What’s the point of a Euro area national government?

 

The Euro is now into the phase of its development where people will ask ” Where is the democratic accountability? How does the Euro scheme secure the consent of people under it?”

We have witnessed elections in Ireland and Portugal. In both cases the public threw out a government associated with economic failure. In both cases they had to elect an alternative signed up to the agreed EU/Euro policy organised by the outgoing government. The personnel of the government changed,  but the essential features of the economic policy could not. The new government was told to stick to the terms of the loans, to submit their figures to the EU and the IMF, to seek to hit all the agreed targets. The role of the government is to explain the ways of the international bodies to their people and to tell them to agree to it.

Greece is a bit further along the path of an EU/IMF recovery programme. So far there is precious little recovery on offer to the Greek people. There are riots on the streets. The politicians are having trouble putting in place a government that is stable and convincing. The rebellious people know they are not dealing with a government that has any power to change things for the better. They revolt nonetheless, making the position worse, and putting off foreign capital and investment which their country needs. Their government lacks the will or the voice to persuade them to behave otherwise. The government is unable to convince them or many of the politicians that the present plan is the right one and it is going to work.

Eurostates have too much government, with government from both the EU and the member states level. In times of crisis they do not have accountable government. The national government gets the blame, but says it does not have the powers to change things for the better. The EU has the power, but does not have the direct engagement with the electors to persuade them it is doing the right thing.

In “Just Say No” I listed ten errors in a common economic policy. They included

“You cannot have a single economic policy  without a single budget

There isn’t one exchange rate that is right for London (Athens) and Lisbon (Berlin).

There isn’t one interest rate that is right for Manchester ( Corfu) and  Marseilles.

There is no single political system to take decisions and explain them to electors”

At the time of our debates to stay outside the Euro people concentrated on the first three. In some ways the fourth was the more important.  Euroland will now pay a high price in lost jobs, angry people and possible political disarray for the failure to grasp that a single currency needs a sovereign to take the crucial decisions and explain them to people who think that sovereign has a right to govern them.

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62 Comments

  1. Ian
    Posted June 19, 2011 at 7:04 am | Permalink

    Good one John. I’d just like to add that with a history of corruption and spiralling inflation going back into drachma days, the only way of trying to control Greece used to be through the periodic imposition of authoritarian rule.

    That remains true today, but now only the EU – or perhaps I should say Frau Merkel – can do this, as your article indicates. The public resistance to such effective dictatorship, however, which used to be confined to Greece, could now spread to other PIIGS states.

    It seems ironic that Greece, which joined the EU so that its establishment could squander the generous grants, might now prove to be the EU’s undoing. Any repression of dissent by armed EU forces would only make matters worse.

    • Bob
      Posted June 19, 2011 at 12:53 pm | Permalink

      And I understand that there has been considerable investment by Greeks into the UK property market.
      It seems like we are giving them our money to buy our real estate.
      We’re not silly.

    • Tim
      Posted June 19, 2011 at 6:40 pm | Permalink

      I cannot understand why there isn’t more marching and demonstrations in this Country over the major issues. The deficit, whilst we increase public spending due to a 72% rise in our EU contribution. This is due to Blairs giveaway on our EU rebate as he wanted to be the first EU President (and still does). He didn’t and doesn’t care what it costs the taxpayer, just his vanity and ego. The same is true of the current coalition Government. By any measure (our contribution, our trade deficit with the EU, our lost jobs particularly for the young, our open borders, our lost fishing industry, the CAP) we should leave this unelcted monstrous bureacracy. We don’t want more bailouts to bankcrupt countries or foreign aid or the Human Rights Act or more immigration. When are our leaders going to act to redress these issues or are we going to have to create a new right of centre party to do it? None of our current politicians appear to be able to do anything about the things that seriously concern the thinking people of England.

    • lifelogic
      Posted June 20, 2011 at 6:25 am | Permalink

      “It seems ironic that Greece, which joined the EU so that its establishment could squander the generous grants, might now prove to be the EU’s undoing” – like a Trojan horse perhaps let us hope the ruse works.

  2. lifelogic
    Posted June 19, 2011 at 7:12 am | Permalink

    But was there ever truly a “failure to grasp that a single currency needs a sovereign” or was the whole plan designed, exactly to force this undemocratic EU rule down the throats of the EU’s voters.

