Euro Problems
I remember when the Euro came into being an American economist was reported as saying that you could not have a currency without a government. I thought about this and as time went on came to the conclusion that this may not be so. Well now I am sure he was right after all. Yesterday another distinguished economist with one of the banks was reported as saying monetary union could not work without political union.
I think this provides a lot of answers. We know already that many in Europe believe in a Federal Europe, whilst others believe in a confederation of independent states. The outcome has been rather fudgy treaties leading to the existence of three different kinds of President at once, none of whom has any meaningful authority.
We must not lose sight of the fact that the European Union is the greatest political success story in several hundred years and has brought peace to an area of the world previously over many centuries racked by war. I am for it one hundred per cent. It has succeeded and it must endure.
For that to happen it may, after all, require two levels of membership. Those in the Euro will have to cede all financial sovereignty to a Federal Government, which at the very least would be master of financial policy in all states within the single currency.This would demand a notable transfer of sovereignty.
The other group would retain their own currency and their financial sovereignty. They would be able to get out of trouble in the short term by devaluations or running to a different fiscal model, but if they let their currencies go to pot they would find the cost of raw materials and anything not made at home increasingly expensive. The upside would be home manufactures and services like tourism would be attractively cheap to their richer neighbours.
It would , however, resolve the political argument. In the Euro would mean in the political union, an independent currency would be outside the inner Union. This may well suit us with our transatlantic ties and the close connection with business in the UK to business in the US. In many respects we are closer to the dollar than the Euro.
If Spain, Portugal, Ireland and Greece will not, or politically cannot, impose the strictures necessary to get back to the fiscal standard required by membership of the Euro (Ireland looks as if it can), they would have to go back to their old currencies. These would become more and more rubbish as the years went by until their populations saw a better future as part of the full Union. That would leave us alone and with a choice. Either go with the euro or go with the dollar. Either way London would cease to be the centre of our financial universe. This may not be as bad as it sounds. The mega decisions will be taken in Beijing anyway.