Some things are as easy to forecast as the conventient truth that night follows day.
When they were setting up the Euro some of us said if they allowed in countries whose economies had not converged there would stresses and strains. If they let in countries that were borrowing too much and had too much inherited debt, they would first free ride then struggle to stay the course.
The people setting up the Euro said they knew that. That is why they set strict criteria for membership. They said every state joining had to have total debt below 60% of GDP, and no state should borrow more than an extra 3% of National Income in any given year. That was all very sensible.
Then they started fiddling the figures. Everyone knew they were fiddling the figures. They could not help themselves, as they put the poltics of it ahead of the economics. That meant putting the interests of the poltical elite determined to do it over the interests of the electors who stood to lose their jobs or suffer lower living standards from the governments fiddling it. Today the elites are blaming the banks who did the deals for the governments who did the fiddles!
In “Our currency, our country”, the Penguin I wrote to urge the UK to stay out, I wrote in 1997
“At present only Luxembourg could properly qualify for the single currency as designed in the Treaty of Maastricht….five countries (including Greece) are so far beyond all the requirements they have no chance of joining on any sensible interpretation….It is confidently expected that when the decision comes to be taken in the first half of 1998 a more tolerant view will be taken of the requirements…” (and how! – all were allowed to accept the poisoned chalice)
In the run up to monetary union Greece was borrowing 8- 14% of her National Income each year and had a stock of debt more than 100% of National Income. Her inflation rate was 8% and her long term interest rate a massive 15%. Why did anyone think she was ready?
In 2001 I wrote “Just Say No” to provide the 100 best arguments against the UK joining the Euro, in case Labour carried out its threat and held a referendum on this proposal. I saw the scheme as the ultimate rigged exchange rate system and said
” History shows that rigged exchange rates do not work. The Gold Standard…bankrupted many businesses and created mass unemployment.The snake in the 1970s failed to keep the pound at a constant value against the Continental currencies. The Exchange Rate Mechanism caused a bad recession, and then collapsed.”
I went on to explain how you needed a single economic policy, a single budget and a single country to make any success of a single currency.
“There isn’t one exchange rate that is right for London and Lisbon. (or for Athens and Aachen).There isn’t one interest rate that is right for Manchester and Marseilles. (or for Lisbon and Lubeck) You cannot have a single economic policy without a single budget. The poorer and richer regions are too different The poorer ones are likely to lose out. There isn’t a single labour market because there isn’t a single language. There will be areas of high unemployment as a result.”
Nothing has changed. The political elites drive on against the interests of their electors. It isn’t the bankers who sold the swaps or the bond traders who sold the bonds that created this mess. It is the politicians and senior officials who wanted a new currency for Christmas, whatever the price.