Double or quits time for the Euro and the Greek crisis

 

               There are two answers to the cruel questions  posed to Greece by the single currency and the Euro wars. The simple and best one would be for Greece – and a few others – to leave the Euro, re-establish their own currencies, devalue and price themselves back into work.  This remains unlikely, given the huge political capital invested in the Euro scheme.

                  The second is for the Euro zone to press on with the creation of a country called Europe – the UK and other non Euro members would opt out of all the necessary new powers and preferably some of the existing ones as well . The core members of the Eurozone would then have to subsidise and underwrite the weaker areas within the new country, as any other sovereign state does for its poorer areas. Areas with low incomes and high unemployment within the sterling currency union cannot devalue, so they receive sustantial cash transfers from the more prosperous and more fully employed areas. That is what has to happen to make the Euro work.

             When I wrote two books to urge the UK not to join the Euro, I thought a Euro issued in too many EU countries would do a lot of economic damage. We had seen the dry run for the Euro in the form of the Exchange Rate Mechanism. It wasn’t just the UK that was forced out. The ERM was the single currency you could leave before the damage became permanent. The single currency is the ERM without an exit, which is why it was always going to be so damaging.

            The UK should tell both the IMF and the EU that we are not putting a penny more into the failing Euro countries. They do not need more debt. They need a resolution of the fundamental flaws of the Euro scheme. It’s double or quits time. Either German and French taxpayers accept their obligation to subsidise Greece, or Greece has to leave. It also means the EU(euro section) needs to develop its rapidly emerging control over Euro member economies even faster. If rich areas in the zone have to subsidise poorer areas, they will expect control over the budgets and borrowings they have to subsidise.

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44 Comments

  1. Nick
    Posted June 16, 2011 at 10:49 am | Permalink

    Greece doesn’t have to leave. It just says, we default.

    Now what happens? What’s Europe going to do?

    • lifelogic
      Posted June 16, 2011 at 12:07 pm | Permalink

      I see on the news that the EU plan for Greece, using lots of our money is working well.

      Well working exactly as sensible people expected it to anyway.

      • lifelogic
        Posted June 16, 2011 at 12:13 pm | Permalink

        You say “the UK and other non Euro members would opt out of all the necessary new powers and preferably some of the existing ones as well”.

        Why do you think that might happen under this coalition – all the signals so far are quite the reverse?

        • waramess
          Posted June 16, 2011 at 2:00 pm | Permalink

          No doubt at all however the rub is that JR is correct in one of his suggestions and that is for a United States of Europe.

          Germany and France cannot allow a Greek default because the markets would correctly infer that sovereign states were to be allowed to default and that would be curtains for the PIIGS and then probably Germany and France as they struggle to save their banks, and certainly the UK and maybe USA banks as well, all of whom are massive creditors.

          So, we wind up with USE. Now, how could Cameron fail to be persuaded by that?

          • james c
            Posted June 16, 2011 at 6:25 pm | Permalink

            The only sensible solution is for Germany to leave the Euro and continue to support the problem countries. Ultimately the situation will get better for them and their economies will recover.

          • Andrew Smith
            Posted June 16, 2011 at 9:20 pm | Permalink

            If the proposed USE is to be a sub-set of the EU, should it be known among we clever and well informed sceptics as USE-less?

            The answer to Nick (10:49 posting) is that a default by a member of the Euro currency union would demonstrate the truth that a currency without a nation or government to back it is inherently unstable. A default would beg the question now and forever in the future “who next”.

            Defaults are the way out for failed states and left wing governments who think they do not need money from the rich overseas anymore. They think they can take as much from their own rich nationals as they like and rather assume there will always be more where the last tranche came from.

            But they all learn in the end that international trade and development finance needs international money flows. If your nation has a history of not paying its bills then people are not going to lend to you other than on very limited terms and for a very high return.

            Whereas individuals in a large country like Britain may default on their personal debt and get forgotten or lie on credit applications, there are fewer nations in the world to hide among and creditors remember. The cost of rescinding on debt is very high as Greece and Euroland are about to discover.

            There were a number of people who made the case against Britain joining the Euro, at popular or intellectual levels, and JR deserves credit for his contribution. But other members of his party wanted us to join and still do not rule it out – would it be nice to have an apology from them – the critics were right all along; Clarke, Heseltine and Co were and remain wrong.

