How could the EU respond to an intensification of the crisis in weak Euro member states?

I have argued that the exit of one or more countries from the Euro is only likely in the event of an intensification of the crisis. This means that any exit has to be planned and executed rapidly against fast moving markets and political problems. Over the next couple of days I am going to set out how the EU might have to proceed if the crisis does become intense.

 

If the EU decision takers take too long about making the decision to let a country leave the Euro, or if they leak their decision making  process in advance, they will make it all much more difficult. It is best done at a single meeting of Heads of government over a week-end, with everything in place for when the markets open on the Monday morning following the decision.

 

The EU does not have a good record with such matters. Its attempts to talk its way out of the banking difficulties have forced them to revisit banking cash and capital on several occasions. Still they have failed to get ahead of the markets, and have been forced in cases like Dexia to stitch together solutions at the last minute. The stress tests or solvency checks were not sufficiently rigorous and the weaknesses were not followed and cured in an energetic way, leaving certain banks vulnerable to market moves.

 

Similarly, the EU has watched as  three countries have  lost their ability to borrow in the markets in the usual way to finance state deficits. Three countries are now on life support from the EU and IMF. Part of the reason was the way embarrassing conversations about their financial condition were leaked or briefed  as Euro area members argued over what to do to stave off the mini crises country by country.  Loose tongues followed by too little action make the problems worse.

 

If the EU allows the exit of one or more country to become a common talking point whilst they debate action, it will make the situation worse.  More people and companies will withdraw their Euros from the country concerned, to bank them more securely in a strong Euro country or outside the zone altogether. No-one wants to wait for a devaluation of their savings and deposits.  It will remain impossible  to borrow money for the state if a devaluation is feared, or in the case of a country not yet into the IMF it could be the tipping point which makes the rate too penal for them to carry on borrowing in the market.  It will also start to disrupt normal commerce and contracts. Contracting parties from outside the country will want protection clauses against devaluation.

 

For all these reasons it is important to move swiftly, and to move stealthily. If the discussions are confined to Heads of Government, and the papers released to them at the week-end meeting the chances of embarrassing leaks within trading hours are reduced. The Heads of Government could take this business at one of their regular meetings, so no-one needs speculate on why they are meeting. If the crisis is more immediate and they have to summon a meeting rapidly to deal with Euro problems, the meeting can be described as a meeting like all those before it to resolve the crisis of the Euro without suggesting that it is the meeting to break the Euro area down to a more manageable size.

 

The meeting of the Heads of government needs to consider the following papers:

 

1.      The general case for allowing or requiring the exit of a country from the Euro. This informs the discussion in principle, leading preferably to the conclusion that the exit of one or more country is needed for their sakes and for the stability of the wider zone.

2.      The legal and administrative steps that need to be taken to allow the exit and the establishment of new currencies. The aim should be to switch all relevant deposits and electronic money before the markets open the following Monday, and to phase in new notes and coin as rapidly as practical.

3.      The press statement, summarising the case for the action taken. This should also state clearly the resolutions carried at the Heads of Government meeting, and the necessary legal cover to allow the exit countries to move to the status of having derogations from belonging to the Euro under the Treaties.

 

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37 Comments

  1. Martin Cole
    Posted April 6, 2012 at 6:44 am | Permalink

    I look forward to your follow-up postings. Perhaps you would also consider addressing the intensification of the crisis in the stronger Euro member states, France in light of the upcoming elections, Holland and Finland with their fracturing coalitions and Germany itself with the newly re-empowered Bundestag having a growing say over the disbursement of funds.

    Even more importantly perhaps, as a member of the UK Governing Coaltion Government back benches, perhaps you could suggest some policy directions for the aimless UK administration, which acts as though none of these events is any concern of theirs!

  2. lifelogic
    Posted April 6, 2012 at 7:12 am | Permalink

    I do not know how they will get out of the absurd mess the Ken Clark, John Major, Chris Patten. Peter Mandleson & Leon Brittan, Cameron and BBC types have created across the EU – but doubtless no one will take the blame or apologise. We will perhaps just get the “today has been a difficult day in the markets speech” from some one similar to the above.

