Another good one from Holman Jenkins in today’s WSJ. From Cameron’s Propitious Miscalculation:
Suddenly this earthquake seems to have less to do with the U.K. than with something altogether bigger: Investors globally starting to question the institutional framework that has been inducing ultralow interest rates while supplying central bank actions to prop up the industrial world’s most heavily-indebted governments.
OK, let’s not overinterpret the first-day moves. So certain were markets that the U.K. would vote to remain in the European Union, many investors held leveraged long positions that they suddenly felt the need to unwind. The selling pressure has been exaggerated. Still, the sentiment among British voters is not all that different from sentiment in many countries in Europe, where the EU has not been popular. And for good reason: It has not delivered prosperity or economic stability. The euro especially has been disaster for many countries that aren’t Germany…
The ideal of democratic control of national borders was an especially powerful motivator for “leave” voters. It may well be that Angela Merkel’s open-door to Mideast refugees in August of last year provided the margin of defeat for the U.K. “remain” cause. That said, those who believed the British economy slit its own throat when it stayed out of the euro 13 years ago were wrong then and likely are wrong now in thinking Brexit necessarily means a downhill slide for the U.K. economy.
There’s a reason that people like European Commission President Jean-Claude Junckerand former Italian Prime Minister Enrico Letta are calling for retribution against Britain to deter other potential exiters. It’s the same reason Italian and other continental stock prices were hit hard. Many European governments are effectively insolvent; they fund their public deficits only because the European Central Bank underwrites their IOUs. The fiscal superstructure of these countries survives, in essence, on the credibility of the same European elites whose wardrobes British voters found so wanting in Thursday’s vote.
Every so often somebody accuses Journal contributor and Nobel Prize economist Robert Mundell of being the “father of the euro.” He wrote a two-part series for these pages in 1998, “The Case for the Euro.” Less remembered was Part Three in all but name, which arrived a few weeks later, putting a finger on what would prove the eurozone’s fatal flaw: The “moral hazard” that would flow from an expectation the EU would bail out profligate members and thereby “weaken the imperative for fiscal adjustment.”
Eighteen years later, this observation defines the failure of the European Union project. Economic growth is largely absent. Debts are growing. Youth and immigrant unemployment is creating a generation without skills and habits of work. It’s increasingly hard to see how a France or Italy will ever right itself within the eurozone, coddled by the European Central Bank, making it impossible for politicians to generate any urgency for domestic reform.