Steen's Chronicle today is written by Dimitri Masselos, Shard Capital. Dimitri is a good friend, a scholar and an amazing trader, but his relevance for this Chronicle comes from his heritage. Born in Greece, living in London, and with a perspective on Greece which is forward looking with a critical look at the past. Enjoy Dimitri's piece as its one of the best in this nightmare called Circus Greece.
- European Union is a good concept but badly executed
- System creates internecine warfare of 'last-man-standing' variety
- 'Lend' rather than 'allocate' model creates inevitable debt in vicious circle
- Europe should draw inspiration from US one government model
- Waste of resources and artificially-maintained prices characterises EU
- System of 'small' government is the answer to EU's unwieldy mass
Frankfurt residents enjoy a lovely summer's afternoon, but is the EU set up
just to make the strong, stronger and the weak, weaker? Photo: iStock
By Dmitri Masselos
The European Union is a good concept but wrongly structured.
The union was created as a "supranational foundation to make war unthinkable and materially impossible and reinforce democracy". A good definition of a nation is "borders, language, culture".
Today, the EU has 28 members and a single currency. Each of the 28 members by nature add different positive contributions to the union. Each member still retains its local parliament.
Nature makes people different from their genotype to their phenotype. If people would like to embrace those differences, take the best of each and make a super country, namely the EU, the best way to do so would be a single government with a single currency.
The importance of single government became apparent with the case study of Greece which is a dry run for the future and potential demands from other southern states of the EU.
Brussels collects taxes in its member states which pretty much act autonomously to better themselves and a portion of those taxes arrives centrally to the European Central Bank.
The ECB then lends those funds according to need and politics.
The EU is one country, one culture with all the colours coming from cultures within its body, one primary language, one currency, one government and one economy. The result is the EU nation.
Imagine all the people of the EU as one
But imagine if the EU — democratically elected with equal representation from each country directly accountable to the people — has a central and small-sized government that would decide on the budget and allocate that budget fairly and according to direction and vision for the future for all of the EU. Allocate, I stress, not lend.
Something similar happens today in the US where the Federal Government allocates to less productive states. That sees states that produce less such as Mississippi and Alabama are subsidized by more productive states such as New York and California.
Yet, it is one country, one people, one currency and such allocations from the government are done with a vision for the future and for the betterment of all the people of that one country.
Currently, in the EU, when a country underperforms in its productivity (usually as the result of too much government and government dependent entities proliferated to those large numbers to purchase votes and retain a government into power usually by sheer numbers not by meritocracy), the EU lends it money to overcome any underperformance based on promises and projections with assumptions from current underperforming government.
In the past, when a country underperformed or had too much unemployment, the country would print some of its own currency to jumpstart the economy and reduce unemployment.
Today, those underperforming EU countries that are less productive cannot print as the currency is centrally controlled. So, they are handicapped on receiving funds from central control.
However, instead of receiving funds as an allocation (like US does), they receive such funds as a loan. Those underperforming countries would then have to pay back the loans with new loans on which interest from the old loans is capitalized and so on and the debt propagates exponentially until one day, the central control says "we do not lend you more or you have to become poorer and cut things (austerity) to pay us back".
So, this is a self-feeding spiral whereby in order to pay, you have to get a new loan to pay the old.
One day, when there is nothing else to pledge, the underperforming country defaults. Then the creditors discredit the country and demand their money back by converting it to equity, foreclosing/repossessing any and all property securing their loans. So, you have a loan-to-own scenario in the EU that eventually one country from the EU would have all the money and own all the other countries.
This is not a union but an acquisition, an economic invasion, a war that happens with finance and not with weapons.
When nations start waging economic warfare, people inevitably suffer. Photo: iStock
If on the other hand there was one small central government how might it approach this? It could ask a key question first: "How can we use the real estate of Greece for the maximum benefit of all EU?" "What does Greece offer?"