    • APL
      Posted April 6, 2012 at 9:45 am | Permalink

      lifelogic: “” .. but doubtless no one will take the blame or apologise.”

      [sarcasm] But, lessons will be learned. [/sarcasm]

      Fat pensions will be drawn.
      Comfortable sinecures will be enjoyed on the red benches, or this or that tax funded Quango. ( what ever happened to Pickles, wasn’t he supposed to take a scyth to all these orginisations?)

      Things will get worse.

      • lifelogic
        Posted April 6, 2012 at 6:52 pm | Permalink

        Indeed.

  3. Paul Danon
    Posted April 6, 2012 at 7:52 am | Permalink

    Many thanks for this excellent series. A “single meeting of [27 h]eads of government over a week-end” might be hard to arrange without arousing suspicion and bringing about the very run on the euro which such a meeting might seek to avoid. You describe “The legal … steps that need to be taken” for a euro-exit, yet isn’t it acknowledged that the relevant treaty doesn’t allow such a move? There are but two ways to make it happen: a new treaty or departure from the union itself. Even if the heads of government were prepared to act ultra vires, wouldn’t such action be open to legal challenge in the same way as I hope the UK and Czech republic will challenge any 25-nation treaty?

    • Denis Cooper
      Posted April 6, 2012 at 3:04 pm | Permalink

      It’s not a question of whether EU leaders would be prepared to act ultra vires, because they’ve already done that.

      I’ll refrain from mentioning other examples of actions which are illegal under the EU treaties, and focus on the two Decisions taken by EU finance ministers on May 9th 2010:

      http://register.consilium.europa.eu/pdf/en/10/st09/st09614.en10.pdf

      There’s no identifiable legal base in the present EU treaties for the eurozone states to set up anything like the EFSF, and that’s confirmed because unusually the two relevant Decisions, “as adopted in the context of the (Ecofin) Council on 9 May 2010”, cite no legal base in the EU treaties or laws, and as far as I can discover neither of them has ever appeared in the Official Journal as a recognised part of EU law.

      There was an attempt to convey the impression that setting up the EFSF was legally linked to setting up the EFSM, which was falsely claimed to be covered by Article 122(2) TFEU, but read the first Decision carefully and it’s clear that there’s no such legal link even to that grossly abused treaty Article – the key is in the words “In addition”, which could more accurately have been “As a completely separate matter”.

      The UK wasn’t a party to the unlawful Decision to set up the EFSF, but it was a party to the second Decision:

      “The 27 Member States agree that the Commission will be allowed to be tasked by the euro area Member States in this context.”

      So we know that EU leaders were willing to act ultra vires to try to keep Greece in the euro, and no doubt if it was finally decided that Greece must leave the euro then they’d also be willing to act ultra vires to achieve that.

  4. norman
    Posted April 6, 2012 at 8:07 am | Permalink

    This is hush-hush so keep it under your hat – do not, repeat, do not, email anyone about this, we never know who’s reading our email.

    I’ve actually seen a leaked copy of the rescue plan that came from No.10. I believe it was put in place around 2009 and is only to be opened in an emergency:

    ‘Following on from me saving the world’s banking system, in the result of any crisis the first and most important action is to ring me on my mobile. If there is an engaged signal try again, I’ve most probably smashed it against the wall but will be in the process of replacing it. I will then explain to everyone my brilliant plan to save the world (again).

    PS Make sure I sit next to Obama at any press conferences’

    And is signed in thick black marker, but I couldn’t make out the signature.

    There was also a yellow sticky written with the same thick black pen:

    ‘Put Merv’s number in speed dial and find out who prints the money for the ECB re. saving world plan’

    So all this posts by JR are fine and good but the elite already have everything under control and every contingency planned for.

    • APL
      Posted April 6, 2012 at 9:49 am | Permalink

      You won’t find the author of that leaked email in Cowdenbeath and Kirkcaldy. Nor, come to that in the House of Commons.

      Still drawing his very comfortable back bench salary.

      What extra does he get for being a member of the privy council. Then there is the absolute utter waste of money for the police protection squad.

