French President Francois Hollande quote:
“Circumstances are leading us to accelerate,” Hollande said in an opinion piece published by the Journal du Dimanche on Sunday. “What threatens us is not too much Europe, but a lack of it.”
Many have been hoping that the Greece crisis, and perhaps soon Portugal, others, would lead to a break up of the European Union. Many have pointed out that the EU is poorly designed and undemocratic. However, I wish to argue that the EU was never intended to endure. It was intended as an entry into an integrated European empire.
During this time of uncertainty and change, there is a chance we’ll have good change, breaks from the EU. But it is also possible we’ll see bad change, a new integrated European leviathan: A clone of the American leviathan.
Lesson learned: Free trade and open-border immigration lead to an integrated polity. And revolution can bring good or bad change.
Perhaps pressured by its voters, Switzerland shocked speculators today by unpegging the Swiss Franc from the Euro leading to a dramatic rise in the Franc’s value.
This is a win for Switzerland. Savings, real wages, and real spending power will now increase in value. While a weaker currency makes Swiss exports cheaper, Switzerland could, instead of buying Euro paper, protect a few specific industries via trade protections while declining to protect other industries favoured by trading partners.
There is a risk the Swiss will now hoard Francs rather than invest in their economy, but such a situation would correct itself eventually. Foreigners buying Swiss Francs instead of gold as a safehaven could be a major benefit in the short-term if uncontrolled QE continues around the world. Francs are more liquid than gold and could become popular.
When a bank buys Euro paper to lower its currency’s value, it is spending its own citizens’ money. A primary argument for higher exports is an improved economy-of-scale. However, there is a limit to how much of a benefit economy-of-scale provides.
If real Swiss wages rise to uncompetitive levels due to deflation, there is nevertheless some inherent value in the quality work the Swiss are known for. And I doubt most Swiss would mind the resulting pay increase for workers and reduction in their wealth gap (Swatch executives might have to take a pay cut if exports and overall production by Swatch are reduced).
Note the difference between nominal wage and real wage. A strong Franc makes foreign (e.g. EU) goods cheaper to buy while increasing the price of domestic goods to foreigners.