Blogging from the Highlands of Scotland
'From fanaticism to barbarism is only one step' - Diderot

Thursday 29 September 2011

The economic and political shambles that is the Euro

My basic view about the currency called the Euro has not changed much over the past 10 or 12 years - as someone who is basically in favour of the EEC (now the EU), I was emotionally attached to the idea of having a common currency. However, whatever my emotional attachment to the concept of a single currency, I was always aware that that it could probably never work without the full fiscal (and effectively political) integration of all the countries participating. Trying to tie countries with low productivity and 'inefficient' tax collection regimes, into the same interest rate regime as countries with high productivity and a much more effective tax-collection history was bound to lead to major problems - and it has.

As such it was clear to me, however much I might personally have regretted this, that it would have been folly for the UK to have adopted the Euro as a replacement currency for the Pound Sterling. The political will simply did not (and does not) exist in the UK to adopt common fiscal and economic policies across the EU (or the more limited Eurozone). The price of keeping France and Germany 'sweet' with each other has always been for France to be allowed to dictate to the 'club' politically, with Germany picking up the 'tab'. Now the German population is at last waking up to the awful implications - the likelihood that Germany will have to subsidise the less-productive and more profligate countries on a semi-permanent basis. Germany may be a prosperous and successful economic 'powerhouse', but it is certainly not a bottomless pit - and Angela Merkel's efforts to carry a vote for continued German financial support for the troubled Eurozone economies may cost her dear politically in due course with her own electorate. On the other hand, one cannot ignore the fact that the low interest-rate regime and the downward effect on the value of the Euro because of the less-performing economies has certainly not been bad for the efficient German export-led economy; now the costs of that success are becoming clear to the German people.

Of course, now it is fashionable to blame the 'soft underbelly' of the EU (i.e. the profligate Mediterranean countries such as Greece, Portugal, Italy and Spain - plus of course the 'celtic tiger' Ireland) for the 'pickle' that the Euro and the Eurozone countries have got themselves into, but it was two of the theoretically strongest economies in the EU that first broke the rules by allowing their budget deficits to exceed the 3% laid down - when a little later Portugal also broke that particular rule it was of course this last country that suffered the ignominy of being called on it, whereas the first two miscreants escaped unscathed, simply because they were too big and powerful for the EU Commission criticisms at the time to have any effect at all - they were simply ignored. So the country that had always, since the 1950s, exercised prudence with both its currency and budget planning (West Germany, later the re-unified Germany, using the Deutsche Mark) broke with its own recent history, whilst France of course didn't need much excuse to follow.

Tax may be difficult to collect in most countries, but generally-speaking most countries in Europe have reasonably-sound systems for ensuring compliance (not perfect of course), even France, which has a reputation for 'creativity' in this area historically. But no-one could possibly have imagined that Greece fell into the same category - I don't think even the most fervent Greek patriot would ever have claimed this.

Of course, it's not only within the Eurozone that fiscal common sense went out the window! Our own beloved and much-unlamented Labour government, under Gordon Brown as Chancellor of the Exchequer and latterly as Prime Minister, thought that transforming as high a proportion as possible of the population into clients of the State, as recipients of so-called benefits, was a good thing to do, if only to try and tighten their own grip on political power forever - fortunately that particular myth, and horrific prospect, was dispelled with the election result of May 2010, even if somewhat inconclusively.

It so happens I was watching Newsnight last night and watched the bunfight develop in which Peter Oborne, a right-of-centre journalist for the Telegraph, became rather rude about an EU official speaking by video-link from Brussels:

- it is a pity that Oborne flung the 'idiot' label at the European Commission spokesman, Adameu Altafraj-Tardio, who is undoubtedly not an 'idiot' in the literal sense, although his attempted robust defence of the policies being carried out both by the European Commission under Barroso and various of the European political leaders, notably Merkel of Germany and Sarkozy of France, in their attempts to defend the [very continuance of] the Euro, might cast doubt on their total grip on reality. The unfortunate Adameu Altafraj-Tardio responded by walking out of the studio in Brussels.It is doubly-unfortunate that Oborne's verbal aggression took the direction it did, because his basic arguments were sound.

How long can the Euro survive in its present form and with its current constituent members? Whether it does survive or not, it is unfortunately likely that the political and economic costs will be huge and far-reaching. It is hard not to be melodramatic about what could happen, given the kinds of things that have happened in European history in the not so very far distant past.

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