Why a currency needs a sovereign

(This post was written for Citywire and adapted for this site)

Many readers of this site think the best answer to resolve the Euro crisis would be to announce the intention to re-establish independent currencies across Europe. They could each find their own level and economies would start to improve.   This is not about to happen because the Euro is a political project. The fact that it does economic damage does not matter very much to its creators. That is why they will instead make more moves to create an economic government of Euroland, and have to do so.

Every successful currency has a sovereign to take care of it. The Euro is an orphan currency. It is a currency in search of a country to love it. Given the rolling sovereign debt crisis in Euroland, and a smouldering banking crisis, it is time to ask will someone be a good parent to this struggling adolescent money?

Traditionally sovereigns placed their stamp on the money and placed their force, their Treasury  and economic policy behind it. The sovereign decided how much to issue and whether to debase it.

Modern democracies behave in a similar way, though they often use a so called independent Central Bank to make some of the important decisions for them. In practice the Central Bank only maintains its independent action whilst it continues to please the sovereign. Parliaments and Congress can change the rules governing the Central Banks, change the targets, change the personnel when need arises. They can even change the money, as the German government instructed the German Central Bank to do when they surrendered the DM.

The Euro lacks some of the usual arrangements. There is a so called independent Bank, but it changes policy quite frequently and clearly listens to the ebb and flow of political debate about whether to buy in bonds, whether to monetise any debt and whether to change interest rates. Like other Central Banks, in the middle of the Credit Crunch it joined in a co-ordinated lowering of rates and related actions which arose out of Finance Minister discussions. Unlike sovereign countries, the Euro lacks a single authority drawing up a single state budget, single political control over the levels of sovereign borrowing, and a single issuer of sovereign debt.

The architects of the Euro recognised the potential weakness. They said Euro area governments had to keep their stock of debt below 60% of National Income, and keep annual deficits below 3%. Unfortunately they did not enforce the governance to ensure this happened. Some states borrowed far more. They were free riders at the lower average rate for a bit. Now they face spiralling debt costs, as markets have come to realise there is no EU sovereign guarantee on states’ debt.

A single currency area also needs strong banking regulation, capable of keeping all the main  banks in the system solvent and liquid. The Central Bank either has to do the regulating itself, or be confident in the banking regulator. The Central Bank has a duty to supply liquidity to all banks should need arise.  The ECB has done this for much of the time, but recently announced it wished to reduce the amounts lent under special facilities. In particular it wanted a refinancing of Irish banks which led to the week-end crisis of the Irish state financing.

The ECB has to be comfortable with the solvency regulation of main Euro area  banks. If it has any doubts it needs the ability to sort these out in private with the bank concerned and or the bank regulator. All banks in the system must be deemed to be solvent and seen to be solvent. They should then be offered whatever liquidity it takes if there is a run on their deposits or wholesale funding. To reassure investors it is likely the Euro authorities have to conduct new tests and hold private discussions with each bank, and make sure every bank has a plan to strengthen its position where this is needed.

This week has seen major advances in the task of finding a parent for the Euro. We have the first issue of EU bonds with an EU sovereign backer, as they raise money for the Euro bail out fund. We have more support for Euro area banks announced by the ECB. They  now need to use the time they have bought to create a true sovereign. That is  an economic government of the Euro area that controls debt and deficits and ensures strongly regulated banks.

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35 Comments

  1. lifelogic
    Posted December 3, 2010 at 7:14 am | Permalink

    It is indeed a political project and one that has caused immense damage from the deposing of Mrs Thatcher and Major’s ERM farce onwards. So why is Cast Iron Cameron supporting this damaging policy while trying to pretend he is not doing?

    • Bob Eldridge
      Posted December 3, 2010 at 2:26 pm | Permalink

      Lifelogic, Allegedly, Cameron is a Builderburger and so is commited to the USE. He, like Blair, sees the chance to become the president of the USE, in the future. Cameron does seem to be a PR man fronting the coalition and so I suspect others are pulling his strings. Those others are not from the UK.

    • sjb
      Posted December 4, 2010 at 3:10 pm | Permalink

      @lifelogic (December 3, 7:14am)

      Let me share an extract from John Major’s recent speech:
      In 1989, Margaret Thatcher and I took sterling into the Exchange Rate Mechanism. We did so to general acclaim.

