There Was Shrinkage

One of the better developments in America in the 1990s was a television comedy show called Seinfeld. One especially memorable episode was the one in which character George Costanza was on holiday with a woman whom he hoped would soon become his girlfriend. George went for a swim in the pool (the water was chilly), and the woman accidentally saw George in the buff, when she entered his room after his swim. As any man will know, cold water does not serve to flatter male genitalia, and, as George's would-be girlfriend exited, laughing, George cried after her, "I was in the pool! ... There was shrinkage!"

I'm not sure quite why, but, as the events unfold ever-more quickly in Europe, George's cry repeatedly comes to mind. Following the formation of the EU in 1993, politicians assured the public that "the New Prosperity" would be never-ending. Unfortunately, time has proven them wrong, and, with each new downward economic event, politicians seem to resemble George Costanza in their surprise and frustration that "there was shrinkage."

The shrinkage, of course, is seen everywhere - in the job market, international trade, new business start-ups, profit levels, home sales, value of currencies, and on and on.

Shrinkage Resisted

Whilst we have been predicting for many years that the EU will either partially or completely go the way of the dodo, the politicians of Europe have consistently insisted that the EU is here to stay. Only recently, as the situation in Greece has become clearly unsalvageable and other countries in the Latin EU have been headed in a similar direction, have Europe's politicians begun to capitulate. And, in doing so, they have not chosen to simply wave a reluctant goodbye to Greece. Their posture has been more that of schoolchildren who have just knocked their cricket ball over a fence into the yard of an unfriendly neighbour and are now distraught over their unexpected misfortune.

Typical of this trend is a comment by Robert Chote, head of the Office of Budget Responsibility for the Tory party, as stated in a 21st May staff report from The Daily Bell. (The) "British economy may never quite recover from a severe Euro collapse."

Mr. Chote is Government's Chief Economic Forecaster and should know his onions; however, this assessment is a tad over the top. Possibly what he really means to say is, "My career may never quite recover from a severe Euro collapse."

The report states that, "The elites - we seem to be able to see - don't really care much about the populations they inconvenience or even ruin. The EU it turns out was nothing but a vast table of bankruptcy masquerading as a buffet."

Well stated, especially that last word. The EU, prior to its inception, was presented to European voters as a sort of economic buffet - an opportunity for all Europeans to step up to the table of goodies and pick and choose amongst the offerings from all the prospective EU countries.

However, like most constructs of politicians, it did not work out quite that way. Yes, it has been a buffet table of sorts, but the goodies have been enjoyed primarily by the politicians themselves. Along the way, they have created an all-powerful central government in Brussels, the representatives of which are appointed rather than elected.

So, whilst it seems that nearly everyone involved in the EU (with the possible exception of Nigel Farage) seems to be whining that the ball has gone over the fence and their fun is over, the sad fact is that further shrinkage is still to come.

First, the Obvious Shrinkage

The EU itself is likely to have one fewer member at some point following the Greek election. Eyes will then turn to the other Latin EU members to see whether they, too, will go by the wayside.

Soon to follow will be the question of whether bailout money will still be offered to countries that have exited the EU. (Yes, it would be absurd, but there has been a fair bit of absurdity in Europe of late.)

Then, the Attempts at Containment

As the EU begins to fold in on itself, it is reasonable to expect that the politicians will do their best to contain investment within the EU. Therefore, further draconian currency controls are likely to be instituted.

But, Exceptions can be Expected

It goes without saying that no shrinkage in taxation is likely. The Inland Revenue departments of the EU countries will, if anything, grow, as more staff become necessary to collect tax from those who are likely to have a more difficult time paying.

There will also be no shrinkage as to warfare. Whilst a collapsing economy would tend to suggest that the military be downsized, historically, this tends not to happen. Quite the opposite, in fact. From the Romans on down, when countries find themselves in dire financial straits, they tend to continue to pump money into their militaries even if it ultimately breaks them economically.

And, finally, there will be no shrinkage in the size (or power) of the individual or collective governments. Governments on the wane are not known to downsize, even when it has become clear that the present size cannot be maintained. Some even increase in size, whilst also increasing in force, in a last-ditch effort to buy another term, another year, another month.

So, to what degree will the EU shrink? Will it devolve into a Teutonic EU and a Latin EU? Will the Latin countries simply be jettisoned, to be on their own as individual sovereign countries as they were before the Grand Experiment? Or will the EU collapse entirely? Stay tuned.

Tags: economic collapse,