    There is much concern expressed over low voting turnouts – but as the votes makes so little difference to anything and the “cast iron” pre-election promises prove so worthless then what is the actual point of voting anyway.

    It just gives the elected a largely false sense of legitimacy. But they are largely powerless to do anything anyway. The cannot even decide trivial and local things without reference the the EU – to describe it as democracy is clearly absurd.

    True it could be even worse still we can still leave – but the people have no say in anything very much – democracy it certainly is not.

    • lifelogic
      Posted June 19, 2011 at 7:53 am | Permalink

      Reported in the telegraph today – George Osborne, the Chancellor, is considering a £7 billion “raid” on middle-class pensions perks. Removing higher rate pension tax relief (it is suggested). The effect of this would be that putting money into a pension when you were likely to be in 40% tax on retirement draw down would be pointless.

      Pensions are only tax deferment anyway so getting 20% relief then pay 40% in draw down would usually be foolish.

      State pension (unlike private sector ones) are usually not, in the main, paid for by the contributions. So this would, once again, be a private sector mugging tax just like Browns mugging – it is the reverse that is actually needed.

      Perhaps best for all, with any money or ability and not working for the state, to leave now. The government is very clearly socialist, anti democratic, and pro EU. They will not be happy until the state has all the money and people just have a standard living allowance (unless they work for the state when special rules will doubtless apply).

      • Mark
        Posted June 19, 2011 at 11:44 am | Permalink

        Pensions are also life insurance – they pay out only so long as you continue to live. Still, if you look at inflation proofed annuity rates, you have to conclude that the business is written heavily in favour of the insurers. A man aged 60 would have to live to be 93 (and 85 as a smoker) just to get the real value of his capital back according to one table of best buys quotes I looked at. A man aged 60 has a life expectancy of a further 21.5 years according to the ONS.

    • lifelogic
      Posted June 19, 2011 at 10:32 am | Permalink

      Also reported Trevor Philips with his counter productive equality quango:

      Muslims are integrating better than Christians and people of faith are under siege from atheists. What planet is this man on?

      Can we please abolish this evil and pointless organisation.

      In my experience atheists do not care what others believe so long as they do not ram it down our children’s throats, have preferential treatment and input to government or prevent us from doing things like shopping/working on Sundays as they do.

    • lifelogic
      Posted June 19, 2011 at 10:41 am | Permalink

      And now Cameron attack absent fathers. Perhaps they are absent as the state only seems to want them in order to tax them or extract money for ex wives children from them.

      Also the courts rarely do very much to enforce access when the ex wife resists.

      The man, to the state, is usually just treated as a cash cow and left hardly enough to live on and get to work (unless he cheats the system or goes abroad).

      • Stuart Fairney
        Posted June 20, 2011 at 5:43 am | Permalink

        Yes, Mr Cameron’s words would have some meaning if he would radically and immediately reform a benefit system which means there is almost no penalty, but in fact some serious financial inducement if you decide to become pregnant by a penniless, drunken or drug-dependent wastrel. Almost the only way a young person can afford a house in some of the nicer areas of Hampshire or Surrey is to absolutely not get married, have a job or save any money, but instead to have a child as a single mother*.

        Such a system almost guarantees absenteeism by the “fathers” and casts the resulting kids into a stratum in which educational failure and any number opf social problems are statistically far more likely.

        This is hardly disputed yet nothing will be done.

        * A friend of mine and his wife both work to pay the mortgage on a small flat in Ascot and would like but would simply struggle to afford a child, where as a young ‘lady’ in the same block has a larger flat and is not troubled by the need to get up in the morning to go to work. A rough calculation suggests that the 40% income tax he pays, covers what would be the market rent for her flat.

        • lifelogic
          Posted June 20, 2011 at 9:34 pm | Permalink

          Indeed people, by and large, behave as the tax and benefit system tells them to – save for a few moral ones who just get milked by the state.

    • Iain
      Posted June 19, 2011 at 11:30 am | Permalink

      Yes we were enfranchised by the group, 1867 working men, 1918 older women, 1929 young women, and now been disenfranchised by the policy, from when Heath took us into the EU through Maastrict, Amsterdam, Nice , and Lisbon when they pretty much finished off our democracy. What is really staggering is that our political class wonder why people can’t be bothered to vote anymore, and who think the solution to our indifference to them can be solved by fiddling around with the voting system rather than making elections mean something.