      For 50 years, inflation had bedevilled the UK economy. Two Chancellors, Geoffrey Howe and Nigel Lawson, both believers in the free market, had wished to enter the ERM. Margaret said no. As Chancellor I, too, then advocated entry. Margaret said yes.

      She did so with her eyes open. She was persuaded by reality. There was no alternative. Prices and mortgages were soaring and we had to bring them down. We entered the mechanism to do so. This mattered to Margaret. Those for whom she most cared – the strivers and hard workers – were among those most hurt by rising prices. And because of my own life experience, it was crucial to me: I knew what life was like when the week lasted longer than the money. That is the evil of inflation.

      The ERM medicine was acutely painful, but it did drive prices down, and set us on a path to economic well-being that lasted over 15 years. Let us not forget that Britain began many years of non-inflationary growth in April 1992 – not in May 1997.
      http://www.telegraph.co.uk/news/newstopics/politics/8163394/John-Major-The-Limits-of-Power.html

      • Lindsay McDougall
        Posted December 6, 2010 at 1:43 pm | Permalink

        Absolutely pathetic and typical of John Major. We could only do the right thing if foreigners did it for us. Margaret Thatcher said ‘yes’ because she thought that she could not afford to lose another Chancellor. In that regard she was dead wrong. She could certainly have afforded to lose that one.

        Now that we are mercifully out of the ERM and out of the Euro, we have to stop inflation ourselves. Raising base rates to 3%, ending QE, setting an inflation target of 0% and ordering the Government of the Bank of England and the MPC to stick to the knitting, would do the trick. Who has the cojones to do it?

  2. lola
    Posted December 3, 2010 at 9:52 am | Permalink

    “Every successful currency has a sovereign to take care of it. “ Well, no and not necessarily. Money was the creation of merchants not states. But princes know a good thing when they see it and soon moved to nationalise money.

    In the case of the various European countries and the EU we have a parallel. The EU realised that it cound never create Euroland, the various sovereign peoples would not tolerate it. So the Euro project was created, on the basis that ‘as we have the money we might as well have the state’. This is a classic con job.

    I really do not believe the Euro was ever about the economic sucess of Europe. It was always all about the euro-politcal classes ambition to run a super-state.

    So whilst all you say is true, it is profoundly depressing and a statement on how our freedoms will be further stolen from us.

  3. StrongholdBarricades
    Posted December 3, 2010 at 10:11 am | Permalink

    Surely, if there is to be only one central bank able to issue bonds etc, then that automatically means that the other countries that subordinate to the central bank can not also issue their own bonds for fear of querying the market?

    Your account appears to insinuate that one bank also means loss of sovereign economic power, and effectively a national government will only be able to shuffle the deckchairs because they can not themselves raise revenue.

    Is this the pill that even the Germans will accept, never mind the French, Dutch, and Belgians

    • lola
      Posted December 3, 2010 at 3:25 pm | Permalink

      Suppose there was only one global central bank? A single global currency and a single interest rate and a single set of tax rates? And a single global government? Worry you? It should. Why? Because competition works as well to keep governments honest as it does to keep all of us honest. This is why the Euro project is so wrong. Better to have voluntary co-operation between free and indpendent neighbours than co-operation forced on us by coercion and ultimately violence. The biggest myth of our age is that government is benevolent. It isn’t. It’s malevolent.

  4. lifelogic
    Posted December 3, 2010 at 12:09 pm | Permalink

    Can anyone understand or explain the mind set of Prince Charles who opened the new “climate change gallery” today with a typically confused speech. I assume it is now “climate change” as they are no longer too sure about warming and this way any weather can be used to push their essentially religious message.

    On the one hand his family live a life style producing thousands of times more CO2 and using far more fossil fuel than many people and the other promoting low output per acre, non industrial farming, bio-fuel production and over priced organic biscuits combined with odd green gimmick such as bio-fuelled royal trains and the rest.

    This while at the same he is pushing the discredited science of pretending you can predict the weather 100 years hence with any true accuracy when the same experts are unable to predict the weather next week.

    If we all follow his suggestions most would surely starve to death unless we each had many acres. How exactly is he suggesting we get down to this ratio of people to land. Perhaps he has not done the sums or he just assumes all have private rolling acres?

