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         All four of my tax sketch people would be surprised if they found out that the government’s wish for people to pay a higher overall rate of tax was directed at them. They do not see themselves as tax avoiders. They, after all, are doing things the government wishes to encourage by offering them lower tax rates.

          Charity, the retired accountant, has always in the past been a Conservative voter. She is not entirely happy with the Coalition, and is particularly concerned that it is unwilling to bring powers back from the EU which she did not want surrendered in the first place.  She would not vote UKIP in a General Election, as she does not want to end up with a pro EU MP, but she is asking herself whether she should vote UKIP in the next European election to show how she feels about the EU issue. She will watch to see if Mr Cameron follows up his veto on the latest Treaty,which she was pleased about.  She was not pleased to learn that the Age Allowance will be phased out, though relieved to discover that it was not going to be cut in cash terms.

       Prudence has usually voted Lib Dem. She particularly liked their promise to avoid tuition fees for young people going to university. She feels badly let down by them, as her youngest child is about to go to university and will be caught by the large increases in fees. She does not have enough income herself  to pay her daughter’s bills. She was thinking about voting Green next time, but is worried that they will put her energy costs up too much. She is genuinely floating.  

         Mr Reader, the teacher, has always been a strong Labour voter. Mr Blair tried his patience, as he did not think he was a good enough socialist. He approved of Mr Brown’s spending plans, but was worried by the economic collapse on Labour’s watch. He thinks Mr Miliband should be tougher on the rich and the bankers, and is disturbed by the Labour reluctance to support the teachers’ unions wholeheartedly. In the end he will probably vote Labour again.

           Ed, the businessman, did not bother to vote in 2010. He wanted the Conservatives to offer a strongly pro enterprise package, but did not see it. He likes what they are doing on Corporation Tax, but does not like some of the anti business rhetoric he hears from the Coalition, or their personal tax  and red tape policies. He probably won’t vote next time either, unless some party comes up with a package which he thinks makes sense for people like him, and for the smaller companies he helps.

 

 

 

          It has become politically fashionable to attack tax avoidance. Many try to lump it in with illegal tax evasion, condemning both. The Chancellor tries to draw a  necessary distinction between aggressive tax avoidance, which he dislikes, and run of the mill tax avoidance which many undertake. It is time politicans and the government recognised that a lot of tax avoidance is commonsense, much of it is actively encouraged by the government, and some of it has a moral purpose.

          I want to give four examples  of people who lower their overall Income Tax rate or  Vat bills  for good reasons.

         The first is a retired accountant called Charity. She has a decent private pension from a tax sheltered pension fund. Her retirement income is bigger than she needs, as she lives modestly. Her leisure pursuits of listening  to the radio, going for walks with her dog, and attending the local theatre are not expensive. She works one day a week as a volunteer for the CAB, is a JP, and is actively involved with a local animal charity. She is a very generous regular donor to the charity, using the government’s tax saving scheme for her donations. Both she and the charity benefit from the tax relief or tax avoidance on offer.

           The second is a working mother called Prudence. She had ten years off work to bring up her children. When her husband left her she got an administrative job with the local Council. She is now making accelerated payments into her pension fund, as she wants to provide for her own old age, thinking it wrong to rely on means tested benefits as a pensioner if you can save for  yourself. Her tax charge is lowered thanks to the pension tax reliefs available.

          The third is a senior teacher called Mr Reader. He believes in good levels of public spending, especially for education, and has devoted his life to teaching, even though it used not to be that well paid. Following Labour’s good pay rises, he now has something spare each month to save. He lends it to the government through tax privileged national savings. He pays PAYE Income Tax. Because he  does not want the hassle of having to declare savings income he  takes advantage of the tax breaks on offer. He feels his savings contribute to higher state spending and think the tax breaks are moral.

