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Back in the early part of the last decade, the Guardian held an internal debate about whether Britain should join the euro, then a live issue. Ed Balls, Chris Huhne, Neil Kinnock and a number of other experts came along to brief us. The debates were, as you would expect, polite and civilised and no formal votes were taken. Suffice to say that there was a strong consensus in favour of the UK joining monetary union, with only a handful of people against.
Those in favour had different reasons for supporting the idea. Some said it was Britain's ineluctable destiny to be part of the single currency, and that it would be swimming against the tide of history to remain on the shore as the euro ship set sail. Others said that the only way Britain could survive in a global age was as part of a bigger economic unit.
Europe's social chapter also encouraged the belief that Britain could be part of a "workers' Europe", which would be in stark contrast to the de-regulated, liberalised labour market that Margaret Thatcher had created on this side of the Channel. For quite a few people, the argument was not about whether Britain would be more economically successful inside the single currency – though they said this would be the case – but about brand identity. The people who supported the euro were trendy and progressive; those who opposed it were Little Englanders.
Support for the euro is no longer trendy, but in two important respects those who campaigned for Britain to join the single currency were right. They warned that life outside the single currency would be no bed of roses, and it is entirely legitimate of them to point out that even with the luxury of an independent monetary policy, Britain has just been through its worst post-war recession, and has yet to recover from it.
The second relevant point made by the pro-euro camp a decade ago was that, in or out, Britain would be affected by what happened inside the monetary union bloc. David Cameron and George Osborne are trying to pull a fast one by blaming the eurozone for the looming double-dip recession in Britain because the economy has been flatlining for the past year, in part because of their domestic policy blunders. But an unhealthily large chunk of Britain's exports go to the eurozone, and this will clearly hinder the necessary rebalancing of the economy towards external demand.
Colossal boom-bust
All that said, if the Guardian repeated its policy forum today there would probably be fewer members of staff prepared to claim that a failure to join monetary union would be disastrous for jobs and that choosing to be on the outside was a failure of statesmanship as serious as the refusal to be part of the original Common Market in the 1950s.
Those who argued against British membership of the euro never pretended that staying out would make for an easy life. Instead, they argued that a one-size-fits-all monetary policy would lead to instability not stability; that there would be growing divergence rather than convergence among the members; that economic failure would give rise to widespread austerity; that what was being created was not a workers' Europe but a bankers' Europe, and that what was being proposed would turn out to be both profoundly undemocratic and unprogressive. They said that a common monetary policy would be too loose for an economy prone to asset-price bubbles, and would create the conditions for a colossal boom-bust. All these predications have been borne out.
What happened was this. Countries on the periphery of the eurozone tended to have higher costs and to be less productive than those at the core. But a common, low interest rate allowed them to disguise their weaknesses with asset-price booms. The absence of any controls on capital – removed as part of the process of setting up monetary union – meant the trade surpluses generated by the stronger economies were re-cycled into Mediterranean property speculation. The inevitable bust led to enormous financial difficulties not just for the banks that had lent the money but for the governments that stood behind them.
The lack of real labour market mobility and the inadequacy of Europe's mechanism for shifting resources from rich to poor parts of the eurozone have ensured that the cost of economic failure has been high. Youth unemployment is approaching 50% in Spain, and above 40% in Greece.
The big squeeze
Bailouts have been put together on an ad hoc basis for those countries where the financial pressures have become intolerable, yet the conditions placed on this support have made the underlying problem worse, not better.
The fixed exchange rate means struggling countries cannot boost their exports by devaluation so instead are being told to make their economies more competitive by squeezing domestic costs through wage cuts and less generous benefit payments. Governments are being told they have to sell off state assets to balance the books. Those that refuse to do what Europe's paymasters tell them are unceremoniously removed to be replaced by more reliable figures. A former vice-president of the European Central Bank is the new prime minister of Greece; a former EU commissioner is to run Italy.
The bankruptcy of this strategy was highlighted by the new economic forecasts released by the European commission in Brussels last week. The eurozone will sink back into recession as the banks stop lending, exports dry up, confidence shrivels, unemployment rises and public spending cuts bite.