    • lifelogic
      Posted December 3, 2010 at 12:30 pm | Permalink

      At the same time he like promote to his subjects “alternative” or quack medicines (medicines which can be clearly shown by experiment not to actually work).

      • Gary
        Posted December 3, 2010 at 2:50 pm | Permalink

        “clearly shown by experiment not to actually work”

        Which is of course impossible. To get pedantic , you cannot design any experiment to show that something does not ever work 🙂

        FWIW: this is a currency crises, not because of the lack of a sovereign, but because of the inherent unsound nature of the currency itself. ALL debt based fiat currencies have this problem, regardless of any sovereignity.

        • lifelogic
          Posted December 3, 2010 at 6:40 pm | Permalink

          Sorry perhaps I should have said medicines that cannot be shown to work any better than a placebo for any pedants around.

    • Simon
      Posted December 4, 2010 at 8:40 am | Permalink

      The pork pies from his farm Shop in Windsor are one of the best I’ve found outside Nantwich .

      • lifelogic
        Posted December 4, 2010 at 10:03 am | Permalink

        Glad to hear his pies are good but to pretend his pies/lifestyle is good for reducing global warming is nonsense. How much food energy has to be fed to a pig to produce one organic pork pie?

        At least we can nearly all be sure we use very much less energy than he does every year – so being lectured to by him is a bit rich – particularly when he is often so anti science (alternative medicine etc.) other than the often bogus or much exaggerated “science” of global warming predictions.

    • Epigenes
      Posted December 4, 2010 at 11:07 am | Permalink

      He talks to plants. ‘Nuff said.

  5. Eoin Clarke
    Posted December 3, 2010 at 12:57 pm | Permalink

    Dear John,

    I am as red as a beetroot when it comes to politics [and economics]. But I have to say that your blog is the most fairminded and insightful around. I start every morning with a read of your latest post. I do not always share agreement with your points but the honesty and integrity with which they are made are most appealing.

    Warm Regards

  6. Bob Eldridge
    Posted December 3, 2010 at 1:54 pm | Permalink

    I suggest Germany for the role. The Eu may then last for a thousand years.

  7. sjb
    Posted December 3, 2010 at 2:28 pm | Permalink

    JR writes: “Many readers of this site think the best answer to resolve the Euro crisis would be to announce the intention to re-establish independent currencies across Europe. They could each find their own level and economies would start to improve. ”

    I have been reading Nigel Lawson’s memoirs, ‘The View from No. 11’. He writes, pages 61-2: “Everyone knows that in the real world an improvement in competitiveness due to a rise in production is infinitely to be preferred to a statistically equivalent rise in competitiveness produced by a fall in the exchange rate.” I also note he proposed joining the EMS as far back as 1985.

  8. Vanessa
    Posted December 3, 2010 at 3:25 pm | Permalink

    You probably know all of this but we will lose everything we have fought for if we continue to be a member of the EU.

    THE LISBON TREAT – our CONSTITUTION
    Please see below, you’ll need to dig up a copy of the treaty to refer the clause numbers back to. The text below sounds unbelievable but i strongly suspect its all true.

    The 294 page Treaty of Lisbon sets up a three tier politburo dictatorship, and came into force on 1st January 2009. It gives the EU more powers than the 465 page EU Constitution by amending and adding the missing clauses to the existing five treaties. So you need to read all six treaties together, thousands of unreadable pages which includes Maastricht; and then see through its concealment and deception to get the full picture. There will be no more treaties: the six complete the EU.

    Article 1-1a Unlike Britain, the EU nation is atheist; its laws are not based on Christianity.

    1-4 New article 2. It is the EU’s values that count, not the wishes of the people. The state comes first, soviet style.

    1a and Article 2.1-6 make it very clear our new nation will be the European Union, not Britain.

    2-2 and 2.3 Our former borders will mean nothing.

    2-4 Gives the EU the power to force Britain into the Euro.

    3a Puts the EUճ former nations into the same position Soviet satellite states enjoyed.

    3a-3 Compels former nations to obey the EU. They shall carry out the EU’s tasks, and may not oppose it.

    3b-1 Conferral – the EU will not exceed the powers it has taken in the Treaties. Negated by 3b.3:

    3b-3 If local powers can better be used by the EU, the EU will use them.

    3b-4. Proportionality: The EU will not use more force than is necessary to compel us to comply with the Treaties.

