Saving the Euro – good news and bad news

The immediate market crisis of last week should subside today. The Euro member states have realised the serious threat of the Greek crisis spreading to Portugal and Spain. They have decided to put in place huge credit lines in case member states can no longer borrow from the markets at sensible rates of interest. The European Central Bank can now buy up state debt from member states, just as the Bank of England has been buying up UK state debt. The immediate worry of the markets that Euroland member states would run out of money has been eased by the twin facts of more credit and the ability to literally print money.

All of this comes at a political price. It must mean two things. Firstly, there has to be more control and influence over member states budgets. What the EU has failed to do by law and agreement, it will now be able to do as the lender of last resort. It lacked the will to enforce its 3% maximum ceiling on annual government borrowing. Now it has to force reductions where member states have public finances wildly out of control. If member states need access to the special funds, they will be expected to undergo surgery to their public spending and deficit plans to qualify for the cash. Secondly, for it all to work, there need to be in place realistic plans anyway to get the budget deficits down. If there are no such plans, the markets will return to force up government borrowing rates.

One of the ironies of the left of centre thinking on economics that tends to prevail in European circles is they will end up concentrating on cutting spending rather than on policies to promote growth. They will be reluctant to slash tax rates and reduce regulation on earning and saving, policies which could promote faster growth and create a stronger private sector. So, instead, they will have to keep on cutting more out of their public sector budgets.

Meanwhile, the Europeans love of proportional representation and hung Parliaments makes the task of government more difficult. Mrs Merkel has just lost her majority because she went to the aid of Greece. The German political class may be committed Europeans who want to integrate further and who understand that if you share a currency with another country you also have in effect to share a budget. The German people think otherwise. They resent these obligations and degree of common working, and have as punishment snookered their government. That makes handling the next phase of the crisis that bit more difficult.

PS The pro EU Europeans in the UK might like to thank those of us who fought against British membership of the Euro. If the UK had been in the Euro in the last year our public finances would have wrecked the common currency. I remain a strong supporter of our independence, but have to admit it leaves us free to make a mess on our own, instead of helping destroy the common cause. Let’s hope soon we can start to use our freedom from the Euro to good effect.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

49 Comments

  1. Sue
    Posted May 10, 2010 at 9:47 am | Permalink

    We want out of the EU! That's the right thing for the Tories to do. Give us a referendum. We want our democracy back.

    • APL
      Posted May 12, 2010 at 2:46 pm | Permalink

      Well, well!
      http://www.telegraph.co.uk/news/worldnews/europe/

      Jean-Pierre Jouyet: "The English are very certainly going to be targeted given the political difficulties they have. Help yourself and heaven will help you. If you don't want to show solidarity to the euro zone, then let's see what happens to the United Kingdom."

      The latest joke is that French Banks among others seem to have been shorting the Euro then picking up the money the ECB has thrown at the currency in an attempt to support the currency.

  2. alan jutson
    Posted May 10, 2010 at 9:48 am | Permalink

    I see in the Telegraph today that the UK (Mr Darling present) had no say in us having to underwrite 13 Billion under the emergency support package for all EU States, passed under the Lisbon Treaty where there is no opt out for anyone.

    It seems we escaped any liability under the additional Euro support package as this went through under different rules.

    Just out of interest John, can Mr Darling or any other past Minister for that matter, agree to anything whilst negotiations for a new Government are taking place in the UK.

    Reply: Yes, they can. If it needs Parliamentary approval they also point out in the negotiations that they might not be able to get it through. I did point all this out prior to the Ecofin meeting re the Euro, and quesitoned Darling's right to go.

    • Lindsay McDougall
      Posted May 10, 2010 at 10:40 am | Permalink

      But what the Conservative Party has not done is to fax the EU and the Member States to state that the incoming administration will not be bound by any agreements by Labour reached since the General Election.

    • APL
      Posted May 10, 2010 at 3:40 pm | Permalink

      Alan Jutson: "had no say in us having to underwrite 13 Billion under the emergency support package for all EU States"

      So taking 6bn out of the UK economy (a drop compared to what is necessary) will cause a recession, but taking 13billion and giving it to Greece will be good for the UK economy?

      Interesting.

      • alan jutson
        Posted May 11, 2010 at 11:40 am | Permalink

        APL

        Yes, it the new Political mathematics.

