How much political union does a currency union need to be successful?

The major currencies of the world are backed by single states. These states usually arrange a banking union, a benefits or transfer union and a common economic policy as well as a monetary union. Behind every good currency lies a unified nation of taxpayers who accept the legitimacy of their government and Central Bank.

Currency unions break up when these conditions cease to exist. The collapse of the rouble bloc followed quickly after the dissolution of the forced political union of the USSR. The countries which emerged from the Soviet empire wanted to control their own money. The Republic of Ireland kept the pound when it first separated from the UK, but later adopted its own currency to complete its independence. The Scandinavian and latin currency unions broke up in disagreements over the debts around one hundred years ago.

We have recently seen two interesting cases of the political arguments which can emerge in a currency union when people within it start to question the political union that goes with the currency. In the case of Scotland I think it was the wish of a majority of Scottish people to keep the pound that led them to vote to stay in the political union called the UK. They saw that all the Union parties rightly agreed that if Scotland left the political union the currency union would also be broken up, as it would be unsustainable. Why would taxpayers from the rest of the UK wish to shore up Scottish banks if we were no longer part of the same country? What would happen if Scotland followed economic and tax policies which were incompatible with the policies of the rest of the UK within the currency union? How would Scotland manage if oil revenues collapsed but no longer received compensatory payments from other UK taxes and taxpayers?

In the debates over Scottish devolution I raised the issue of how far can you go in unpicking the benefits, tax and transfer union before there are problems for the currency area? Parliament is going to have to return to the issue of the money before the new devolution settlement is completed. Under present rules there are common rates of benefits, and a sharing of the risks of paying for those benefits throughout the single currency area by all taxpayers in the UK.

As Scotland presses to see how far you can go in dismantling a political union which backs a currency union, Greece is testing how far a country has to go in accepting a political union in order to justify a currency union. Today there is a strong enough political union with revenue and expense sharing in the UK for the pound to work for Scotland and all other parts of the sterling area, but there is insufficient political union with revenue and expense sharing in the Euro area for the Euro to work for Greece. Greece has lived in almost perpetual recession for eight years, with a loss of one quarter of its income and output, partly because there are no proper mechanisms to share revenue and risk within the Eurozone. The Euro needs much more political union to even out the gross imbalances between the rich north and the rest.

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44 Comments

  1. Leslie Singleton
    Posted August 1, 2015 at 6:12 am | Permalink

    Is it time to think again about trying with a “Hard Ecu” (or Euro now)? It might not be perfect but best I can see it would work and the only problems would be of mere inconvenience relating to each country (“Countries?”, What are they??, I hear the EU fanatics cry) having two currencies in play. I cannot help thinking of especially the earlier days of the London so-called “Eurodollar” market. I don’t remember any problems if a company decided to invoice in Dollars, or anything else for that matter. Anything would be better than the fiasco at present. Even Brussels should be happy as they would have a role keeping the “Hard Euro” strong. Individual countries would have to strive to keep their own currencies on a par with this new Euro but that would be good not bad. Difficult to predict how that would eventually pan out but all that could possibly happen would be that the market would in a particular country cease using either the Euro or the local currency. Again, So what? Is it European treason to suggest this??

    • Richard1
      Posted August 1, 2015 at 3:42 pm | Permalink

      The hard ECU was a sensible idea, supported, amongst others, by Margaret Thatcher. Unfortunately EMU won the day and so we have the disaster of the eurozone.

  2. Lifelogic
    Posted August 1, 2015 at 6:15 am | Permalink

    Indeed you put it in a good historical context. The Euro indeed needs much more political union to even out the gross imbalances between the rich north and the rest. This is doubtless why they embarked on the misguided EURO project.

    It will surely end very badly just like almost everything the EU does.

    Anyway how are Cameron’s “negotiations” going. Will the UK be allowed to withhold benefits from new arrivals from the EU for the first hour or two? Has he decided his bottom line yet – does he even have one?

    Why can the government do almost nothing, for example on the chaos at Calais, without having COBRA meetings chaired by Cameron. How much disruption is Cameron prepared to accept before some action is taken. Why is the MOD land not already in use for these vehicles.