    Article 6 The EU recognises its own Charter of the EU’s Rights of 2007.

    6-2 The EU accedes to the EU Convention on Human Rights, but not where it affects the EU’s power.

    6-3.c Paves the way for The European Council to become independent of Heads of State, and become a politburo.

    Article 8. Equality. In glorious Soviet style. And we are forced to accept EU citizenship.

    Article 8A-1 to 4 Prepares the way for the abolition of Westminster:

    8A-2 Heads of state can be bypassed in favour of “government;” National Parliaments bypassed direct to citizens.

    8A-3. Decisions to be taken as close as possible to the citizen. Eurospeak for Regions, not Parliaments.

    8A-4. Will be used to abolish our Conservative, Labour and Lib-Dem Parties. Its the old EU constitution I-46-4 word for word: Political parties to be at the European level. The Madrid conference defined this in 1999 as parties with voters in 10 or more former nations. Our parties count voters in just one nation. Goodbye to the Lib-Lab-Con.

    8B-3. The Commission may use consultation. Ballots, elections, referendums or democracy are not to be its way.

    8B-4 One million citizens may petition the Commission to implement the glorious EU Treaties. We can only agree, Soviet style. Old EU constitution clause I-47-4.

    9 and 9A Implement EU constitution clauses I-19 to I-27 List of Institutions. Confirms their interest in the Regions.

    There are three governing bodies which are unelected politburos, soviet style, each with up to 27 members:

    9B The European Council is made up of heads of state, or “government” which could be any politician of their choosing. It meets 4 times a year, and chooses (and can fire) its President for 2.5 years, two terms maximum. He can be anyone from anywhere but not a head of state; he can fire a Commissioner.

    9C The Council of Ministers, now The Council, is senior bureaucrat level; controls laws, the budget and policy.

    9D The third level is the Commissioners, 20 people, anyone, from each country, provided (clause 3) he is not anti-EU. The Commission is the executive, the government or bureaucracy.

    These three are politburos where EU politicians choose politicians; there are no elections to positions of power. Unlike Westminster, the EU Parliament in Brussels, the only elected body, has no executive power; it is a sham.

    9E An EU foreign minister shall be appointed, and will be a Vice President of the Commission.

    9F EU courts and EU judges shall enforce the six EU Treaties and former nations shall comply.

    Article 10 Enhanced Cooperation: Former nations may wish to reinforce the EU’s integration using any powers remaining outside the EU’s absolute power. If they don’t, the Council can enforce enhanced cooperation if former nations won’t cooperate. Clause 3: Only cooperating nations may vote in the council.

    10-4 We must obey the acquis communautaire, 170,000 pages of active EU law. (EU regulations millions of pages)

    10A c-3 Scores of clauses like this one confirm the EU is a military union. A military dictatorship.

    That is just the first 26 pages of the 294. The six treaties repetitively remove all Westminsterճ powers.

    There are no provisions for elections to Westminster, which will close. The EUճ 120,000 regulations will close most of Britains 4.5 million small businesses and control our lives more closely than were Soviet citizens. Harmonising our laws with the EU over 36 years has given us the laws of a police state, which the EU will enforce. Lisbon (illegally) Ҵook primacyӠover the British Constitution, which it nullifies, and as far as the EU, their puppet government in Westminster and our corrupted courts are concerned, the EU became our nation, and Britain was abolished as a nation on 1st January 2009.

    • sjb
      Posted December 4, 2010 at 9:59 pm | Permalink

      I did not know the Lisbon Treaty came into force on 1st January 2009; I thought it was 1 December 2009.

      Are you certain there “will be no more treaties”? What about next year’s Accession Treaty vis-a-vis Croatia?

      The body of text starting from “The 294 page Treaty of Lisbon sets up …” has already appeared on other websites such as eutruth.org.uk – so if it is not your original work then it is good manners to credit your source.

  9. Demetrius
    Posted December 3, 2010 at 3:31 pm | Permalink

    A currency needs to be reliable and accepted in exchange. The Maria Theresa Thaler was always very popular and other forms of currency in the past, some with no obvious sovereign. The betting at the moment seems to be on gold with ancillary ones in rare resources.

  10. Freeborn John
    Posted December 3, 2010 at 4:23 pm | Permalink

    Some of us are against the ‘political project’ of creating a European sovereign, and regard the superior economic performance one might expect when not subordinating sound economics to the political project, as an argument against the political project.