So much political capital has been invested in the euro project that it is perfectly understandable that policy makers have been desperately trying to buy time until they can piece together a fiscal union to buttress monetary union. There are a number of problems with this idea: it would take time Europe doesn't have to organise; it would involve the weaker countries being dictated to by the strong in an even more direct way than they are at present; it would involve not just years but decades of austerity, and it would mean ignoring the seemingly obvious conclusion that monetary union is – and always was – rotten economics.
The alternative to integration is disintegration and, despite the immense turmoil and pain this would create in the short-term, it is actually a better long-term solution. Interestingly, Berlin and Paris now appear to be talking privately about the creation of a two-speed Europe, with a hard core based around Germany and an outer-core of countries that would only be allowed back into monetary union when they were fit to do so.
Resorting to national currencies would be hard to do. Countries would have to nationalise their banks and re-impose capital controls to prevent currency flight, and would need to be acutely aware that the inflationary potential of a sharply devalued currency could wipe out any gains to competitiveness.
But it would restore to governments a degree of control over their own destiny and provide an alternative to permanent austerity. It certainly looks a lot more attractive than the current approach, which by mingling the conservative economics of Herbert Hoover with the strategic inflexibility of Field Marshal Haig threatens to create the mass unemployment, immiseration and the deep social unrest that create the perfect breeding conditions for xenophobia and extremism.
Comments
13 November 2011 5:29PM
I am enjoying all these Guardian articles about the EU and the Euro. How gratifying it is to see all those 'truths' you peddled so assiduously for the past decade or so being retracted.
TWhy don't you just go out and say it: UKIP was right about the Euro. We are right about the EU. The UK should get OUT and become a self-governing nation again. You'll feel much better afterwards.
he Euro was always going to fail. You can't tie an economy like Germany's to one like Greece and expect it to work. It was never going to - but the sad fact is that because so many people refused to tell the EU that basic truth, millions of people are going to be beggared and the taxpayers of Europe will be saddled with the bill for generations to come.
Yet there has been not one word of apology from the morons who created it. Instead they demand even more power and control over us when they have clearly demonstrated that they shouldn't be given control over a whelk stall.
13 November 2011 5:46PM
Now that the crisis has spread to Italy too big to fail has been replaced with too big to bail
13 November 2011 5:50PM
UKIP might be on the right lines regarding federalisation in Europe, but on all other economic points it is completely wrong.
What we actually need is a party that combines sensible economic policies focussed on maintaining domestic economic demand via enhanced automatic social stabilisers.
A solid domestic economy does not require the UK to follow a chase to the bottom - increasing pension ages, increasing working hours and reducing working conditions and working time. Destroying public sector jobs with no idea what those people dispatched are going to do instead. In an economy with persistent unemployment that is foolish beyond belief and is based upon economic theories that were categorically proved to be false in 2007.
The trend of the world is towards decentralisation and secession. Technology makes anybody with access to Ebay a potential importer or exporter. Paypal allows anybody to trade in any currency in the world instantly at a relatively low cost. Low cost debit cards and credit card remove the need for money exchange for all but the smallest of transactions.
In other words all the reasons for a European superstate have ceased to be relevant.
There is a strong argument that in a modern world the UK is probably too big to operate optimally and perhaps it should be fragmented - each with its own government and currency.
13 November 2011 5:57PM
They both start with G. That's enough to tie them together. Alphabetical sort.
13 November 2011 6:07PM
I remember being on holiday in Yugoslavia at a time of high inflation when the Hotel owner would only take German Marks or Dollars. If you paid in Dinars, inflation and the low value of the currency upped the room rate significantly. If the Euro goes what is to stop this happening again.
13 November 2011 6:45PM
You are way too charitable. Those who campaigned for UK entry into the Euro are silent and unapologetic. They were vigorous in the pursuit of a policy that would have been a disaster for the wellbeing of this country. They are guilty of failing completely to properly consider the inevitable consequences of the single most important economic decision facing the United Kingdom. They are utterly reckless and completely discredited in all matters of economic policy.
