Exiting the European Union; Commentary by Carl Rafoth

The author, Carl D. Rafoth, is an attorney with Friedman & Rummell Co. L.P.A., based in Canfield.

By Carl D. Rafoth
CANFIELD, Ohio — As noted by Paul Johnson, the British historian, the European Union was formed at the behest of France and Germany. Others have stated the impetus was to forever guarantee prevention of enmity between these two historical rivals and by forming a tight coalition of what now includes 28 European countries (27 if as expected and desirable is a BRIEXIT (British Exit). Only 19 of these countries use the Euro dollar.

Johnson continues, adding that Britain’s Magna Carta (comparable in significant ways to our U.S. constitution and the Bill of Rights) is part of neither France’s nor Germany’s history.

These two countries and other EU members share both philosophical and ideological principles derived from top down authoritarian Roman law — foreign to us but in recent years closer to it as primarily the executive and federal judicial branches of our government impose ever and ever more overarching authority by increasingly regulating most aspects of commerce and individual endeavors.

Perhaps Milton Friedman, the recently deceased eminent economist and monetist, best opined on the future of the EU in 1997. In summary, his comments, assessment, and prediction for the future of the European Union weres as follows:

  1. A common currency (the USO) is an excellent monetary arrangement if the country’s people overwhelmingly speak the same language, watch the same television programs, can and do move freely from one part to another; where wages and prices are moderately flexible, and federal, state, and local taxes remain properly proportionate.
  2. By contrast, Europe’s common market (Eurozone) exemplifies an atmosphere unfavorable to a common currency. Europe is composed of separate nations, different languages and customs; its citizens have far greater loyalty and attachment to their own country than to the common market or to the idea of a “Common Europe.” Even with a free trade policy, goods and capital move less freely than in the U.S.
  3. A flexible exchange rate (the rate one currency can be exchanged for another) to accurately reflect market conditions between countries with their own currencies is more desirable than a common Euro Dollar used by multiple European countries.
  4. The impetus for the Euro Dollar was motivated by politics, not economics. Adoption of the “Euro” exacerbates political tensions by converting varying economic shocks peculiar and particular to each European country that flexible exchange rates would easily solve, into divisive and unnecessary political issues. (Consider now Greece’s economy grinding to halt and debt default).

In the case of Greece’s travails, if it reverted to its own previous currency the drachma, it could then be free from the EU monetary restrictive use of the Eurodollar, devalue the drachma and enhance its competitive posture both domestically and internationally.

This would stimulate Greece economy by raising employment and selling more goods to other countries. Instead, EU member countries will once again bail out Greece’s failed policies by extending payment on its debt and/or increasing funding of even more debt.

Continued lending will not revive Greek economy but is meant to keep it within the euro zone in order to preserve the fiction that membership is irrevocable.

Even if all its debts were cancelled Greece’s membership in the euro zone would not lead it out of recession because the Euro Dollar locks Greek economy into an overvalued exchange rate.

As ever more member European countries economies are bailed out by other members and international organizations it will be most difficult for Europe in general to enjoy economic resurgence. A soft European economy as well as a softening Asian one adversely affects the U.S. economy as well. Coupled with a strong dollar our goods are relatively costly to sell to others in these geographic areas.

Failure of the Eurodollar countries to realize that a common currency among “uncommon” countries not only throttles their economies but also hurts ours.

As Britain’s Margaret Thatcher famously stated, ‘The problem with socialism is that you eventually run out of other people’s money.” Greek socialism is running on other country’s money- mainly the generous German’s.

Britain held a referendum June 26, 2016, to determine a whether or not to remain in the E.U. The scheduled exit date was March 29, 2019. But as this article is written the exit date has been postponed multiple times.

Steve Forbes, editor-in-chief of his namesake magazine “Forbes,” a thoughtful person, provides both support for a Brexit (British exit) and reasons why it should remain in the EU in the magazine’s April 19,2016 issue.

In concluding he (unreasonably) believes Britain as only one of 28 EU members can persuade the other 27 to reform the EU by instituting a flat income tax, reducing the capital gains tax rate, labor reforms, and reduction of stifling regulations.

Forbes also is unrealistic in his assessment that by “uniting” France and Germany within the EU will prevent historic waring between these two countries. Geopolitically, France and Germany now have much more in common than ever before.

For self-protection from Putin’s attempt to recreate the Soviet Union in Eastern Europe and threats from both mid-eastern countries and China increasingly flexing their muscle, each Western European nation must develop its military capabilities to deal with these very real external threats without seeking approval from Brussels as the capitol of the EU impeding each country’s requirement to naturally form a common bond – for self-preservation. Hostilities between France, Germany, Britain and other Western European and some Eastern European countries fade as other more pressing threats from others are rapidly developing.

Both Greece and Britain will prosper without the constraints of a top-down centrally controlled “European Union” organization.

Published by The Business Journal, Youngstown, Ohio.