      • lifelogic
        Posted June 16, 2011 at 1:49 pm | Permalink

        I see that with all this going on in Greece BBC radio four news seems to think that the main news item is members of juries using face book.

  2. Geoff not Hoon
    Posted June 16, 2011 at 11:38 am | Permalink

    Mr.Redwood, Isnt it really a case that the EU will tell each member how much they are expected to contribute whether a Euro member or not? What I find incredible is that Greece, currently receiving last years 110bn.Euros, was required to begin the sale of state assets but at todays date not a penny has been found. Economists now say a further 90bn. is likely to be needed over the next three years but noone profers a statement of how that would ever be repaid whether interest or capital. The EU seem unable to grasp the simple fact that if you give more money to a man who is in serious debt with overspending then the overspending just carry’s on that much longer and the debt simply gets bigger. Whether it is Germany etc. pulling out to reinstate the deutschmark, leaving the Euro to the PIIGS, or the other way round it will have to happen very soon IMHO.

    • norman
      Posted June 16, 2011 at 12:44 pm | Permalink

      Aren’t you forgetting the historic vote last month when our MP’s passed a motion urging the government to bring up the subject, if it’s not too much trouble, at some future meeting to ask our EU masters if they would consider allowing us not to partake of future bailouts?

      With such patriots behind him bolstering his own natural Euroscepticism I think we’ll see the PM’s true colours when this all comes to the boil!

      • Tim
        Posted June 16, 2011 at 2:23 pm | Permalink

        David Cameron does NOT do patriotism. He is a committed Europhile and his actions, not words, prove this. The only answer for the UK is by hook or by crook to get out of the dreaded EU. We contribute £14 billion net. We run £42 billion trade deficits with them. They constantly meddle with our laws and internal affairs and overrule our criminal courts in favour of the criminals. They undercut our young peoples salaries and encourage mass migration. Whole industries have been destroyed (fishing) but they will not make any reforms on their agricultural policy. So we pay exhorbitant prices for our food, whilst restricting imports from truely competitive nations. In/Out referendum now!! No more foreign bailouts or aid.

      • lifelogic
        Posted June 16, 2011 at 2:37 pm | Permalink

        I think cast iron Dave’s true colours are all too evident already.

        • APL
          Posted June 16, 2011 at 11:03 pm | Permalink

          lifelogic: “I think cast iron Dave’s true colours are all too evident already.”

          Already? His true colours have been on display for about six years!

          The worrying thing is our host has been known to claim Cameron is an Eurosceptic.

          What does that say about his judgment?

  3. lojolondon
    Posted June 16, 2011 at 11:45 am | Permalink

    You are correct there John, if our politicians were trying to do the best thing for their voters they would be right with you. BUT, they are all concerned with their next job, after Westminster, so they will all vote with the LibDems, sacrifice the UK on the altar of the EU, and move forward. It will be up to someone more courageous, perhaps Finland, to break up the party. Maybe we will have the courage to follow them?

    • Mike Stallard
      Posted June 16, 2011 at 4:09 pm | Permalink

      It is awfully difficult for any politician to resist the charms of people like themselves. When a Prime Minister goes to any gathering of other Prime Ministers, s/he is greeted – Oh, Hello, Margaret, how are things with Dennis? And how was you birthday last week? Did Mark manage to get there?
      It is awfully difficult after that to say – Please may I leave the Euro.
      Everyone wants to be popular with their peers.

  4. gyges
    Posted June 16, 2011 at 12:10 pm | Permalink

    “There are two answers” the third answer is for Germany and similar countries to secede from the Euro leading to a devaluation of the Euro and the re-introduction of the Mark. As to what they’d call this Mark … ?

    • Paul Perrin
      Posted June 16, 2011 at 12:26 pm | Permalink

      The Neuro (pronounced new-ro) – maybe short for ‘Northern Euro’.

      • gyges
        Posted June 16, 2011 at 2:02 pm | Permalink

        Neuro doesn’t have that Germanic ring to it … Reichsmark, Deutchmark, Neuromark? Nah.

        However, it is easy to be dismissive, so until anyone thinks of anything wittier … the Neuro it is.

        • davidb
          Posted June 16, 2011 at 3:31 pm | Permalink

          A Greek representative on the World Service this morning suggested it was a German game plan to leave the Euro. It is not that novel a suggestion.