A roll call of the worst offenders:
Tony Blair
Hugo Young
David Aaronovitch
Diane Coyle
Andrew Rawnsley
John Monks
Richard Lambert
Andrew Gowers
Philip Stephens
Adair Turner
Colin Marshall
Niall Fitzgerald
Polly Toynbee
Peter Mandelson
Ken Clarke
Will Hutton
Michael Heseltine
Charles Kennedy
David Simon
Neil Kinnock
Paddy Ashdown
And as the people that opposed them, the ‘Little Englanders’, those on the right side of history:
David Owen
William Hague
John Redwood
Margret Thatcher
Gordon Brown
Ian Duncan Smith
Ambrose Evans Pritchard
Ruth Lea
Digby Jones
13 November 2011 6:51PM
You omit the biggest Sir Alan Walters. But well done for missing Bill Cash he fell across the answer from the reasoning of a buffoon as did certain TUC mouthpieces
13 November 2011 7:15PM
Had Britain joined the Euro this may have introduced a healthy scepticism to the project and the Euro may have developed differently. The European Central Bank may have been a much stronger and proactive providing the economic strength to support the weaker members and fend off speculators. A Euro Bond may have been issued to provide funding to problem areas, avoiding the contagion which has now gripped the Euro. However given the fashion for financial deregulation the essential regulatory framework would never have been established and we would still be in a mess but of a different kind.
What should be of concern to Britain is two opposite responses to the economic depression have emerged : Britain, or more probably England wishes to maintain a deregulated financial sector whereas the rest of Europe is seeking radical reforms. Issues such as the transaction tax, the role of rating agencies and the activities of the Bond market are all going to be regulated. As this process accelerates Britain will be confronted with some stark choices. Mr Cameron and Mr Osborne are isolated and are seen as part of the old problem, acting as agents for the very forces which have done so much economic damage to the World economy. Returning to the old free market casino capitalism is no longer an option; it did not work in the past , 2008 was a turning point and it becoming clear to Europeans that England has not learnt from the failure. Why England is referred to, is that in the next phase of European integration Scotland may take the step to join the New Europe leaving Conservative England to remain outside or to make a total break from the European Union.
Perversely now might be the point when Britain joins the Euro in order to make the right choices and help construct a strong Euro currency able to provide economic stability in Europe.
13 November 2011 7:18PM
there is nowhere to 'go'
resources are not re-newing in quantities that sustainable trajectories which facilitate the type of money system we have, because its game over, its all fiat. Dont you get it? its ALL fiat, done.
13 November 2011 7:18PM
Hang on Larry there is an alternative to this crisis of moribund STATE MONOPOLY CAPITALISM. A SOCIALIST UNITED STATES OF EUROPE!
Capitalism is doomed by it's inherent contradictions of class struggle over the division of surplus value and the antagonisms of nation states through economic competition. You know as well as I do that the class nature of the system makes genuine, lasting international economic co-operation impossible.
Capital, in the hands of a few private owners, in the current crisis, is being used in more and more dangerous ways which is destroying whole economies; the ultimate being WORLD WAR. (militarised economics). All in vain attempts to recuperate ever increasing losses.
It's akin to watching Rome burn slowly as mindless idiots pore more fuel on the fire! Our lords and masters won't accept that their economic mode is finished for obvious reasons. They are the modern dinosaurs. They sincerely believe that wealth can be created by throwing a few chips on the table! Capital is a social product which belongs to everyone. It should be used in a balanced, constructive manner across the globe. This requires an end to the blind anarchy of MARKETS which serve the interests of the few. Then there will be no need for different currencies or destructive speculation.
Oh! I forgot we've all been brainwashed into believing that Socialism will always turn into a Stalinist nightmare. What about another Fascist nightmare which I see you have hinted at!
13 November 2011 7:24PM
ahh, the wonder of hindsight...
13 November 2011 7:28PM
I think the Guardian's honesty it admitting it was wrong is commendable.
Larry Elliot is so much more lucid in these matters than the BBC's Peston.
So, moving on. When can we expect the Euro to be wrapped up. Be nice to have some timelines.
13 November 2011 7:34PM
With respect, you have omitted my Great Uncle, Thomas Cobley.
13 November 2011 7:41PM
The worst thing about losing the Euro for good is it will really date the Mighty Boosh series. Next thing Top Shop will go under.
13 November 2011 7:41PM
WildHare
Your first list of those who think the Euro is a good idea and we should still join should not be called the 'worst offenders' - but the rational and sensible supporters of the UK.