      Reply: There is no pay for being a member of the Privy Council.

      • John C
        Posted April 6, 2012 at 11:27 am | Permalink

        I think Gordon Brown was possibly our worst ever PM. However:

        “Then there is the absolute utter waste of money for the police protection squad.”

        I find that a bit OTT.

        Every ex-PM rightly deserves protection. (Even Blair until he is handed over to the ICC.)

        • APL
          Posted April 6, 2012 at 12:49 pm | Permalink

          John: “I find that a bit OTT.”

          Fair comment. How about a compromise?

          If Mr Brown, to take a random example chooses to spend much of his time outside the United Kingdom trying to pad out his already substantial (etc-ed) Parliamentary income, then he should do so at his own expense.

          If he feels it necessary to travel abroad and to be accompanied by the police protection squad, then we should be able to bill him for those services, including airfares and hotel accommodation, meals etc etc.

          Perhaps such people would take a different view of their little jaunts under those circumstances.

          • alan jutson
            Posted April 6, 2012 at 10:51 pm | Permalink

            APL

            Absolutely agree with your comment.
            If they are travelling or spend time working for any sort of personal reward at all, then the taxpayer should not be funding any costs at all.

            They should either pay out of their own earnings, of the people employing them should pay.

            God knows have not Blair and Brown taken enough from the public already, for their total mismanagement of the Country for more than a decade.

  5. Alan Wheatley
    Posted April 6, 2012 at 8:19 am | Permalink

    Assuming:-
    (1) the mechanism for leaving is defined and agreed in advance by member countries, and
    (2) an event triggers the mechanism for the matter to be dealt with at a regular Heads of Government meeting over a weekend.

    Then:-
    (A) an event of such magnitude will be widely known, and no doubt speculation and opinion will be widespread;
    (B) preparatory work will have had to have been done to have determined that the “trigger” had indeed been pressed;
    (C) the mechanism, of which the trigger conditions will have to be a part, will have to be in the public domain for it to have been agreed by member countries, so all and sundry can make their own evaluation of the situation and be throwing their own four-penny-worth into the turmoil;
    (D) even if the case for action is presented by officials, and we take it as read that such presentation is agreed as factually correct, it does not follow that the all heads of governments will be in agreement: the failed stability pact is a case in point; and
    (E) a “weekend” could be too late.

    So, the conclusion I draw is that although it is an interesting and imaginative exercise to formulate a plan with the worthy intention of charting a path through troubled waters, come the event there are likely to be too many unforeseen issues arising, including people behaving irrationally, unreasonably and illogically, for the plan (any plan) to work. Instead of the desired order there will most likely be disorder.

  6. Alan Wheatley
    Posted April 6, 2012 at 8:21 am | Permalink

    With regard to the importance of moving swiftly and stealthily, heads of government could meet quickly and secretly by video conference as no doubt they have access to the necessary high-speed communications the rest of us can only dream about. And just so they don’t feel they are missing out, they could also have a video slap-up dinner to the sounds of Ode to Joy being played by members of the EU Orchestra performing throughout the 29!

  7. nero
    Posted April 6, 2012 at 8:31 am | Permalink

    Greece is still in the euro and Greece’s problems are a known known in the markets and I do not believe that Greece will cause any further future turmoil finacially.Yes Spain seems to be the next problem country but the Spanish government has now introduced austerity measures to try to reduce their debt problems. Italy now has a technocratic government which the population appear to accept and which is dealing with their financial deficit. The determination of the EU through the mechanism of the EFSF/IMF plus the political will of Euroland still appears powerful. The overriding position of the EU is that no country will ever leave the union and that they will do absolutley everthing in their power to ensure this.Using Greece as a realistic example, it has had extreme financail problems but has maintained it’s position in the euro, but, yes, it is one of the smaller economies of europe and if Spain or Italy have further problems it will be much more difficult to firefight but not impossible depending on the size of the bail-out fund and how Germany reacts.I’m trying to imagine the ultimate catastophic event that will trigger the collapse of the euro and I am not aware of anything at present. European monetary policy is becoming an extremely powerful tool and should not be underestimated and remember monetary policy trumps everything else.The measures you advocate for a fast reaction to a market collapse are admirable but the mind set of the EU is to prevent any individual country ever leaving in the first place so your suggestions would probably be ignored. The EU philosophy actually is anti market and pro centraliasation and governemant control and the more of it the better.We have had 60 years of the EU and they are not going to let markets control them.There is nothing I would like to see more than the collapse of the EUSSR but it’s going to be difficult and it may take many years sadly.