  3. Sally C.
    Posted May 10, 2010 at 10:05 am | Permalink

    I hope we are not going to be on the hook to bail any of the Eurozone states out. They made their bed etc etc

  4. Sally C.
    Posted May 10, 2010 at 10:17 am | Permalink

    Oh no, I just read Alan Jutson's comment. So we are on the hook for 13 billion euros. I agree with Sue above. We have to exit the EU in order to avoid any further financial commitments under the Lisbon or any other treaty.

    • Lindsay McDougall
      Posted May 12, 2010 at 12:29 pm | Permalink

      It is sufficient to repeal the Lisbon 'Treaty'. We do not need a referendum; they did not have one prior to signing up. It's also important to remember that the Lisbon Treaty is in all but name the Constitution explicity rejected by the electorates of France and Holland. Angela Merkel and Nicholas Sarkozy have boasted about it. After a six month propaganda battering, we might even get Nick Clegg's agreement.

      If you think that we have problems, follow Angela Merkel's falling star. The Bundesbank and many German people would like both the Lisbon Treaty and the Euro to go.

  5. Posted May 10, 2010 at 10:18 am | Permalink

    The market rally could be a dead cat bounce?

    • Mark
      Posted May 10, 2010 at 3:27 pm | Permalink

      It's a bear squeeze. But once it has played out, the market will tiptoe cautiously south again until it finds a basis to exhaust the EU money or create high inflation.

  6. Bob Layson
    Posted May 10, 2010 at 10:25 am | Permalink

    If anything is an instance of 'contagion' it is the way the use of the term and concept has gone viral in political pronouncement. If three drunks in three capital cities wake up with a hangover it is because of what they individually did. The consequence of deficit spending is not catching but it will come to all who indulge in it to excess.

    Markets do not hunt in packs or gang up on indebted governments so much as treat like alike and note the divergence between government word and deed.

  7. Lindsay McDougall
    Posted May 10, 2010 at 10:37 am | Permalink

    Let the PIIGS default and leave the Euro. And let us raise our glasses to the Bundesbank.

  8. lola
    Posted May 10, 2010 at 10:40 am | Permalink

    Or to put it in local terms the German people (as it is they, and only they, that have any financial credibility in la la Euroland) have been conned into re-mortgaging their whole country at a rate of interest lower than their neighbours can borrow at, if they can borrow at all, in order to refinance those same profligate neighbours, and without any real control on how those neighbours now behave and all done via the offices of a bank manager that cares not for Germany at all.

    You really couldn't make it up, could you?

    This is just arbitraging interest rates based on Germany's hard won credit worthiness.

    • SJB
      Posted May 10, 2010 at 11:02 pm | Permalink

      The Germans borrow at 4% and lend at 5%. Providing the Greeks (or others) do not default then the German people will turn a profit.

  9. Athelstan
    Posted May 10, 2010 at 10:54 am | Permalink

    Another EU stitch up and only papers over the cracks, the Greek tragedy will end in default.
    Merko is a dead duck, Sarko similarly, with a bit of luck and overseas speculation the whole euro shebang will 'go west' soon and then in logical progression, the whole rotten EU edifice will collapse, God willing.

    Paraphrasing Mikail Gorbachev, 'we (Europe) knocked down one wall and replaced the old soviet union with a socialist bloc in western Europe', how right he was.
    Pert to your point Mr. Redwood, anything based on Socialist Federalism cannot succeed, business and particularly private enterprise must be the economic driver, the state controlled centralised model needs to back off, therefore the EU federal experiment is doomed to failure, though the shadowy powers that pull the strings in the background will fight tooth and claw to retain the EU project.

  10. Y Rhyfelwr Dewr
    Posted May 10, 2010 at 11:16 am | Permalink

    So the PIGS have borrowed so recklessly, there's a danger that the banks will refuse to lend them any more.

    The solution? Give them the public's money instead! Woo-hoo! How do you say, "Carry on as normal" in Portuguese?

  11. Y Rhyfelwr Dewr
    Posted May 10, 2010 at 11:20 am | Permalink

    If member states need access to the special funds, they will be expected to undergo surgery to their public spending and deficit plans to qualify for the cash

    Greece wouldn't be in this mess if the EU were so grimly determined to enforce its will. This will be fudged, just like the Euro's entry conditions were fudged, and the rules of membership were fudged, and everything else in the EU is fudged. The EU is nothing if not a great big fudge factory.