    • Leslie Singleton
      Posted August 1, 2015 at 6:59 am | Permalink

      Best I can tell, Cameron, with his jejune baloney about restricting benefits isn’t even trying, never mind succeeding, to restrict immigration. He is not even scratching the surface of what is needed.

      • Lifelogic
        Posted August 1, 2015 at 12:11 pm | Permalink

        Indeed “no if no butts” about it.

        Rather more likely to hit one million+ than tens of thousands he promised.

        Oh and don’t forget Cameron is a “low tax conservative at heart” but strangely has just nodded through a huge, tax grabbing budget that will clearly hit growth, destroy some businesses and kill jobs.

      • Anonymous
        Posted August 1, 2015 at 12:18 pm | Permalink

        For a country to be run in this catastrophic way and against the clear democratic will do we really need a House of Lords and a House of Commons ?

        Do we need lots of politicians to run a borderless and clearly undemocratic country ? Is a country without borders even a country ?

        We may as well only have one politician if all they’re going to do is renege on their promises, ignore the democratic vote and continue on regardless.

        I expect that there will be an amnesty and a quiet and unofficial arrangement will be made to accept millions in any way possible that will avoid the news scenes we’ve had on TV these past weeks. But you will tell what’s happening wherever you are – as the great dispersal takes place as it surely must.

        The movement of people is truly biblical. This is how it ends. Under the Tories of all parties too. Five years is a long time to keep a house-bubble/equity release led recovery going.

        So good to have voted UKIP and been proven right so soon. Otherwise the frustration would have been too much to bear.

        • stred
          Posted August 2, 2015 at 9:29 am | Permalink

          I am so glad I did not have to vote tactically for Eural and Georgie Boy too. Fortunately, when I went to vote in my Green MP’s area, the polling station resembled a day centre for the pierced innumerate and I realised she was bound to win anyway.

          Just turned on the tele while peeling the spuds and had to laugh at the BBC doing the usual. The journalist chosen to review the papers was Matthew Green, who told us we were zenophobic and racist and should take our share of migrants. I had never heard of him and note from wiki that he worked for the FT and spend much time in Africa. Next programme a debate about the word ‘swarm’ where they had a bunch of Guardianistas including a Bishop condemning the word and our lack of responsibility for not taking our share of quotas. The only bloke disagreeing was the son of immigrants, who had somehow gained some sense of realism. No wonder the civil service under Labour decided that mass immigration would be ‘socially useful’.

          My entry yesterday was censored, possibly because I pointed out that 2 disused ferries were available for one way returns and genuine Syrian refugees could be given jobs on them, meaning as a first stage to acceptance.

      • Denis Cooper
        Posted August 1, 2015 at 1:20 pm | Permalink

        That’s because conscientious Britons listened to their government’s warnings about the threat of over-population of the country and deliberately reduced the number of children they would have, and then the government realised that there would be too few young native-born adults joining the workforce to provide the politicians with the tax revenues they needed to fulfil the various promises they had made, and so the answer was to import other people’s children from abroad to replace the children we Britons decided not to have.

        I posted a comment yesterday about a German government body saying that Germany would need up to half a million immigrants a year to keep its labour force at the present level, and suggested that Italy could make a lucrative deal with Germany to supply that annual volume of labour from among the migrants who are being helped across the Mediterranean by the navies of the EU countries, at so much per head depending on their age and sex and health and skills etc.

        But then both geographically and historically the Italians are well placed to set up labour recruitment stations in North Africa to supply other parts of Europe where there are thought to be labour shortages – although of course these days the recruitment would have to be at least ostensibly voluntary, rather than compulsory as in the film “Gladiator” – and that would dispense with the need for our warships to help ferry the extra workers across, the Italians could just charter civilian vessels and add the transport costs to the per capita price. That could be a real boost to the faltering Italian economy and help to keep them in the euro.

        • libertarian
          Posted August 1, 2015 at 6:05 pm | Permalink

          Denis

          Germany already has its own migrants, Germany has more migrants each year than any other EU country ( way more than us) at just a tad under 700,000 last year ( this is non EU people by the way).