          The single country idea is not what we or anyone else signed up to. The British union alluded to in Mr Redwoods blog has money transfers, but we all pay the same taxes, the same levels of excise duties. Our VAT rates are the same. our taxes are the same, we retire at the same age. Our Companies are taxed at the same rate. Much of the problem with Greece seems to be that they don’t seem to pay taxes, and they retire relatively young. A tranfer union will not be supported at all by Germans – or any of the work ethic peoples of the protestant north. I suggest its not even worth contemplation.

          The Greeks have to pay their taxes, work til they drop, and accept that they ran up the credit card, and its they who must pay it back. How happy are we Brits about the tax affairs of Belize residents, or the retirement ages and conditions of public servants? Will the Greeks pay taxes outside the Eurozone?

        • Mark
          Posted June 16, 2011 at 4:41 pm | Permalink

          I guess German isn’t your language. NEU Reichsmark Ordnung. Remember, German for new is neu, and they pronounce the dipthong EU as OI – both in neu and in euro.

  5. Paul Perrin
    Posted June 16, 2011 at 12:23 pm | Permalink

    I suggest everyone *except* the PIIGS leave the Euro this will let it re-value along with the PIIGS debts – so no default is required and they can get back to reality.

    Germany won’t like this as the real value of loans it has made that are denominated in euros will plummet against their ‘new’ currency… But that is the price of their vanity in the mad experiment that they backed – tough.

    • Ben
      Posted June 16, 2011 at 1:54 pm | Permalink

      What a very good idea (and Gyges above)

      The first time I have heard that particular solution mooted. This enables all those involved to bear some pain while those not involved do not have to share the burden.

      A campaign needs to be started. Facebook or a flashmob at the European Central Bank?

  6. Bernard Otway
    Posted June 16, 2011 at 1:14 pm | Permalink

    Absolutely,and Greece with a properly valued currency can get back the more than a million tourists from here alone,it has lost to Turkey thus boosting it’s economy,and proving Capitalism WORKS,plus then I can buy olives,Haloumi etc at better prices which I will

    • EJT
      Posted June 16, 2011 at 4:25 pm | Permalink

      Halloumi is Cypriot.

  7. alan jutson
    Posted June 16, 2011 at 1:21 pm | Permalink

    “Double or quit”.

    Thought DC had already made the decision to go for double, with massive increases in our budget contributions, increases in funding for the IMF, and the underwriting of Euro bailouts I would be surprised if it is only double.

    He has come clean recently on saying he believes we are better off in the EU rather than out, and refuses to grant, or even consider a referendum, so it will never be out while he is top dog.

    This underlining of his position to all concerned means that his negotiation position is weakened, and he will never contain the European march towards trying to be a fully intergrated super State.

    I just wish he would do us all a favour, do a “U” turn, and think of the UK taxpayer for once.

  8. Conrad Jones (Cheam)
    Posted June 16, 2011 at 1:24 pm | Permalink

    Well said.

    I surprised that Greece hasn’t demanded that it leaves the EURO.

    Why should it be kicked around by a totally insane single currency.

    Bring back the Greek Drachma. Get rid of the Greek Government.

    And where’s NATO when you need it – aren’t the Greek Rebels also correct in their cause? Are they not deserving of our help to get rid of an incompetent Regime in Greece.

  9. Caterpillar
    Posted June 16, 2011 at 1:40 pm | Permalink

    1. Is it possible to put a budget together to bailout who is hit from the contagion of the coming default, rather than just putting it off?
    2.Could Greece leave the EU not just the currency zone, then ‘we’ could let Turkey join instead.
    3. UK currently has a weaker currency than Greece. So perhaps the Greeks could adopt the GBP – the currency of the indebted, socialist nations.

    OK I have nothing sensible to say on this subject, but that would appear to make me European!

  10. Bob Layson
    Posted June 16, 2011 at 2:07 pm | Permalink

    Despite the claims of the Keynesians that separate national currencies are the road to higher growth and employment – thanks to demand management – they have been the excuse for monetary inflation, and the resulting continual currency depreciation, and the cause of repeated boom, bust and debt crisis. Let prices be set in terms of milligrams of gold and keep the state’s hands off the money. Governments would have to tax in the money the people preferred to use. World trade would do best using a common currency but NOT a world-state currency.