  12. Gordon Blue
    Posted May 10, 2010 at 11:42 am | Permalink

    It is too complex for me to understand and have an opinion on.

    Is the British Taxpayer contributing to the stability fund of 500bn euros?

    And what does Mr Rehn mean when he said

    "The fiscal efforts of the EU member states, the financial assistance by the commission and by the member states, actions taken today by the ECB prove we shall defend the euro whatever it takes."

    I don't like the sound of "whatever it takes".

  13. Acorn
    Posted May 10, 2010 at 11:56 am | Permalink

    The EU super-federalists will be loving this. The ECB has had its mandate extended, they are now in the QE business. What's next. EU wide common monetary policy; common fiscal policy; tax structure harmonisation. More EU federal taxes and duties on top of state taxes?

    How long before adopting the Euro will be a requirement for continued EU membership?

  14. Richard
    Posted May 10, 2010 at 11:57 am | Permalink

    This is just the same as the bank bailout isn't it? (And a good part of the rationale is another bank bailout in disguise). Money is being thrown at the problem but the underlying structural issue isn't being addressed. Govts (including the UK who participate through the IMF) should set conditions for accessing the funds: no public sector salaries > €100k, no pensions before 67; no extraordinary infrastructure/defence projects etc. No taxation without representation! If bankrupt economies want our taxpayers' money, we should have controls on how they spend it. (And 'progressive' politicians in the UK should recognise we will have to drink the same medicine ourselves if and when we need external aid to pay for Mr Brown's policies).

  15. A. T.
    Posted May 10, 2010 at 12:24 pm | Permalink

    Asked implicitly by Lindsay, above. but can I ask explicitly ? What is Cameron's position on the UK funding EZ bailouts ? Ditto the increased IMF contributions ?

  16. Stu
    Posted May 10, 2010 at 12:59 pm | Permalink

    No-one else has said it so I will.

    Thankyou.

    Keep it up, we still have so much to do

  17. Good Money after Bad
    Posted May 10, 2010 at 1:34 pm | Permalink

    Has the move to a less Euro-friendly regime in the UK brought the crisis to a head?

    It is very convenient that this agreement has to be rushed through before a more Euro-sceptic government is formed in the UK.

    Are our European friends using the constitutional crisis here to their advantage?

    BTW, 750bn Euros is almost half UK GDP!!!

    I calculate our share of the 60bn Euros set aside by the European Commission, amounts to £9 each, although the maths is tricky, I stand to be corrected.

  18. Peter R
    Posted May 10, 2010 at 2:20 pm | Permalink

    John, you say: "The European Central Bank can now buy up state debt from member states, just as the Bank of England has been buying up UK state debt."

    My question is: have they got the money to do so or will they have to print money like we did?

    If the answer is 'yes' will sterling appreciate against the Euro?

  19. Posted May 10, 2010 at 3:16 pm | Permalink

    Instead of seeing the austerity measures as a necessary condition of the German-led bailout, I wonder if the Greeks will throw a wobbly because they think Germany owes it for the Nazi occupation? (sentence left out)

  20. Am I right?
    Posted May 10, 2010 at 4:15 pm | Permalink

    EC set aside 60Bn Euros

    The UK make 13% of all contributions – 8.1Bn Euros

    The exchange rate is 0.868 – £7Bn

    The UK Population is about 60M, which means that the EU have just set aside about £120 for every man woman and child in the country.

    I agree with Alistair "It's a good deal [of money] for Europe".

    And I have just worked out what PIIGS mean!!

  21. JimF
    Posted May 10, 2010 at 5:31 pm | Permalink

    Why do I get the feeling the European issue will soon be back on the Tory Party's agenda, having signed and sealed a Coalition agreement?
    Perhaps the backlash from this will be far greater than any left-of-centre pro-European lobby would have been had Mr C finessed the UKIP situation, won the election properly and kept his referendum promise?
    We'll never know.

  22. lola
    Posted May 10, 2010 at 6:21 pm | Permalink

    O/T – I bet McDooms speech outside No 10 just now cheered you up – not.

    Really Mr R, I despair at the incompetence of your leadership not to be able to win an election from a party and leader solely responsible for the destruction of the UK economy and to hand the balance of pwer to the bloody Libdems! Really you couldn't make it up could you?