Your second list is the 'Little Englanders' who are destined to go down in history as those who did enormous economic and political damage to the country. By calling them by their right name you tacitly admit that they are in fact wrong.
The Euro is the currency for the state that is Europe. If we wish to remain part of that state we must join. That is a fact of life get used to it! Your anti European ism is actually anti UK ism. You and your ideas will, if not overcome with the power of logical and rational argument, condemn this country to becoming a third or fourth rank country with only a few foreign bankers wanting to live and work here - is that what you want? I suspect it is. What are your motives? What do you actually want? What is your agenda?
Wanting to stay out of the Euro is just about as logical as every town in the country adopting its own currency and paying bankers to exchange currencies!
We must, like Romania, ask politely to join the Euro if we are not to further impoverish our people. But I suspect that impoverishing our people is exactly what you want to do! Admit it, you despise the British working people and British Business don't you! You want to destroy the country with you hatred and bile. Let me tell you that we will not let you! We will not let the bankers fool the British people into being totally subservient and slaves to the bankers. We need to join the Euro or we will fall behind Romania!
Furthermore if we are to remain an essential and vital part of the EU we need to fully participate in Europe's institutions. Please think about the consequence of your malformed ideas!
Join with the rational and logical faction and support UK full participation in all of the institutions of the EU, including the Euro!
13 November 2011 7:56PM
With advice from "Ed Balls, Chris Huhne, Neil Kinnock and a number of other experts [sic]", no wonder the Guardian is so wrong on so many issues ! What a bunch of gravy-train passengers ...
13 November 2011 7:59PM
I remember thinking early to mid last decade that "it will all end in tears" in rleation to both the Euro and in the UK the orgy of easy credit.
Both were highly predictable to anyone with a bit of common sense yet most people got pulled in because of laziness and greed.
Remember, there is no such thing as a free lunch, let alone an EU gravy train.
13 November 2011 8:02PM
Has anyone actually told you that the euro is currently rather stronger against the pound than when it first entered into circulation and that it's actually been rather stable in recent weeks and months? There's a government debt crisis in certain countries. There isn't a euro crisis.
13 November 2011 8:04PM
What we see is the downfall of democracy in Europe.
The Greek and Italian peoples are told, no you cannot have an election or a referendum, you will have a trusted Eurocrat leading your nation.
The idea that, because Britain is not a member of the Euro, such pressure could not be brought to bear here is risible.
Were a coalition of UKIP and Conservative Eurosceptics to take power this evening, the new Prime Minister would be summoned to Berlin in the morning, and told that they could not hold a referendum on EU membership.
UKIP, for all it's vapid talk of an independent United Kingdom, retains a touching faith in NATO.
Were the anti-EU government to look across the Atlantic to the United States they would find no succour.
UKIP's entire strategy depends on Europe's continuing willingness to retain a favourable trading policy towards Britain.
They have nothing constructive to offer whatsoever.
13 November 2011 8:04PM
No not hindsight, thats when you change your mind given the result.
When you see a disaster looming and say so its called having foresight.
So try again.
13 November 2011 8:09PM
I think that recriminations are pointless and redundant. This is where we are and we have to find a way to fix the problem. I never understood the rush for the Euro. I couldn't see why EU couldn't have set up a Central bank into which a small but fixed fraction of each nation's GDP was deposited each year. This growing and predictable fund would have allowed the Central bank to issue bonds - Euro bonds and establish a common trade currency which the national currencies would have been transferred into. Eventually the Euro and the Euro bond would have grown into a major currency but without all the pain we are now witnessing.
This is still an option. The national currencies can be reintroduced and trade against the Euro which MUST have an associated bond system and this bond system would allow the Central bank to manage/create/raise the funds required for bailouts and major capital projects.
The benefit of this is that it is/would be strategically coherent and the bond markets like that sort of thing:).
It won't happen though and we will simply blunder on into the socially disastrous mess we are headed for because long term strategic thinking is beyond the present institutions.
13 November 2011 8:19PM
In October EFSF came up with a plan to Gurantee the new European bonds by 20%
However 2 weeks later this plan has been a failure.
