It has been said, especially by this Blog, that the Euro cannot survive and that the EU itself is going to unravel. Neither is correct yet both are true within the definition of what was supposed to be. What is happening is that Europe is morphing into what it was set up to prevent. At some level this is good news, but there will be a lot of change. What will be avoided is a catastrophic collapse. Let me explain.
The pointers lie in the markets shrugging off both the No in Italy, once more without a government, and the potential threat to the Eurozone of Italian financial instability and the tottering nature of its banking system. The market has worked out that Italy no longer counts, because Europe has become part of a German economic empire. The euro is plainly not actually a shared currency; it is the German currency shared. This is not the fault of the Germans.
They have suffered and worked to build an industrial superpower, which joins fiscal discipline, economic management, technology, R&D, unity between management, workforce and stockholders, democratic government decentralized but with a strong centre, and a living standard which no other major country in the EU can match. They have accepted a million refugees but they have space and resources in the east which will be mobilized to provide jobs for the newcomers which will increase German GDP still further. In other words the Germans have been very successful, they will not compromise and threaten their own prosperity and neither of the other two major industrial powers in Europe, France and Italy, can keep up. And they do not want to, because they are culturally different in outlook, attitude and application. Above all they do not want to become like Germans.
The masses in both France and Italy have had enough. Their politicians are impotent to help them, their living standards are flat-lining, unemployment is terrible and among young people, exotic. At the very least both will have to leave the euro, because both must have a currency which reflects the facts of their own social and industrial landscape. In other words they both have to devalue. Others like Greece and Portugal may follow, or they may decide to struggle on through monastic austerity to meet German standards. They know Germany will not bend and it will depend upon the tolerance of their voters. After initial volatility, which is always near the surface as globalization adjusts, the markets will like all this because the mayhem will provide exceptional opportunities for profit in the revival which will follow.
It will fundamentally change the nature of the European Union. It will most likely be either smaller with France and Italy, perhaps Spain too, out, or more loosely joined, with a soft outer ring but a hard German core, including smaller mainly northern states willing to use German euros and thus be governed by German economic sovereignty. And then it gets really interesting. France and Italy will be headed for a significant industrial revival producing cars, fridges and even ships at lower cost than the Germans, which will restore their self esteem and standard of living. The euro will rise because it is no longer dragged back by the two weaker economies, and German competitiveness will be eroded. German growth will slow. German power will be curbed, but by the opposite strategy to the one designed for the purpose.
As for the UK? Already there is a serious question mark over the integrity of a referendum which offered a smooth and cost free Brexit, which we discover to be impossible. There is now the prospect of negotiations to establish a future relationship with an entity no longer there. All the more reason to look, not for the first time, to the New World, rather than the Old.