         The fourth is a successful small business owner called Ed.  He now mentors local small businesses, and gives time as a volunteer to help start ups in his town. He has decided he should always try to employ sole traders to do any work he needs doing at home – plumbing, building, electrical work or help with the garden. He decides  he will only employ small businesses that are not registered for VAT, saving himself and them the VAT burden. It  means he can spend more on what he needs, and give them a bigger boost to their turnover as a result.  He is therefore avoiding substantial Vat sums.

         The government rightly welcomes the Big Society. That requires charities and volunteer activity to flourish. Tax breaks drive much of this generosity of spirit, and help furnish the charities and other institutions with the cash needed to organise the volunteers and create the work programmes.  Politicians need to be careful lest in their enthusiasm to lump tax avoidance in with tax evasion they do damage to that strong UK tradition of volunteer work and giving, and undermine some of the government’s own tax  saving schemes which have been designed to influence our conduct. They also need to be aware that tax savings drive much of the savings and pensions efforts of people, a bulwark of a free society. It is these savings which keep many people away from needing more benefits from the state in hard times and old age.

 

         My proposal for selected Euro exit recommended an overnight change to all bank accounts following hasty and secret week-end meetings to trigger the exit. It does not allow advance printing of new notes, as this would alert people to the coming changes and trigger a run on the banks in the affected country.

            I suggest that new drachmas or escudos be issued at the exchange rate of one drachma or escudo for one Euro. They would not, of course be worth one Euro, as the new currency would devalue as soon as it traded against the Euro. That would be one of the main purposes of issuing a new currency, to allow a devaluation to aid adjustment of their economies to the competitive realities. The one to one rate would be penal exchange rate for all those holders of Euros in the  exit country that you decided had to take some of the losses resulting  from the economic failure.

             Holders of Euro banknotes outside the EU would be unaffected by the exit of say Greece. They would still have Euros the day after the exit. Greek citizens would be expected to switch their Euros at the one to one rate into drachmas. If they turn up at the shops the day after the creation of the drachma, their Euro notes are accepted as drachma notes pending the issue of new drachma notes to them  at the one to one exchange rate. If a foreign non EU tourist turns up in Greece with Euros they would be able to go to a foreign exchange shop and get an enhanced number of drachmas at the market rate as a normal foreign exchange transaction.

             During the transitional period some Greeks would be tempted to take Euro notes out of the country and to switch them into other hard currencies. The scope for this would be limited, as from the moment of exit and the creation of the drachma any money they withdrew from their bank accounts would be drachmas. They would no longer be able to withdraw Euro notes. The notes they currently have would not be allowed out of the country legally, and would be subject to whatever policing arrangements the Greek state wanted to impose to try to prevent cheating.

              The issue to be resolved for the EU is the treatment of Euro notes held by non Greek EU nationals working or living in Greece. The simplest way forward would be to allow them to keep their Euros and to exchange them at market rates when needed into drachmas. The EU might, however wish and be able to assert its jurisdiction to make defined categories of people suffer the loss on their notes as Greek citizens would do.

 

              Last night on Any Questions when the audience was asked this question the large majority said “No”. Nigel Farage and I both argued against compulsory publication.

              I said that all candidiates for UK elected office should be prepared to assert or sign a declaration that they are paying all the usual range of UK taxes and are UK onshore taxpayers. MPs have to declare outside earnings. The same rule could usefully apply to elected Mayors and Police Chiefs once elected.

               There are three main arguments against requiring publication of tax returns.

               The first is it would reinforce the tendency of elections to be about individuals and their personal lives rather than about public policy and what they will do for the electors. The media fasciantion with the exchanges between Boris and Ken over personal tax and income is crowding out the more important matters of what Ken or Boris would do to the Council Tax, the policing, and the transport of London.

             The second is it could lead to very misleading jibes about tax avoidance. If Candidate A and Candidate B have the same income, but Candidate A is saving the maximum permitted for his pension and Candidate B is putting aside the minimum, Candidate A will be paying less tax. Does this make him a nasty tax avoider, or a prudent man who does not wish to be a burden on taxpayerrs in his old age? Is Candidate B the more worthy because he is paying more tax, or feckless because he is not using a legitimate tax saving device to provide for his own old age?  Will any of these nuances come across in the noise of the headlines about tax rates?