Reasons are
1 Unlike the Brady Bonds ( South American debt restructuring by consolidating the old debt and making the banks take haircuts plus Gurantees from the US Treasury)
The EFSF plan would not
1.1 Restructure existing debt hence carrying the problem forward
1.2 The Gurantees are too small- 20%. Even 30% is doubtful as enough
1.3 The fact the debt is being guranteed by countries in a basket of defaults does not give lenders any confidence.
1.4 800 Billion Euros of Gurantee is available but the debt to be refinanced is 2000 Billion. A shortfall of 1200 Billion
So now France and Germany want to get out of this plan as they will not allow the ECB to buy the debt.
So exiting the Euro is not going to be cheap for either.
The Bond markets are an early indicator of high risk of a collapse in Equity prices.
This in turn will mean that companies will not be able to raise money cheaply in the debt markets. This includes the Banks the Libor rate is already showing us this.
Currencies will also fall as a result.
13 November 2011 8:27PM
For how long? Unless the Eurozone can get its act together the value will fall, nothing surer. Who wants to invest in a currency likely to fail?
13 November 2011 8:30PM
When I opened this article I thought (hoped) you'd penned an article proving how pointless austerity measures are, and why don't you pen write something on the circa €18 trl in offshore accounts circa ten-twelve European funds..or explain/explore the real reasons behind austerity? you could start with explaining how socialising the debts (by way of stagflation) versus the.alternative of the elite losing their wealth through hyperinflation is their preferred choice..
13 November 2011 8:32PM
@johanvonendon...
either that's comedy gold or you need locking up
13 November 2011 8:35PM
The world is awash with money trying to find a home. There is trillions of it
which cannot find a new profitable investment, because consumers are tapped out already. Government bonds were seen as safe investments, since traditionally most government just print up more money to cover them. Interest rates will therefore probably not increase much. Supply exceeds demand.
With the creation of the Euro currency, the EU member states lost control of their own money supply and instead it was privatized by the banking industry. A great wheeze at the time, but now it is unraveling.
The problem is that all Euros are created as debt and now the borrowers cannot repay them.
13 November 2011 8:40PM
Absolutely, and what Eurosceptics have been banging on about for around the last 15 years.
So where do we go from here? Well as the Euro is a disaster as predicted, why the hell are they still trying to prop up a failed currency. Europe can not move forward till this nightmare of a currency is thrown in the dustbin of history and the rebuilding can start again. Nobody should listen to any politician/economist why thinks it is savable, it isn't, all that is going to happen is more of the same and throw good money after bad.
Hand in hand will also have to be over economic reforms, dealing with the debt, reforming the banking sector, and a new type of politics. None of that can start till the Euro is killed off.
13 November 2011 8:42PM
rightiswrite
13 November 2011 8:27PM
Unless the Eurozone can get its act together the value will fall, nothing surer. Who wants to invest in a currency likely to fail?
All currencies issued as debt under the fractional reserve banking system are subject to inflation. Since the creation of the banker owned Federal Reserve in 1913 the US dollar has lost 96% of its purchasing power due to inflation. This happens because more money has to be continually created (as debt) in order to pay the compound interest, which results in exponential growth of the money supply.
http://upload.wikimedia.org/wikipedia/commons/thumb/6/64/Exponential.svg/300px-Exponential.svg.png
13 November 2011 8:47PM
Christ, that is far to technical for me. I own that I have a good understanding of economic at a macro level but not the micro level, please translate for the layman!!
13 November 2011 8:51PM
At least one and probably both the technocrats foisted on Greece and Italy played a leading role in creating the problematic euro arrangements. . Perhaps they should be setting up poachers to be gamekeepers, but you have to wonder about their ability to take an objective view of the project they are supposed to rescue.
Concentrating on the euro is taking our eye off the ball. In or out, we are well stuffed on every conceivable scenario. The devaluation advantage of remaining out is not working in the sense that it is not creating sufficient demand for UK goods and services.
As it stands the eurozone is forcing contraction on its weaker members, this will not get the deficits down. This will not get the debts repaid, this will not sustain demand for British or German goods and services. Everyone will be a loser.