    Fiscal federalism involves large-scale re-distribution accross national borders. This does not exist anywhere on earth now becase redistrubition requires solidarity and the solidarity necessary to make redistrubution acceptable to voters only exists with a national community with a shared sense of national identity. Since ‘Europeans’ are not a united ‘demos’ their attitude to a common European pool of money is very different from a national pot. The latter they regard as something to which they and their fellow national worked hard to earn and which needs to be spent wisely. A government wich fails to spend it wisely will be punished at the ballot box. But the attitude towards a multinational fiscal pot or eurobonds is very different; voters and governments then ask only ‘how much do we put in relative to what we get out’? And since redistribution is always a zero-sum game, with some winners and some losers, the net contributing nations are always going to object to multinational redistribution. That is why Germans do not want to bail out Greeks but were happy to bail out their fellow nationals in East Germany. Every other nation in Europe thinks exactly the same about every EU redistrubtuve spending program too, with the votes on issues like the CAP or the ‘British rebate’, being decided entirely on net contributions and the recipient countries not caring greatly as to how the money is (mis)spent so long as it is they who spend it.

    Multinational Fiscal federalism would therefore inevitably be far more divisive and wealth-destroying than redistribution within a nation-state, federal or otherwise. It will be unpopular in those ‘net contributor’ nations. And in the net recipicent countries it will create a moral hazard whereby citizens and government become aware of an alternative to hard-work and sound money and begin to descend into a ‘benefit culture’ mentality where they look to handouts from Brussels, eventually coming to see this almost as a right. Economic performance can be expected to drop in the dependent eurozone periphery and in the core too which will be burdened by additional taxes (and/or watering down of their wealth through euro-bond issues).

    I therefore fail to see why you advocate approaches which will both be economically destructive and advance the ‘ever closer union’ project of an creating an emergent EU sovereign. It is not enough to say ‘it’s a political project’ so here’s what the next installment of recreating the form and functions of the nation-state at EU-level should look like. This is an economically-destructive political project without popular support, that needs to be stopped and reversed. The incentive-destroying nature of multi-national federalism, the inherent unacceptability of redistribution in the absence of strong solidarities forged by national identity, need to used to counter-the political project. Politicians should be stepping up to make these arguments, not simply saying ‘its a political project’ that must proceed regardless.

    Reply: I agree with you and have always argued against trying such levels of integration and against a Euro for anyone. We are now where we are – they are not going to break up the Euro tomorrow, so they need to face up to the economic consequences, and come up with the least bad fix.

    • Lindsay McDougall
      Posted December 4, 2010 at 4:09 pm | Permalink

      Freeborn John is exactly right on this. We should not accept that the Euro is here forever and we should be actively seeking to bring about its destruction.

      There is one preliminary act that we need to undertake first. We need to withdraw from the Lisbon ‘Treaty’ unilaterally through repeal. Our arguements for doing so can not be faulted:
      (1) It is a Constitution, not a Treaty. Look Angela Merkel straight in the eye when saying this and watch her blink – she is already on record as agreeing.
      (2) The British people did not vote on this Treaty. Gordon Brown ratted on his promise and the Conservatives accepted it.
      (3) No UK government can bind its successor. This is what sovereignty means.

      The first practical step towards destroying the Euro is for Ireland, Portugal and Greece to restore their national currencies. We may need to assist them. If it happens, they will run loose monetary policies and induce inflation. As a creditor nation, it is possible that we may suffer from the reduced real value of their repayments; this effect should be fairly small.

  11. Denis Cooper
    Posted December 3, 2010 at 4:34 pm | Permalink

    Firstly, the existence and expansion of the eurozone is clearly a serious threat to our long term national interests.

    If we’re not careful we’ll find ourselves in the position of being the only country left in Europe not to have adopted the euro, and that will be untenable in the longer term.

    Secondly, if they’re to be done legally then the measures needed to strengthen the eurozone will require changes to the EU treaties, over which the UK government will have a veto.

    It seems obvious that we should demand a quid pro quo for agreeing to those treaty changes, and among the treaty changes we should demand to protect our long term interests should be:

    1. A mechanism for any country which is already in the eurozone to make an orderly withdrawal if it chooses, which may be the case for some countries which don’t want to submit to stricter EU central control.

