In this prediction, I set out the conditions that lead to an increasing pace of integration for the EU. As I described,
“I'm not suggesting that all these changes arise in the next year. That would be impossible. But, I see a start on these changes becoming more apparent in the following year alongside the discussions over Brexit.”
The underlying dynamic was described as arising from the need of the EU to utilise fiscal policy alongside its already established use of monetary policy via the ECB. In fact, the Black Swan event of government imposed lockdowns, has hastened that process in a way that could not have been foreseen. Lockdowns have caused the greatest economic slowdown in 300 years. That slowdown, currently, has manifested itself almost exclusively as a reduction in the new value being created, i.e. labour doesn't occur, so new value is not produced, rather than in an actual destruction of existing value, i.e. a destruction of capital. The latter has also occurred, but is, so far, marginal. It appears as destruction of circulating constant capital – beer that is poured away, materials that become unusable. So far, large scale fixed capital has not been significantly destroyed, and remains available for use, when lockdowns are lifted.
But, in order to prevent firms going bust on a large scale, with the consequent destruction of significant amounts of capital, governments have introduced furlough and other payments, becoming the employer of last resort, by essentially nationalising large chunks of variable-capital. Unable to pay for it by immediately increasing taxes, which would have cratered economies, they have covered the cost with astronomical amounts of borrowing. Some of the borrowing has been monetised, i.e. central banks printed money tokens, which they handed to governments to spend on this unproductive consumption. That leads, inevitably to inflation and higher interest rates. But, the EU also saw the contradiction of having a single central bank, the ECB, whilst fiscal policy was implemented by national governments.
It was also faced with the reality that, for some of its weaker member states, the kinds of level of borrowing, required to finance this unproductive consumption, was not feasible. Not only would it mean that broke EU budget rules, but to borrow on the scales required would have been costly. It posed the question of fiscal consolidation starkly. So, the EU was forced to introduce a €750 billion fiscal stimulus. This is the first time that the EU has undertaken such a centralised initiative, rather than such fiscal intervention being made by member states. As it says, this is the largest such initiative ever undertaken. A look at the kinds of measures included in the plan, also shows that it focuses on the kinds of projects described in my prediction. That is projects that also act to unify the European economy.
It is the first time that such centralised fiscal intervention has been made, but it clearly will not be the last.
The pandemic also posed other questions. It meant that provisions of Shengen were suspended, as travel across borders was restricted. Reactionaries opposed to free movement, played this up, of course. In fact, such restrictions frequently apply within nation states during pandemics, as has happened, for example, with outbreaks of foot and mouth. It has no relevance as to whether open borders are generally a good thing or not, which they are. However, the experience of the EU's relation to the UK also shows why the EU will need to develop its own external border strategy. Reactionaries in Britain, who continually sought to create division within EU member states, during the Brexit negotiations, attacked France for closing its borders to lorries, accompanied by their drivers, coming from Britain, after the new strain of COVID was announced. It was a clear attempt, firstly, to divert attention from the fact that Britain was responsible for this new virulent outbreak, but also to try to provide a cover for the failure of the trade negotiations, by blaming France for bloody-mindedness. They were able to do this, by claiming that France had imposed different rules to other EU countries. In fact, of course, the conditions of lorries going to France via tunnel or ferry is different to transport to other EU countries, from Britain, not only because of huge differences in volume, but also in the fact that, in these other cases, it is often unaccompanied lorries, or container freight.
Nevertheless, the reactionaries in Britain were able to make this argument, because of external border regulations being imposed by member state governments rather than by the EU itself. Throughout the five years of Brexit negotiations, going back to Cameron, the EU has maintained a solid unity of its member states. That in itself is an indication of the degree to which reality has imposed the need for such unity, and the need, therefore, to continually integrate further. But, conflicts will undoubtedly arise in the period ahead. Perfidious Albion will look for every opportunity to renege on its Brexit deal, just as it has tried to do throughout the negotiations. The fact that Johnson was forced to capitulate time and again to get any kind of deal, ought to be warning to the EU that he will look for any chance to overturn the promises he was forced, by his own weakness, to concede. Conflicts will inevitably arise over Northern Ireland, over compliance with Single Market Regulations, over fishing rights, and over Gibraltar, even probably within months of any deal coming into existence. The EU will need to have a unified approach to defending its borders, in all these cases, as it confronts the UK.
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