          Italy only got 300,000 last year, if you would like the rest of the numbers UK had 500k, France 350 k, Spain 300k Sweden had 80,000 but also took 8,000 Syrian asylum seekers and granted blanket approval to take up residence

          To be honest I’m fed up telling people the same thing over and over again , we have SKILLS shortages, that is talented people, with experience , know how, ability and qualifications. We DO NOT have labour shortages, the number of unskilled jobs is going down

          • Denis Cooper
            Posted August 2, 2015 at 9:16 am | Permalink

            Germany has had its own migrants at least since the early 1960’s when the German government struck a deal with the Turkish government for the supply of workers, on what was originally supposed to be a temporary basis. It then took thirty years before it was decided that their descendants born and raised in Germany could become German citizens, the German attitude to citizenship still being determined by jus sanguinis as decreed in the early 1900’s, without that being supplemented by jus soli as in the UK.

            Germany apparently “needs” more immigrants than the UK because its fertility rate is much lower, in fact it is now said to have the lowest birth rate of any country in the world:

            http://www.independent.co.uk/news/world/europe/germanys-birth-rate-lowest-in-the-world-according-to-study-10286525.html

            Average number of children born per 1,000 inhabitants over the past five years:

            Germany 8.2
            Japan 8.4
            Portugal 9.0
            Italy 9.3
            UK 12.7
            France 12.7

            Which the article chooses to contrast with:

            Niger 50.0.

    • Lifelogic
      Posted August 1, 2015 at 7:32 am | Permalink

      Interesting to hear Osborne claiming in committee (to John Mann) that his huge increases in Insurance Premium Tax was a tax on insurance companies and not on consumers. Increased from 6% to 9.5% a 58% jump in tax levels. Just how stupid does Osborne think the public are?

      I hope the public all look at their renewals and think of all the endless things like the EU, expensive energy/green grants and bloated inept government that Osborne endlessly wastes their money on?

      Mind you if you are honest, a typical risk, take precautions (and are careful) you are often so much better off self-insuring anyway or at least taking a large excess. Why pay IPT and all the overheads of the insurance company plus you save time too.

      Unfortunately for motor and house insurance you are usually obliged by law or your mortgage to insure.

      In fact for medical/dental insurance they should be giving tax full relief (not taxing more with IPT). This to relieve pressure on the dysfunctional and overloaded NHS rationing system.

      Why should people pay into the NHS then pay IPT then still have to pay for their own treatments? Tax relief or partial vouchers for education too would also help save the state loads of money.

      Alas we clearly have socialists in power even if they are not quite as bad at Corbyn they are just the same in essence.

      • alan jutson
        Posted August 1, 2015 at 11:12 am | Permalink

        lifelogic

        “…..Just how stupid does Osbourne think the public are?”

        He has probably no idea that Insurance companies actually highlight this tax as an extra on your yearly/monthly invoice, because in all probability he has someone else to sort these things rather trivial everyday things out for him.

        Thats what happens when you live in a bubble, you lose track of what is going on and the reality of everyday life.

    • oldtimer
      Posted August 1, 2015 at 9:08 am | Permalink

      Last week a French minister said he was not clear what the UK wanted from the renegotiation. It is not just you.

      Perhaps Cameron and Osborne have no idea either, except to cobble up something that will get a majority for Yes in the referendum (which seems more likely than not) and does not tear the Conservative party asunder (a much more difficult proposition). Beyond an end to “ever closer union” and a reinforcement of the idea of the “common market” there is next to nothing to go on.

      No doubt preoccupation with Greece is putting the prospect of Brexit on the back burner in the EZ countries. The IMF decision not to lend more to Greece without a debt haircut (not possible under the EZ rules for sovereign lenders) and Germany`s insistence on IMF participation in the next debt round will finally result in another default and Grexit. This outcome, which could occur in September, would have two “benefits” (for the cynically minded). It would occur after the main holiday season was over and it would give the EZ politicians the excuse to blame the IMF and not themselves.

      • alan jutson
        Posted August 1, 2015 at 11:17 am | Permalink

        Oldtimer

        I think you are right.

        I do not think Cameron or Osbourne have a clue either.

        Its simple really, trade and willing co-operation only.