    • Gary
      Posted June 17, 2011 at 8:45 am | Permalink

      Bob

      Get with the program. Being able to devalue your own currency to the value of toilet paper is a virtue, they tell us. It is a “competitive advantage” that spurs “growth”. Default by devaluation is somehow better than default by refusing to honour debts. This is the crazy world of the Keynesians.

      You are correct, we should have the currency that people are free to chose and pay their taxes with, and that will probably end up being based on gold. But then these bureaucrats lose control, and that is the real taboo.

  11. Hugh
    Posted June 16, 2011 at 2:16 pm | Permalink

    John,

    If we are forced to put more money up to support these doubtful debtors/debts, in order to support our banks who would otherwise show more great tears in their balance sheets, can we get the Bundesbank/Banque de France to give us a Guarantee backed up by a charge over future German/French tax revenues.

    Do you think that this would be rendered worthless by Euro inflation, if called.

    God save us from Socialist economics.

  12. Bob
    Posted June 16, 2011 at 2:21 pm | Permalink

    Would you invest money into a business that could not produce a viable set of accounts?

    • norman
      Posted June 16, 2011 at 3:47 pm | Permalink

      Are we talking about Greece or the EU commission here?

      Frankly, I trust neither.

  13. Damien
    Posted June 16, 2011 at 3:07 pm | Permalink

    JR: The latest Greek tragedy has been anticipated and carefully planned. It is quite deliberate that the various parties have encouraged this crisis situation to deteriorate so that they can use emergency powers ( some hitherto unnoticed clause in a treaty) to bounce Greece and its european paymasters into a deal that would never pass through timely debates in respective governments. Off course the UK will have to stump up more under the ‘Darling agreement’ but hopefully thereafter not a single penny.

    In any event Greece will have to restructure with the bondholders sharing the pain. At all costs this must not be seen as a default by the US rating agencies so various alternative labels will be used, alas to no avail. I imagine if the EU went down the Suwannee along with the euro there will be wry smiles across the pond.

    The Greeks have ridden the tide for far too long and now they are expecting the rest of us to pick up the tab. I see now the Irish Minister yesterday has also announced intentions to include senior bondholders in haircuts. Ireland is just like the Greek situation; no matter what the senior politicians agree it will not work without broad public support. But a pattern is now forming; take the bailout money and come back for more, and talk a good game about austerity measures and sale of public assets (Greece has still yet to sell any assets nor Ireland to date)

  14. Paul H
    Posted June 16, 2011 at 3:47 pm | Permalink

    Unfortunately the UK won’t tell the IMF and the EU where to go because your mate Cameron is a not-so-secret Europhile who is deceitful and treacherous, and more interested in his global posturing than doing what we pay him for – to look after UK PLC. He is truly what he wanted to be, “the heir to Blair”. But you already know this, of course. Except for one terrible aberration in 1997 I have always voted Conservative but will never do so again for as long as he is the leader.
    A Greek friend of mine, living in the UK, is apoplectic about the treatment of his compatriots at the hands of bankers. He doesn’t take too kindly to my telling him that if Greeks want to have the same wealth as Germans then they will have to give up some attractive aspects of their lifestyle such as sitting around drinking retsina and collecting pensions soon after potty training. There is nothing wrong with the latter as a lifestyle – they simply can’t have it both ways. But my friend does have a point. The Greek government lied its way into the Euro (assuming something can be called a lie if everyone knows what is going on) aided and abetted by our good friends at (investment banks -ed), who greatly enriched themselves in the process. Yet again bankers have skimmed off the cream without generating any wealth to justify doing so, leaving less for everyone else and a huge mess to clear up.

  15. Mike Stallard
    Posted June 16, 2011 at 4:20 pm | Permalink

    The people who run Europe are second raters because they all still prefer to run their own countries and to be a success there.
    One thing that second rate politicians – and indeed most people – do is to cling on to their jobs. That comes before everything. All the better if they are not elected but put there. Even better still if they are not checked up on by anyone. That means the all important expenses account and the power to frighten people who, like Marta Andreasen, question them.
    It also means being utterly charming to the right people to avoid any threats (David Cameron). And, of course, behaving as you like to the people who do not need smarming (Dan Hannan).

    The eurocrats have managed to achieve all this and they are not going to let it go.

    The more I think of Nigeria, the USA, India even Malaysia the more I am beginning to see that we will only be able to get away from these vile people by force. And that is going to take a real crisis which, so far, we seem to have avoided.

