Monnet’s Myth: European post-war economic growth

One of the persistent founding stories about the EU concerns the Coal & Steel Community. The tale goes like this: The Coal & Steel Community and subsequently the European Economic Community were the cause of not only the western European economic recovery after the Second World War but are also the cause of the German economic rise to greatness.

The Brexit dissidents, as I like to call them and here I include myself, call this constant attribution of prosperity and peace “myopia”. This is because these analyses rarely look at the wider picture, or in some cases, simply associate the European project with universal benevolence.

The simplest approach but one in which we can see the various changes in prosperity is by a comparative measure of GDP. In 1946, the British economy was almost twice as large at the French economy and more than twice as large as what was left of the German economy in the British, French and US Army zones of occupation.

By 1955, the West German economy had grown by 283% compared to 1946. Indeed by 1950, when the Coal & Steel pact was agreed, the West German economy had grown by 55% compared with 1946. It was already larger than the French economy before the first steps of Europeanist integration had taken place, which it had overtaken in size by 1948. From then on, at no point was the French economy to ever exceed in size the West German economy.

This should alert us to an essential fact in considering the economics of Western Europe: the German economy contained huge potential for economic expansion and continued to expand on the back of political stability, the excellent German school system and the existing expertise of German engineering and manufacturing. Another factor related to myself a long time before at university was that after the war with the major industrial cities and plants in ruins and with industrial machinery confiscated as part of the post-war settlement, West Germany replanned both its cities and the industrial plants. Sites were cleared and rationally laid out – this had long term benefits in creating smooth access to and from manufacturing sites.

Another aspect to consider is the international dimension. The post-war drive to facilitate trade and reduce tariff barriers under GATT also made it possible for international trade to flourish in a way not seen since the British trade expansion of the 19th Century.

The really damaged economy from the Second World War was that of France. The French economy in 1944 was 46% of the size it had been in 1939. It was not until 1949 that France returned to pre-war levels of prosperity.

Again, we can see that the economic recovery was well and dramatically under way before even the first steps of Jean Monnet’s project were adopted.

As we can see above, the West German economy had grown by 283% compared to 1946 but it had also exceeded the size of the British economy. By 1962, the West German economy was 28% larger than that of Britain. By 1981, it had become 54% larger than the British economy. Thereafter the British economy steady grew in size and reduced the gap with West Germany to 1989 and with the unified Germany in the years after until by 2008, the gap was 18%.

The French economy today is about 80% of the size of the German economy. The ratio has varied from 60% to 75% until the 1990s. This matches the ratios from the first half of the 20th Century with the exception of wartime figures.

What about the United Kingdom?

According to the story told by Europeanists, Britain struggled because it was locked out of the EEC until 1973. But the figures tell a different story.

The British economy shrank noticeably from 1944-1946 by 4% per year. Today this would be considered a major depression but this was the point at which the British government was gearing down from wartime spending levels.

By 1948, the economy recovered 3% on 1947, when it shrank by 1%. Thereafter until 1972, the British economy grew by an average of 3% per year. This was mild growth compared with French or German growth rates in the period, which were 7% and 6% respectively.

However, we should bear in mind that the problems with the British economy were a great deal more self-inflicted than due to geopolitical relationships. For much of the period into the 1950s for instance, the British government was spending heavily on defence. There were problems with industrial policy, increasingly with industrial unrest and the problem that British industry was not replaced or rebuilt as was German industry.

Yet, even with all the trouble and disruption of the 1970s, the economy still grew by 2% on average per year until 1980, when the economy entered a serious recession with the start of the liberalisation of the British economy and the closing of state-subsided industries. 2% per year was average growth until 2000 – 2008 which was 3% per year.

Compared to French and German growth rates in the 1980s & 1990s, Britain matched both countries and exceed both in the 2000-2008 period, where France experienced 2% average growth and Germany 1% average growth.

We cannot see in the data series any noticeable effect of EEC entry for Britain but we can see that Britain went from 7% growth in 1973 to -1% in 1974 and 0% in 1975 before returning to 2% growth in 1976. We could associate the return to growth with the end of EEC transition except that we also know this was the point at which Labour Party economic policy began to change with an reduction in subsidies, heavy cuts in welfare spending and the IMF Crisis.