    Reply: The ERM collapsed in a hurry after they defended it for too long at too big a cost. Greek problems are not over – they will be cumulative and will come again.

  8. alan jutson
    Posted April 6, 2012 at 8:37 am | Permalink

    John

    You advocate all decisions by stealth and speed (should the Brown stuff ever hit the fan), and whilst I would perhaps agree that to avoid complete financial meltdown within the markets for those country’s involved that may need to be the case.

    But.

    Are we left with a situation where the remaining Country’s (and even perhaps those who took part) would never be trusted by the markets again, due to the once bitten twice shy syndrome.

    Would the markets not exact some kind revenge for being hoodwinked, should this situation ever occur.

    Certainly the EU does stealth very well, you only have to look at the creeping hand of power the EU has over almost every aspect of our lives now, and the way it always seems to manipulate any policy into being, working on the slowly, slowly catchy monkey principle. So there certainly is form there.

    I would have thought Speed of thought and action, is certainly not one of the EU’s stronger points, indeed past performances with regard to idea’s, pre-negotiation stances and the difficulty of simply wording a cohesive statement has usually taken an extended period of time.

    I would thus be amazed if such a situation you describe would even be possible, given 27 countries would need to agree, or do you envisage a simple majority vote.

    Should any Country leave as you suggest, then it would surely need a new form of money system to be in place almost immediately, this would thus need to have been preplanned, and ready for distribution within 24 hours, would it be possible for that to be possible, without any leaks !.
    Or would you simply use the denominated Country’s Euro notes already printed, in circulation (and now devalued) for the short term.
    If so surely this has its own problems.

    Thus I am somewhat confused, and somewhat surprised that perhaps you are making your views, public knowledge, unless of course you are fully aware that the markets have already prepared for this type of scenario.

    Reply: There would need to be a unanimous vote, and it would occur at the last minute when all agreed the crisis was so grave that drastic measures were needed.

  9. waramess
    Posted April 6, 2012 at 9:23 am | Permalink

    Perhaps these are not honourable people and would be more than happy to see chaos befall any country that attempts to leave the Euro.

    Perhaps they believe printing more and more money will be the answer to market disturbances and abject poverty in the nouthern Nations to be a price worth paying for a strong Deutschmark.

    Maybe these people are unable to see much further than beyond their collective Keynesian nose, and such niceties as secret meetings will escape them.

    So far it would seem so.

  10. oldtimer
    Posted April 6, 2012 at 10:01 am | Permalink

    At the practical level it should be feasible to meet via secure and private video links. It would be surprising if such links did not already exist between heads of state – whether the EU, the G20 et al – and between relevant finance ministries, central banks and foreign ministries. This would obviate the need for a physical meeting that attracted the suspicion that something was up.

    The technical issue seems to me to be less important than the political. The first political difficulty would be getting unanimous agreement on the necessary remedial and political actions required. It only needs one objector to scupper the process by going public about the scheme before it could be implemented. The second potential difficulty is the election of a new government in a troubled state that is not party to, or a supporter of, the EU solution. Greece is an example of this possibility.

    It is conceivable that difficulties could arise either because a state wanted to stay in the euro, when the others wanted it out, or because it wanted out and the others wanted it to preserve what they consider to be the integrity of the eurozone.

    Reply: They got rapid agreement to the end the of ERM when markets pushed them.

  11. Peter T
    Posted April 6, 2012 at 10:09 am | Permalink

    The question I would like to pose is if the UK should leave the EU would this means that things like the Common Fisheries Policy would cease to apply in British Waters?

    Reply Yes

    • pipesmoker
      Posted April 6, 2012 at 12:55 pm | Permalink

      We should do it!