        Failing that

        Brexit Article 50.

        If fear a complicated mush where more, and more power is given away just days after a referendum and which will continue for ever more.

      • Denis Cooper
        Posted August 1, 2015 at 1:31 pm | Permalink

        I’m confident that this problem with some IMF staff wanting it to start sticking by its rules will prove to be only temporary, and a formula will be found so that the IMF can satisfy the German politicians with some level of involvement in the next bailout, and even if Greece does default again it will still stay in the euro.

      • Leslie Singleton
        Posted August 1, 2015 at 2:03 pm | Permalink

        Oldtimer–It was not so long ago that Merkel was saying that so far from IMF involvement being essential, it was preposterous even to consider the idea that the IMF should be allowed in to what was private internal EU business, never mind asked–ie that the EU could handle its own affairs TVM. The problem for her original way of looking at it was that homogenisation across the EU has not occurred because no-one wants it to occur, least of all, and increasingly, her own people. Once she goes (she isn’t going to backtrack now) it might all be different.

  3. agricola
    Posted August 1, 2015 at 7:07 am | Permalink

    Yesterday you invited solutions to Calais. I proffered them but you chose not to publish. What is the point of asking for advice and then ignoring it. Was it politically too embarrassing. The newspapers today seem little impressed with your leaders gestures, but good for overtime if you are a sniffer dog.

    • alan jutson
      Posted August 1, 2015 at 4:43 pm | Permalink

      Agrilola

      Yesterdays post was a very popular subject, think JR may have been overwhelmed by the posts submitted (bit like the so called security at Calais with illegals)

      I noticed the longer posts took rather longer to get through moderation, probably due to length of time it took him to read them all.

      Let us hope JR got the feeling of immense frustration we all have on this subject, and what appears to be lack of resolve to fix it.

      I hope JR can convey our thoughts to our Home Secretary.

      I will await the reply from Mrs May with great interest, but not a lot of hope.

      • Timaction
        Posted August 2, 2015 at 7:53 am | Permalink

        They don’t want to solve it. This is the backdoor way of having our African quota whilst they claim to not allow it. Why else would they be picking them up in the med to gain access to Calais, whilst our partners give them free rail tickets to get there! Total Cameron baloney as always. Hide the true facts by good days to bury bad news. Remember how he signed us up to the 2030 Climate change stuff. He hid it behind the £1 billion surcharge we weren’t, but did pay. Bit like we’re not going to pay the £billion to bail out the Greeks. We did. I’m waiting to read what they hid on that day. We have the most dishonest leaders in our history who are out to hurt us, remove our democracy and hand us on a plate to the EU. They do this by mass migration etc ed to stop us having feelings on nationhood. Still. Not my fault I voted UKIP.

        Reply We all live in the same democracy h0wever we voted, and democracy needs participation, argument, public pressure between elections as well as elections.

        • Timaction
          Posted August 2, 2015 at 7:13 pm | Permalink

          What sort of democracy do we have Mr Redwood when most of our laws are made by an unelected foreign body and rubber stamped by puppets in Westminster? What sort of democracy allows that foreign body to dictate to the UK that we will participate in the bailout of Greece although an undertaking had apparently been agreed that was not legally binding by your foolish leader? Instructed to pay a £1.7 billion surcharge? What sovereign democracy has NO control over its borders and has free access to 500,000,000 people to come here and they are in droves? What democracy gives away free health, housing and education to foreign nationals who have contributed nothing and taxing the indigenous people to pay for it? What sovereign democracy has NO control over foreign criminals who can come and roam and commit more crime here? Several examples of foreign murderers coming here and killing again! What democracy has its own old people unable to cloth and feed themselves, and ex military who are homeless yet puts up anyone from the third world in Hotels and provides free everything including £36 a week pocket money if they chip up here!
          This is beyond party politics and the anger is palpably rising throughout the Country at the weakness and incompetence of our legacy parties.
          The Med crisis has been created by Cameron in his foolish rush to have a legacy war there!
          What Government in its right mind would red circle foreign and EU aid at £26 billion and rising whilst reducing its military and police budgets when the nation is at its worst threat levels in 50 years? Some democracy.