Together with the Thatcher government of 1979-90’s supply side reforms and closure of inefficient industries, we can see that membership of the EC, as it was, was neither a noticeable help or hindrance to British economic performance. What was critical in Britain was the reintroduction of market economics and the end of the post-war economic consensus. Indeed, we can argue that Germany’s success was due much more to its effective labour and industrial policies and the economic stability and growth these enabled.

The last major recession in the British economy was partly caused by an overheated housing market (the result of market-liberalisation) but above all by the monetary dislocation of the ERM debaclé. Once the British currency floated again, the economy retuned in 1993 to 2% growth. On a side note, what is remarkable about the ERM is that the Europeanists attempted to return to a form of 1920s economics with exchange rate controls.

What this demonstrates is that economies have a “natural” size to which they return and from which they grow with the right policy mix from governments. What the Europeanists claim is the result of the European experiment is actually this natural tendency reasserting itself amidst political stability.

Links:
GDP Summary
Data Series as Analysed

Outside Labour

From the Times letters. (H/T Oliver Kamm)

 

Outside labour

The elephant in the room is the unfettered right of European Union workers to enter Britain. As Frank Field said last week, the 3m jobs created under Labour led to a 400,000 reduction in workless people and “immigrants, not the UK’s workless, took most of the jobs”. Further research showed that 85% of jobs created in the private sector went to non-British workers, while in the public sector it was 28%.

The migration back to Poland that followed on from the recession has already turned around, and until the British government seeks some opt-out from the present policy of open entry for EU citizens, jobs that will largely be created in the private economy are sure to be snapped up by young, mobile and flexible immigrants.

Richard Gamble Westbury-sub-Mendip Somerset Benefit of the doubt I, like many other unemployed people, am sick of reading articles implying that those without a job are benefit scroungers. People are desperate to work but cannot find any.

I am 59 years old and have spent most of my working life installing and servicing computer-controlled machines and electrical/control equipment in the petrochemical industry worldwide. I had time out of the business and lost touch with the latest technology. Since the training budget is one of the first casualties, companies are not teaching skills to new applicants.

I can’t even get work as a shop assistant (on the minimum wage). How on earth do school leavers get their first employment break? Sending them off to university is hardly the answer. A young neighbour with a degree in aeronautics informed me that he had secured a job as a technician testing car catalysers.

Robert Stancer Royston, Hertfordshire Rough deal Isabel Oakeshott asserts that “millions of people who are capable of work choose to rely on government handouts instead”. Our son, who has Asperger’s syndrome, obtained an honours degree in chemistry last year but cannot even find work as a laboratory assistant. The last such job he applied for had 70 candidates, of whom 15 (including him) were selected for interview, but he was unsuccessful on grounds of lack of experience.

He has sent in 15-page application forms to employers that are not acknowledged. He is even having difficulty obtaining a New Deal work placement as very few of these are currently available in our area. And this is before the new cuts on October 20.

I know Duncan Smith means well but he forgets the other side of the coin.
Dominic Ion Wirral, Merseyside

The EU Referendum Campaign

Today I am going to argue in favour of the EU Referendum Campaign. It is time the British people had a voice in the debate over the corrupt and undemocratic European Union. We did not sign up to become a part of Greater Europe. We demand the abrogation of the treaties limiting British democracy and sovereignity and the negotiation of a free-trade treaty with the European Union states.
It is time that our elected politicians finally acknowledged that the European Project is one consistently rejected by the electorate and acquised in by the political class out of a sense of weary resignation from Conservatives and a vague and tired sense of “international” unity from the Labour Party.
There are times when the political class are right and when they are wrong and those who argue in favour of the European political project, rather than the existence of free trade are wrong.
To those who would argue for the European project expanding workers’ rights and so on, I would support much of the principle of those developments but oppose the means. We have to make those decisions in this country and not be informed by dictat that our laws are to be changed.
Vote for democracy and national freedom. Campaign for a referendum and vote “yes” to leave the European political project.
Sign the pledge and add your support today.
The EU Referendum Campaign

The Lib Dems and Europe.

