The European political elite [has developed] a habit of profound disrespect for public opinion and democratic process.

– John Plender in the Financial Times

In my last post, on Brexit, I argued that the so-called “enlightened” Remain voters in London were in fact blinded by their own economic self-interest, while it was the so-called “uneducated, ignorant, susceptible” Leave voters who were actually thinking about the long-term interests of their country. In particular, these voters were worried about democracy, financialization, debt and inequality. Let’s take up the democracy issue first, since it’s the most important.

When the early versions of the EU were formed (the Iron and Coal Community in 1951 and the European Economic Community in 1957), democracy was in ill-repute in Europe. Mussolini had been popularly elected in 1924 (overwhelmingly) and again in 1934 (with 99.84% of the popular vote). While Hitler lost the 1933 presidential election to von Hindenberg, his National Socialist Party had become by far the largest in the Reichstag and, a few months after the election, Hindenberg had no choice but to name Hitler as Chancellor.

Parliamentary democracy seemed to have led directly to the horrors of World War II, and an important part of the reasoning behind the formation of the EU and its predecessors was to “tame” those unruly democracies. The result has been that the history of the EU is replete with anti-democratic actions, decisions, and structures. For example, although it seems to have been forgotten, the UK’s application to join the EU’s predecessor, the EEC, was vetoed – twice – by Charles de Gaulle, despite the fact that every other EEC member was in favor.

In 2005 the French voted against the EU constitution, and the Dutch subsequently followed course. The EU simply ignored these votes, and in 2007 the French government itself ignored the vote of its people – Nicholas Sarkozy simply had the French Parliament approve the EU. In 2015 60% of Greeks voted to leave the EU. Both the EU and the Greek government ignored the vote.

The very structure of the EU government makes a mockery of democracy. The European Commission – the only body that can propose legislation – isn’t elected at all. Instead, its 28 members are appointed, and each member swears an oath to represent only the interests of the EU, not the interests of the member’s home country. Imagine American Congressional Representatives who swore not to represent the interests of their constituencies.

The EU equivalent of the US Congress consists of a Council, similar to our Senate, whose members aren’t elected, and a Parliament, whose members are elected. But no one in Europe knows what the Parliament is supposed to do. It can’t propose legislation, it can’t enact legislation and it has little control over its own budget. If all this weren’t bad enough, the Parliament is elected by 500 million people and consists of no fewer than 751 members who speak many different languages and who have almost nothing in common. It’s essentially a charade, not much different from the “parliaments” of the former Soviet Union or of China and North Korea.

But even these sham forms of democracy understate the “democracy deficit” at the EU because virtually everything that matters happens at the bureaucracy level in Brussels, and these anonymous pronouncements have the word of law in every EU country.

What makes a democracy work isn’t the empty forms of elections and representatives. It’s the firm sense of the people that their voice matters, that they can have their say and their influence on policy. Nobody expects that their opinions will always prevail, of course, but simply being part of the group whose voice matters means that we go along with the outcome whether we agree with it or not.

Consider the immigration issue which, if you listen to embittered Remain grandees, proves that the Brits who live outside London are xenophobic blockheads. Immigration was, in fact, not the most important issue on the minds of Leave voters – ranking above it in every poll were democracy and self-government.

Well, of course they were. The Leave voters weren’t opposed to immigration per se, they were opposed to uncontrolled immigration (and its possible cousin, uncontrolled terrorists) in which they had no voice. Immigration policy is made in Brussels, at the EU level, and every EU country is simply stuck with it. In fact, even to call the EU’s position on immigration “policy” is far too dignified. Let’s take a look at how the EU’s “immigration policy” came about and why it infuriates the Brits (among many others).

Way back at the beginning of what is now the EU, the Iron and Coal Community allowed free movement of workers among the member countries, although those workers still required passports and all countries maintained border controls. In 1985 five of the ten EEC countries agreed, in the small town of Schengen, Luxembourg, to abolish border controls. In 1990 the Schengen Convention completely abolished all border security, so that signatory countries now operated, for migration purposes, as one state. Finally, in 1999 the EU incorporated the Schengen treaties into EU law, meaning that EU members suddenly had no control over their own immigration policies.

Open borders in the EU was one of those feel-good, “enlightened” policies that, like so much else about the EU, was simply delusional. No one ever imagined millions of impoverished migrants pouring into Europe from places like Syria and North Africa. No one imagined that an alarming number of those migrants might be terrorists bent on the destruction of Western society.

And once that migration began, the EU countries discovered, to their horror, that they had no way to deal with the problem because only the EU in Brussels had any authority over it. And since every EU country had a profoundly different view about how to deal with the migrants, Brussels couldn’t act. The EU now finds itself in the bizarre situation of facing a potentially existential threat over which it has control whatever.

Maybe having no control over their destinies works just fine for some in Europe, but in the UK, the birthplace of democracy in the modern era, going back to the Magna Carta in 1215, the EU’s immigration policies were recognized for what they were – anti-democratic and barmy. Immigration issues might have provided the proximate cause for the Brits’ concern about remaining in the EU, but the final vote came down to a simple calculus: do we want democracy or don’t we?

Next up: Waking Up on the Wrong Side of History, Part 3

Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

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