    Plus I as an Englishman -which voted a big Tory majority – will not stand another 10 seconds of being governed by a minority of lefties kept in power by their corrupt machine in Scotland.

    I am very very annoyed.

  23. THE ESSEX GIRLS
    Posted May 10, 2010 at 6:44 pm | Permalink

    Having just heard the Lib-Dems request for formal talks with Labour we fear we must revise our name for them from 'The Fairies at the bottom of the garden' to the HOBGOBLINS in the same place!

    Putting aside the problems for Clegg in going back on many of his words, how on earth can they think that a Lib-Lab pact with the help of the other ragamuffins can possibly guarantee stable government and an ongoing working majority?
    Clearly this is a matter of them putting party advantage before the national interest and they may well be losing much of the goodwill gained over the past few days as we type.

    We sense the hands of Simon Hughes and Ming Campbell – yesterday's men of the Lib-Dems – and it will be interesting to see if any of their MPs resigns on the point of principle should the pendulum swing back to the Con-Lib arrangement.

    • THE ESSEX GIRLS
      Posted May 10, 2010 at 7:16 pm | Permalink

      Our machiavellian sister Essex Girl has pointed out that this might just be a plot, with the Prince of Darkness' fingerprints all over it -aided and abetted by Clegg himself – to force Gordon into a resignation statement. (He can't go back on it now!)

      If not how on earth do the Lib-Dem 'Hobgoblins at the bottom of the garden' believe they can help deliver stable government while the leading Labour lights are fighting a leadership battle as the economy continues under Brown's tutelage?

      And the polis wonder why we are disrespectful and distrustful of them!

      If only Team Cameron had adopted our campaign slogan of 'COMMON SENSE & COMPETENCE'. It certainly could have been trotted out tonight!

  24. alan jutson
    Posted May 10, 2010 at 8:09 pm | Permalink

    After the chaos of today Monday).
    I think your views and post tomorrow (Tuesday) may be interesting.
    I forecast a record response.

  25. Norman Dee
    Posted May 10, 2010 at 8:38 pm | Permalink

    What difference this is going to make confuses me, if you have a house built on sand, with money that some of the partners lied about having, then whats the point in coming along with a new roof ? it's the foundations that are crumbling, the rain is a minor inconvenience. Even this new roof is coming out of the commission via a special provision (article 122) for earthquake relief etc. So once again the rules are changed, the tides coming in and Brown and Clegg are desperate to get aboard the sinking edifice.
    It defies belief

  26. Norman Dee
    Posted May 10, 2010 at 8:42 pm | Permalink

    Further to my last,
    It's ironic that having spent so much time and destroying so much of their own and the rest of us in trying to take over Europe, the Germans would probably like to get out sometime soon.
    (sentence deleted )

  27. Mike Stallard
    Posted May 10, 2010 at 8:42 pm | Permalink

    If you reward failure, you get more failure. That is why you don't reward failure. Today two teachers were trying to get through to one naughty boy in our centre. If you reward naughtiness, guess what? You get more naughtiness. So this is a wrong move.
    However, we Europeans are a nasty lot.
    Apart from us Brits, there is a very, very strong tradition of seriously nasty dictatorship on the continent. Some us are able to know about Admiral Horthy, for instance. But there are others……. I believe that General Jaruzelsky was not all that pleasant.
    These low-lifes flousih in failed states.
    So perhaps staving off the evil day for a few months until the next demand for money comes in might be a good thing?

  28. Ian Pennell
    Posted May 10, 2010 at 9:38 pm | Permalink

    FROM: Ian Pennell

    10th May 2010

    Dear Sir John Redwood

    SIR, I trust that any Government we now run (either by ourselves or with the Liberals) is not so keen to back down in EU negotiations as has been either Tony Blair and Gordon Brown! To that end we must stand firm on our position with Europe with Nick Clegg in the current negotiations. We must not even consider joining the euro!

    Regarding the talks between Conservative and Liberal MPs with the hope of forming a Coalition Government, I have just sent Sir David Cameron this email. Perhaps you will read it yourself, Sir and remind Sir David Cameron of the pitfalls of giving too much ground to the Liberal Democrats, and of why it really isn’t necessarily bad if we cannot get a Coalition with them together! Here is the email:

    “FROM: Ian Pennell

    10th May 2010

    Dear Right Hon Sir David Cameron, MP; Conservative Leader

    YOUR HONOUR, I write to congratulate you and the Conservatives for securing the largest number of MPs in Parliament, and by winning us over 100 NEW MPs. It is quite an achievement although unfortunately not quite enough to get the Conservatives a Commons Majority. But with over 300 MPs you, Sir should be in a strong position to get some sort of Government together. Ideally this would be with the Liberal Democrats forming a Liberal Conservative Government which would make up to over 360 MPs, but with less than 60 MPs the Liberal Democrats should not be the ones calling the shots.