  4. Old Albion
    Posted August 1, 2015 at 7:37 am | Permalink

    The (dis)UK currency union works very well for Scotland. They spend whatever they wish and England pays the bill.

  5. Ralph Musgrave
    Posted August 1, 2015 at 7:47 am | Permalink

    There’s some figures at the link below on the size of fiscal transfers between regions in one monetary union, namely Canada. The transfers are surprisingly large.

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/07/transfers-1.html

    Labor mobility also helps monetary unions. According to an Economist article, mobility is ten times higher in the US as compared to the EZ:

    http://www.economist.com/blogs/freeexchange/2014/01/european-labour-mobility

  6. Richard1
    Posted August 1, 2015 at 8:01 am | Permalink

    This seems to be coming to be accepted. The German govt are willing to contemplate a eurozone finance minister with tax and spending powers eg. What is interesting is there does not seem to be widespread resistance in the eurozone to this. We in the UK should certainly stay out, but we don’t seem to see widespread clamour in other eurozone States from taxpayers wanting to avoid these liabilities.

  7. Brian Tomkinson
    Posted August 1, 2015 at 8:02 am | Permalink

    JR: “The Euro needs much more political union to even out the gross imbalances between the rich north and the rest.”
    When this is achieved and if the UK has foolishly voted to remain in EU, the demand from the UK government will be that, having committed ourselves to the EU, in order to exert our rightful influence we must adopt the €.

    • Denis Cooper
      Posted August 1, 2015 at 2:02 pm | Permalink

      Correct, the only question is whether that would happen sooner or later.

      The eurofederalists are prepared to wait, Rome was not built in a day and nor did they ever expect that “Europe” would be constructed over just a few years.

      Forty years ago we had a referendum on whether to stay in the EEC, during the campaign for which the government assured us in its official pamphlet urging a “yes” vote that while there had been moves towards Economic and Monetary Union in the Common Market “This threat has been removed”.

      That was with just 9 member states; now there are 28, split between 19 already in the euro, 7 not yet in the euro but with a treaty commitment to join it, and 2 with treaty opt-outs from ever having to join the euro but with many politicians who really want to join it.

      It is really just a question of how quickly the total population of the “outer shell” of non-euro EU member states will be depleted as more of its present occupants drop down to join the “inner core” of eurozone states, but new countries join the EU with a commitment to join the euro automatically imposed upon them under their treaties of accession to the EU, and at what point our own politicians would decide that it was getting too lonely to be in that “outer shell” and the UK must conform to the EU norm by also adopting the euro, with or without a referendum as they see fit at the time, maybe a decade or two or three hence.

  8. acorn
    Posted August 1, 2015 at 8:17 am | Permalink

    I suggest the following, prompted by JR’s line “How would Scotland manage if oil revenues collapsed but no longer received compensatory payments from other UK taxes and taxpayers?” (Google the first sentence in the following, for the article).

    Taxes for Revenue are Obsolete – a précis [by Neil Wilson].
    “We have known for over 70 years that Taxes have nothing to do with government spending. However it is an idea that has taken root again in the recent past, and we really need to get beyond it if we are to build the society of the future. There is a faint whiff of punishment in a lot of tax proposals, which is very reminiscent of the treatment that the Greeks have received in their recent attempts to improve the lot of their population. Most unpleasant.”

    IMO, the United Nations has never made it clear, that if peoples desire to be an independent nation state, then you must have your own fiat floating currency, issued by your own state Treasury and operated by your own Central Bank.

  9. Chris S
    Posted August 1, 2015 at 8:44 am | Permalink

    The Eurozone has given us the perfect example of how far one needs to go in establishing a successful currency union.

    The biggest problem they have is a failure to control expenditure in the different states.
    With interest rates set centrally that essential mechanism is not there to boost the economy in hard times or choke off excessive borrowing when expenditure shows signs of getting out of control.

    Within a single currency domain it is perfectly OK for there to be areas ( I will not call them regions ) where, for whatever reason, expenditure exceeds income from goods, services and taxes as long as the taxpayers in other areas are happy and willing for their politicians to transfer cash to the less successful areas to ensure that enough cash is available to keep everything operating.

