Wokingham Times

             The last couple of weeks have been taken up with the Euro crisis. The Greek bail out on May 2nd did not stop the problem spreading. As you have seen it is now Ireland’s turn to take the Euro misery of higher taxes, cuts in spending, and wage cuts.

             I was not happy with the way the European authorities converted a serious problem into a crisis. They briefed against Ireland when the Irish government pointed out it had the money it needed  to spend until the middle of next year. They said Ireland needed a loan immediately. The European Central Bank (ECB) let it be known it did not wish to carry on lending to the main Irish banks on the scale it has been doing. This precipitated the need for an large Irish loan to replace some of that ECB support. Doing all this in public undermined market confidence in Ireland and in the Euro area generally and created a sense of crisis. That did not seem wise to me. It would have been better if the ECB had continued to supply the cash the Irish banks needed, whilst  conducting firm talks in private about how the risks and losses could be reduced and assets and businesses sold to start to cut the borrowing needed.

              I have been seeking guarantees from the UK government that they will not lend money for any future bail out of any Euro country. One of the successes of the long Conservative years in opposition was to help keep the UK out of the Euro. I see no reason why we should pay the bills of Euroland when we are not members. The Euro area has several large and prosperous countries that now owe an obligation to their neighbours as they share a currency with them. They also need to decide amongst themselves how much central discipline there should be in future, to prevent a recurrence of too much borrowing in some of the member states of the currency area.

                 When I wrote a couple of books urging the UK to stay out of the European single currency I argued that a successful single currency area needed a single economic government which can control the amount each state borrows. It also needs to have generous transfer  payments, so that the richer areas within the currency zone can send money to the poorer parts to keep things fairer and more even. That is what we do in the sterling single currency area, with large transfer payments flowing from the richer to the poorer parts of the Union. One area cannot devalue to price itself back into the market, so it needs help from other areas that are more successful.

                I do not think the massive loan bail out for Ireland ends the crisis or solves all the problems. Both Ireland and Greece have to show how they can rebuild their damaged economies and banking systems and generate enough extra tax revenue to pay the bills. The European authorities have to get smarter to stop exactly the same type of crisis blowing up in Portugal or Spain or somewhere else. Meanwhile the important thing is for the UK to use its flexibility to set a competitive exchange rate to export its way back to faster growth. The UK needs to avoid more spending abroad which it cannot afford, as it undertakes the difficult task of reining in its large public deficit.