    The situation in Britain, with the economy, the fact that the Government hitherto has been borrowing over 11% GDP with the national Debt mounting up at an alarming rate means that you need to put your seal of AUTHORITY on the Coalition so that strong measures to cut this huge debt can be put in place, to reassure the International Markets. An agreement between you and Nick Clegg must be sealed within the next few days (at most) so that this urgent task can be undertaken. Another very serious problem that will affect Britain in future is the threat of the lights going out in Britain, we NEED to be planning for and getting on with building new nuclear power stations. This is NOT NEGOTIABLE, so don’t cave in over Liberal Democrat demands to shelve nuclear power (on their grounds that it is “environmentally wrong”). The electorate will not thank you in five years time if the Liberal Conservative Government allows the lights to go out!! Britain is already a net importer of oil and gas, the World passed Peak Oil some time ago so we need to think seriously about how we wean ourselves off it. Hence we need nuclear power, investment in electric cars (complete with setting up car-charging points across Britain!), the full electrification of the rail network, and so forth MUST be enacted sooner rather than later. In the shorter term we will need to bulk buy more oil and gas, build more oil/gas storage units so that we can be well-stocked up and prepared for when the oil reallly starts running short in about five to 10 years time. Britain uses lots and lots of energy as a country, windfarms and tidal power (whilst they are good, non-polluting means of generating electricity) will not come near making good the shortfall in our energy requirements as a country when the oil starts running low.

    Your Honour, this is not the time for haggling over electoral reform. We need to start cutting the bloated State Sector quickly so that borrowing can be cut and importantly so that taxes on businesses can be cut (so that the economy grows despite the fiscal consolidation). Keeping interest rates very low will also ensure the economy copes with the serious fiscal measures that will be needed;- £ 165 billion annually must be found within the next four years. We also need to plan for Britain’s energy security as our economy will depend on that so a further £ 10 billion a year must be found to get more nuclear power stations up and running. We also need a nuclear recycling centre so that we can re-use the Uranium because this is also a finite resource. Many Liberal Democrats MPs will baulk at building nuclear power stations, as too they will baulk at the scale of the cuts that will be required (they would want to try and close the deficit by bashing the rich especially hard, which is something that WOULD send Britain back into a deep recession!). So these are things that you Sir MUST stand firm on.

    I would suggest, Sir that you keep firm resolve as you implement the following timetable. Over the next 48 hours explain that you will not be backing down on nuclear power or on spending cuts to both Conservative and Liberal MPs. Explain to them, in the starkest possible terms, that Britain faces a bleak future if we don’t face up to the massive debts and start cutting spending quickly and deeply, explain that £100 billion spent by the late Labour Government was on quangos, on bureaucracy and waste and that this could be cut over three years without hurting the front line Public Services. Suggest to all the MPs in the Coalition that they MUST support these measures for the long-term good of the country they are serving and to put their petty idealogical differences to one side. Tell Left-Wing Liberal Democrat MPs that you will try and go it alone if you don’t get their support and that there is little chance of them getting agreement to deal with the serious issues in a Liberal-Labour-SNP-PC Progressive Alliance that would scarcely scrape together a Majority. Tell Right-Wing Conservative MPs that if they vote you down on these important issues (perhaps because they don’t like the deal with the Liberals or perhaps because they want an EU Referendum, or deep tax cuts for the rich, etc), that you Sir, WILL NOT HESITATE to SACK them! And mean what you say when you warn these MPs most likely to rebel of the consequences, but explain to them that you are like this because some VERY SERIOUS issues affecting Britain are at stake!