    In the case of the US – the dollar area – there is one other factor at play : they have a culture of self reliance and are much more willing to move around the country to take up work in areas seeing growth. You see this wherever you go in the country. That is an extremely useful and effective self regulating mechanism.

    A perfect example is Detroit which, following the exit of car manufacturing, is largely a ghost town with huge areas of housing gradually being demolished and returned to farmland.

    By contrast, in Europe people tend to stay put and expect the state to provide jobs for them. When that doesn’t happen, they then expect the state ( ie working taxpayers ) to pay them for sitting at home doing nothing.

    In eurozone, if those less successful areas were sovereign countries with their own individual currency the Treasury would be able to keep its hand on the throttle and if things still get out of hand, markets ensure that the exchange rate reduces, boosting exports and choking off imports thus keeping everything broadly in equilibrium.

    Clearly in a single currency area without the ability to alter interest rates in specific areas, there has to be mobility of labour plus central control of the money supply which embraces taxation, expenditure and particularly borrowing.

    Turning to the UK, it is absolutely clear that Scotland is not a viable economic unit on its own. Not only is the oil running out but geography is against it. What manufacturing business is going to relocate to Scotland when it is so far away from its closest major markets for goods in Europe ?

    Scotland only has a chance to attract business by offering exceptionally low taxes and a totally business-orientated, entrepreneurial government.

    Well Sturgeon’s Government is the very opposite of all of those things while England has had considerable success in attracting business and George Osborne is striving very hard to do even better. Frankly, the Scots simply can’t compete with England. Any business looking to set up afresh in the UK is going to settle south of Hadrian’s Wall.

    Outside the UK, an independent Scotland is on a hiding to nothing. They can either ask to join the Euro and become yet another drain on that currency or set up their own and gradually go bankrupt.

  10. Gyges
    Posted August 1, 2015 at 9:02 am | Permalink

    Your analysis is only valid for fiat currencies … Are fiat currencies necessary anymore? What is the point of them other than to transfer wealth from the poor to the rich?

  11. Bert Young
    Posted August 1, 2015 at 9:29 am | Permalink

    The EU will not secure more political union unless Germany and Holland agree to disperse their surpluses ; the Southern EU countries would welcome this distribution but , would probably waste them away in a short period of time .

    I agree that the Scots were “nervous” about losing the £ and having to cough up their share of the national debt had they decided to go it alone . I , for one , was ready to dump 2 of my investments in Scottish based companies were they to part – I still am if the threat returns . I suspect many individuals thought as I did ; Standard Life and |RBS both said they would re-locate South if “independence” happened – such a move by these large and influential employers would be followed by many others causing the already shaky economy to be further worsened .

    As things stand it is inevitable that the question of protecting England has to be sorted out . The Scots can’t get away with deciding on their own tax and benefits regime and , at the same time , expect to be able to vote on what happens in England . Sturgeon can moan , groan and threaten but it will not succeed . If Cameron is too weak to handle this problem then someone else will have to take over .

  12. agricola
    Posted August 1, 2015 at 9:57 am | Permalink

    There is not much one can add to a very logical argument. To add strength to it there is the example of the USA, a country of 50 plus states with a common currency and central bank, plus of course a democratic government to spread responsibility and reward.

    There is an inevitability in what the EU must become, but I am not so sure there is an appetite for it among the people of the EU, nor do I see a willingness on the part of those who run the EU to create a fully democratic entity. Power will have to be prised from their sticky fingers and that could be a very unpleasant process.

    The big question for the UK is do we wish to keep what we have, or do we wish to walk naked into whatever they create over the Channel.

  13. alan jutson
    Posted August 1, 2015 at 10:08 am | Permalink

    The simple fact is John you cannot have a successful currency union when areas have vast Budget differences on policy and borrowing with vast differences on Welfare and Benefits.

    Scotland will leave the Union eventually if it keeps on wanting to be a special case.

    It will then have a choice, go completely independent, of join the EU with the Euro.

    I wish them well but fear they will be worse off outside the UK.

    Time will tell, because you cannot ave the best of both worlds for ever.

