Eurocrats Are Not the Answer

The main reason to have a European Union, we were told, was to cut down on the chances of another world war breaking out. So destructive has the European experiment proven, however, that World War III might have been preferable. At least someone usually wins wars.

By Roger Crombie

The euro is the EU currency that melds a ragtag and unequal bunch of nations into one catastrophic economic shambles. As I write, the economic collapse of Europe seems unavoidably likely to drag the rest of the world into a depression that might last 10 years.

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There can be no hope of the Eurocrats mending things. Mechanically, there is no way that southern Europeans would ever be able to correct their downward economic trajectory while remaining members of the euro. Take the Greeks as an example. The only way out of the hole that their indolence and pervasive nonpayment of personal taxes has led them into would be to devalue their currency until it was traded at its real value, i.e. close to zero. As a member of the euro, Greece can do nothing.

I'm not picking on the Greeks; they're picking on me. Britain has recently agreed to raise the age of retirement for its women to 66, so that the British Government will have enough money to pay Greek women to retire at 61. I kid you not.

A law in physics states that when an experiment fails, all efforts to improve matters only make it worse. Such has been the case with the euro, and for that matter the EU, since both experiments failed comprehensively a long time ago.

Common sense, you might think, would lead member states of the EU, notably the Germans, who are paying for almost everyone else with their hard work, to effect changes to the system. Not bloody likely. The Germans and their French poodles would rather rule in hell than serve in heaven (in John Milton's phrase).

No one is exempt from this European madness. Now, the spotlight is falling on European insurance companies, which are about to be regulated to the brink of nonexistence.

Given the appalling performance by banks leading up to, and since, 2007, the hand of regulation is now seen everywhere. Other than AIG, which was a special case of illiquidity that may yet yield Uncle Sam a profit, the insurance industry avoided most of the unprincipled behavior that led to the downfall of the financial sector.

So, are insurers being exempted from the rush to make new regulation for large financial organizations? Nope. Brussels, which dictates the rules for economic activity for all those countries hapless enough to find themselves in the EU, has come up with a "solution": Solvency II.

The European Insurance and Occupational Pensions Authority (EIOPA) decided that what was needed was a common set of rules for European insurers. Fair enough. It then introduced Solvency II, a directive that all who wish to stay in business must obey, even though it makes no sense for great swathes of the insurance industry, such as captives.

EIOPA cannot even choose when to implement its new policy. Solvency II has been delayed until 2014 (maybe; no one quite knows), which is simply a date, rather than a target, a goal or even a possibility, at the present rate of progress.

The supposed idea is to minimize systemic risk. Ho ho ho. The system is already irretrievably broken, and the faceless, bloated Eurocrats are to blame. This bunch of overpaid ninnies has all but destroyed the global economic system in the name of not destroying the global economic system.

ROGER CROMBIE is a London-based columnist for Risk & Insurance^®.

September 1, 2011

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