    • Bazman
      Posted April 6, 2012 at 4:50 pm | Permalink

      This would also include many laws and regulations relating to workers rights and protection presumably, and no I do not believe for one second British laws cover this adequately, all evidence such as todays erosions points to this being not true.
      The race to the bottom would be given further help. The creation of more jobs not worth having is not compensation and again whether there would be anymore is highly questionable and answers by people who will never be affected suspect.

  12. Leslie Singleton
    Posted April 6, 2012 at 11:24 am | Permalink

    I don’t think much of this “last minute”, “over the weekend” scenario and believe that, preferably at a stage when there is NOT a panic, legal changes should be made to allow exit from the Euro and specifying the mechanics. In yours today and seemingly all comments there is little or no distinction between “allowing for” and “planning for” which is a pity. Facing up to the self-evident need for the possibility of Exit and addressing the problem in stages would lower the temperature all round and be a wholly positive first step no matter what follows. It is simply bonkers to say or think that an Exit or two would be “the end of Europe” and all the rest. To the contrary, it would nail the existence of the Euro to the mast, its exact make-up being a secondary matter. Say not the struggle naught availeth.

  13. Electro-Kevin
    Posted April 6, 2012 at 11:39 am | Permalink

    Full respect to you, John, but your reporting on how the EU might respond on your very public blog indicates that you’re (sadly) not in ‘the loop’.

    Worse. It indicates that this is not how it will be dealt with. Or if it is then now we all know how it will be sprung on the EZ.

    The whole thing’s a sorry mess, is it not ?

    How can Europhiles ever be taken seriously again ?

  14. Normandee
    Posted April 6, 2012 at 12:47 pm | Permalink

    Nothing short of a coup d’etat is going to move these idiots, as long as we are paying for each and every error they make they will continue blindly making them. They have achieved a perpetual motion of self survival that keeps bringing them back to the same point without resistance, and allows them to set off again on another damaging circuit of lies and self deceit.
    The only way we can survive in the long run is to jump, and jump soon, I am convinced that others are only waiting for someone to be first and they will follow, and as no one likes us anyway, we will gain freinds by starting the rot.

  15. Frances Matta
    Posted April 6, 2012 at 1:12 pm | Permalink

    Yields on 10-year Spanish & Italian bonds have risen to 5.8% & 5.5% respectively.
    Does EFSF stand for Euro Failure Suicide Fund?

  16. Mike Stallard
    Posted April 6, 2012 at 1:36 pm | Permalink

    This actually sounds as if you are expecting an immediate break-up of the Euro area.
    I do not know if that is what you meant?
    Typically (I am thinking of the First World War, the Yom Kippur War and the invasion of Poland and Russia) these crises blow up when everyone is on holiday. You have that at the moment especially with a Greek martyr to equal the Arab Spring or the London riots.
    The other thing is that people have to want a war and be excited about it. I am not actually sure that this is in place – yet. But, of course, it will happen.

  17. nicol sinclair
    Posted April 6, 2012 at 1:42 pm | Permalink

    (Private) “Preparation & Planning Prevents Piss Poor Performance” – old British Army adage…

  18. David Williams
    Posted April 6, 2012 at 2:11 pm | Permalink

    I think this scenario is unlikely in the near term. A more probable event in my opinion is a big cash injection from the IMF with the UK footing some of the bill.

    In Spain, there is generally not yet an appreciation that the Euro is the cause of the problems. Most still believe that banks and anglo-saxon speculators are to blame.

    I’m not surprised that the cuts in Spain have disappointed the markets. The 3 million administrators (functionarios) get to keep their perks, even private medical insurance for those working in the public health service! Public sector workers continue to look forward to retirement in their early 50s (officially 55 but 53 when the 2 years unemployment entitlement is used as a bridge). There was relief amongst these people in Andalucia that the PP failed to win control. A large part of the budget adjustment assumes success of a tax amnesty.

  19. Denis Cooper
    Posted April 6, 2012 at 3:47 pm | Permalink

    “The press statement, summarising the case for the action taken. This should also state clearly the resolutions carried at the Heads of Government meeting, and the necessary legal cover … ”

    On past experience there wouldn’t be any great problem inventing adequate legal cover.