If the weaker members exit the zone, there will be further defaults and an exacerbation of the banking crisis with more bale outs everywhere
If Germany exits the zone as advocated in today's Observer, Germany will experience a haircut on all its foreign held debt then being repaid at a fraction of its former valuation forcing German into a massive rescue of all its banks at the same time as the rest of the zone prices itself out of imports from Germany.
These are the questions we should be considering.
How are we going to manage a long period of depression, economic contraction and mass unemployment. Where are the investment and jobs going to come from? Set against these questions, currencies are an irrelevance.
13 November 2011 8:54PM
As an expat living and working in France since 1982, can I point out that anything that I purchase from the UK (amazon.co.uk for example), comes with a mark-up of 2% relative to buying the same stuff from anywhere within the Eurozone where I just pay the price on the ticket. It depends a bit on which credit card I use. I get clobbered for 2.0% when I use my Oney card (ex Egg), 1.96% for using a BNP Corporate card, and 2.14% (+0.75 euros) for a BNP Carte Affaires. That 2% markup is a Financial Transaction Tax imposed by banks on anything that requires a change of currency - outrageous when you consider that the financial sector does $4 trillion in foreign exchange per day for free. I imagine that Brits pay this for absolutely everything they buy in Europe that is not from the UK.
Imagine the boost to the UK's export potential if everything exported to the Eurozone was 2% less expensive.
While banks rip users off like this, having separate currencies is a total disaster. Long live the Euro!
13 November 2011 8:58PM
Ok, I was one of those who was wrong. I thought the Euro was a good idea. The trouble is, no-one at the time succeeded in explaining to me that all the poorer states of the Eurozone would run up massive debts and go bust. Instead they simply claimed that it would never work because 'the economies are all different', which is a facile argument. Not only are the internal economies of all states widely variable, but monetary union of 'different' economies has proven to be successful before (item no. 1 here, not coincidentally, is the currency union of Germany in 1871, which heralded Germany's emergence as an industrial power).
So no, I don't see any foresight, although the same people certainly were right in seeing an enormous bust as a result of the boom. But then that was a result of Neo-liberal economics, the key players of which were.. the UK and America, not, actually, the Eurozone.
The Eurozone has failed not because the Euro was in some way a fundamentally wrong idea - a claim which can only really be based on assumptions of national difference - but because monetary union should have been accompanied by fiscal union... and proper democratic union, and nationalism certainly put paid to that. It was the half-way house that did for it.
13 November 2011 9:30PM
As in the UK, why should the Italian citizens suffer lower wages, higher taxation, public service cuts, pension raids and so on yet be forced to watch those who caused the crisis - the bankers- suffering not a jot.
I am not surprised there is rioting, demonstrations and civil unrest.
To watch bankers carrying on as if nothing has changed is sickening. There has been no banking reform. There is no taxation on their bonuses. No arrests for those responsible.
I predict a riot.
13 November 2011 9:36PM
Don't know where you studied economics Larry but you desperately need a refresher! The UK is not an economic island and the state of the European/World economies have a massive influence on our economic well being. Every economist should be aware of the economic quote that 'if America sneezes the rest of the world catches pneumonia' . The same applies to continental Europe and if you don't know that you shouldn't be writing articles in national newspapers.
I have nop problem pinning the blame on any Chancellor of the Exchequer if they screw up, but I do have a problem with political bigotry posing as rational economics.
13 November 2011 9:39PM
"you will have a trusted Eurocrat leading your nation."
There is an oxymoron hidden somewhere in here.
13 November 2011 9:41PM
As I am sure Elliot is an English monoglot, it might be useful for me to translate for him the Euro policy of the chap that is going to be the new prime minister of Spain this time next week:
The PP president stresses that we will bet for euro's continuity because "it would be utter nonsense for the euro to cease to exist, in the same way that it would be for any country to leave the euro, or that we kicked any country out of the euro, as some postulate". He reminds us that the euro is Spain's and Europe's strength in the face of a globalised world and that its existence is "absolutely necessary", but adds that this requires that the countries that share the single currency comply with their obligations and commitments, and additionally a greater economic governance in the fiscal and budgetary areas.
So here we have the English berating the euro as an undemocratic and failed experiment and yet here is a politician that is going to be voted in with absolute majority (according to all polls) which says all the above. Is there something missing?