              The third is how far back will all this go? Will it put goood potential candidates off because they have been successful in the past and have no wish to share all the details of their business and personal finances with everyone else?

               We are told this all happens now in American Presidential elections so it should happen here. The US President is a far more powerful office than that of an MP so maybe different rules should apply. I am not sure, however, that  Mr Romney’s low tax charge on his successful career to date should be a major preoccupation when deciding who would be best to lead the world’s superpower. I would like to know more about what he might do in Afghanistan or how he might change tax rates for all were he President. It appears he paid all the tax he had to.  I have no problem with the fact that someone managed his tax affairs well, if he behaved lawfully.

 

The paper summarising the general case for selected exit of countries

 

         This paper could draw on the arguments presented before on this site. It would summarise why under the present Euro regime certain countries are unable to get their debts and deficits down to anything like the reference levels in good time and good order. It would explain the large trade and commercial imbalances within the zone that are proving difficult to finance.  It would remind member states that the original criteria over debt, deficits, inflation and currency ranges were there for a good reason, to improve the chances of currency success. It will be essential to give hope to the unemployed, those with near bankrupt businesses, and those in public sector employment fearing for their jobs owing to the shortfalls in tax revenue, in the badly affected Euro  member states.

 

         The meeting may have to deal with the problem that country like Greece may not wish to leave the Euro. Under the Treaty there is no way of enforcing her withdrawal. However, the Treaty permits the status of candidate member whilst a country is preparing to join and trying meet the requirements of the union. As Greece (and Portugal, Spain and others) did not meet the requirements by a long way on entry day, the other member states could jointly request that Greece withdraw to prepare again and to sort her economy out.  If appeal to her own interests and reminders that she neither met the requirements nor presented honest figures on entry is insufficient to persuade her, then the Union can simply say they are no longer prepared to finance the Greek state through the special loans the EU and IMF are making available. This should be sufficient for the Greeks to accept they need to follow the EU’s advice.

 

           The Member states would then resolve that Greece had agreed to accept the status of a candidate country and currency under the Treaty, and to act under the derogation from Euro membership, all the time she was unable to meet the debt, deficit and other requirements of the Treaties.  A unanimous resolution of all member states with the consent of the exit country should be sufficient.

 

The paper setting out the legal and administrative steps to be taken to allow exit

 

            The member states need to resolve that they will take all necessary legal measures to ensure the smooth and legal transition of all contracts, assets and liabilities in Euros into the new currency of any exit country according to an approved procedure. I will provide details later of the arguments over which contracts, assets and liabilities should be compulsorily converted and which may stay in Euros. The Heads of  Government should be presented with a preferred version, but be able to debate the options. They should be reminded that if the compulsion applies just to people and companies within the jurisdiction of the exit country, the legal and administrative tasks are easier. The exit country needs to prepare and clear rapidly the necessary domestic legislation to regularise the position.  If the EU wishes to convert contracts and assets held by other EU citizens outside the exit country, then it needs to resolve accordingly and to commission rapidly the necessary supporting legal texts preferably by directly acting regulations that can enforce these decisions.

 

             The Heads of Government  need to give general  authority to officials, to the ECB and the other central institutions, to take all appropriate measures to ensure as favourable a reception as possible of the new policy. Heads of Government  should understand that the ECB needs to keep the markets liquid whilst this is going on, and needs to offer assurance by word and probably by deed as well that it stands behind the main commercial banks in the exit country until that country’s own Central Bank can and does take over the task.