Superb article by Anatole Kaletsky. Reproduced here since it will disappear at some point from the Times.From Times Online
***

April 21, 2010

Knives out. It’s the fatal flaw in Clegg’s plan

The Lib Dems are committed to joining the euro. Just look abroad – it would be catastrophic for Britain
Anatole Kaletsky

If they want to skewer Nick Clegg in tomorrow’s TV debate on foreign policy, the two established parties should focus on one issue: not Trident, nor terrorism, nor Afghanistan, but a much more immediate threat to the country’s political independence and economic wellbeing — the euro. But to pin down the Liberal Democrats convincingly, Gordon Brown and David Cameron will have to do more than just point to the chaos in Greece and the 20 per cent unemployment in Spain.

They will have to engage Britain’s voters in a sophisticated argument that has proved too complex for many of Europe’s top businessmen and financiers — although this confusion may now be ending as a result of the events in Greece.

The Lib Dems’ official policy is clearly stated in their manifesto: “It is in Britain’s long-term interest to be part of the euro.” The manifesto then adds two politically convenient qualifications — that Britain should join only “when the economic conditions are right” and “if the decision were supported by the people in a referendum”. But these weasel phrases in no way detract from the Lib Dems’ analytical position, that they fervently believe the loss of monetary independence to be a national ambition.

This is a point on which the Tories could have a field day, but only by making an admission that Mr Cameron would find politically very tough. To explain why any British politician who still believes in joining the euro is either a committed euro-federalist or an economic ignoramus, the Tories would have to admit that Britain, under Gordon Brown’s economic leadership, has actually suffered rather less damage from the financial crisis than most parts of the eurozone. The loss of GDP and industrial output since the start of the recession, for example, has been slightly smaller in Britain than in Germany and unemployment here remains lower than in any other economy of comparable size.
BACKGROUND
Government to convert up to €1.5bn of Bank of Ireland preference shares
Katy Hayes: Sick of waiting and got €120? Step this way
Greece edges towards takeup of €30m bailout
Eurozone countries agree rescue for Greece

Worse still from the Tory standpoint, Mr Cameron would have to concede not only that the huge deficit run up by the Brown Government has helped to support the British economy through the crisis, but also that it will do no great harm in the long term, provided public spending is managed sensibly. By contrast, the government deficits in Greece, Spain, France and other eurozone countries, although they are actually rather smaller than Britain’s, are already squeezing the lifeblood out of their economies and will end up destroying their political independence.

Why is this so? The main advantage for any nation of having its own currency, at least since the gradual abolition of the gold standard in the middle years of the last century, lies in the ability to conduct independent monetary and fiscal policies — to set interest rates and to borrow money, without regard to external political constraints. This monetary and fiscal independence is a far more important national prerogative than just the ability to devalue the currency to make exports competitive or revalue to make foreign holidays feel cheaper. And it is the permanent loss of monetary and fiscal independence that clinches the argument against joining the euro, regardless of whether economic conditions are deemed to be favourable or whether a referendum has been held.

To give up the national currency also implies, in the end, giving up a nation’s independent ability to set taxes and public spending — an irrevocable loss of sovereignty on a par with ceding control of a large piece of national territory or disbanding the Armed Forces.

Compare the political and economic pressures exerted by the crisis on Britain and Greece. Both countries have government deficits of roughly 12 per cent of national income. But Greece is on the verge of national bankruptcy, while politicians in Britain can calmly engage in debates over whether to abandon planned tax increases and whether to start modestly reducing public spending in 2011 or the years beyond.

Why, then, are financial pressures so much more intense in Greece? Mainly because the British Government borrows in its own currency and can therefore simply print more money in order to repay its debts if required. This, in fact, is exactly what the Bank of England did last year, creating new money to the tune of around £170 billion. The ability to print money can create inflation if the Bank of England miscalculates; inflation rose to 3.4 per cent in March. But the independence of monetary policy gives the British Government a freedom to set taxes and public spending in response to the decisions of British voters, instead of the demands of international organisations or bond market investors.

For members of the eurozone — Greece today but, in the long run, also Spain, Italy, France and even Germany — the opposite is true. By abolishing their independent currencies, they have not just lost control of interest rates and given up their ability to devalue or revalue. They have also effectively ceded their tax and spending decisions to the European level.

This is most obvious in the case of Greece, which has no control of the euros it needs to borrow and can no longer raise them on financial markets without guarantees of support from other EU countries and the IMF. German politicians are now openly stating that Greece will have to pay for these guarantees by giving up control of its domestic policies.