    2. Removal of the legal obligation to eventually join the eurozone which was imposed on new member states through their treaties of accession – only the UK and Denmark are free of that formal legal obligation.

    And preferably also:

    3. A treaty prohibition on the UK ever joining the euro, even if a future government wanted to do so.

  12. Andy
    Posted December 3, 2010 at 7:25 pm | Permalink

    The Euro was never about economics. If it was they wouldn’t have been in such a damn big hurry to create it. The flaws at the heart of the project have been painted quite well by John on a number of occasions.

    The real problem is the arrogance of the political class right across Europe. This arrogance is helping to destroy some economies like that of Greece. I live some of the year in Greece, which I love very much, and it has for me been particularly painful to watch the credit bubble develop and go ‘pop’, and see the real damage being done to the Greek economy which translates into the ruined businesses of many friends. I do not see, while Greece remains within the Euro, how she may extract herself from this mess. I know the USA quite well too. My fear is that Greece may end up the equivalent of West Virginia, or some deserted mid West town.

  13. Martin
    Posted December 3, 2010 at 7:50 pm | Permalink

    Hmm – at first I thought you were maybe complaining about the rather boring generic bridges on the Euro notes. Then again our own recent royal mint coins are a weak design having a cut up royal coat of arms. Swiss Francs have some rather interesting folk on their notes rather than a sovereign so perhaps the “whose head on the notes” argument doesn’t hold up.

    Is it true that the real reason Mr Brown didn’t want the UK to join the Euro was that he was scared the ECB might take away his deficit (biggest in G20) writing cheque book?

  14. edgeplate
    Posted December 3, 2010 at 8:30 pm | Permalink

    It keeps coming back to the same thing, for the Euro to work requires a strong central authority which would obviously be subject to political control. That political control will be strongly based on the present EU. National governments would be weakened to the state of regional assemblies and have very limited powers.

    Has the EU shown a history of competence?

    Does it and can it have the necessary democratic checks and balances?

    Do the peoples of the countries encompassed understand and want this? Surely the EU has a long history of being foisted by deception and steamrollering.

    Can it withstand the forces of nationalism likely to be stirred up?

    Does it have the cohesion to cope with external matters?

    I believe the answer to all these questions is no.

    Where does the UK fit into this modified and strengthened EU given that we have never wished to join the Euro and there’s a growing appetite to leave the EU?

    There will be an attempt to arrange something along the lines you suggest, which will either fail, creating a worse mess than now, or may succeed and lead to a form of government I for one, consider dangerous and want no part of.

    It’s getting to decision time where we opt fully in or fully out of the EU. Pretending there’s some pick and mix or reform option is opting in with self-deceit.

  15. Johnny Zero
    Posted December 4, 2010 at 12:49 am | Permalink

    Surely the main problems of the Euro are credibility and legitimacy?

    The Peoples of Europe want an integrated market place but want identity and nationality to remain sovereign. The Eurocarats who want a so called “Euroland” merely want a huge plaything, not democratically controllable by Nation States. In this way they have a “womb to tomb” existance, being at the top of the pile both financially and socially.

    Euroland is in fact a Meta physical Abstraction but serves its Masters well. The forces of “Deutchland uber Alas” have long ago forsaken force and now use the power of law, regulation and influence politics. In among the vague identity of our New Masters we can feel and almost see the Dead Hand of the Euroland State affecting our lives, but do not know how to stop it.

    The only time that we shall have influence, is via massive disobedience and by forcing our own MP’s to do our bidding, not their own. If enough people find that they can no longer sustain their life styles of 2009 or 2010, when extra taxes, inflation and higher mortgage payments bite, we may well see some changes.

    John, are you truly ready for that time?

    We are being taken back to times of serfdom, our chains get heavier, we no longer control our own destiny nor those of our families. We are getting angry. I should like to taste freedom once more before I die, remembering how sweet it was when I was a child.

    • Simon
      Posted December 4, 2010 at 8:55 am | Permalink

      Time is on the Eurocrats side .

      In 30 years time those of us who remember what it was like before will all be dead , overseas or too weary to do anything .

      Those going through school now know nothing different .