      I noticed someone in another post coined the word Neofeudalism in respect to economic matters where wealth is being consolidated into fewer and fewer peoples hands and where most of the growth and the proceeds of that growth over the last decade has not trickled down but been consumed by these very few people. The Neo feudalism though doesn’t just stop at economic matters, as I point out above it also extends to the political, where only an elite get to decide on policy, which is rubber stamped by our sham democracies, and guess who is there with the ear of these political elites ensuring the policy enacted is to further enrich themselves.

      • APL
        Posted June 20, 2011 at 1:41 pm | Permalink

        Iain: “neofeudalism”

        And of course our new Lords are those scions of the working man, ‘Lord’ Kinnock, ‘ Lord’ Mandleson, ‘Lord’ Martin of Springburn.

        Good honest sons of toil the lot of them.

    • lifelogic
      Posted June 19, 2011 at 1:00 pm | Permalink

      Yet another madness the extension of energy performance certificates to holiday lets and forcing people including these pointless bits of expensive paper in all literature relating to the property letting.

      No one renting a holiday let will want to read them anyway and all the ones I have seen tell you nothing of any use anyway.

      Yet more regulation and green madness.

      • lifelogic
        Posted June 19, 2011 at 1:08 pm | Permalink

        More will be spent in both money and energy creating, printing and posting the pointless reports than will ever be saved by them.

        Pure nonsense on stilts from Cameron!

  3. Martyn
    Posted June 19, 2011 at 7:59 am | Permalink

    John, you hit the nail on the head yet again…. I see that under the Lisbon Treaty that the UK could, if it wished withdraw from the EU under Article 50. Whether or not that is desirable I am not competent to say, but would not the threat of doing so if Cameron took this course go some way towards restoring our democratic right to be ruled by our own government instead of by EY diktat?
    The Lisbon Treaty Article 50 Paragraph 1 states: “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”.
    Paragraph 2 states: “A Member State which decides to withdraw shall notify the European Council of its intention”. Paragraph 3 states: “That if within two years of a nation giving notice of its intention to withdraw from the EU and a negotiated agreement is not reached; the Lisbon Treaty no longer applies to that nation”.
    I am not aware of this option having been removed from the Lisbon Treaty, so why do so many politicians say that withdrawal is impossible?

  4. Martin
    Posted June 19, 2011 at 8:47 am | Permalink

    There isn’t one exchange rate that is right for Wokingham and Wigan.
    There isn’t one interest rate that is right for Maidenhead and Motherwell.

    Come to think of it where on earth does the Bank Of England set interests rates for?

    On another tack – what were the banks, economists and markets doing in the good times? Didn’t they look at various countries books and say hang where is all this public spending or property bubble leading to?

    • Derek Buxton
      Posted June 19, 2011 at 1:01 pm | Permalink

      The Bank of England is the lender of last resort to…….the banks. It therefore sets a base rate for such transactions, but only within this Country. Unfortunately it has become politicized and is now doing as it is told instead of using it’s knowledge of the economy. It now, for instance, is allowing inflation to run riot, this saves the government money on it’s debt but robs savers of their own money, this is theft!

    • Bazman
      Posted June 19, 2011 at 1:19 pm | Permalink

      They would have got the sack had they rocked the boat with not much possibility of getting another job. Even I could see that it was not real. High house prices often not real for the area and the people who lived or hoped to live there. Low wages. Like the utility bills it was all to good to be true. £23 pm and now 10 years later £60. If you saw this and saved a bit, things are not to bad. If you spent all your money and borrowed against property, then you are probably not in a good position.

    • Stuart Fairney
      Posted June 20, 2011 at 5:31 am | Permalink

      “Come to think of it where on earth does the Bank Of England set interests rates for?”

      Precisely. The government doesn’t tell us how much say, bread should cost. Pricing and supply is left entirely to the private sector and hey-ho, as much as you want, when ever you want in an enormous variety of options.

      Whereas they strictly regulate supply of say, new housing and there are shortages, little choice (trust me PLC developers build the same old dross) and really high costs due to artificial shortages.