 

The press release covering the meeting

 

         Heads of Government, being politicians, are likely to be most interested in what they can say about the new policy when their meeting breaks up and the world is told of their decisions. The draft document might include the following:

 

      “  At a meeting in Brussels over the week-end, the Heads of Government of the European Union have decided that they need to bring to an end unhelpful market speculation and pressures on individual member states within the Euro. They recognised that several member states are now encountering difficulties with raising the money they need to carry on their normal operations, and understand that there are serious trade and financial imbalances within the Euro zone that are proving difficult to sort out. There are limits to how much austerity countries can accept in trying to meet the requirements of the currency zone.

 

         The Heads of Government have therefore decided that it is in the best interests of European harmony and co-operation, and of the Euro itself, if the member states most badly affected by the current configuration of the currency leave the Euro for the time being.  XXX will set up their new currencies, the YYY, in time for the markets opening on Monday.  The creation of these new national currencies will enable the exit countries to regain competitiveness, dealing with the large imbalances they have on trade and capital account with the rest of the Euro area, and will ease the burden of their debt by the amount of any devaluation the markets think necessary.

 

           This will, in the view of the Heads of Government, leave a strong and united Euro zone with a group of countries whose economies have come closely together and who can live with the tough budgetary and inflation discipline which was always designed to be central characteristics of the single currency.  The exit countries become countries with a derogation from belonging to the Euro for all the time their debts, deficits, inflation and interest rates remain outside the Treaty values  required for new members.  They are free at any time to become members again, but will need to satisfy fully all the criteria. We realise it was a mistake to relax the requirements as much as our predecessors did in their enthusiasm to have so many member states in the original Euro.

 

             The legal basis for these decisions will be this high resolution of the Heads of Government set out below:

 

“The 27 Heads of Government meeting as the European Council have resolved that  xxx are allowed to leave the Euro zone, establishing their own currencies on ddd. These countries become member states with a derogation from belonging to the Euro under Article 139 of  the Treaties, and are free to reapply for membership when they meet the criteria laid out.”

 

            More detailed contractual matters affecting people and companies with assets, liabilities and contracts in the exit countries, will be governed by their domestic law. The exit member states will be setting this out at the earliest opportunity. The EU stands ready to pass any regulation or other instrument necessary to give good effect to these necessary decisions stated in the High resolution. “

 

The timetable

 

 

 

The timetable is of necessity rapid.

 

Day 1. Following a decision meeting  between the Heads of Government of France, Germany, and the exit countries to approve the necessary work, officials prepare secretly for the next European Council the specified papers.

 

Day 5. France and  Germany review these papers just before the Council, and contact the exit countries by phone conference to sound them out.

 

Day 6. European Council

 

Day 7. Announcement of results of Council

 

Day 7.5  All relevant bank accounts and electronic money in the exit countries is converted to the new currencies. Orders are placed for new notes and coin. Instructions are issued concerning continuing use of Euro notes and coin until new notes and coin are available in sufficient quantity.

 

Day 8 First trading day. Exit country Parliaments meet to debate and ratify the decisions of their governments . They cannot be given warning, so they will be in the same position as Parliaments were when faced with a devaluation of a domestic currency.  Exit country governments publish draft laws to enforce the changes to bank accounts, and set a tight timetable to legislate.

 

Day 8 and beyond   European Central Bank makes clear it is willing to assist Euro area banks with problems arising from bond and currency losses brought about by exits from the single currency. Domestic Central Banks in the exit countries make general statements of their proposed policies for their new currencies and their banking systems. They also make it clear they stand behind their leading banks and are willing  to supply substantial liquidity in their new currency.

 

Day 14   Central banks in exit countries make fuller statements of their intended monetary and banking support policies.

 

Day 15 Legislation completed in exit country Parliaments and in European Union, to confirm legality of actions taken and to be taken.

 

Day 22 Most notes and coin replaced by new issue. Successful trading continues in new currencies and in reduced Euro area Euros. Devaluation and revaluation values settle down in markets.

 

Day 30 Devaluing countries start to present revised national budgets, including measures to promote growth.

 

Day 50 Signs of stability returning to capital flows. Some people who had successfully taken their money offshore from struggling Euro members start to repatriate money into the new currencies.