There has been reams of lines written in the English press about how two technocrats with previous EU jobs have been parachuted to govern Greece and Italy. How undemocratic. I bet Little England won't mention the euro policy that I have just quoted above from the politician that is going to be elected with absolute majority to be the Spanish PM this time next week, not that I like him anyway...but democratically elected yes.
Little England and their unelected tabloid bureaucrats won't mention this because it is a fact that completely demolishes their utterly idiotic narrative and their narrow minded view of the world from their monolingual ivory tower.
13 November 2011 9:43PM
For those of you who are not English monoglots, here is the link to the quote from my previous post.
http://www.expansion.com/2011/11/13/economia/1321177836.html
13 November 2011 9:43PM
In terms of bank bailout options there are many options that don't involve taxpayers being left on the hook.
For instance central banks such as the ECB or the Bank of England can credit the reserve accounts of systemically important banks. Central bank reserves can be used by banks to keep the resolution process and interbank market functioning but would not involve any taxayer funding. Banks wouldn't be able to spend this money in the real economy so no inflation risk. This is what should have happened in 2008.
There are other options too around unsterilised QE being used to monetize government debt. All perfectly safe in a a liquidity trap.
In the UK this would look like the £275 billion of government gilts sitting in the wholly publicly owned Asset Purchase Facility being ripped up. This would have no effect on inflation, confidence or exchange rates but it would cancel over a third of the UKs outstanding public debt.
13 November 2011 9:52PM
"Had Britain joined the Euro this may have introduced a healthy scepticism to the project and the Euro may have developed differently. The European Central Bank may have been a much stronger and proactive providing the economic strength to support the weaker members and fend off speculators. A Euro Bond may have been issued to provide funding to problem areas, avoiding the contagion which has now gripped the Euro. However given the fashion for financial deregulation the essential regulatory framework would never have been established and we would still be in a mess but of a different kind. "
Have you any basis for this or is it wishful thinking?? A eurobond solves nothing - there are huge structural problems with the euro that issuing debt with a common backer will do sweet fa to solve.
"Britain, or more probably England wishes to maintain a deregulated financial sector whereas the rest of Europe is seeking radical reforms. Issues such as the transaction tax,
This is simply not true. Many other EU countries are wary of the Tobin tax. The UK incidentially already has a form of it in the stamp duty on shares. Germany doesnt so if there so keen they can follow the UKs lead.
"Perversely now might be the point when Britain joins the Euro in order to make the right choices and help construct a strong Euro currency able to provide economic stability in Europe."
THE EURO IS DESTROYING EUROPE, NOT STRENGTHENING IT!!!
13 November 2011 9:55PM
"The Euro is the currency for the state that is Europe. If we wish to remain part of that state we must join"
Absolute total rubbish. There is NO need to join a failed experiment in monetary destruction to stay in the EU. Ask Sweden and Denmark....
13 November 2011 10:14PM
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13 November 2011 10:19PM
Maybe one of our economists could answer this one.
If you have Eurobonds, that will mean joint liablility of the debts of the EZ. So what happens then to the northern EZ members, their AAA rating, and their bond price? Would debt pooling in this way just push up bond prices on otherwise stable countries.
Then what of democracy, as if this hurts the northern countries they are likely to vote in governments which would run on a ticket of stopping their money heading south (both meanings). Would bond purchesers with this knowledge be wary of buying 10 year bonds because the system would be inherently unstable?
Anyone know how it is all likely to work?
13 November 2011 10:19PM
Sorry, if you want to be at the heart of Europe for good economic (and political) reasons you simply cannot stand outside and bitch - that is true for any club and the EU is no different. If you think that you can, then either you have never joined in with others in anything or you simply do not understand.
Monetary union is NOT a failed experiment only bankers say so and these are the same bankers who have stolen your pensions and your wealth. Are you a banker? Do you want to live your life giving bankers all your hard earned money? If not then join the Euro.
It is almost true to say that anything disliked by bankers is good for the rest of the country - remember that next time the media tells you the banker's view as if it is fact - it isn't and they are ONLY trying to feather their own nest at your expense. If the last few years haven't shown you that, then you have been suffering from rip van winkle syndrome - aka been asleep!