      Interest rates absolutely, should be the province of interaction betwen buyers and sellers. The logic that the MPC is some kind of brake in good times with higher rates damping down bubbles, and accelerator in bad times by increasing activity with cheap money is surely now utterly defunct?

      The power is simply retained by central government to allow deficit spending (ie spend more than you raise) whilst ensuring inflation erodes the debt somewhat whilst convincing people that deflation (ie stuff becoming cheaper) would be a disaster.

  5. Andy
    Posted June 19, 2011 at 9:03 am | Permalink

    Hi John, based on this, would you expect the pound to strengthen against the Euro? If so, when? Or will the pound continue to weaken until £1 = 0.75Euro ?

    Reply: I do not forecast currencies on this site. The pound has fallen this year against the Euro owing to the move to higher rates by the ECB and the perception that UK rates will stay lower for longer. The Euro crisis could change that, if for example the ECB decided to print more Euros and keep rates down as part of their reaction to the Greek issue.

    • zorro
      Posted June 19, 2011 at 11:21 am | Permalink

      As I mentioned the other day, the extra Euro printing is their only viable (least worst in their eyes) option to the Greek crisis. I think their desire for economic control in Europe trumps fiscal discipline.

      zorro

    • Andy
      Posted June 19, 2011 at 9:37 pm | Permalink

      Thanks as always John!

  6. Alison Granger
    Posted June 19, 2011 at 9:05 am | Permalink

    I’m surprised there haven’t been more riots against governments. After all it was entirely the political class that has caused the problems. Their interference and “we know best” attitude has led to the creation of the EU, vast deficits and the ongoing destruction of ordinary peoples wealth. The political elites should be very nervous about any crowd carrying piano wire and standing near lampposts.

    • FatBigot
      Posted June 19, 2011 at 12:06 pm | Permalink

      More worrying is that the protestors are angry about plans to reduce the massive over-spend that contributed to landing Greece in the mire in the first place. They are not calling for a solution to the problem but for things to get even worse.

  7. Gary
    Posted June 19, 2011 at 9:10 am | Permalink

    Where is our democratic accountability, to have a referendum on the Lisbon Treaty ?

  8. GJ Wyatt
    Posted June 19, 2011 at 9:42 am | Permalink

    What’s the point of a Euro area national government?
    Answer: your last sentence.

    — and also the fact that a fiscal union is needed for the inter-state transfers required to keep the Euro viable, and some over-arching polity is needed for that.

    • Nick
      Posted June 20, 2011 at 11:37 am | Permalink

      So what you’re really saying is that we don’t need it at all, but a small group of autocrats do?

  9. alan jutson
    Posted June 19, 2011 at 9:45 am | Permalink

    John

    Your post today outlines the real problem Politicians have made for themselves.

    You understand that Politicians are no longer free to run their own Countries as they wish, but how many others still have to wake up and smell the coffee.

    I see today, reported in the Mail on Sunday, that a number of our House of Lords members cannot vote against anything with anti European policy at all, because written into their European pension agreements, is a clause which allows the EU to withdraw all pension rights from an individual, if they vote or campaign against any European policy. It lists both of the Kinnocks, Lord Mandelson, Lord Britton, Lord Clinton Davis, Lord Richard.
    Just out of interest, would this also include Clegg and Huhne and any others in the House of Commons who also have Euro pension rights who may be bound by the same “EU loyalty Clause”, but who have been elected, and are surely supposed to represent their constituants and country first and foremost.

    Why the majority of MP’s of all parties and countries continue to sleepwalk into this European control, which restricts their own ability to run thir own countries, I simply do not understand.

    • Bob
      Posted June 19, 2011 at 1:02 pm | Permalink

      That’s why I vote for UKIP a.k.a. the Conservative Party!.

    • APL
      Posted June 20, 2011 at 5:35 am | Permalink

      alan jutson: “It lists both of the Kinnocks, Lord Mandelson, Lord Britton, Lord Clinton Davis, Lord Richard.”

      (questionable) quislings

      • alan jutson
        Posted June 20, 2011 at 8:53 am | Permalink

        APl

        Its those who hold Ministerial jobs in Government, and who can to a degree shape government policy I am more concerned about, if the same clause also applies to them.

        Wonder if anything is listed ?

        Or needs to be.!