      • p soakwl
        Posted December 4, 2010 at 8:16 pm | Permalink

        one word to you -‘ Internet’

  16. Gary
    Posted December 4, 2010 at 11:36 am | Permalink

    Why is it considered a virtue to be able to debase your currency by printing ? In our rush to despise the Euro we have been sold a pottage of lentils. I am no fan of the EU, I have qualms about political overarchy and the threat of world govt. But currency woes are worldwide, we have a debt based fiat crises globally, not just the euro. Eg. The Bank of England IS the gilt market. Our lowish rates are being subsidized by our own savers. This is not a virtue. Get rid of Big Govt , and debt money everywhere.

    • Conrad Jones (Cheam)
      Posted December 5, 2010 at 10:36 pm | Permalink

      Couldn’t agree with you more.

      If we could, I would suggest doing what Abraham Lincoln did to pay off the debt of the American Civil War. That is, to create a Greenback equivalent, debt free money created by the Government – without debt, without Central Banks. It would debase the current money supply – true, but; it would do it without the payment of Interest to a Central Bank.

      No politician will risk suggesting this idea as the ones who have in the past haven’t lasted very long. President Andrew Jackson was just lucky.

      No English Prime Minister has ever suggested it – to my knowledge.

  17. Andrew Gately
    Posted December 4, 2010 at 12:07 pm | Permalink

    I agree entirely that the job of a central bank is to keep markets liquid, unfortunately in the banking crisis this did not happen and a number of banks got nationalised or part nationalised due to a lack of liquidity.

    Surely the person who is responsible for the Bank of England is Mervyn King and if he failed in his core responsibility then why on earth is he still in his post?

    Meanwhile the real casualties of the central banks failure to keep the markets liquid are the banks shareholders. To add insult to injury the government has rigged the compensation process to ensure that they do not have to pay ANY compensation to shareholders when they acquired their shares. This is illegal but will take two years before it reaches the European Court of Human Right.

    Indeed between the penalty rate of interest charged on the loans the govt and boe have provided and the likely future sale proceeds the govt are making a pretty penny out of this crisis.

    It will be short sighted though as we need people to save for their retirement and the thought that the govt can take your life savings of you in such a fashion is likely to deter people from saving and investing.

  18. Conrad Jones (Cheam)
    Posted December 5, 2010 at 6:24 pm | Permalink

    I agree with once you again.

    We do need a sovereign for a Currency.

    Money should never be politicised – as when it is; it becomes a political tool and not a tool of commerce.

    The money supply should facilitate the exchange of goods and services within a Nation.

    The EURO was intended to do this but, clearly; has failed.

    As different Nations are not similar in economic strength and need to be able to adjust their own borrowing and interest rates according to the apparent Business Cycle, which is a consequence of Fractional Reserve Banking and the natural tendencies of a Nation to produce it’s own Goods and Services.

    It also depends on the Natural Resources of a Nation State.

    Removing a Nation’s ability to control it’s own money supply, is effectively taking control of that Nation and making it an un Democratic Nation. What other commodity, other than Money, can so easily control a Country?

    • sjb
      Posted December 5, 2010 at 9:37 pm | Permalink

      Different economic performance can also been seen across regions of a country; for example, the marked contrast between London and the North-east of England.

      Perhaps a more topical example is the massive annual subvention to Northern Ireland. It amounts to £8 billion per annum according to Owen Patterson (now Cabinet Minister for NI): see his blog entry for Tuesday 18th March 2008 at http://www.conservativehome.blogs.com/platform/2008/03/owen-paterson-m.html

      So despite the wide variance in regional economic performance, which has been the case for many years, the UK seems to have managed with a single currency. But I concede that the ‘gifts’ made by richer regions of the UK to their poorer cousins shows a higher degree of solidarity than the Germans providing loans to other member states.

  19. Lindsay McDougall
    Posted December 6, 2010 at 1:54 pm | Permalink

    Many senior politicians in the German Bundestag and Angela Merkel herself, are suggesting that creditors take ‘haircuts’ on debt owed by Ireland, Greece and Portugal. We are a creditor of Ireland. A ‘haircut’ in this sense is a partial default. The price that we should exact – and we should absultely insist on it – is that the three countries leave the Euro zone.

    There is nothing in the Con Lib-Dem agreement that prevents Conservative back benchers from making this a goal. Come to think of it, I’m not sure that there is anything preventing Conservative front benchers from doing the same.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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