The Blog

  • June 24, 2016
  • Brexit

    2d7c08db-9d87-43ce-921f-513acca86f7e-2060x1236I was not a fan of the British exit from the European Union (Brexit) but as the returns are broadcast around the world, I think I understand it—at least as well as a man who owns a hammer understands the world’s problems.

    Before the ink was dry on the enabling legislation, the Maastricht Treaty (a.k.a the Treaty on European Union or TEU), it was already obsolete. It was no secret that the idea of a united Europe would serve as a damper on Europe’s repeated bloodletting of which the twentieth century’s two world wars were a mere sample. But this thinking was merely a good example of fighting, or in this case preventing, the last war.

    The big need that Maastricht provided a solution for was commerce. The 28, and soon to be 27, member states each had their own currencies and doing business in such a fractionalized area presented big challenges while wasting significant sums of money, time, and other resources simply to overcome the friction inherent in continental trade. The same was true for moving people around with all the passport and border friction.

    The overhead of having to support all of the functions of a nation-state also represented significant costs especially for smaller countries. For instance, Denmark has a population of about six million, nearly the same as my native Massachusetts yet I can’t imagine how my state could afford a small defense force, its own currency, and border patrol, along with shouldering the significant costs of running embassies around the world. Also, some of the western states have populations in the half million range; though they might be large in area they couldn’t support the functions of a nation-state either. So I empathize especially with smaller European countries, for them joining a larger union made sense.

    A common market serves the original need nicely but the project immediately ran into scope creep, that tendency for a project founded on a good idea to expand until it is more bother than it is worth. Maastricht was like that. On top of a simplified trading system leaders added a political structure and constitution (that was rejected) and a common currency that could only be maintained by micromanaging otherwise sovereign nations’ economies. The common currency worked well in good times but when economics took a nosedive many of the weakest members of the currency union such as Portugal, Ireland, Italy, Greece, and Spain among others found they were like small sea creatures washed up on a beach by high tide.

    “Europe” the designation people like to use to signify the post Maastricht continental outlook, simply took on too much. It was unreasonable to think that the ancient countries that make up the union—many tracing their origins to the Roman Empire—could unite and become what many called a United States of Europe. The union is now foundering on its currency but also on its nonsensical insistence on porous borders that freely enable anyone from one part of the continent to move elsewhere.

    You can’t blame individuals for wanting to find a better life, but it should have been seen that the path of least resistance for people in poor or unstable circumstances is to move instead of attempting to overcome what for many was centuries of mismanagement, corruption, and discrimination. The Syrian diaspora is all the proof you need.

    So what does this have to do with technology?

    Very simply by the time of Maastricht, good, fast, cheap, and reliable technology was already in place helping to sort out some of the thorniest issues in trade and exchange and it has only gotten better. The European solution was and still is not to form a physical union but to form a better virtual one—there should be an app for that.

    For example, there really is no need for the Euro as a circulating currency and frankly the world would be better off if it became a reserve currency only. There are only a few reserve currencies in the world today the U.S. dollar is predominant but there can be room for another. If Europe went back to sovereign currencies like francs and guilders and lira, every country would be free to inflate its currency as needed greatly reducing the real problem of how Portugal or Greece would pay back their Euro debts. Inflation would make a currency less valuable and thus it would purchase fewer Euros but as a matter of practical internal or national economics national currencies could do much to get economies running again if they had their own currencies again. This is not just me talking, it’s based on concepts developed by people like J.M. Keynes.

    There are apps for this and for many other things that Maastricht attempted to fix and if the apps don’t exist they can be made. Purchasing with smartphones and plastic instead of cash would take care of nasty exchange rate issues in that back end servers would do the conversions. Crossing borders could be as simple as implementing national or even international biometric identification systems like those currently used at airports.

    True, the free flow of people across borders would slow but that has not proved to be an unmitigated good thing for the host countries anyhow. Forced to stay home there is no telling what creative solutions local populations and the international community might develop for seemingly intractable problems. If this sounds cruel it is not intended to be, it is simple a realization that moving a population across international borders doesn’t solve that population’s problems, it simply moves them.

    So my point is that Maastricht can be replaced with modern technology and I’d venture that if it had happened ten years later or if technology had matured sooner it might never have been implemented. Applying technology is a market-based solution that, of its nature, would solve some, but not all, of the problems Maastricht tried to undo—remember the scope creep issue.

    Maastricht should not be seen as a failure. It was a bold experiment in self-governance that didn’t work well enough. The United States went through a similar episode after the Revolution. Our first government was organized under the Articles of Confederation, which lasted from 1777 to 1789 when the current constitution went into effect. Maastricht has lasted twice as long.

    In business as in almost any other human endeavor success is measured by how fast and how well you fix your mistakes. Maastricht was a good attempt but it has been overtaken by events and technology’s inexorable march. Time to pivot.

    Published: 8 years ago

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