    If there are rebellions by enough MPs, or if the Liberal Democrats refuse to do a deal Sir, you should try and go it alone and lead a minority Conservative Government. You should team up with those Northern Ireland MPs likely to support the Conservatives and appeal to Blairite Labour MPs (and more Right Wing Liberals) who would be most sympathetic to Conservative policies. Appeal to such MPs to support the minority Conservative Administration as you set about sorting out the economy, the deficit and Britain’s energy security. Identify who these MPs are and meet with them to urge them to support you. If that fails, press ahead and form your Government, Sir and tell them that if the Opposition votes you down you will fight hard for every vote in the ensuing General Election, that you will expose the party politicking of the Left and that you will expose Labour Lies about “Cuts to Vital Services” with special vigour. Make sure you find out everything of what Labour has been wasting money on whilst in Government so that you can expose them for what they really are.

    If you lose the subsequent Election, it is not going to be by a large amount even if Labour re-double their spinning efforts. Labour is broke, they can’t afford to run an effective campaign and you, Sir will be in a strong position. Not only will you have more MPs, the Conservatives still have a Campaign War Chest (albeit a depleted one) and you would be in a position to expose the Left for putting the political interests of all its parties above the National Interest. In all likelihood Labour will probably be punished hard (as too will the Lib Dems) and, if you Sir get the Conservatives campaigning consistently well in advance of the ensuing Election with a clear message you will probably get the good majority needed to govern well and to deal with the pressing issues in this country. In the very worst outcome, a slender Labour Majority, you should still have enough MPs to oppose their stupid policies on more tax, borrow and spend; abolishing First Past The Post by firstly making clear you will undo these policies in the next Conservative Government and by getting the Ulster Unionists and a few sympathetic Labour MPs on-side to oppose the measures. Any Labour Government elected after another General Election will get into a serious mess as the economy tanks in the face of excessive debt, the British Public will see for themselves just how reckless Labour has been all these years and just how Gordon Brown was the most reckless steward of the British economy after all. If the lights start going out the Government would become very very unpopular. Even without power blackouts, the problems caused by a Gilts Strike (and the ensuing need to really cut spending and raise taxes) would mean sufficient by-election defeats three years after any forthcoming General Election that you Sir, would be able to bring the Labour Government down on a No-Confidence motion and in the General Election after that you will win by a landslide!

    Your Honour, it is necessary to consider all the options open to you, and all the possibilities that can develop so that you can plan things to your advantage. If the Liberals refuse to take things further there are opportunities for strategies that will enable the Conservatives to truly smash the destructive forces of Socialism in this land- perhaps for good. But it takes long term planning. You would indeed do well to explain the merits of the strategies I have outlined to your Conservative colleagues, and to persuade them of its potential. On the contrary, Sir, we Conservatives could be the ones with our fingures burnt if we bend over backwards to appease the Liberals by accepting dangerous economic and energy policies. If there is a Gilts Strike and power blackouts during the Liberal Conservative Administration (that we are now trying to get together) it could be us Conservatives taking the electoral rap over policies we have been pressurised into! Think about it.

    In the meantime, I do trust that we can forge together a strong Liberal Conservative Coalition that (collectively) recognises the urgency of cutting the deficit by reducing Government spending, and that is prepared to plan for building nuclear power stations so that the lights dont go out.

    Best Regards.

    Ian Pennell”

  29. Posted May 10, 2010 at 10:16 pm | Permalink

    We definitely want out of the EU. We're proud Englishmen and it's about time we do something to take back our country!

  30. Karl
    Posted May 10, 2010 at 11:06 pm | Permalink

    To say Merkel lost her majority simply due to Greece is overlooking the scandals the sitting conservative state minister in NRW found himself embroiled in.

    Furthermore I don't think Germans are against deeper integration within the EU (or EURO area) per se, rather they have strong feelings about their financial stability being ruffled by other countries actions. That doesn't mean they want less integration, what they want are stricter regulations and more transparency. My feeling is that Germans are very much in favour of European integration, as are many on the continent.

    As to "The pro EU Europeans in the UK might like to thank those of us who fought against British membership of the Euro" – well, perhaps the people in the Eurozone should thank you instead!

  31. SJB
    Posted May 10, 2010 at 11:09 pm | Permalink

    JR writes: "The pro EU Europeans in the UK might like to thank those of us who fought against British membership of the Euro. If the UK had been in the Euro in the last year our public finances would have wrecked the common currency."

    Or perhaps we would have kept closer to the 3% ceiling on annual government borrowing and not been in the mess we are today. Just a thought.

    • S Matthews
      Posted May 11, 2010 at 4:52 pm | Permalink

      Did any nation in the Eurozone keep close to the 3% ceiling?

