11A148 Splendid Isolation by Jim Davies, 12/11/2011    

That's the historian's phrase to summarize British foreign policy in the 19th Century, and it's been dusted off this weekend after Prime Minister David Cameron shocked the world by saying No in Brussels on Friday.

Is it "splendid"? and will it serve Brits as well as the policy did a century and a half ago?

First we must note, as the linked article does, that Cameron is far from withdrawing the UK from the EU. He simply said, in effect, that the UK never joined the inner circle of Euro users and will not come to their rescue now that those users have messed up. "Merkozy" are peeved about that, and I have some sympathy for Merkel, at least, since the German government has been the least profligate of them all; but the present crisis of gross government overspending is ample proof that when the UK and eight other nations declined to abandon their own currencies, their judgment was sound. The Eurozone made its bed, and must lie in it. But the rest of the EU treaty, which provides for open trade within member territories, still applies and Britain is a member. "Isolation" is not a good descriptor.

Next, it must be said that in the 19th Century the UK traded very largely with its own Empire, upon which the sun never set; traders were active in continental Europe but did not depend upon it. Raw materials like cotton were imported from India and Egypt (and from the former colonies South of the Mason Dixon line) and finished fabrics were sold back to customers worldwide by this "workshop of the world," to the great benefit of all parties. Such is free trade.

That Empire morphed into the Commonwealth, and over the past half century it has clearly divided into a prosperous part (Australia, New Zealand, Canada) and a corrupt, third-world part (all of the English-speaking African dictatorships, except South Africa.) India is, I'm delighted to say, fast moving from the latter to the former, while Pakistan seems a little conflicted between them right now. They are still perfectly viable trading partners; Britain does well from trade with Europe, but does not depend upon it. If tariffs were re-erected, all would not be lost.

As I noted in United States of Europe?, while Merkel's Germany is the least culpable in the present mess, she is foremost in hoping to prevent a repetition by binding Europe closer together with a political union, with control over each country being surrendered to a super-State; a repugnant idea and completely needless for the smooth operation of a free market. To the extent that Cameron's "No" protected Britons back from that fate, he did a good day's work last week.

Here, then, is a full solution to the mess that Europe's governments have created.

1. Recognize the vast difference between political and economic "isolation" - and the same advice is urgently needed by the idiots who falsely smear Ron Paul with that label. Political isolation - stepping clear of rule by government and supra government - benefits everyone, while economic isolation - hindering trade across national boundaries - condemns residents to a permanently low standard of living by denying them access to the great benefits of division and specialization of labor, in which the work is done by those best able to do it.

2. Preserve the policies of zero tariffs and zero immigration controls, at least within the EU and preferably altogether, so as to keep those benefits.

3. Forget all your schemes and dreams of becoming a political superpower.

4. Forget trying to control the quantity and value of a common currency, and surrender your own to the market, which I assume will pick gold. Gold will impose its own fiscal discipline (which is what you now, belatedly, say you need) because no bank will be able to lend more gold than it owns and will lend none without very credible collateral. It will also provide traders with an automatic common currency and hence the incidental convenience of not having to monitor currency exchange rates, and tourists with that of not having to visit bureaux de change.

5. Go out of business altogether and let people do as they want.

Will those five steps rescue bankrupt governments like Greece's? - no, of course not. No rescue is possible. They must be left to lie in the beds that they have made. After declaring the obvious truth (that they cannot pay their debts) they ought to have their assets seized by their creditors. Since they have no actual assets that isn't possible, so their creditors may go belly-up also; and they will be scavenged in a market process of creative destruction. When all is finished, a couple of years or so from when you take these actions, the Continent will be well set for a prosperous future.

This advice is the best you European governments will ever get, but I offer it free of all charge. You can thank me later.

Oh, one more thing. According to M. Sarkozy, "David Cameron asked for something that we all thought was unacceptable: a protocol in the treaty that would allow the United Kingdom to be exempt from a certain number of regulations on financial services. We weren't able to accept that..." Yes, Prime Minister: I can well understand how ruinous are regulations on finance.

So to demonstrate your sincerity and to begin the process of accepting my five suggestions above, why not propose to Parliament (by year's-end, say) that the forest of regulations with which your government chokes the life out of British financial activities like earning, saving, spending and saving be ripped up and thrown away? - that would unleash a new era of prosperity that will make the rest of Europe green with envy.

Let's wait and see whether Cameron does that. Wait, but don't hold your breath.

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