growing inequality is ultimately incompatible with political and economic stability. We already experienced the volatility of voters and the fragility of economic recoveries. And it is this fear that the EU needs to use to motivate itself. Its raison d’être should be to protect its citizens in a globalised world as a transnational power, with powerful democratic institutions and the power to redistribute wealth from its richest to its poorest citizens.

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July 10, 2017

The EU's fault lines

Hans Kundnani writes that much of the triumphalism about the EU is vastly exaggerated. 

"...the problems that the EU has struggled with for the last seven years since the euro crisis began, and that have led to the increase in euroscepticism, remain unresolved. The multiple overlapping fault lines within the EU remain as deep as ever, as was illustrated when, shortly after being elected, Macron accused central and eastern Europe countries of treating the EU "as a supermarket". The EU has also done little to help Italy cope with another wave of refugees from Africa, thousands of whom are now dying in the Mediterranean."

Kundnani says that the idea of a Europe taking its security interests in its own hands is going to fail because Germany is reluctant to increase defence spending. Strategic autonomy would require defence spending far higher than the unmet 2% Nato commitment. 

Another issue not mentioned by Kundnani is Germany’s and the eurozone’s persistent current-account surplus. The Economist has written an editorial on this question. It says that Trump is wrong to focus on bilateral deficits, but

"...in one respect, at least, Mr Trump has grasped an inconvenient truth. He has admonished Germany for its trade surplus, which stood at almost $300bn last year, the world’s largest (China’s hoard was a mere $200bn). His threatened solution—to put a stop to sales of German cars—may be self-defeating, but the fact is that Germany saves too much and spends too little. And the size and persistence of Germany’s savings hoard makes it an awkward defender of free trade."

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July 10, 2017

Fake News and Fake views

Wolfgang Munchau writes about how confirmation bias - a form of wishful thinking - is affecting commentary and analysis, not only in the media but also among investors. The fundamental idea is that people weed out information that is not consistent with their beliefs. Apart from the obvious examples - Brexit, and Trump’s victory - there are numerous other cases where confirmation bias leads to positively mistaken forecasts. Here are a few examples:

  • that Jeremy Corbyn, the UK Labour leader, would invariably lose the elections by a landslide;
  • that Donald Trump will be impeached;
  • that Brexit will somehow be averted;
  • that the eurozone has finally turned the corner;
  • that Emmanuel Macron will reform France.

Ian Katz, the editor of the BBC’s newsnight programme, focuses specifically on the media and notes that the percentage of people trusting the media in the UK fell from an already low level of 36% to 24%. He said one of the problems is that journalists have been getting many things wrong. He suggests four courses of action: more humility; more open engagement with conspiracy theories; allowing a greater diversity of views; and, finally, acknowledging that we have a problem.

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