  10. Brian Tomkinson
    Posted June 19, 2011 at 9:55 am | Permalink

    JR: “Where is the democratic accountability? How does the Euro scheme secure the consent of people under it?”

    We may not be in the Euro but the same questions equally apply here as we are members of the anti-democratic EU. Why do politicians want to become MPs and then happily transfer the powers, with which they have been temporarily entrusted, to a foreign organisation? Furthermore they do it without even seeking the consent of those to whom they owe their office. They call this representative democracy. The answer that they are generally just a bunch of self-serving individuals is hard to dispute.

  11. Acorn
    Posted June 19, 2011 at 9:58 am | Permalink

    So, are you suggesting that Euroland has a “Federal” government a la USA? That would probably make sense. But; the USA system also ends up with far too much government; particularly when you look at the overlaps at Federal; State; County and City level. It also has ended up with a federal government out of control of the States; and is controlled by and for, politico-financial lobby groups. I suspect the United States of Europe (USE) would quickly follow the same path.

    Perhaps the USE version of the FBI and similar, numerous, federal agencies, may be able to get Greek doctors; dentists; lawyers etc., to declare their full earnings and actually pay some tax. Would all current and future Sovereign State debts, be converted to USE federal debt bonds and pooled under the federal government? Would the USE finally get to be broken up into regions, like the EU Committee of the Regions has always aimed at? How many taxes would have to be paid to cover federal; regional; possibly county and municipal budgets?

    How many representatives would have to be elected? How many would not need electing anymore? I am getting a headache just thinking about it. But; the big question. Should the UK be in it? Would the EU morph into the Euro based USE and the three non Euro states, including the UK, be told to make alternative arrangements elsewhere?

    Reply: Of course the UK should not be in Euroland

  12. Simon MANSFIELD
    Posted June 19, 2011 at 10:15 am | Permalink

    Nearly all your points, with which I agree, are symptomatic of the lack of a lender of last resort. A virtual collective that is the ECB is no substitute, and not an adequate basis for planning economic development.

    The political and monetary cost of maintaining the Euro is simply too much for most of the constituent countries, and certainly too much for countries on the periphery of the Eurozone, such as the UK, that are inextricably bound up in the fortunes of the European economies.

    It is a great political idea, but economically we are (all) simply not ready.

  13. Javelin
    Posted June 19, 2011 at 10:31 am | Permalink

    You can’t buck the markets – by that you mean money will find it’s own level / like water / and that level is based on risk/reward.

    So the question is HOW will money find it’s own level NOT whether it will find it’s own level.

    I believe that the imminent demise of sovereign credit default swaps will cause that. Now that rating agencies and the ISDA Eu committee disagree on a default event this means that sovereign default swaps are worthless. This means that the risk of a sovereign bond defaulting is now going to be priced into a bond.

    Currently 5 year uk bond CDS rates are 75 points – or .75% pa. This will now be added to the 1.75% ish on the 5 year bond rate. Pushing bond rates up. So basically repayments on Government debts will rise by something like 40%.

    So that is something that you should understand. That Governments with large debts (eg uk, Italy, Japan) will soon have much less money.

    • Javelin
      Posted June 19, 2011 at 11:57 am | Permalink

      I think the important point here is that there are intended consequences from the Euro and there are lots to come. The Euro is trying to have it’s cake and eat it and you can’t do that. You can have a Euro – but money will find it’s own level through higher bond prices and taxes and that is something Euroland must accept.

    • Mark
      Posted June 19, 2011 at 3:05 pm | Permalink

      Presumably you are referring to synthetic bonds. Risky bonds should always price to reflect their riskiness, but if I package such a bond with a CDS as a synthetic, it should theoretically be priced much as a low risk bond would be. If the CDS insurance becomes non-operative through failure of the counterparty, being deemed ultra vires or otherwise, then suddenly the synthetic bond becomes as risky as the underlying one.

      Now the question is – what constitutes a synthetic bond? Perhaps bonds guaranteed by the ECB are really synthetic bonds, because the guarantee is fast becoming as worthless as a commercially provided CDS. Technical default can only be avoided by money printing. The real terms default that implies will devastate the real economy of the Eurozone.

  14. Nick
    Posted June 19, 2011 at 10:34 am | Permalink

    What about Scotland and England? Different Policies?

    Manchester and London, or London and Liverpool? Different policies?

