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The Corner

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Some Cheers for the Northern Euro



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Kudos to Open Europe (as usual) and New Direction for hosting a seminar at which  five European economists (effectively) called for the launch of a breakaway Northern Euro:

Our view is that the strategy that offers the best chance of saving the European Union, the most valuable achievement of European integration, is a controlled segmentation of the Eurozone via a jointly agreed exit of the most competitive countries. The euro may then remain – for some time – the common currency of less competitive countries. It would ultimately mean a return to the national currencies or to different currencies serving groups of homogeneous countries.

That was and is the way to go.

A fuller report of the event (and a recording) can be seen on Open Europe’s excellent daily press round-up, but I was struck by this:

Looking at France’s situation, Professor Brigitte Granville argued that “internal devaluation is not an option, especially when long-term unemployment is already at 10%.” She suggested France would benefit from leaving the euro, even if that means “sacrificing” its alignment with Germany.

Now that’s heresy. To even suggest a breach on this scale in the EU’s Franco-German motor is quite something, and it’s an indication of the problems that are heading France’s way. To maintain its competiveness within the single currency zone France is going to have to keep pace with Germany, and there is little indication that it has the economic capability or the political will to do so.  That’s what Granville means when she says that “internal devaluation is not an option”. France is not orderly, frugal Estonia, a country that is (so far) making internal devaluation work.

And then there’s this:

Italian Professor Claudio Borghi Aquilini noted that Italy is the perfect example of the risks involved in establishing a ‘fiscal union’ – given that there are the Northern regions (which he compared to Germany) sending money to the Southern regions (Greece) via the central government in Rome (Brussels), with very little impact on reducing the competitiveness gap between the two areas.

Quite. And it’s worth noting that Italian monetary union has lasted over a century and a half, cost a fortune and been an economic and political disaster for the country’s north. And yet, for all the effort, Naples does not look a lot like Milan. How long will it take before Athens looks like Berlin? And what will the attempt to make it do so cost?

And…

[Professor Aquilini] added that Italy’s euro membership turned out to be “one of those weddings which is better not to celebrate.”

Indeed. And yet a good number of the prominenti—men like Monti and Draghi—who did so much to make it possible are still active in public life.

Being an oligarch means that you never have to say sorry.



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