      • SJB
        Posted May 11, 2010 at 10:51 pm | Permalink

        Belgium, Finland, Ireland, Luxembourg, Slovenia, and Spain.

  32. Ian
    Posted May 11, 2010 at 10:45 am | Permalink

    Why are you silent this morning Have you seen Douglas Carswells blog today is his idea the right thing to do now?

    Reply: because I did early media and delivered a speech on banking regulation at a breakfast.

  33. Ian Jones
    Posted May 11, 2010 at 10:47 am | Permalink

    If the UK had been in the Euro then the cost of the crisis would have been borne by those who took the risk, i.e. asset holders and not transferred to savers via QE.

    The UK is in no better a position, we will just inflate our way out rather than deflate. the end result is the same but those who take the hit is different.

  34. Mark
    Posted May 11, 2010 at 12:22 pm | Permalink

    I think there is good analysis by Charles Crawford:
    http://charlescrawford.biz/blog/the-end-of-the-eu

    and Paul Mason (much to my surprise):
    http://www.bbc.co.uk/blogs/newsnight/paulmason/20

    The whole EU project is in danger – and not principally from the UK, but fundamentally from its citizens, who are beginning to rebel against the impositions of their elites. Merkel lost an election on Sunday. The Greeks are revolting (well, you know what I mean!). The French are only keeping their sang froid because they just engineered a bailout for their banks at everyone else's expense.

  35. DBC Reed
    Posted May 11, 2010 at 2:48 pm | Permalink

    This Greek deal seems to involve a massive amount of quantitative easing.This seems to be the accepted practice now.How long before the B of E writes backed-by-nothing cheques to fund the public sector?Once seen as Greenshirt nonsense, we are half way there already.

    • Mark
      Posted May 12, 2010 at 11:40 am | Permalink

      They've been doing it since at least 2007 already.

    • APL
      Posted May 15, 2010 at 12:44 am | Permalink

      DBC Reed: "This Greek deal seems to involve a massive amount of quantitative easing."

      Quantitative easing in an expansionary economic environment, for example 1945 – 2007 = inflation.

      Quantitative easing in a contracting* economic environment: 2008 – xxxx = sovereign default and deflation.

      *today nearly everything is credit, much of the credit will be defaulted, because there is no way to pay it off.

      Defaulted credit = deflation

  36. Javelin
    Posted May 11, 2010 at 5:19 pm | Permalink

    I have dinner with a few bond traders later. Phoning round today I asked about the Greek crisis. This is the general view

    1. That the trillion dollar bail out is a short term fix

    2. That the EU believe that once the Markets recover taxes will rise and cover the cost of Government spending

    3. That in 3 months the EU Governments will not reign back their spending by the required 20-25%.

    4. The researchers simply do not believe that the Government are going to stop spending in the short term and create the necessary structural changes.

    5. Neither do the researchers believe taxes will rise enough to may the deficit affordable.

    6. That the EU simply cannot afford Government on the scale it has for at least 5 years. By which time the debt will be unmanageable.

    7. That looking at taxes and spending one or the PIGS will default.

    8. Additionally, one trader also thought that the UK could not afford to make the structural changes. Basically that the financial cost of making 500,000 people redundant over 5 years would "screw" the UK.

  37. StevenL
    Posted May 11, 2010 at 7:28 pm | Permalink

    I've just spent 5 nights in Berlin and have talked to some young Germans about this. You are right, they want to 'punish' Greece for their stupid decisions. They are also annoyed with the property boom and bust nations and the banks. Who can blame them?

    I did the unthinkable and mentioned the war. They learned history the same as I did.

    World War 1 – stupid, no point, we all agreed. USA, UK and France tell Germany to pay for it and load them with debt – stupid – major cause of WW2. Wall Street crash followed by the bond crash and great depression – major cause of WW2.

    After drawing a parallel to them wanting to punish Greece, Spain and Portugal for their behaviour and load them with debt they kind of clicked on. They still took a bit of persuading that printing billions of Euros might actually be a good idea, and were never sure. I told them to expect to hear a really big number that they would not like the sound of.

    Even I didn't think it would be as big a 500 billion. I'm not suprised the Germans are upset, but I don't want to see the Euro break and peace in Europe break again with it.

    One very intelligent young German I spoke to was happy to do a high five with me and agree 'Never again' as we did in the 1940's.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page