    • MickC
      Posted June 19, 2011 at 1:12 pm | Permalink

      Scotland and England -yes.

      London and Liverpool (or Manchester or many others) -no, they are part of the same country, culture and heritage.

      The problem is (possibly was for a long time) that London has effectively become a nation-state and not part of England. Liverpool is a part of England and the difficulties it has are essentially the same as much of England, and recognised as such by the rest of the country.

    • Javelin
      Posted June 19, 2011 at 5:57 pm | Permalink

      Scotland and England prove you can have sone different policies AND the same currency so that is an argument for the Euro. BUT England gives alot of money to Scotland. In fact that is a very goodreason why national currency works – because rich areas give to poor areas. The same is true for Germany and Greece. Is Germany prepared to give money to Greece like we do to Scotland?

    • norman
      Posted June 20, 2011 at 12:14 pm | Permalink

      Quite a common idea put about is to have different e.g. income tax rates in different parts of the country. We see the government trying to do this, as usual in a wrong headed manner, by boosting spending in areas using ‘enterprise zones’ – if I recall George Osborne was spouting on about them in his last budget to the tune of a few hundred million (seems so insignificant sum now we’re used to talking in the hundreds of billions).

      The answer isn’t to spend more money in less affluent areas, it’s to take and less and cut back on red tape in those areas, but nanny knows best so we’re stuck with useless regional development quangos, etc. wasting even more money unless you’re on that particular taxpayer funded gravy train.

  15. English Pensioner
    Posted June 19, 2011 at 11:48 am | Permalink

    As you say, elections in Ireland and Portugal threw out the governments associated with failure, but although the politicians changed, the policies didn’t.
    Of course you didn’t mention the UK, where the government also changed, but the policies have hardly changed. I find it very difficult to identify any real differences between what this government is doing and what Labour was doing, or would have had to do if they had been returned to power.
    No wonder people in Greece are rioting; how can you have a so-called democratic system where the people vote for one thing and the government does something totally different. How long before there are riots in Portugal? Unfortunately the Irish, whilst they like a good punch-up, are not likely to riot on the streets, but I feel they would have good justification for doing so.
    And as for England, all we do is to just not bother to vote; what is the point?

  16. Mark
    Posted June 19, 2011 at 12:08 pm | Permalink

    Perhaps the surprise so far is that there have been no significant demonstrations in Brussels. I note that in the UK, the EU continues to be way down the rankings of concerns measured by IPSOS MORI – although there has been an upsurge in concern about immigration and crime, perhaps following government back-tracking on controlling them. Concern about the economy appears to be reducing slightly from very high levels – perhaps simply because the comparison with EU basket cases makes the UK seem to be in a more reasonable position.

    The reality is that the economic difficulties we and countries like Greece face are largely self-inflicted via profligate government spending and the creation of asset bubbles via the banking system. The effects of EU regulation on stultifying our economies are there, and left unchecked will become the dominant factors. Perhaps that’s why the EU prefers to indulge in bail out: the blame rests with the national governments so long as bail out and progfligacy continues. Only when bail out stops, and countries are forced to try to become fully competitive is the impact of EU regulation fully revealed.

  17. Damien
    Posted June 19, 2011 at 12:13 pm | Permalink

    The Irish Times today report “EUROPEAN COUNCIL president Herman van Rompuy yesterday gave support for a reduction in the interest rate on Ireland’s EU bailout funds” when he visited Ireland for the first time since his election in 2009.

    Does this mean that there will be a re-profiling of the bailout to Ireland? Also the President did not rule out ‘burning’ bond holders at Anglo Irish and Irish Nationwide. The UK banks exposure to Irish toxic debt is $200 billion(and that also includes the taxpayers who own Lloyds and RBS).

    The EU democratic deficit that is apparent now may be restored as more governments fall and others lose their majority. This story has some way to go and the end is not written.

    Merkle has sidestepped Germany being blamed for a financial catastrophe had she insisted on bondholders sharing the burden of restructuring. No good deed goes unpunished and in September she will find her party facing a catastrophe as the price paid for ignoring her electorate that fairness dictates burden sharing with private bondholders.

    The very best outcome would be for Greece to default and for EU governments to refuse to bailout bondholders. This would serve as a warning to other deficit deniers in the EU and address the moral hazard that private investors can privatise profits and socialise loses.