  14. petermartin2001
    Posted August 1, 2015 at 10:10 am | Permalink

    There’s no really simple answer to the question posed in the title of this posting. There has to be enough to ensure that the necessary fiscal transfers between the richer regions and poorer regions occur.

    If the wealth differences are small then the necessary fiscal transfers are small too. Therefore there could be a much weaker political union and a currency union could still work. That’s not the case in the eurozone though. There are substantial differences in economic strength between Germany and Greece for example.

    The EZ as designed, with just a central bank, the ECB, to hold it together is a folly whose failure not only could have been predicted, but was predicted. Wynne Godley wrote in an essay called “Maastrich and all that”

    “If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.”

    Poverty and Starvation in the EU? Surely not, anyone reading that essay in 1992 must have thought. They wouldn’t be thinking that now.

  15. DaveM
    Posted August 1, 2015 at 10:22 am | Permalink

    The more you think about it, the more fiscal semi-autonomy for Scotland seems an unworkable idea. What do you think, John, do you prefer the idea of all taxation going to a central point then being dished out, with or without the Barnett Formula? After all, we in England don’t have local rights of raising income tax. The idea of devolving some – or all – tax raising powers to Scotland seems unbelievably and unnecessarily complicated.

    • Martin
      Posted August 1, 2015 at 1:00 pm | Permalink

      ” we in England don’t have local rights of raising income tax”

      There are 500 plus English MPs. There are 100 or so Scotland/Wales/Northern Ireland MPs. Maybe the 200 or so Labour ” let us hike English income tax” MPs would be out voted by the 300 plus English Conservative MPs were they to attempt to amend the Finance Act.

      Maybe Mr Corbyn will put this to the vote soon.

  16. CHRISTOPHER HOUSTON
    Posted August 1, 2015 at 10:32 am | Permalink

    According to the Bank of England, complete political union is required “if the European economic project is to succeed.” though it only talks euphemistically in terms of the necessity of fiscal union. Thus the BoE has already broadened its remit and bungee jumped over the edge of the abyss into dark European politics.

    “Ever greater union” still is the central principle of the EU and this was clearly understood by the UK Parliament right from day one.
    For a politician of any EU state to try negotiating around the principle is time-wasting. You cannot agree to build an aircraft and come back to the negotiating table and say that frankly you are now quite uneasy about the plane having wings.

    The choice is clear. Do we wish to continue building the Phoenix of crashed post-war European states, by committee. Or simply buy a ticket to the next British Airways flight to the rest of the world?

  17. Denis Cooper
    Posted August 1, 2015 at 11:34 am | Permalink

    The problem for us the citizens of the UK is that once again our government is playing the eurofederalists’ game while telling us that it opposes eurofederalism, a constant factor for half a century now under governments of different party complexions.

    It may be recalled in the instance of the EU single currency that it was argued that just its existence would drive convergence of the economies of the participating countries, and so there would be no need for any country to subsidise another – indeed that would be expressly forbidden by the EU treaties – and so there would be no need for further centralisation of power in eurofederal authorities to ensure stability.

    But just a short time after the launch of euro the FT was reporting that the economies of the eurozone countries were not converging, actually they were tending to diverge, and that has recently been confirmed as a longer term trend; hence the perceived need for a raft of further eurofederalising measures, with the active support of the Tory leaders in contradiction of their repeated avowals of opposition to eurofederalism.

    If we carry on down the path they recommend then over time we will head towards the unsustainable situation where we are still in the EU but we are the only member state which has not yet adopted its currency, or one of just a few with the others being newer member states and on the conveyor belt into the euro.

    The present EU treaties simply do not admit of the configuration which the Tory leaders claim to envision as a permanent arrangement, with a highly federalised “inner core” of eurozone states and a comparable number of non-euro EU member states as an “outer shell” or “outer ring”, and insofar as we know what Cameron wishes to renegotiate any proposals for treaty change to allow that kind of configuration to have a chance of being a permanent settlement are conspicuous by their absence.

  18. Martin
    Posted August 1, 2015 at 12:52 pm | Permalink

    Russia under Putin is an interesting case. A vast country, very sovereign minded which has chosen a military policy that has upset the financial power players in the world. As a result sanctions and a currency heading south. Add to that a commodity price crash and the “R” in BrICS is getting very small.

