The EU After Brexit: Better Without the Euro?

In the July 2021 issue of Tomorrow’s World, the “London Calling” article looked at the United Kingdom’s prospects following its “Brexit” from the European Union. In this article, we will consider the other side of the matter by asking, How is the European Union (EU) doing after Brexit, and what are its prospects—especially in light of biblical prophecy?

At the time of this writing, outward appearances suggest that the EU is relatively stable. But, behind the headlines, all is not well. The debt burden in the eurozone, in common with many other areas of the world, ballooned as a result of the struggle to mitigate the impact of COVID-19. EU general government debt has dramatically increased—from 84 percent of GDP in 2019 it is expected to exceed 98 percent by the end of 2021.

Perhaps even worse is that individual member nations’ debts are mounting on bank balance sheets. For example, Italian banks’ holdings of government debt in February amounted to 124 percent of their usable reserves, rendering them extremely vulnerable in the event of further distress. Some financial commentators are warning that the EU is heading towards a new financial crisis. It all has to do with the viability of the euro, the single currency that lies at the heart of the European project (see “Europe Is Heading Toward a New Financial Crisis,” Bloomberg.com, April 12, 2021).

Brexit Ended “Ever Closer Union”

Brexit marked a turning point in the history of the European Union. For 60 years, the EU has continually grown in power, scope, and size. Yet, even as the EU has gained member nations, those nations have diminished in power and sovereignty. What began as an organisation intended to contain and control Germany has ended up as an organisation controlled by Germany, its largest member. At a stroke, Brexit shattered the EU’s founding principle of “ever closer union.” It sent shockwaves throughout the EU and fuelled the need for self-examination and reflection about the way ahead. The EU is being forced to transform itself—or die.

Throughout its history, the EU has been dogged by serious issues that detract from its levels of effectiveness and success. What was first envisaged as a supranational economic federation morphed over the years into a politically driven superstate. Its goal was to become a kind of “United States of Europe” to rival the United States of America. Along the way, what was lost was the vision of one of its founders, Robert Schuman, who envisaged a much greater level of democracy in the way the EU functioned.

Internal dissatisfaction and tensions have progressively grown as the EU has expanded. Unsurprisingly, these factors influenced the UK’s decision to leave. Any discussion about the future of the EU must address the impact of globalisation and the outsourcing of jobs, a democratic deficit in functioning, external immigration into the EU and internal movement within the union, corruption, failure to adequately audit EU expenditures, and a rigidly bureaucratic “Gallic” mindset overarching all EU activity. That’s quite a list.

A Disunited Union

All of this suggests a union that is ineffective in serving the needs of its populace—and not at peace with itself. For example, during her 16 years in office, Angela Merkel, the outgoing Chancellor of Germany, has, more than anyone, influenced the development and progress of the EU. Prominent German journalist Wolfgang Münchau excoriated Merkel and claimed that “the mess she has created is becoming horribly apparent. She leaves behind a split EU that is not just unled but might now be unleadable” (“Angela’s ashes: Merkel is leaving the EU in chaos,” SpectatorWorld.com, July 1, 2021).

Two of the various examples Münchau’s article lists are Merkel’s 2015 “spontaneous executive act” allowing a million Middle East refugee immigrants into Europe, and her decision after the 2008 financial crisis to block the adoption of EU-wide “Eurobonds” intended to mutualize national debts across the multinational EU. Her immigration decision was made without consulting coalition partners or other EU member states, and caused enormous tensions and controversy across the entire EU. Her decision to kill the Eurobonds proposal could very well have caused the entire eurozone to collapse, were it not for the intervention of Mario Draghi of the European Central Bank (ECB). Münchau concludes his article with a lament that the EU could have become strong and united but instead “we see bedlam”—uproar and confusion.

The Conference on Europe’s Future

As the EU faces up to its challenging future, it is having to deal with a whole lot more than the loss of the UK, which comprised 15 percent of the EU’s economy, 20 percent of its exports, and 12.5 percent of its population. In June, the EU embarked on a year-long series of debates and discussions instituted to “enable people from every corner of Europe to share their ideas to help shape Europe’s future” (“Conference on the Future of Europe: Engaging with citizens to build a more resilient Europe,” European Commission, March 10, 2021). Called the Conference on the Future of Europe, the aim of this programme is to produce a better-functioning European democracy.

The goal is to give citizens a greater role in shaping EU policies and ambitions. A list of possible themes includes the EU’s role in the world, how to strengthen democratic processes, and improving the Union’s resilience to crises. The Conference aims to be inclusive, open, and transparent. Commission President Ursula von der Leyen promises that “we will listen. And then, we will act.”

Whether or not this will succeed remains to be seen. The task of taking 27 disparate countries and creating one cohesive Union that is effective, thoroughly democratic, honest, and prosperous is a mammoth undertaking. Some would say it is impossible.