We must join in all the institutions of Europe including the Euro.
A single currency is good for every European citizen/subject and every European business. It gives both certainly of cost and price as well as minimising transactional cost which provides for the best possible way to increase productivity and administrative efficiency. OK it may not be too well run at present but that means only that the way it is run needs improving.
Remember to argue against the advantages of a single currency means that you must also argue against a single currency in the different parts of the UK - the City of London should have a different currency to the suburbs and very different to that of the North East for example.
Do not lapse into the feeble minded thinking of the dafter political populists for to do so will deprive us and our children of jobs. Campaign for the UK to join the Euro ASAP.
13 November 2011 10:22PM
A currency should never be "trendy". Dependable, yes but not an item of fashion. I'm not even sure it ever became fashionable and nobody took it to their hearts. A currency usually has slang terms ("quid", "greenback" etc) but the Euro is just the Euro, a synthetic currency.
13 November 2011 10:23PM
You say that as if it is a bad thing.
Devaluation is a cynical tactic that brings a little illusory short term benefit at the expense of hurting the innocent and avoiding the underlying issues such as a lack of competitiveness and an economy addicted to borrowing.
13 November 2011 10:28PM
Why is the UK having to make huge cuts? Why is the USA heavily indebted to China? Why is Japan is such trouble? Did I miss something?
Greece and Italy are screwed because of eurozone membership?
Our economy is fucked because of an unusually cold week a year ago and a hot week in the spring?
Give it a year and the global economy will be screwed because some people without the word manager in their job title get paid above the minimum wage, I can see how the narrative is going.
Economic crisis equals pausing of democracy in Greece and Italy, financial wizards get authority. Governments sell everything profitable off. Private sector grows, government subsidising of private sector grows. 20/30 years down the stretch another crisis created by financial markets and every part of the public sector that has been built to be capable of making money gets sold off again. And on and on it goes.
13 November 2011 10:30PM
@exilecelt
"I can't say I'm amazed at the amount of English t***s that profess knowledge on the EU or Eurozone with the never ending ability that English t**s"
Ah, so my mistake in thinking this was a debate about economic policy. Instead it was just an opportunity to spout vile, racist crap about the English.
I'm really glad you are an exile from the British Isles. Long may your status last.
13 November 2011 10:34PM
Clearly a wind up merchant, I bet your face ain't straight when you type
13 November 2011 11:16PM
Don't hold back, Larry, tell us what you really think.
13 November 2011 11:45PM
I disagree that the single monetary policy is "rotten economics". It is rotten fiscal management and rotten politics that has set the Euro on this path to doom, although even now it can be averted and confidence restored. It's foolish to speak of something that has failed when the Euro has delivered something like inflation of only 2% for ten years and has been extremely stable. Let's also get something else right, without the Bank of England bailing out this country, the UK would be going cap in hand to the IMF for a bail out too. Logically, since the ECB hasn't done the same, the Eurozone has a black hole that it needs to fill somehow. So I fail to see how we would be in a worse position now than we would have been if we had joined the Euro.
The problem has been one of political weakness in two respects. 1. Governments that prioritised staying in power and appeasing voters rather than being responsible and accountable for their countries finances. Those that allowed run away debts to build up like Greece, UK, Italy, Ireland, Portugal, Belgium, Spain are or have been teetering on the brink of collapse. Even France is not so safe. This all could have been avoided if the politicians were more honest and the voters more ruthless in scrutinising waste and bad economic policy. We should have punished and chucked out bad governments like the Labour government years ago (like we should punish the present economic policy too). 2. The EU model has been structured to represent state interest rather than the collective interest. The Commission is too weak to function if it cannot override an individual state's interest. If the legal structure were reformed and streamlined the Euro could recover quickly. There needs to be a costing reappraisal at every level and some serious changes to the way money is spent in pursuit of particular policies like CAP. If the Eurozone wants the Euro to succeed, it absolutely can.
I would dispute that the Euro has been a failure, I certainly don't think the answer is clear cut. The crisis is often viewed as an economic one, but I would maintain it is a political one. The Euro is not to blame for the crisis, poor management of economies is. There is plenty of blame to go around though and the electorate thinking that money grows on trees is no less to blame for voting in parties that promised the earth.