As it becomes clear that the euro is a recessionary device, its supporters are playing their last card: leaving, they say, would be impractical. No longer do they try to claim that staying in is beneficial: everyone can see that it isn’t. Instead, they are giving us the old cure-would-be-worse-than-the-disease shtick. A return to national currencies, they tell us, would be so complicated and expensive as to be unfeasible.
Oh yeah? While certain practical consequences flow from switching currencies, none represents an insurmountable obstacle. By definition, all the countries we’re talking about have recently managed precisely such a changeover: that’s how they came to be in the euro in the first place. Oddly, I don’t remember any Eurocrats at that time droning on about the huge costs and complexities of having to replace your banknotes. And, indeed, the switch would be easier now than it was a decade ago, because more money is digitized, and banknotes represent a smaller proportion of the currency in circulation.
I asked a Slovakian economist the other day how his country had managed the monetary transition when it divorced the Czech Republic. “Very easily,” he replied. “One Friday, after the markets had closed, the head of our central bank phoned round all the banks and told them that, over the weekend, someone from his office would come round with a stamp to put on all their banknotes, and that, until the new notes and coins came into production, those stamped notes would be Slovakia’s legal tender. On the Monday morning, we had a new currency.” Yup, and they’re now wishing they’d kept it, but that’s another story.
What about the euro-denominated debts? How would a country with a newly devalued currency meet its foreign obligations? It wouldn’t. Devaluation and default are — for once the cliche seems apposite — two sides of the same coin. No one seriously denies that Greece is going to repudiate its debts. Taking the hit of a default without the compensating boost of leaving the euro represents the worst of all possible options.
That’s not to say it won’t happen. On the contrary, it remains the single likeliest outcome. Still, to British ears, the whole debate sounds eerily familiar. When it became clear that the Exchange Rate Mechanism, the euro’s baleful predecessor, was wrecking our economy, the entire Establishment started to argue that, whatever the flaws in the system, we now had no option but to stick with it. Pulling out, declared John Major, would be “the inflationary option, the devaluer’s option, a betrayal of the future of our country” — which is almost exactly what Greece’s Europhile politicians are saying today. In the event, of course, Britain’s recovery began the day we left the ERM, and continued for the better part of two decades before Gordon Brown decided to blow it away.
It’s worth remembering, though, that this happy consequence was forced on us by the markets. Almost every politician, economist, newspaper, academic, business organization, and commentator took John Major’s line. Those of us who opposed going in to the ERM in the first place were lonely and sparse. Nor did being proved right earn us a sympathetic hearing the next time round. It never does.
— Daniel Hannan is author of The New Road to Serfdom: A Letter of Warning to America.
I can remember when the euro came into effect. There were fireworks and performances all over the EU to celebrate it.
At the time, I felt there was a certain desperation in the celebration. It was as if the celebrations were organized not in order to celebrate, as such, but to anchor the new currency in the mentality of hoi polloi.
I could never see the euro lasting. I well remember the ERM, and the currency speculation that ended it, complete with the Irish RC bishops condemning such speculation as a sin. I just couldn't believe that Europeans - with the example of the ERM behind them - would try ERM 2.0.
There's a book out there - "The Rotten Heart of Europe" - that details the history of the ERM. It makes for sad, sad reading.
Reply to this commentLinkReport AbuseAs always you are right Mr Hannan, but are you not becoming overly self-referential? Or perhaps you are still a lone voice in the wilderness.
Reply to this commentLinkReport AbuseDeutschmark, Deutschmark,uber Alles!
Reply to this commentLinkReport AbuseUber Alles in die Geld!
Of all the countries out of the Euro, it seems to me that Germany will be the last.
The Euro keeps Germany's prices attractive to the rest of Europe. Where Germany to have its own currency again, most other countries would find American and Chinese goods much more attractive, just given their low cost.
Reply to this commentLinkReport AbuseAn informative and insightful article detailing clearly the arguments in favour of leaving the eurozone
Accurately pointing out how politicians got it wrong in the past regarding the exchange rates of currencies in Europe
A must read for ordinary savers and also for policy makers in positions of power
Reply to this commentLinkReport AbuseI fear that it is not the last, but only the latest card of the desperate Euro defenders; so far, they balked at no perfidy, however detestable, if it suited their goals...
Reply to this commentLinkReport AbuseThis failure is one of both design (political/ elite) and execution (regimented bureaucracy). Through a poor design of consolidating monetary policy without even a portion of fiscal engagement or unity, the effort was doomed from the start. But even moreso has been the absolute myopic, self-serving manner in which the "euro" has been executed. Why was Greece admitted to begin with? Why weren't stated EU fiscal policies/ objectives monitored and reported on? Most likely because the elites in the bureaucracy felt that they/ the EU was too big to fail. That having more active members merely reiterated the appropriateness of the decision to creat them, a revalidation of sorts. But importantly as well, it extended the bureaucrats power over more and more of Europe.
But again, to procrastinate this stupidity is to continue a lemming-like step toward the edge. And to cry "the sky is falling" is both disingenious and pusillanimous.
If all it takes for the world's financial system to collapse and western economies to enter a new "dark age" is for Greece to default, well folks, we deserve it then. If that's true, then all of those who've created our financial system and at whose trough they drink have sold the rest of humanity on a big, big lie. And to them we should give their just due. But, just maybe as they have all been so frequently before, just maybe they're wrong! Maybe they are crying "chicken little" to preserve a lie, a lie they helped create, and one they wish to sustain.
