A single currency needs a single country to love it and support it. Some of us spent a part of our lives trying to explain this before the Euro was established.We disagreed with those who claimed the Euro was an economic project, a means of enhancing and improving the single market. Some of the protagonists argued that sharing a currency was just a technical device, a convenience. It would, they said, take a bit off bank costs and so speed and improve the single market. We were to surrender our monetary sovereignty for a cheaper transaction or cheque clearance.
I remember saying that joining a single currency is like sharing a bank account with the neighbours. I have friendly relations with my neighbours, but I just feel that if we tried to share a bank account it would get in the way of our good relations. We would need to know a lot more about each other. We would need rules about how much we put in and how much we drew out. Above all, we would need to be careful about how much each used the common credit card or borrowed on the common mortgage.
So it has proved. All those who said a single currency was altogether less intrusive than that now have to accept that at the heart of the Euro’s troubles lies the issue of how much each country can and should borrow in the common currency. At the base lies the issue of how much of each country’s borrowings will be supported by their common Central Bank. At the centre of the dispute lies what the rate of inflation and the currency exchange rate should be, with strong countries favouring low inflation and high currency, and weaker countries favouring the alternative.
The Euro was always a political project. The economic rules were discarded as soon as they proved inconvenient. The rule that no country should borrow more than 3%of GDP in any year was soon torn up. The rule that no country should borrow more than 60% of GDP in total was still born from day one. Now the architects of the single currency are changing their tune. They now say that of course it needs to be a fiscal union as well as a monetary union.
Fiscal union means a common economic government. It means people at the centre have to say how much any given country can spend and tax and borrow. It means the European Central Bank and the other Regulators have to control all the banks in the zone. It means the richer parts have to send money to the poorer parts to make it work.
All those of us who fought long and hard against the specious arguments that Euro entry was win win journey to more trade and prosperity now have to help those who blundered to understand the error and find a way out.We need to explain that you cannot solve a problem of borrowing too much by lending more. You cannot make the Euro and its common interest rate are right for both Greece and Germany by waving a magic wand or by pretending they are. Either they need to slim down the number of members in their currency to a more managable core, or they need to complete their political union rapidly and start to make the kind of decisions single country single currency areas make to help the poorer parts.
The best contribution the UK can make to all this is to stay out. We helped the Euro by not joining. Can you imagine what a mess there would have been if the UK’s budget deficit and banking problems had been landed in the Eurozone? Not only should we stay out, but we should say that in return for our agreement to much more central economic power for the Eurozone the Uk wishes a looser relationship with the EU. It would be good for them and good for us. The UK is one problem they do not need to worry about, as we still have the main economic levers in our own hands, to use well or badly at our own expense.