1. Sunshine: How about photovoltaic plants to feed electricity to the rest of the EU?
2. Wind: Some of the most windy parts of Europe are in Greece at 7-11+ metres/second which cannot be found in continental Europe to install wind turbines for electricity.
3. Sunshine produces excellent natural fruits and vegetables with outstanding aroma. Farm the land. Not have Greeks receive the EU subsidies to bury the fruit so that the rest of EU can keep prices artificially high (and at night poor minorities go unearth those and sell them in the green markets locally for half price; that is an insult to nature to have to bury fruit and vegetables).
4. Islands and tourism.
You cannot have 28 governments. Some are more efficient and effective than others. So the less efficient will lose and the more efficient will win. Then there is dispute and conflict as to what government style, genotype and phenotype is better etc and that leads to a fallout eventually. That does not unite. That puts a group of countries into an illusion of unity where they start competing internally until it is the last man standing.
The US model is better with a central government.
Embracing small government
On the other hand it is important to have a small government that will embrace business initiatives not via subsidies but by charging less taxes (it will have to feed a much smaller government "monster") and it will embrace entrepreneurs. A flat consumption tax of about 15% (similar to the fair tax proposed in the US) in place of income tax, inheritance tax, VAT and all other kinds of tax inventions and constructs would promote transparency and private sector spirit and productivity will blossom and EU will shine in the world.
However, the 28 families of politicians do not want to let their comfortable armchairs go and let power slip through their hands. The one smaller government would be meritocratic as every one of them would be personally accountable to the people and very substitutable if they are not delivering results in their job. Meritocracy would be watched by all people. Today, media is owned and controlled by the governments.
The Yes or No to austerity was twisted by the government-influenced media to read as Yes or No to the euro which was never the question of the euro in the Greek referendum.
In the past in Greece you had tomatoes red and sweet like honey. Today you import from northern countries and they taste like red cucumber. However, northern countries are superior in engineering and machinery. We could embrace those differences.
In the 1970s, Greece was almost self-sufficient in its meat production, today, most of the meat is imported. If you drive on the mainland, you will see so much land which in old times was cultivated but now lies abandoned as nobody wants to go and work the land as "easier ways" exist to make money via subsidies.
In the past an underperforming country could print its own currency to compensate for exporting deficiencies compared to its amount of imports. As such, there would be a balance with the foreign countries.
If said country would like to have a product or service imported, then it would have to be more productive, reduce its unemployment and increase its exports to counteract and balance with such imports and that could be facilitated by printing money (which would also reduce purchasing power and create inflation).
Solution for the EU nation
One small government:
Have a small meritocratic central government with equal representation from each country directly accountable to people. Like in old Greece, whoever would like to serve (civil servant and NOT "civil King") in such a government should donate all their property to the people/public for as long as they serve, and once they successfully fulfill their term without scandals etc, then they can reclaim their property back. If they were found guilty of any material wrongdoing while in power to serve their property will be retained by the public.
One currency: euro
One budget allocated, not lent to the countries in line with the route and vision for the future and the strategic needs of each country state and for the betterment of the one people of the EU nation.
Will the 28 CEOs, CFOs, controllers, etc., those 28 governments leave their chairs behind for a new central government in their place?
If not, potentially there is the issue of nature and entropy. Perhaps it is an entropic response that is well past due. I only do hope that the people of the EU will rise above and evolve into this one EU nation, and we will not have history repeat itself in the EU as happened in US about 200 years ago with a conflict between the North and South. At the end of the day, are these the growing pains of evolution? Can't we see beyond that and learn from the past and achieve the end result without the growing pains?
No-one wants a reenactment of the American Civil War
pitching south against north on European soil. Photo: iStock
— Edited by Martin O'Rourke
Dmitri Masselos is a London-based fund manager and a native of Greece
Disclaimer: This article herein represents the personal views of Dimitri Masselos and does not necessarily represent the views of Shard Capital or any entities he is affiliated with. It is intended only as thought provoking for potential permanent solutions within EU that would strengthen EU and its vision.
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