    The SNP’s plans of hanging on to the Pound in the event of independence was a case of having even less influence (zero?) than before as goes the currency. Scotland would have probably been more sensible running its own currency and keeping oil in some sort of separate pot to avoid the commodity fluctuations that have caused stability problems with other economies.

    Taking your example of Ireland, small countries do see advantages in being part of a pooled sovereignty arrangement.

    Even the UK is not immune in today’s global world. If our taxes are too high or low compared to the other big economies then all sorts of flows of good and money start to happen.

  19. John
    Posted August 1, 2015 at 3:44 pm | Permalink

    JR. “Under present rules there are common rates of benefits, and a sharing of the risks of paying for those benefits throughout the single currency area by all taxpayers in the UK.”
    Every English person only has to look at the Barnett formula to realise that this sentence is questionable. The threads that used to bind the UK together are frayed and will shortly snap.
    I come from a military family which goes back generations but I tell my children and grandchildren that the English should not fight for this country any longer because we do not get a fair deal.

  20. Stuart Saint
    Posted August 2, 2015 at 1:04 pm | Permalink

    Major changes must happen in the Euro zone which will impact on the whole EU. For the Euro to continue taxation must set across the Euro zone and some form of transfer union established among many other things.

    This is why a YES vote in the coming UK EU referendum is NOT for the status quo, there will be no status quo for many years and remaining inside must lead to ever closer union no matter what is said now.

    The UK has to leave and negotiate mutually beneficial trading with the EU. We have no other choice.

  21. Gary
    Posted August 2, 2015 at 3:08 pm | Permalink

    well if any country in the world gets rid of their fiat legal tender law shackles, then people would voluntarily ditch the paper rubbish and demand payments for savings to be done in a superior money that cannot be inflated by govt crony monopolies. Under such a free market release, there won’t be any political, tax or any other union required. People will all voluntarily demand to be paid in sound money.

    But instead we get these false dichotomies that are non choices between more or less state sanctioned monetary fraud.

    • Denis Cooper
      Posted August 3, 2015 at 10:03 am | Permalink

      So will you be issuing that “sound money”?

      Somebody has to, I think.

  22. ChrisS
    Posted August 2, 2015 at 6:27 pm | Permalink

    Posted by Martyn :

    “The SNP’s plans of hanging on to the Pound in the event of independence was a case of having even less influence (zero?) than before as goes the currency.”

    We’ve seen enough of Sturgeon and here outrageous bluster to be pretty sure that, in the unlikely event of any UK government agreeing to share the pound with an independent Scotland, she will demand equal representation on the Monetary Policy Committee of the Bank of England !

    I am a member of the overwhelming majority of English taxpayers that is utterly sick and tired of hearing this irritating …. woman demanding every more of our money to subsidise everything from the thousands of extra wind turbines she is planning, through increases in Scottish benefit payments to her inefficient health and education services. It has to stop !

    Over the life of this parliament, per capital expenditure in Scotland must be reduced to no more than the average spent in England and Wales.

    It won’t make the slightest difference to the SNP attitude to England. They very clearly want to take Scotland out of the union, whatever the cost to their citizens.

    One of Cameron’s many mistakes has been to try and make an accommodation with her.
    He should have spent more time reading his history books at Eton :

    Appeasing (words left out ed) never works.

  23. Margaret Brandreth-J
    Posted August 2, 2015 at 11:01 pm | Permalink

    Political, and monetary union has been tried before and failed.Identities are too diverse. It is suggested that in union there has to be two or three dominant Countries to lead.The next step would be fiscal union and can you imagine the over riding power of one country over another.
    I GBrowns 5 economic tests to decide whether there should be full monetary union, he forgot to add the most important test of all. Do the people want it.We all can be objective with someone else’s money, but this money belongs to us ;debts and all.

    Reply Labour did offer a referendum before joining the euro

    • margaret brandreth-j
      Posted August 3, 2015 at 8:15 am | Permalink

      reply to reply . In mind I wasn’t there ; as many others were not. We were enjoying our lives!

  • 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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