The Beginning Of The End

I’ve long predicted that the EU is currently too bureaucratically ossified to be viable, and now it appears as though my predictions are coming to pass. France is making moves to pull out of one of the founding pacts of the European Union, the Maastricht Treaty.

The Maastricht Treaty is the glue of the Euro zone. It sets limits on how much of a deficit each member nation can run. It is absolutely critical to maintaining the economic coherency of the European Union and preventing one member state from dragging the entire Union into economic collapse.

Now France has abandoned the Maastricht Treaty with all the casual arrogance one has come to expect from Chirac and company. This movement threatens the very bedrock on which the entire European Union rests.

And why has France taken this debilitating move?

M Chirac made an obvious calculation. As he considered reforming the French state and cutting taxes, he asked: "Who is more likely to cause me trouble? The French unions or Romano Prodi?"

Mr Prodi, for all his gifts, has no record of stopping trains, closing schools, smothering Paris in tear-gas and turfing out Right-wing governments.

Again, the French government is being held hostage by out of control unions who have a virtual veto over any government action. That isn’t democracy, it’s oligarchy, and the arrogant and greedy unions have a stranglehold on the French government. Chirac cannot do the things necessary to reform the French economy because the unions would shut down the country. Unless France radically reforms its inflexible and ossified labor market and regulatory infrastructure, and prevents out of control pensions and other expenses from draining the treasury, the French economy is headed straight towards collapse.

Of course, Chirac not only has to pay the bills incurred by France’s cradle-to-the-grave welfare state, but is also realizing that unless France’s mediocre military is reformed, the French will remain a second-rate power worldwide:

M Chirac has also told his government that nothing must affect promised increases to the defence budget. He believes the French military must at least be equal to the British if France is to be a credible global power.

To this end, he has suggested that defence and research spending be excluded from the stability pact rules.

Germany and Italy are having similar problems to France in meeting the stability pact criteria and are also applying unilateral remedies to the economic downturn.

Which leaves those countries still mulling over joining the euro with a new question. Which kind of flexibility is better? The flexibility of staying out or the flexibility of joining and then ignoring the rules

The Euro can only survive so long as all the players play by the rules. As long as France, Italy, and Germany are willing to break the rules, the Euro cannot continue to be a cohesive currency. Now it appears that Sweden will wisely stay out of the Euro in the next referendum vote.

It is possible for the Euro to remain stable so long as all the major powers cut spending and raise productivity. However, the power of the European Union system ensures that cannot happen without running the risk of complete social collapse. This system has Europe locked in a cycle that can only lead to financial instability or collapse. They need to reform or they will collapse, but reform could very well lead to collapse.

The course for Europe is clear. The power of the unions must be broken by a leader with the vision and courage to do so. Unfortunately, it is a question of how bad things will get before that happens.

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