    Greece has sufficient resources including tourism to survive outside the euro. A devaluation would actually give Greece a unique tourism and export advantage over other euro countries akin to the advantage enjoyed by Irelands 12.5% corporation tax.

    • Nick
      Posted June 20, 2011 at 12:16 pm | Permalink

      Who elected van Rompey?

  18. oldtimer
    Posted June 19, 2011 at 12:49 pm | Permalink

    The EU is Leviathan reincarnate as a political black hole.

    So far it has served the Eurocrats well, secure as they are behind the inner walls of the European Parliament and the outer walls of the national Parliaments. It means they can continue as an unaccountable body, money laundering their largesse to favoured causes via grants to inumerable, opaque organisations. And they continue to do this without, as far as I am aware, ever having had their accounts approved by independent auditors as offering a true and fair view.

    The only reason I can imagine for the British political class, and that of other countries too, put up with this is that it suits their purposes as well. It results in group think on a truly continental scale. The electorate does not get a look in. Nor will it under present arrangements. Nor is it at all clear where the will or means is to be found to overturn this state of affairs. The British and European electorates have been well and truly stitched up.

  19. Peter van Leeuwen
    Posted June 19, 2011 at 2:37 pm | Permalink

    During all this misery there are a developments pointing in a positive direction:
    – More public interest in the EU and debate about it.
    – National parliaments taking more power in the EU decision making. More national parliaments require to vote on a negotiation result before their minister may agree to it at the EU level.
    – A number of measures (like the recent six-pack) show that the eurozone wants to move towards further integration.
    Maybe a further increase of the role of national parliaments at the EU level will be required. The European parliament shows to be weak as link to the public.

  20. woodsy42
    Posted June 19, 2011 at 4:02 pm | Permalink

    “The EU has the power, but does not have the direct engagement with the electors to persuade them it is doing the right thing.”

    Clearly they need to spend vastly more of our money on advertising and publicity! And they are doing so.

  21. David Hearnshaw
    Posted June 19, 2011 at 4:13 pm | Permalink

    I was Chairman of the Southern Region of Business for Sterling – it is certainly a case of `we told you so’. I would like to see all those politicians who advocated joining admit they were simply wrong- some hope!
    At least we have Brown to thank for keeping us pout of the Euro when the mad man, Blair, would have had us in in a trice!

    • Alan
      Posted June 20, 2011 at 8:46 am | Permalink

      I don’t think that the financial crisis demonstrates that we should not have joined the euro. In my view it demonstrates that we should have regulated our banks better, and I don’t have to remind people which politician was in overall charge of our financial system when these problems began. (Nor should I have to remind people that he did much to mitigate the effects of the crisis once it had begun.)

      We have not so far done well by keeping out of the euro. Our currency is devalued compared to the euro, our workers have had their wages reduced, our pensioners have had their pensions reduced, our savers have had their savings devalued. I can see that some businessmen may have gained – they employ workers more cheaply and export their goods to countries which pay in euros, and they keep their own savings in property and equities that are not devalued in the same way as sterling, but that is not true of many of us. Like everyone else I go on hoping that devaluation, QE, austerity, and all the other mysterious financial cures will start working soon, but so far they have not.

      Now our banks are at risk from a Greek default, and unlike the French and the German taxpayers we have no say in how to resolve the crisis, even though we too will be called upon to rescue our banks. In my view we should not fall easily into the trap of saying the crisis proves we should have stayed out of the euro: it might not be true.

      Reply: As you admit that EU banks are in trouble because of the Euro I find it surprising you don’t accept the damage the currency is doing – it is the forced merger of economies not in line with each other that is undermining sovereign debt and in turn the banks that are required to own sovereign debt by the Uk and the EU authorities.

      • Alan
        Posted June 20, 2011 at 2:24 pm | Permalink

        Response to Reply:
        Thank you for taking the time to reply.

        I don’t think the EU banks are in trouble because of the euro; I think other factors brought about their troubles and the Eurozone has not evolved methods of dealing with them, which it might have done, given time. Greece would eventually have had problems even if their government had not been guilty of false accounting and the financial crisis had not occurred, for the reason that you and other opponents of the euro pointed out – its economy is just not sufficiently productive to use the same currency as, for example, Germany unless other measures are taken to lower the Greek standard of living compared to that in Germany (such as lower wages, higher interest rates, more expensive goods; rather like in the UK prior to the devaluation).

