Dr. Benny Peiser20.05.2012 12:47
David Cameron has been calling on those of our European partners who have the misfortune to have the euro to do what it takes to establish a ‘stable, successful eurozone’ – warning that otherwise ‘we are in uncharted territory which carries huge risks for everybody’.
I fully understand why he felt obliged to say that. Even though, fortunately, the United Kingdom is not part of the eurozone, the issue is of such importance that he could scarcely remain silent.
And had he spoken and not expressed the desire to see the eurozone ‘succeed’ he would have been held at least partially responsible for its failure.
But it is, of course, complete nonsense. A successful eurozone is an impossibility. European Monetary Union, to give it its full name, was doomed from the start. The disaster which we see unfolding today, most acutely in Greece but increasingly elsewhere in the eurozone, too, was not only predictable but predicted.
I first explained why it should not be embarked upon, and why it would be doomed to fail, when I was Chancellor in January 1989, and the proposal was about to be formally launched.
I concluded in these terms: ‘It is clear that Economic and Monetary Union implies nothing less than European Government – albeit a federal one – and political union: the United States of Europe. That is not on the agenda now, nor will it be for the foreseeable future.’
And I elaborated on this before the misbegotten project became a reality in 1999. A monetary union, for its very existence, requires there to be automatic, not occasional and discretionary, transfers from the more successful to the less successful parts of the union, which in turn requires there to be, at the very least, a single system of taxation and benefits.
There also needs to be a high degree of central control of budget deficits. In other words, a single finance minister at the head of a single finance ministry within a single government.
Even then, it would not be economically beneficial within an area as large and diverse as the European Union. For political union needs to be buttressed by a high degree of labour mobility (and also wage flexibility, which the so-called European social model regards as barbaric). There is a high degree of labour mobility in the political and monetary union that is the United States – as there is, too, between England and Scotland within the United Kingdom. But linguistic and cultural differences mean that labour mobility within the eurozone is severely limited.
So we have 25 per cent unemployment today in Spain (and an even more horrific 50 per cent youth unemployment), while unemployment in Germany is little more than five per cent.
But of course it was never an economic venture in the first place. It was always entirely political. The architects of European monetary union knew full well that it could not work without full-blooded political union, and that was their objective from the start.
It is hard to imagine anything more arrogant and irresponsible. It was arrogant, since, in a democracy, political union requires the consent of the people, which plainly does not exist. I live half the time in France, and the people of France are no more inclined to surrender self-government than are the people of Britain.
And it was grossly irresponsible, since it was always clear that, should their gamble fail and political union prove unachievable, the consequences of monetary union alone would be as disastrous as we see unfolding today.
So where do we go from here? The only rational course of action is for the member countries to recognise reality and embark on the dismantling of the eurozone, in as orderly way as possible, returning to separate national currencies.
The exit of Greece from the eurozone, which is merely a matter of time, needs to be only the first step. In the short term, this will be unpleasant and costly. But the short-term cost will be as nothing compared with the continuing cost of an under-performing European economy, lurching from crisis to crisis until monetary union can be sustained no longer.
The break-up of the European monetary union will not be the first time this has happened. For the most part, the ending of monetary union has followed the break-up of political union. Most recently this occurred with the split of Czechoslovakia into the Czech Republic and Slovakia, and the break-up of the Soviet Union, when the newly independent republics changed from the rouble to currencies of their own.
The greatest problem this time is likely to be the threat of a European banking meltdown. The banks are already in an enfeebled condition following the excesses that led to the crash of 2008; and the near-80 per cent write-down of Greek government debt is likely to be followed by further sovereign debt defaults. But this can be managed.
The various Governments of Europe will have to stand behind some of their banks (although the terms on which they do so should be much tougher than has been the case hitherto), and the IMF will need to provide back-up where that is needed.
But the cost of extrication from the economic doomsday machine that is the European monetary union, will be infinitely less than the cost of keeping the machine going and delaying the inevitable. Europe can prosper again, but only by throwing off the misbegotten shackles of the eurozone.
Meanwhile, even if David Cameron had to say what he did say, there is one sensible and important thing that he can do.
He can make it clear that there is no way in which he will ask the British taxpayer to participate in the construction of firewalls, bail-outs, or any other devices designed to shore up a doomed monetary union.
We cannot afford to do it. We are not members of it – although, as the Governor of the Bank of England pointed out last week, we suffer significantly from the collateral damage it is causing.
But above all, it is in no one’s interest – not ours, not Europe’s, not the world’s – to seek to sustain the unsustainable and prolong the great damage it is causing.
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