Wednesday, July 6, 2016

On Brexit - British Exiting the European Union and a History of Empires

Copyright The Guardian
British Exit
This post isn't about an argument, rather it's about the questions we should be asking about what it means for us and the world that Britain now voted to leave the European Union (also known as Brexit). To give you some perspective, I'm in the Galapagos right now, which is owned by Ecuador. Does anybody know what currency Ecuadorians use?

If you guessed the U.S. dollar, you were right. Now why that matters is that I've been meeting a number of British people on my travels. Overnight, on June 24, 2016, the British Pound Sterling dropped 10% against the U.S. Dollar. So, overnight, all the British travelers had to pay for 10% more in Ecuador. Can you imagine? And yes, they were upset at the fallout.

Both the formation of the European Union and one of its members leaving is historic and hasn't been seen in history. So, let's talk a little bit about history.

The latter half of the 20th Century marked the first movement to create what I call superstates. Before that, the largest entities were just states. I just finished reading a book, which has been long overdue for me, called Guns, Germs, and Steel by Jared Diamond (who teaches at UCLA). In Guns, Germs, and Steel, Diamond argues that societies are formed by bands, then tribes, then chiefdoms, and then ultimately, states.

I came to a similar conclusion in my piece of why the Roman empire fell. You can read about it here. My heart of activism Large states, which actually are empires, is not a new phenomenon. There have been a number of empires that have made our Western Civilization books: the Egyptians, the Babylonians, the Persians, the Romans, and the Mongolians, to name a few. So, super large states are not new.

What is new, however, is the rise of these super states at the same time. Or in other words, the coexistence of multiple empires at the same time hasn't been seen (at least not to my knowledge). After World War II, two empires formed: One, the Soviet Union, and Two, the European Union. Then, there was America, which already had a federation of 50 states and several territories. So, post-World War II, in human history, there are essentially three super powers and the existence of a separate countries.

Do we live with two or three super powers now? That's up to debate. With Perestroika, which is the Russian name for the dissolution of the Soviet Union, was it just the E.U. and the U.S.? To me, the Russian Federation still behaves and is a super power (maybe not as strong as it used to be) as the Soviet Union. I'd say, we still live in a world with three super powers.

In my view, there are two purposes for forming the European Union. The first one was to prevent the rise of a total dictatorship in Western Europe from happening once again. Hitler and the Third Reich achieved the feat, and in order to stop one state from dominating the rest, a contract had to be agreed upon, in which member states agreed to binding decisions, either by the political body or by the EU Courts. In theory, if one state becomes rogue (as Germany did with its Third Reich), the EU can agree to band their force and resources together to bring that country in line.

The second purpose is to also band their trade and commerce power together to form the Euro currently, which could rival the Americans. But why have a strong international currency?

In my view, World War II changed the nature and landscape of warfare. Warfare is no longer about firepower and force, because in the end, such prolonged and continued warfare can only lead to the death of the entire human race because nuclear weapons now exist. So, warfare has moved towards different spheres, one of them being economic.

Economic warfare, once again, in my view is done through enslaving nations through debt. To enforce debt, however, requires a strong currency, not a weak one.

Why? A nation could always escape debt of a weak currency by arbitrage. What does this mean? Take for instance, if I'm Afghanistan and I export opium. I borrow $1 billion in weak currency. Over time, the U.S. Dollar becomes twice the amount of the weak currency, meaning, the $1 billion in USD is now only half a billion. I export my opium to the U.S., I get back strong USD. I sell the USD for weak currency. And poof, my debt's been halved. I pay it. I'm no longer enslaved. See, how it works?

So, going back to the first purpose. The world should be asking, will the European Union dissolve?

I would lean towards, "Yes." Historically, federations (united nations or states) get tested and succession breeds more succession. For instance, during the Civil War, South Carolina was the first state in the United States to declare itself to be it's own nation - the Confederacy of America. Afterwards, six states followed. The entire affair led to the American Civil War.

A modern Supreme Court has interpreted the post Civil War Constitution to hold that once you're part of the United States - you're in it for life; you cannot leave. (I never got this one, as Scalia was an originalist, and an originalist Constitution is silent about the terms of whether a state could leave or not; therefore, the framers in their experiment with a federation, probably thought it possible for states to leave.) But there you go: History proves that states will test federalization, and the centralized power will determine the fate of its centralization.

But unlike the United States, I also believe that European nations are not willing to relinquish their own sovereignty for the European Union. In other words, when push comes to shove, will States give up their own power, money, resources, and people for the better good of the entire nation?

For instance, if the EU taxes you, and your country needs that tax in crisis, should your country come first or should it be the EU? Because of the Civil War in the states, each American state knows the answer to that. The feds come first, not the state.

But the EU, hasn't been tested with such a crisis yet? In the end, I predict each state will do what's in their best interest. Hence, I believe that BREXIT is the beginning of the end of the EU.

Finally, let's talk about the Euro. The Euro was a doomed project from the beginning. (I'm sorry to say it to those who are my European friends, but a simple understanding of currency shows why.) When the United States formed, each state was like its own country. To make a united currency, all the debt had to be consolidated. And, only the federal government could bind the country to debt.

What does that mean? It meant that the federal government had to take on the debt of each state and turn it into one loan. That way, the terms and conditions of the loan were uniform, and only the federal government could negotiate or settle those terms. The reason for doing so, is that it prevents arbitrage against the currency. (To be discussed, if enough people show interest.)

The Euro never consolidated the debt; hence, it was and still is open to arbitrage. And that only further stresses another problem, with a transnational currency like the Euro, each country has to obey the currency rules in place. But without a strong centralized system of enforcement, countries break the rules, at the expense of member states that follow it.

So, for all these reasons, the Euro was doomed to fail before it was ever printed. In my view, my generation will see the Euro currency die, and member states return back to their own currencies.

Hence, to conclude, the questions BREXIT leaves us with are two. One, will other member states also succeed the EU, signaling its demise? Two, will the Euro last?

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