    As far as EU treaties and laws are concerned most people have a poor understanding even of the basics, in general the MSM is little better, the EU has its apologists ready to deflect any criticism, and among the small minority who recognised that what was being done was in breach of the treaties there’d be many who decided to stay quiet about it.

    Afterwards, the treaties would be amended to retrospectively legitimise what had been done illegally.

  20. Arunas Ruksnaitis
    Posted April 6, 2012 at 4:06 pm | Permalink

    Sir:

    I would suggest that after so many years of institutional tinkering and disregard of popular opinion, the results of which we are now witnessing, the solution to the problem is to return power to people and ask them what their preferences are. Further secretive meetings and “decisions” that are never clearly communicated, and broken more often than not, will do nothing to improve the situation. The only reasonable thing the political classes can do now is to put forward credible action plans and obtain people’s agreement in an act of direct democracy. Anything less will only contribute to further social and economic breakdown, eventually leading to popular unrest and full breakdown of social order.

    Unfortunately the unelected, undemocratic, unaccountable, corrupt EC who are afraid to audit their accounts since the last corruption scandal will carry on with the sort of tinkering you have just described, until “Latin Spring”. The result of this I dread to imagine, but unfortunately I cannot see any other way to purge the system from corrupt bureaucrats who have infected the system.

    I hope it is not too late for the UK to learn the lesson and trim down the state mechanism drastically, before it became as sclerotic and as corrupt as EU, but I do not see any political party with such an agenda. I was hoping Conservatives will start moving in the right direction; it is unfortunate that after the wooing electoral noises of “bonfire of quangos”, “cutting the red tape” and such, the action is exactly the opposite: the size of the state and the spending had never been higher; working families are being squeezed and pensions raided to pay for failing bankers and bailing out banks.

  21. Bazman
    Posted April 6, 2012 at 4:51 pm | Permalink

    Dead link.

  22. Bernard Otway
    Posted April 6, 2012 at 4:57 pm | Permalink

    About 4 weeks ago in an article by the financial/Business section of the Daily Mail,the CEO of Glaxo SmithKline was quoted as saying that ALL their subsidiaries in the Eurozone have their bank balances checked on a Daily basis and that surpluses are immediately transfered back to London for [SAFETY] as they do not trust the volatility of the euro.That is how all businesses work ,IMHO trying to HIDE anything over a weekend is doomed to failure,the
    only way to handle the issue is HONESTLY AND OPENLY.the banking and financial sector trades 365/24 so is wide awake at all hours.

  23. Barbara Stevens
    Posted April 6, 2012 at 5:15 pm | Permalink

    Mr Redwood, today I received an email from the ‘People’s Pledge’ group, who are conducting elections on the EU, in or out. The results for Thurruck are, 89% want out, and 10.09% want to remain in. There are to be many more elections along similar lines all over the country to gain some idea what a legal referendum would bring. If Thurruck is anything to go by they the final result could be a shock for all parties in the near future.
    When these are complete how can any party or government ignore people when they make their feelings so plainly obvious. So your assumptions on a state leaving the EU might refer to ourselves.
    I certainly hope when all these results are in MPs won’t ignore them, for it will mean that many people have taken the chance to show their feelings. To keep ignoring people is the worst thing any party can do, the result will be to vote for a party that won’t do that. For myself I believe we should leave the EU.
    On a final note, France this week as deported undesireables and not bothered with EU rulings or the court of Human Rights, so why are we not doing the same? It appears France as some guts where we appear to lack it.

  24. Martyn
    Posted April 6, 2012 at 5:58 pm | Permalink

    I have no idea as to what might or might not happen but, simplistically, the EU functions much like the USA, in that both the individual Eurozone nations and the individual US States each have their own common currency (Euro and US$), set their own internal tax rates and pay into a central (or Federal) bank.

    The EU has the PIGS and the USA has a couple of States in dire financial conditions – albeit not quite so bad as Greece. But no one expects the USA to break apart into individual States when the US$ gets hammered by the markets, so why do we expect the EU to fall apart when the Euro or one or more Eurozone nations are attacked by the markets?

