The latest contribution by Britain to the IMF has caused Osborne more trouble, if he did not have enough already, but it does make sense to ensure that the coffers of this fund of last resort are kept topped up, not least because it is not impossible that we may need its help again one day.
It is important that the money is not used to prop up the euro. It is important that the money is used to prop up countries in need. This is quite a list and most at the moment are in the Eurozone. Things may be getting worse there. Spain has problems as have Portugal and Italy, not to mention Greece. All have spent too much and all are uncompetitive with Germany.
There has been a subtle but significant change, since the euro crisis was last dominating the news a while back. For all practical purposes the Euro now has a government; it is the German Bundestag. It has rules of fiscal management. These are German rules but all have ratified them. The whole structure is undemocratic unless you are a German voter. If you are you can effect a change of policy. If you are not, who you vote for in your national elections will make very little practical difference to anything to do with economics in your country, which is almost everything.
There is now emerging a new order in Europe. Germany, at its third attempt has emerged as Europe’s master, but this time not by force of arms but by thrift and hard work. It has not sought its new hegemony. It has been given it; more than that, those within its thrall begged for it. It is now entirely unrealistic to suppose that this drift of events will alter direction. It is realistic to accept that there will be change.
It is difficult to see how Spain, Greece and Portugal can ever achieve growth without devaluation. This will only work if they de-value against Germany, since if the euro de-values, as it is, for all its members, Germany will always be more competitive. Thus those three must face either years of stagnation and falling living standards or leave the euro. If they do, IMF funds can help them re-establish their currencies.
Italy, France and Ireland can make it, but at great cost. Whether they follow Germany and stay in or follow the others and go will be determined by their voters and their willingness to accept the blood-letting of the sacrifice of national sacred cows. The outcome of the French presidential election will be critical in pointing the mood.
From Britain’s point of view things are not too rosy. Yes we are spared the difficulties of the defective European currency, but we have another inbuilt problem. We send half our exports there. The European Central Bank, with Germany’s blessing, initially withheld, is likely to continue with its version of quantitative easing by giving banks in the euro-zone cheap money to buy high risk bonds, which has and will continue to de-value the euro. The more it falls the more expensive our goods become in Europe. If we de-value to match, because we import almost all our raw materials and a good many components, our base costs will rocket upwards.
It is not as if Britain is in a sound financial position. Our overall debt mountain, including government, business and private is the biggest of the lot. We really do need to step up our efforts to sell to the BRICK countries. We need to follow the Germans. They sell more to BRICK than to Europe.