Sunday Thinkpiece: who will save the euro?

‘Can the euro survive?’ asks Lionel Barber in the Financial Times. ‘Who’s going to save the euro?’ asks Claude Nougat.


The answer is that the euro doesn’t deserve to survive. When the idea was first mooted, back in the Maastricht negotiations in 1992, the problems were clear. It wasn’t just eccentrics like me: a whole raft of economists and senior politicians pointed out that economies were going to be moving at different speeds, and that unless Europe had control of the fiscal levers the new currency was going to be subject to unbearable stresses.

In some respects the problems are the same as we see in England. I have lost count of the number of times I have heard or read some one say ‘Now the economic policy is in the hands of the independent Bank of England...’. But it’s not economic policy the Bank controls, it’s only monetary policy. The other strand of economic policy, fiscal policy, or control of government spending and taxes, still lies in the hands of the Treasury. So Gordon Brown, while muttering about prudence and reminding us that it was he who ‘made the Bank of England independent’, was able to increase government spending beyond the level of imprudence to the level of madness. Now every year the Governor of the Bank of England has to write to the Chancellor explaining why inflation will be over three percent again, despite both of them knowing it was Gordon’s fault. Before long interest rates will have to rise to deal with this inflation and that will slow economic recovery.

Now imagine this uneven mess multiplied by 16. Spending in the Eurozone is in the hands of people as different as the Greeks and the Germans. The Greeks were, as Greeks are, corrupt and greedy, while the Germans were, as Germans are, cautious and prudent.

The point I am making is that they knew all this, the founding fathers of the euro. They knew that there really should have been political unification (which would include Eurozone control over countries’ budgets) before monetary union, but at the time they wanted all members of the EU to join and there was no way Britain, Denmark and Ireland were going to accept that. So cunningly they embarked on the euro project knowing there would most likely be a crisis and believing that that would trigger political union. Now, in the midst of the crisis they’re still thrashing around, the European political class, trying to take away a country’s control of its own expenditure and taxes, and therefore its freedom. George Osborne was right to prevent them forcing a corporate tax increase on Ireland.

Ireland is now embarked on a downward spiral of reducing expenditure, thereby reducing the tax take, thereby necessitating lower expenditure. It will most likely default. The Eurozone is reaping the harvest of its own policies. It was conceived in dishonesty and doesn’t deserve to survive.