    The nations of the EU, including the UK have each subordinated their sovereignty to the EU and there can be going back. Well, there could be, because Lisbon allows a nation to withdraw from the EU (not the EZ), but in our case that is not going to happen and the pity of it all is that none in our government are honest enough to state that we no can longer fully control our own destiny. I wonder how long it will be before our government advises us that ‘it is the best interests of the UK to adopt the Euro’?

  25. Derek Emery
    Posted April 6, 2012 at 6:31 pm | Permalink

    It will only happen if and when Germany either runs out of money to support the Euro or the German public can no longer be made to continue the saga. I suspect even if PIIGS salaries were reduced by 20-30% from austerity measures they still might not have growth as the rest of the world has moved on competitively quite a lot over the last decade. The hope is that this reduction alone will bring back growth.

    There is no learning in politics and the same mistakes are repeated endlessly though history.

    It is reminiscent of the collapse of the gold standard 1925-31 where you can replace yesterday’s inflexible gold standard with today’s inflexible equivalent – the Euro.

  26. outsider
    Posted April 6, 2012 at 8:20 pm | Permalink

    Dear Mr Redwood, you did not seem too impressed by the Wolfson shortlist plans and, having now read them, I agree.
    The most impressive, in a negative way, was Neil Record, who contended that the exit of even the smallest member state implied the end of the euro, which explains why the euro elite is so determined to avoid it. The unscrambling of the omelette into yolk-euro and white-euro was good but could only apply in practice to a once-for-all schism. It might otherwise have a limited role for sorting out ECB balances.

    Frankly, your own suggestion of pushing “Ruritania” back to candidate states looks far more practical and politically feasible. It would allow the ECB/eurogroup to act like the IMF under Bretton Woods, sanctioning agreed devaluations within the system with new parities agreed (after a decent interval for the market to work) and Ruritania remaining part of the EVB/eurogroup set-up with the implication that it would “eventually” requalify and rejoin.
    When the prize was announced, it took me about 10 minutes to decide not to enter but it does seem to me that the entries miss one key point: it is inevitable that the euro will continue as a parallel currency in Ruritania and it would therefore be much better if remained as dual legal tender alongside the “Ruritanian euro” ( a sanctioned offshoot that might not trigger default clauses).
    Because of the politics, it also seem unlikely that the exit/devaluation could be achieved as a surprise after secret meetings, with everything being redenominated overnight. Rather, it would have be implementable on a gradual rolling basis, starting with the Ruritanian euro being the official government currency for all payments and receipts and leaving most pre-existing private contracts unchanged.
    It was at that point that I realised that working out the sequence and details of the roll-out was beyond me.

    • outsider
      Posted April 6, 2012 at 10:16 pm | Permalink

      Sorry for typos. “States” should be status and “EVB” should be ECB.

  27. David Langley
    Posted April 7, 2012 at 8:40 am | Permalink

    Well John, at last an action plan that has some excellent responses from your eager readers.
    Like all action plans there are “What ifs”.
    Military men planning actions against the enemy, or indeed supporting friends, use the “Appreciation” method of considering the pros and cons of direct action.
    Start with “Do nothing and the thing will crumble on its own, there will be pain and sorrow but thats the way to make sure it doesn’t happen again. We in the meantime will sit on our hands and watch the fallout or surrender to the inevitable.
    “Do something” requires a detailed knowledge of what will happen under any circumstances resulting from a particular action.
    There is no handbook which will predict the fallout from actions you suggest, but you may have a plan which under the best and worst circumstances may work, but the success of the enterprise IE the objective may cost too much to achieve.
    In wars or massive political upheavals the outcomes are difficult to predict, as a previous contributor has said, the practical difficulties facing every aspect of your plans will be immense and the uncertainties impossible to measure.
    Does the participants have the necessary enthusiasm to stay the course, will any plan be exercised through all the hours of all the days, through all the 24/7 trading and currency movements in the world?
    Will the participants have the moral fibre to face the possibility that failure will condemn them even if success will honour them.

  • 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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