        Without the crisis I think Greece would have suffered more and more pressure to make its economy more productive, and might even have had some success. If Greece had not succeeded it would have had to evolve a way of dealing with its economy not producing enough. I favour some system of defaulting on payments, as being the Eurozone ‘equivalent’ to devaluation.

        Even now I think that default looks the best solution, but then I was one of those who thought letting Lehman go bankrupt was a good idea, until I saw what happened. So I have some sympathy with the EU politicians as they shrink back from what could be another disaster.

        I think being in the euro places greater discipline on governments to run their economies prudently and for that reason, amongst others (one of which is my self-interest), I would have liked us to have joined the euro.

        Reply: The m ain threat to EU banks of sovereign debt that cannot be serviced or repaid, brought on by membership of a currency scheme which does not work for its weaker members.

  22. electro-kevin
    Posted June 19, 2011 at 7:51 pm | Permalink

    In a different way we’ve lost control too: over the rule of law and over the right of citizenship.

    Because we have a comprehensive welfare system, legal aid system and the NHS our problems manifest themselves in different ways but the essential issue is the same.

  23. Edward.
    Posted June 19, 2011 at 8:00 pm | Permalink

    British banks pulling in their horns in so far as European euro-zone banks are concerned.
    Spanish banks borrowed 58 billion euros from ECB in May, up from 44 bil’…

    The damn is starting to burst.

  24. Stuart Fairney
    Posted June 20, 2011 at 5:47 am | Permalink

    “The personnel of the government changed, but the essential features of the economic policy could not”

    True.

    I am unclear how that differs from the UK? As Speaker Pelosi said with great candour “elections don’t matter very much”

  25. Javelin
    Posted June 20, 2011 at 7:53 am | Permalink

    Bug government poses the biggest risk to the world economy. As Allister Heath points out today “far from being the solution to everything Governments are the biggest problem”

    If you add to that the view about being “too big to fail” the The EU is too big too fail, it needs to be broken up. It needs a living will. There was no exit plan for the Euro. Banks cannot be asked to make living wills or be broken up if the Eu Government cannot do the same.

    • Javelin
      Posted June 20, 2011 at 7:55 am | Permalink

      Sorry I meant “Big Government”

  26. Paul H
    Posted June 20, 2011 at 8:40 am | Permalink

    “… where people will ask Where is the democratic accountability?”
    Have you been blogging from under a rock, or something? People have been asking this about the EU and its manifold works for years.

  27. Javelin
    Posted June 20, 2011 at 11:33 am | Permalink

    Interesting article in the Irish Independent

    http://www.independent.ie/business/irish/what-happens-to-us-if-greece-defaults-2800180.html

    “Meanwhile, Finance Minister Michael Noonan travelled to the United States where he announced plans to “burn” the Anglo Irish and Irish Nationwide senior bondholders — a move that he must have known is anathema to the ECB, which has committed itself to a rigid policy of “no writedown” of government or senior bank debt.”

    Ireland is setting itself up for “PLAN B” – to “burn” bond holders – in order to stay in with the IMF – can you confirm if that includes the UK Government and MY tax pounds?

  28. James Winfield
    Posted June 20, 2011 at 2:43 pm | Permalink

    A European national government sounds good to me – perhaps we can call it Germany?

  29. rose
    Posted June 21, 2011 at 8:31 am | Permalink

    Dear Evan has just made a wise remark on the Today programme, about Greek Euros being worth less than German ones. Could there at last be an awakening at the BBC to the folly of single currency between diverse nations? Might there follow a similar awakening on mass immigration? Not that they will ever apologise to the shades of the Enoch Powells and Nicolas Ridleys whose careers they destroyed, together with our prosperity (in the fullest sense of the word).

  30. john elliott
    Posted June 21, 2011 at 2:40 pm | Permalink

    Money has no intrinsic value. it is a means of exchange. It gets it’s value from the value adding activities of an economy. However misuse of currency is a minor issue when compared to the mismanagement of our economy. A fact that shows we need radical change. Raise the age for retirement with 1 million teenagers out of work. once it’s realised that our system is badly out of kilter the solution is very simple.

  • 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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