But the gradual loss of fiscal sovereignty is also visible in Spain, where the government deficit of 10 per cent of GDP is only slightly smaller than it is in Greece and where deflationary policies demanded by the eurozone “stability pact” have already raised the unemployment rate to 20 per cent.

In the end, even Germany, the paymaster of the eurozone, will suffer the loss of fiscal control implied by monetary union. The Greek experience shows that the single currency can only survive in the long run if all member governments share responsibility for each other’s debts.

Although such “burden sharing” is explicitly ruled out by the European treaties, it was always envisaged as a consequence of monetary union by Jacques Delors and the other instigators of the euro project.

Most likely the burden sharing will eventually be achieved through a vast expansion of the EU’s ability to borrow money in its own name and then lend it on to national governments — in the same way that the US federal government issues Treasury bonds and uses the proceeds to offer conditional support to the states. While the mechanism whereby Europe will adopt a federal fiscal policy is not yet clear, the outcome is unavoidable. And that will mean Germany, as much as every other euro country, losing control of its economic destiny. If that is also Mr Clegg’s objective for Britain, he should say so.

Why I voted Conservative and Labour

I am posting the following link and making the following statement. http://en.wikipedia.org/wiki/European_Conservatives_and_Reformists

Yes, I voted for the Labour Party in the city council elections and voted for the Conservatives on Europe. I did not vote for “homophobes” nor for racists (an untrue charge from what I can see).
I voted out of a wish partly to express my personal rejection of the Lisbon Treaty but also to express my desire for a limited euroscepticism. The European Union is corrupt and in many ways undemocratic and I would like to see a much more through reform with the objective of a more efficient and representative EU structure.
I do not agree with the project for a European State, partly as I feel that on many measures the voters of Europe have not often been consulted (and when they have, the voters of France, Germany and Ireland were told that they had given the wrong answer). I do not believe that the EU should become a supranational state as I do not understand the requirement for one.
If Europe is to be a trading bloc with commonality of laws to facilitate trade, freedom of movement and the protection of the individual in law, then this is a project worthy of any reasonable support. But a state (with a bureaucracy, armed forces and the governing structures requisite to this end) is not required, except possibly out of a sense of the ghost of the Roman Empire and the ideal of political unification. One cannot help feeling the desire of the French and German political elites for the construction of a new political empire to replace the lost empires of the 20th Century.
I have taken care to look up the parties associated with the European Conservatists and Reformists, the political grouping into which the Conservative Party has aligned. The accuation of anti-semitism and racism seems to hold no ground – the Latvian war memorials, which include Waffen-SS dead are attended by all parties in Latvia, from the Christian Democrats to the Greens. Only the Russian parties do not attend for reasons particular to the history between Russia and Latvia. http://tory-politico.com/2009/10/william-hague-demands-an-apology-from-miliband-after-disgraceful-smears/
Law and Justice are well known as this party was until recently the governing party of Poland. All Polish parties are influenced by Catholic views – is that surprising?
The party that worries me is the Christian Union from the Netherlands. These hail from a rather unpleasant religious ghetto of politics, being homophobic and anti-free market. This said, politics makes for strange bed fellows, especially in Europe with a wide and diverse range of parties and views. The Labour Party is in a group which features 9/11 truthers, anti-semites (real ones with links to David Duke) and politicians convicted of murder and the demand of sexual services for favours in politics.
The source for this is here. http://www.torybear.com/2009/10/labours-evil-friends.html.

It appears to me that the Labour Party (David Milliband) have attempted to pull a hatchet job on the Conservatives and most unfairly. I still don’t feel at home with the Conservatives feeling that in many ways I still prefer the Labour Party but I have to be honest in what I believe and think to be the best course for our country. The Labour Party are unfit to rule and should be defeated before they wreck anymore of the constitution with reference to a proposal to pass into law a requirement for the next government to hold a referendum to canvas opinion as to the possibility of reform of the electoral system.
Those who know me know that I absolutely oppose PR or watering-down of the the FPTP electoral system. I strongly believe that a government should be made up of one party and that PR encourages particularism. The idealistic notion that groupings of similar temperment would cooperate when fractured assumes the best in human nature despite the lessons of history.