I'd say pull the plug, have a bifurcated Euro - northern Europe (with France perhaps) in Tier 1, south in Tier 2 or on their own. And, some fiscal monitoring/ reporting basis through which risk factors are thereby assigned. It's not impossible, countries did it previously. But, it does take some political courage. And that, at the moment seems to be the scarcest element in the whole mix.
Reply to this commentLinkReport AbuseTX Voice,
Have you considered the full repercussions of such a North/South Division?
Fair enough, you concede that the categorization of France would be problematic since 'South' is synonymous with a perceived Latin oscurantism and inefficiency, surely Paris would feel agrieved to be thrown together with the Mediterranean nations. Even in general cultural terms, I wouldn't consider France (certainly not northern France) to be a Latin country.
The complexity goes far beyound this to the point where we'd have to consider whether a surgical North-South partition would accelerate centrifugal forces already present in countries such has Italy and Spain. The Northern Italians might question why, given their proud mercantile and civic history, they should be isolated from their traditional Swiss, French and German hinterland, and may well feel compelled to jettison the Mezzogiorno.
All the above would bring about a substantial realignment of national boundaries and alter definitions of what constitutes statehood, something I'm aware that Mr Hannan has addressed frequently vis-a-vis countries such as Belgium.
Reply to this commentLinkReport AbuseAs your Slovak economist says, changing currencies was a piece of cake. Banks were given a stamp and started changing the notes at about 5am one Friday morning. By Monday, everything was ready.
I was an English teacher giving Narodni Banka staff early morning lessons, and had the pleasure of stamping a note myself.
Reply to this commentLinkReport AbuseWhen joining the Euro was debated in Denmark, most politicians were for it and trying to convince the common folk. The PM made the argument that they would retain all the mint and treasury equipment and if things didn't work out well they could switch back to the Danish crown. It would be costly but could be done quickly if necessary.
The EU chiefs immediately told the Danes no dice. If you're in you stay in.
Nobody gets out alive. OK that last was Jim Morrison but the attitude is much the same.
The Danish crown is still in use, hole and all.
Reply to this commentLinkReport AbuseGreetings Daniel,we met in Brussels at an Open Europe chat show.
You certainly seem to be seriously falling off the fence these days and it is welcome and indeed urgently needed. Please bring all your colleagues in the Party.
The EU as you know will fight tooth and nail to hang on to their princely privileges and access to fortunes. Their civil servants will also join them. It is very painful to jump off such a lucrative gravy train.
Pai Mei wonders if you are alone. You are not. You have like minded colleagues in UKIP and literally millions of people in England. Alone, not at all. You are in a majority. Westminster alas, they need shamed into calling a Referendum and they will be.
I am sure you also read the main European dailies and day by day sees a new note of protest against the EU. Whilst the EU hopes their manufactured Greek crisis will be the trigger to gain them total control it has also exposed their corruption and utter incompetence. Your speeches and those of Nigel Farage and Bill Cash are messages which are taking root, not just in the UK but in other countries.
Look at this German attack on the EU.
External Link
and take heart.
Reply to this commentLinkReport AbuseThe whole sorry history of the EU, our corrupt Politicians and Bankers, are singularly responsible for the current mess. The links between bankers and politicians are far more interwoven than most people realize and the banks behaviour during the last 20 years or so is littered with under the counter deals with their so-called competitors by spreading risk with worthless pieces of paper. The Politicians and Bankers thought this could go on ad infinitum, but there was nothing there when the crunch came.
Stupid Blair and Brown thought that the “New Economy” was the new way, but when that crashed out of sight the next hair-brained idea was to create the “Service Industry State” and dump manufacturing as something the Chinese or Indians could do. A colossal mistake! The era of “Globalization” was upon us. Of course we couldn’t compete with the Chinese, or Indians, but did Blair, or Brown care? No, of course not! Just import as many East Europeans as possible to do the work at half-price. What was left of our engineers and scientists were replaced by a few spotty youths sharing a brain cell and educated to a sub-standard degree at one of Labour’s `Degrees for All’ universities. What we have left is what you see.
The Euro is the culmination of this comedy of errors and neither the banks, nor the politicians, dare tell us the truth. For the first time in many years they are frightened that they will be found out. The blame game has only just started, but expect the worst!
Reply to this commentLinkReport AbuseMrs. T was right about staying out of the ERM. She was also right about the Euro, that is, it should be a common currency rather than a single currency. Changing currency is as simple as you describe, and Greece could partially leave the Eurozone. If could print it's own currency and then declare that both are legal tender, and command that all wages are paid in some proportion of the two. This would allow Greecce to devalue without exposing the population to the full force of inflation when the new Drachma collapses immedialtely after launch (what a cynical suggestion!)
Reply to this commentLinkReport AbuseYou have sounded the tocsin again. One word: Dexia. Eleven days and counting.
Reply to this commentLinkReport AbuseBrave new world?
I've been reading "The Guns of August" and Howarth's
Reply to this commentLinkReport Abuse(Stephen) "August'39". What is interesting is some of the
political forces that moved Europe in to war then as
between WW1 and WW2 could rear up and create a war
again- an economy in shambles and the need for strong
leadership. Could easily happen as the Eurozone unravels..
For a country like Ireland, with a high standard of living, going back to the Punt will be a massive shock, far more than Slovakia suffered with all due respect. It may turn out to be necessary in the end but, if so, it will be highly unpleasant. Pundits like Hannan need to be a bit more candid about the downside of their cunning plan if they want to be credible.
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