French vote by department. The Front National (FN) is in grey
Brexit would change the chemistry of the union, leaving Germany in a hegemonic role it does not want, and leaving France in a very awkward "menage a deux". It would deprive the smaller free-market states of their policy champion and risk a chain reaction. A looser trading sphere might all too quickly emerge as a more alluring prospect along the Nordic-Protestant rim. Eurosceptics won the vote in Denmark, just as they did in Britain.
It is a fair bet that EU leaders would search for an amicable formula, letting Britain go its own way while remaining a semi-detached or merely titular member of the EU. Let us call it the Holy Roman Empire solution.
Yet Britain is the least of their problems. The much greater shock is the "Séisme" in France, as Le Figaro calls it, where Marine Le Pen's Front National swept 73 electoral departments, while President Francois Hollande's socialists were reduced to two.
Mr Hollande's address to the nation on Monday night was mournful. He had no answers beyond a few pro-forma utterings about "growth, jobs and investment", instantly undercut by his vow to press on doggedly with the same contractionary policies that led to disaster. His premier, Manuel Valls, even had to announce that the president would see out his five-year term, as if this were already in doubt.
It is widely claimed that the Front is eurosceptic only on the surface. Perhaps, but when I asked Mrs Le Pen what she would do on her first day in office if she ever reached the Elysee Palace, her reply was trenchant. She would instruct the French Treasury to draft plans for the immediate restoration of the franc, that great symbol of emancipation from the English occupation (franc des Anglais).
She vowed to confront Europe's leaders with a stark choice at their first meeting: either to work with France for a "sortie concertee" or coordinated EMU break-up, or resist and let "financial Armageddon" run its course. "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?" she said.
She said there can be no compromise with monetary union, deeming it impossible to remain a self-governing nation within the structures of EMU, and impossible to carry out the reflation policies necessary to defeat the economic slump. "The euro blocks all economic decisions. France is not a country that can accept tutelage from Brussels. We have succumbed to a spirit of slavery," she said.
The EU authorities are now in a near hopeless situation. The logic of EMU is a further erosion of nation states. The "Two Pack", "Six Pack" and "Fiscal Compact" are all coming into force, and national regulators are losing control over their banking systems. The euro will inevitably lurch from crisis to crisis without some form of fiscal union and debt pooling. Yet voters have just let forth a primordial scream against any further transfers of power.
With the exception of Germany, the elections were a broad repudiation of EMU austerity. The two dominant parties of the post-Franco order in Spain saw their share of the vote drop to 49pc from 80pc last time, with the Podemos radicals coming from nowhere four months ago to win 8pc with a campaign to "stop Spain being a colony of Germany and the Troika".
The austerity coalition that has pushed the Netherlands into debt deflation crashed to 21pc. The ruling enforcers of EU-IMF Troika policies fell to 31pc in Greece and 28pc in Portugal.
Italy's new leader, Matteo Renzi, bucked the trend with a record vote of 41pc for the centre-Left, but his triumph is no less a threat to the EMU policy regime. After watching fellow Socialists in Europe destroy themselves trying to perform root-canal surgery on their economies without anaesthesia, he is going for growth whatever they may say in Brussels about EMU deficit rules. If anybody has the panache to lead a reflation revolt, it is this irrepressible Tuscan gambler.
Yet the elections have thrown up another wild card. Germany's Alternative fur Deutschland (AfD) has stormed onto the scene with 7.5pc of the vote. For the first time the anti-euro movement has an electoral platform to rail against bail-out policies or any deviation from orthodoxy by the European Central Bank. It is now even harder for Chancellor Angela Merkel to yield ground, whether on a debt redemption fund to chip away at legacy debts, or on the pace of fiscal retrenchment.
Strasbourg's Hemicycle is to become a chamber of militancy and protest where a Babel of voices shout down all action in languages the others don't even understand, like the Habsburg Empire's Cisleithanian parliament in its final years as the polity was falling apart.
Europe's leaders are counting on recovery to rescue them, relying on the rest of the world to generate the necessary demand, but creating none itself. This is courting fate at a time when China is choking its credit boom, most of the Brics are in trouble and the US Federal Reserve is tightening.
Italy, Holland and Portugal fell back into contraction in the first quarter, and France stalled again. The latest data show that the M3 money supply shrank again in April. It is the new normal of perpetual stagnation.
Europe's "Fiscal Compact" has set in motion a doomsday machine, requiring states to retrench for year after year by law until their debts are ground down to 60pc, and we are all dead. The best that can be hoped for is 1pc growth in southern Europe through the decade, too little to prevent a lost youth or to halt the rise in combined public and private debt ratios.
Claims that all is well are belied by strong hints that the ECB will venture into the unknown next week by cutting the discount rate below zero and launching asset purchases. Central banks do not embark on such policies unless something is badly wrong. The stimulus will not be enough, of course. The ECB's structure makes it incapable of acting with the overwhelming force of the Fed or the Bank of Japan, and it will therefore fail to break the recessionary psychology.
At some point the global cycle will roll over, leaving this crippled zone facing the prospect of another downturn before it has eked out any worthwhile recovery. It is a sobering thought. Unemployment may jump to yet higher plateaus. The European elections of 2019 may see the annihilation of the existing party system, if we get that far.
Let us not lose sight of what has occurred. The root cause of this social, political and economic disaster is EMU. As Nobel economist Paul Krugman said this week: "Depression-level slumps didn’t happen in Europe before the coming of the euro."
Monetary union first destabilised the South with massive capital flows. Now its contractionary bias blocks recovery.
Oxford Professor Kevin O'Rourke has called for an end to the misery in a
remarkable cri de coeur for the International Monetary Fund. What shocks him is that EU officials seem to treat it as a matter of course that unemployment should be stuck at 1930s levels, or that Italian GDP should still be 9pc below peak after half a decade. "These are not minor details, blemishing an otherwise impeccable record, but evidence of a dismal policy failure," he said.
"If economic historians learned anything from the Great Depression, it is that adjustment based on austerity and internal devaluation is dangerous. Britain ran large primary surpluses throughout the 1920s, but its debt-to-GDP ratio rose substantially thanks to the deflationary, low-growth environment."
Prof O'Rourke said he has been waiting five years for Europe's leaders to forge the new instruments needed to make the failed experiment work, but it is by now obvious that Germany will not allow fiscal union or shared banking liabilities, and others will not accept a federal political Europe. It therefore pointless to protract the agony.
"The demise of the euro would be a major crisis, no doubt about it. We shouldn’t wish for it. But if a crisis is inevitable then it is best to get on with it, while centrists and Europhiles are still in charge. If the euro is eventually abandoned, my prediction is that historians 50 years from now will wonder how it ever came to be introduced in the first place," he said.
