I have written here before that there is schizophrenia about what the EU really is. Have we created a free trade area or are we trying to create a superstate? Some member states want the one thing and other member states want the other, so we muddle along on a series of battles and compromises.

The EEC was created by the Treaties of Rome in 1957 and originally consisted of 6 countries, Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. In 1973 Ireland, the UK and Denmark joined. Greece in 1981, Spain and Portugal in 1986.

The disparity between the wealth of these nations led the politicians to experiment with the socialist methodology of throwing money (many billions) at the poorer ones from the taxes paid by the citizens of the richer ones. So we have the spectacle of the politicians in the poorer countries creating useless gold plated projects to benefit themselves and their cronies.

The EEC became the EU in 1993 and in 1995 Austria, Sweden, and Finland joined, then, after the collapse of the Russian empire Malta, Cyprus, Slovenia, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, and Hungary joined in 2004. In 2007 Romania and Bulgaria joined.

There were so many of these newer arrivals that there was not enough money to throw at them on the scale that Greece, Spain, Ireland and Portugal had (and still do) received. So their main benefit was access to the combined market. And, as you would expect, they have, on average, performed far better because of this. Because throwing money , even EU billions, at anything just doesn’t work.

In 2002 the Euro currency was created to replace the existing currencies of 12 nations (the UK opted out, fortunately) and it has now grown to cover 17 out of the EUs 27 member states.

Obviously the Euro had to work across widely disparate economies and cultures so it was set up with immensely strict rules on national borrowing and spending with huge punishments for transgressors. France promptly broke the rules and wasn’t punished which opened the doors for the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain) to run amok. They treated the Euro as a blank cheque book to spend on whatever misguided notions the politicians fancied.

In Greece the whole country had been living well beyond its means for decades, so they weren’t allowed into the Euro when they first applied. So they fiddled the figures and reapplied and, amazingly, were let in. Whereupon they set about an orgy of socialist spending on borrowed money. Amazingly they got away with this for nearly a decade before reality struck home and their credit line dried up. Now the Greek government and people have to try and live within their means (ha, ha, as if) and to start to pay off their staggeringly immense debt (no chance) whilst restructuring their economy so it actually creates wealth instead of just absorbing it in a socialist nightmare (also no chance).

Ireland’s problem is more one of gross political ineptitude than anything else. They rode on the back of cheap and easy access to vast pots of Euros to have one monster of a housing bubble. This was different to the housing bubble in the UK. Here house price inflation is because stupid, restrictive planning laws lead to a shortage of housing and also to very low quality housing (an average Chinese urban apartment is far bigger than an average British house). The Irish government encouraged and fuelled the bubble as if it would never end, so when it hit the inevitable brick wall there were far more homes in Ireland than there were people to fill them. Around 300,000 homes have no occupants and nobody who wants to occupy them. Whole swathes of housing will have to be demolished.

Which brings us to Portugal which is like Greece, but on a smaller scale. They seem to be running to the European Financial Stability Fund to get in quick to get a good deal before Spain gets there. Followed by Italy and Belgium. Then France?

So what has gone wrong with the Euro experiment? Here is a list:

• Thinking that one size can possibly fit all. The cultural differences (and to a lesser extent the economic differences) between countries was too big to fit under one umbrella.
• The “price worth paying” attitude, especially amongst German politicians. They will be the ones mainly now picking up the tab. Their voters are furious.
• France acting imperiously as usual and ignoring the Euro rules thus setting the precedent for nobody to obey the rules.
• Ignoring the markets. You can only push water so far uphill.
• Ignoring the facts. Everyone could see for years that the Greeks were heading for a monster of a train crash and the politicians, the bankers, the economists etc etc all put their blinkers on.
• Throwing money at socialism. How many times does it have to be proved that this doesn’t work? The less the state intervenes the better the economy runs, the more the state intervenes the worse the economy runs. Britain (a capitalist country!) has a state that is over half the economy and real average household income has gone down for every one of the last ten years, even whilst the world economy boomed. In China (a communist country!) the state is a little over 20% of the economy and average household income is rocketing.
• Gross political ineptitude at every level and in every country involved.

So where now? If you look at what a currency is used for then all the EU countries should join the Euro, then it should amalgamate with the American dollar and then with the Chinese Yuan. Let’s have a global currency. Then the world economy would really hum. But to do this requires rules and discipline and if we can’t keep little Greece on the straight and narrow what chance do we have of making America behave?

The current harsh reality is that the wheels are coming off the Euro experiment and the whole project is balanced on the edge. It could implode very rapidly indeed. All that is keeping it going is the goodwill of the German voter and their willingness to continue to work and be taxed to pay for profligate PIIGS to live well beyond their means.

What is needed now in the EU is immense discipline. State spending and ownership needs to be thoroughly reigned back. We have to learn to create wealth before we spend it. Rogue, parasitic states who refuse to play by the rules need to be kicked out of the EU. And everyone has to realise that the European superstate project is doomed for a generation or more. Concentrate instead on trade, enterprise and real (private enterprise) economic growth.