 

Day 100 Improved balance of payments figures start to appear from countries that have devalued.

 

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.

 

 

           I am pleased that my critics now accept that current public spending is rising 2010, 2011 and 2012 in real terms as well as in cash.

           They now say it will fall in real terms in 2013-15. That is certainly what the government forecast says. The latest Red Book figures are for  a fall of 1.1% in 2013 , of 2.1% in 2014 and 2.8% in 2015.

          The same Red Book says that current public spending will rise every year in cash terms over that period. They quote March rather than December year ends. The figures are for a 1.3% increase 2013-14, a 1.9% increase 2014-15 and 1.6% increase 2015-16.

          In other words, the offfical forecast assumesa  big surge in public sector inflation in the second half the Parliament. Roughly it assumes that 2013 will bring inflation of 2.4%, 2014 inflation of 4% and 2015 4.4%. These figures amalgamate a March and December year end as there is no quarterly split provided by the government,but will not be far out.

            If instead public sector  inflation could be held around 1.6% per annum during that three year period there would be no need for any overall real cuts. Wouldn’t that be a sensible aim for policy makers and public sector managers? Why allow such rapid inflation when spending is so tight?

 

               Yesterday I argued that there is no wish on the continent to plan an orderly break up or slimming of Euro membership. Only a fast moving and unpleasant crisis, like that which hit the ERM, could force change in Euro membership. I also argued that there is currently no sign that the weaker members blame the Euro for their troubles or wish to leave.

                I have before mentioned that to me the best way to handle any urgent need for a country to exit the Euro would be to move that country by unanimous vote from full membership of the Euro to candidate membership of the Euro under the provisions of the existing Treaty. These two categories already exist, and there is nothing in the Treaty to prevent a full member becoming a candidate member, though the Treaty was clearly written with a wish that the movement would all be the other way. Movement from candidate member to full member is determined by adherence to the qualifying criteria. As a country like Greece clearly does not meet the criteria by a very wide margin there could be a case for switching her the other way.

                  This would clearly need the consent of all. This is only likely to be forthcoming in a  crisis of sufficient force to make member states believe that it is no longer tenable to keep a given country within the scheme. This could change the views of full members intending to stay as full members.

                  Why would the exit country or countries accept? The only way I could see that they could be persuaded to vote for their own loss of full membership is if they needed to receive financial grants or loans from the other members to pay their bills. A change of membership category could then be made a condition of the loan or grant, leading to their consent.

 

 

 

 

   The Independent today tells its readers that the public sector austerity is big and long lasting, without precedent in the UK. They do, however, acknowledge that my claim is true  that for the first two years of the Coalition overall current public spending has been rising in real terms. That is progress.

 

They suggest I am being unfair in my presentation. They point out that capital spending has been cut. I have never denied that. They should remember however, that it was cut by the outgoing Labour government.  They should call them the Darling cuts, not the Osborne cuts as they do. The incoming Coalition government  abated the capital cuts a little as they thought them too severe. Total public spending carries on rising in cash terms despite them.

 

They then point out that from next financial year there will be real cuts in current spending. Again, I have never denied that the government believes that. Cash spending goes up, but the government thinks costs will also rise more.  The largest real cut is scheduled to take place in 2014-15, election year. Time will tell if these plans are fully implemented. I am glad to have the Independent’s confirmation that so far there have been very few cuts outside the capital spending area, that the cuts are mainly all to come, and so far deficit reduction has relied on higher taxes.

 

It also remains the fact that as cash spending will continue to rise there will only be real cuts if we experience too much  public sector inflation. There are choices to be made on that by managers and  employees over pay and by suppliers and buyers over prices.