    It is, in a very big way, like the appeasement of the 1930s – led, let us remember, by the Conservative Party…….. and look how that ended!

  16. Neil Craig
    Posted June 16, 2011 at 4:50 pm | Permalink

    Before government spending became a massive share of government there was no problem of countries having to subsidise poorer regions, free trade was all that was needed. When Scotland joined the Union we were considerably poorer but by hard work, a better educational tradition and the natural superiority of Scottishness we became the most progressive part of Britain.

    Ok things have gone downhill since for many reasons, not the least being the growth of government which, since it is run from the deep south, tends to draw people there.

  17. David Williams
    Posted June 16, 2011 at 4:56 pm | Permalink

    The last thing that Greece would want to do is leave the Euro because they are in a position now where everyone has to give them money. They have the rest of the world over a barrel. There is plenty of money in Greece. The problem is that much of it is in the black economy.

    For 100 years Germany has wanted to control Europe and now it does, thanks to the Euro.

    Greece will be bailed out by Germany and its followers. The irony is that UK participates. The British Government can not expect people at home to accept austerity if this continues.

    • Kenneth
      Posted June 16, 2011 at 9:33 pm | Permalink

      I know Germans who feel very uncomfortable at being effective leaders of much of Europe. It is a place they would much rather not be.

    • Javelin
      Posted June 17, 2011 at 9:06 am | Permalink

      Absolutely – and this is the key point.

      If the Southern Europeans stay in the Euro club then its too shakey for the Northern Europeans. If the Northern Europeans leave then there is no reason for the Southern Europeans to stay in and get cheaper credit.

      The fiscally loose Southern European culture cannot live in the same house as the much tigther Northern Europeans. Putting them together in a single currency simply shows how unsuited they are to live together.

      Its going to end in a horrible messy divorce

  18. Duyfken
    Posted June 16, 2011 at 5:28 pm | Permalink

    Were a country called Europe to evolve, I expect that England would opt not to join. But there are others in the Union, and I ponder on which of these would select Europe. Wales may be too small to break ties with England, but the antipathy of the Scots would lead them to join Europe (and good riddance), and the Northern Irish would surely fall into bed with the RoI despite history and present economic difficulties.

    The English need to plan carefully now for whatever eventuality comes to pass, and it’s time to repair the damage already done to the relationship with their erstwhile loyal cousins in the Commonwealth.

    What a disastrous and short-sighted policy has been followed by the lefty element in English politics – beginning with that misguided incompetent Edward Heath!

  19. BobE
    Posted June 16, 2011 at 5:31 pm | Permalink

    This is the third attempt at a United States of Europe. Pray to god this fails as well.

  20. BobE
    Posted June 16, 2011 at 5:32 pm | Permalink

    The only worse nightmare would be for T.Blair to become its president.
    Imagine his grin as he rode down the Mall in a cavalcade of black limo’s.

    • Stuart Fairney
      Posted June 16, 2011 at 10:29 pm | Permalink

      A great writer once suggested that the longer a leader’s cavalcade….. well this is inversely proportional to the man in a phallic sense, so to speak.

  21. Peter van Leeuwen
    Posted June 16, 2011 at 6:01 pm | Permalink

    When the EU started with the euro, the UK could have left the EU. It didn’t. So it rightfully has to participate in the bail-outs.

    Likewise, if the UK does want to negate on its IMF responsibilities it has to leave the IMF.

    Will there be an IMF if in future the UK may have to be bailed out once again?

    Reply: The UK has no need to bail out within the EU as a non Euro member – there is different architecture for Euro members. I am recommending that we find allies in the IMF – surely there would be many – against using IMF money to bail out rich coutnries that have made a large error in joining a single currency.

  22. Kenneth
    Posted June 16, 2011 at 9:32 pm | Permalink

    As you say, double or quits. We are gambling with people’s livelihoods and communities.

    I agree that a lot of political capital (and reputations) are tied up in the continuance of the Euro. However, dare I say it, but perhaps there are some small signs of realism increasingly dawning on the German government and other governments.

    All hopes appear to be on the possibility of Portugal, Ireland and Greece being a firebreak that will buy Spain and others time. However Greece is unravelling and making-do and mending just doesn’t seem to be working.

    We may just see European governments increasingly preparing for life after the Euro (as we know it).

    The loss of the Euro will be disastrous. The continuance of the Euro will be a lot worse.

  • 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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