A Fatal Flaw Revealed

Which brings us to one topic the Conference will probably not discuss, though it is the proverbial “elephant in the room” and seems to be the problem with the greatest potential to doom to failure the EU project in its current form: Europe’s shared currency, the euro. Does Europe really need a common currency, or would it be better off without it?

Economist Nickolai Hubble in his book How the Euro Dies discusses with rare clarity what he views as the fatal flaw of the EU’s reliance on a shared currency. This flaw involves centralized monetary policy, a fixed exchange rate for all member nations, and the risk of capital readily flowing en masse to a currency perceived as safer if things go wrong. He explains that, together, these three factors create an impossible dilemma.

Why does it matter that all EU countries, despite differing economies, are forced to share the same interest rate? Because this means that member countries are denied an important safety valve to control their own interest rates, if and when circumstances arise that demand a change. This is especially true when one struggling country could benefit from a lower interest rate while another needs a higher interest rate to curb speculation, inflation, and excessive debt. The needs of northern Europe are different from those of southern Europe, which in turn differ from the needs of eastern Europe. A “one size fits all” approach just does not work in practice and is the cause of continual tensions and crises within the EU.

This is why all currency unions like the euro inevitably come unstuck. Political policy comes into conflict with economic reality, and eventually the former must give way in the face of capital flight. Hubble succinctly expresses his conclusion: “Monetary unions do not fail because of economics. They fail because economics drives politics to abandon them” (p. 79). The UK, for example, learned that the hard way when it was briefly part of the EU’s Exchange Rate Mechanism, and in order to retain control over its currency and monetary policy it decided not to join the euro.

According to Hubble, this is why the eurozone is likely to fail. He quotes Ralf Dahrendorf, former Director of the London School of Economics, saying what many others believe: “The currency union is a great error, a risky, reckless and mistaken goal that will not unite Europe, but divide it” (Hubble, p. 30).

Similarly, Professor Francois Heisbourg—a former Chairman of the International Institute for Strategic Studies—wrote, “The dream has given way to nightmare. We must face the reality that the EU itself is now threatened by the euro. The current efforts to save it are endangering the union yet further” (Roger Bootle, The Trouble With Europe, 2015, p. 231).

Italy at the Brink

Italy is the eighth-largest economy in the world. However, it is mired in debt and has no hope of resolving those debts as long as it stays inside the eurozone. It is essentially on life support from the ECB, which has bent the rules and artfully come up with clever schemes in order to keep Italy afloat. But this cannot go on indefinitely, and a hefty number of loans to Italy are set to come due for payment in 2021. The big question is, how is Italy going to resolve its predicament? Ambrose Evans Pritchard of The Telegraph wrote that “Italy must choose between the euro and its own economic survival” (May 11, 2016).

Roger Bootle, Chairman of Capital Economics, is one of the UK’s best-known economists as well as an acclaimed financial columnist and writer. He writes that “the euro has been a disaster from the beginning. It shows the quality of EU decision-making at its worst, driven by national politics, horse trading, considerations of national prestige and childlike visions of future European unity—with scant regard for economic reality. One of the most important issues… is what the euro’s survival or break-up would imply for the future growth of the EU. Could the end of the euro be part of the EU’s salvation? And if not, what could?” (The Trouble With Europe, pp. 168–169).

Realignment of Nations

As the 27 countries of the EU attempt to come to grips with what amounts to an existential challenge, it would be wise to remember the biblical context within which they function. Biblical prophecy has some powerful things to say about the European project.

The book of Revelation pictures a short-lived power arising just before Jesus Christ returns to rule the nations of this world. It is characterised as a ten-nation construct with a strong leader who is in league with a great religious figure (Revelation 17). It reigns for a short time and even fights Christ at the Second Coming (v. 14).

Importantly, the geographical context of this power lies within the historical area of the Roman Empire, though its short-lived spiritual and trading influence dominates much more widely before its eventual demise (Revelation 18:2–3, 9–11). The arena is Europe; Tomorrow’s World understands from the Scriptures that there will arise a ten-nation power within Europe that will eventually seek to dominate and control the world. The EU that we see now is not this prophesied entity, but may well be seen as a precursor to it.

This situation is fascinating to observe at a time when existing structures are showing serious signs of impending failure. It seems highly unlikely that the EU will voluntarily abandon the euro, but economics may yet determine that it must. Europe, without the suffocating straitjacket of the euro as currently configured, could actually prosper like never before. This is worth keeping in mind as we watch how Europe—and, in particular, Italy—progresses through these existential crises.

If you would like to understand more about the message of the book of Revelation and how it relates to events in today’s world, please request our free booklet The Beast of Revelation: Myth, Metaphor, or Soon-Coming Reality? or read it online at TomorrowsWorld.org.