 

          I read the five shortlisted entries for the Wolfson prize yesterday. The essay competition asked authors to assess how to manage the process if member states left the Euro. The five published yesterday showed ingenuity and offered a range of utopian solutions. One suggested creating two new currencies, called  the  New Euro-White, and the New Euro-Yolk. Another offered a new ECU-2 basket currency. A third proposes an Exit task force with a Task Force Charter driven by Germany. It is difficult to take much of this seriously. The media has decided to trivialise the whole topic by concentrating on a picture of a pizza drawn by a 10 year old.  The other two are less fanciful, but do not tackle the big issue of how exit can be arranged at speed and legally when the current Treaty does not have a mechanism for exit, and  when no country is seeking exit.

             Over the next few days as the run of news permits I will set out what I think might happen in the real world of EU politics and fast moving markets. Anyone forecasting the future of the Euro needs to begin with a firm understanding of the nature and importance of the project to EU member governments. The critics of the Euro mainly  lie outside the Euro member states. The governments of the 17 members all regard this as a central political project. They see the economic problems within their economies as being a price worth paying for the progress to political and economic union that the single currency represents. Many,  indeed,  believe the official line, that the problems of state debt and unemployment have solutions within the Euro framework. They do not blame the currency for state spending levels or joblessness on the periphery of the zone.  They believe they  need to work away at Euro discipline for it to come right.

          The Greek, Portuguese and Irish governments are firmly wedded to the Euro. They are not seeking a way out. Whilst there are now some senior establishment figures in Germany and the Netherlands who might like to see Greece leave, their governments still want to keep Greece in if possible and all agree that the Euro must continue.

            The Treaty does not allow the other member states to force a country out, nor does it allow an individual member state a right to exit. Those essayists who have thought of this issue state that it would require Treaty change to allow or force the exit of one or more members. How likely is this?

             It is my view that the Euro members will all wish to keep their currency going for as long as there is any chance of doing so. I detect no wish to plan an orderly exit for the most stressed countries today whilst the markets are temnporarily calmed by the large injection of ECB money. I do not expect to wake up soon to negotiations over the creation of one or two new currencies with the complex Treaty changes that would require, nor for an emergency exit which they did not put in place in calmer times. No-one is clamouring for new currencies based on unscrambling an egg, with easter titles.  Whilst an emergency exit is always a good idea in case a building catches fire, trying to knock one through when the fire has started might just fan the flames more quickly.  The countries that fear they might be forced out would not sign up to any such clause willingly.  They need all 27 EU members to vote Yes, and for positive referenda results in some member states.

             So what would trigger the exit of say Greece or some other country?  I could only see it happening if an unwelcome crisis forces it.  I could see three possible scenarios that might force  their withdrawal. I hasten to add I do not wish any of these scenarios on a Euro member state , and do not think it inevitable that one occurs. It depends how flexible and creative the authorities are to inspire some growth in the economy, and how generous the neighbours are when it comes to loans and transfer payments to weaker members. The scenarios include:

1. Another intense phase of crisis in the markets, threatening banks, underlining the continuing need for special funding beyond the currently agreed  packages, with or without the spread of uncertainty to the Euro itself and with damage to  the credit standing of all Euro instruments  and the value of the currency. If the stronger countries have to pay a much larger sum to keep Greece going, this could cause doubts about the sustainability of the scheme and the credit worthiness of other countries and banks. If calculations of the scale of transfers needed to the weaker members starts to erode confidence in the stronger members that too could force a rethink.

2. A massive move to hostility to the Euro by the  electors in a weaker state, who up to this point have broadly suported the currency and in the case of Greece allowed a pro Euro technocrat government to take over. If the electors refused to vote for parties wishing to keep the Euro that could force a change of approach by a future  government.

3. An intensification of strike and protest action on the streets on a sustained basis so that government reaches the conclusion that it can no longer govern and protect the Euro scheme  policies.

              If any of these developments occur, the EU could reach the point it reached with the Exchange Rate Mechanism, when it decides the markets have won and will force policy change. In these conditions the EU will need a simple, quick plan for the early exit of say Greece. There will be no time for agreeing and ratifying Treaty changes. I will tomorrow deal with a legal exit under the Treaty.