Fever Dreams about the Collapse of the EU
Wishful thinking is a poor basis for strategy
"Sevilla: Former pavilion of the European Union" by harry_nl is licensed under CC BY-NC-SA 2.0
In January, euroskeptic politician Nigel Farage predicted that the EU would collapse within ten years as Italy, Denmark and Poland allegedly follow the UK’s example and leave. It isn’t the first time that he has made similar predictions. He said the bloc would collapse in 2016, both before and after the UK referendum on EU membership delivered a surprise victory for Brexit. He has also made similar bets many times in the past, including comparing the EU to the Titanic in 2012.
The Daily Express - the house journal of UK euroskepticism - regularly publishes articles that predict the imminent collapse of the EU. Back in September, the EU was said to be on the brink of collapse because of mismanagement by German chancellor Angela Merkel. The source was an anonymous blogger. In July, the EU was allegedly going to fall apart that very week due to a series of court cases. In February, the paper said that the EU had messed up its vaccine response and that Sweden might leave the bloc, leading to its collapse.
So, are Farage and the Daily Express right? Is the EU really going to fall apart any day soon? Digging into previous posts of Sharpen Your Axe provides us with some useful tools to help assess these claims. It is interesting to note that the people who think the EU is about to collapse see themselves as opponents of the project. They are populist nationalists. The theory of motivated reasoning suggests that they have started with their emotions and are then rationalizing their dislike of the EU. As con artists know, people are primed to believe what they want to be true.
Farage and the editors of the Daily Express can be seen as hedgehogs, who have one big idea, rather than foxes, with lots of different ideas. Hedgehogs are worse than foxes at making predictions, particularly when they are unreflective, but their sense of utter certainty can make them surprisingly persuasive. Starting with a big sweeping narrative and then cherry-picking data to fit it is a poor methodology, as we saw last week with the example of populists who misunderstand the nature of Spanish democracy.
What we should do instead is try to think like Bayesians, who assign percentages to their beliefs and then move them up and down as the evidence changes. It is actually quite difficult to set a number on the EU collapsing because it is such a unique project and we can only run one version of the universe at a time. The risk clearly isn’t zero, as all sorts of administrative regimes have come to an end over the centuries. However, its closest predecessor, the Holy Roman Empire, managed to last around 1,000 years, so the risk probably isn’t very large in any particular year.
Whatever number we come up with as a starting position, small and specific bets can help us adjust it up and down. There will be elections before June 2023 in Italy and Denmark and before November 2023 in Poland. How many seats will go to euroskeptic parties in each country? If we over-estimate the euroskeptic result, we should adjust our prediction about the collapse of the EU downwards. If we under-understimate, we should adjust it upward. Previous bets could have looked at whether Merkel’s decision to leave German politics would lead to an increase in euroskepticism in the heart of Europe; the impact of the poor economy in 2012; the result of the Polish court cases mentioned above; whether the EU’s poor start to its COVID vaccines would continue; and how Swedish voters would see vaccines and EU membership.
As a financial journalist based in the eurozone, I can tell you that it is absolutely true that 2012 was a very tense year. It wasn’t clear that the euro was going to survive as a currency. If you’d asked me at the beginning of the year, I might have put the risks of the euro failing as high as 10%, with poor consequences for the EU. However, as soon as Mario Draghi, then governor of the European Central Bank (ECB) and now Prime Minister of Italy, said that the ECB would do “whatever it takes” to save the euro in July 2012, the mood changed suddenly. The perceived risk of the EU collapsing fell sharply based on just one speech.
The risk of a collapse within the next five years is probably around 1% now, although if you wanted anywhere up to 3%, I wouldn’t argue with you too passionately. The corollary (a proposition that follows on from a previous one) is that the chances of the EU surviving in the short term are somewhere between 97% and 99%. The UK’s exit from the EU appears staggeringly unlikely to cause a domino effect. This has serious implications for Brexit.
First of all, it means that the UK can’t bully Ireland. We have already seen that the architects of Brexit failed to consider Irish issues in enough detail before the referendum. Hopes that Ireland would follow the UK out of the EU were based on wishful thinking rather than a cold, hard analysis. The Irish population of 5m might be dwarved by the UK’s population of 67m, but it doesn’t matter at all if the EU stick together with the same spirit as Article 5 of the North Atlantic Treaty Organization (NATO). After all, the EU has nearly seven times as many people as the UK, with a total population of 448m.
Should Northern Ireland effectively stay in the EU? Then you’ll need an internal border in the Irish Sea. Should there be a hard border between Northern Ireland and Ireland? This would risk the Good Friday Agreement. Neither of the options is any good.
The second consequence is that the pain between the UK and the EU will be asymmetric. The EU will be able to impose its trading rules on the UK, which won’t have any mechanism whatsoever to influence them. The fundamentals of what Farage and other campaigners for Brexit called “Project Fear” appear to have survived the test of time, although not every specific prediction was right in every detail.
Once again, we have seen that starting with a narrative and working backwards can have bad consequences. It is much better to be skeptical: Suspend judgement when you come across a big, sweeping story that engages with your emotions and get very, very specific. See you next week!
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[Updated on 10 March 2022] Opinions expressed on Substack and Twitter are those of Rupert Cocke as an individual and do not reflect the opinions or views of the organization where he works or its subsidiaries.