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financial crisis. Greece. euro crisis. Jeff Randall

The euro is not the problem; it is the solution.

   I’m in the uncomfortable position of agreeing with the eurosceptic Telegraph commentator, Jeff Randall, even while he lambasts people like me who supported, and continue to support, the single european currency. He’s right that some politicians were profligate fools for believing that monetary union could be achieved without any political union. He’s right that the EU allowed Greece to join even though everyone knew it had fiddled its figures. He’s also right that voters were deluded that debt fuelled consumption was the path to prosperity.

  But wait a minute. It wasn’t the fools in Brussels who believed that debt was the way to prosperity. In fact, the Bundesbank has been a bulwark against the debt delusion perpetrated primarily by the Anglo Saxon economies of Britain and America.  Who were the countries that allowed the epic real estate bubble to grow unchecked? Not France or Germany for sure.  British politicians have spent years grumbling about the European Central Bank’s apparent obsession with monetary stability. British economists have been urging Germany to join the debt delusion by manufacturing domestic inflation. 

  And in Europe, who was it who blocked any political union and urged the EU to extend its boundaries while not deepening its union? It was Britain above all who wanted a `”wider but shallower union”. Randall writes as if Britain played no role in shaping the EU. Wrong. We have been in there all along, keeping alive the flame of economic nationalism.

And now, as it is in danger of falling apart, what has been Britain’s response? To begin the great currency war that has propelled the euro economies to crisis. Is Jeff proud of the fact that Britain has debauched its currency in order to gain a short term trading advantage through a devalued pound? As a fiscal conservative, surely this is the kind of short term fix that he loathes. Is quantitative easing, the inflationary Anglo Saxon solution to debt, really preferable to international co-operation? 

And now that everyone is getting in on the act of protectionism, how does he believe the international economic Humpty can be put together again? But yet more American debt-fuelled growth? That appears to be what is on offer. Under the Randall plan, presumably Greece defaults, Germany turns the euro into a new deutschmark; France’s banks go bust and America retreats behind tariff barriers.  Meanwhile three trillion of tax payer’s money is thrown at a financial system, shaped by the City of London and Wall Street, that has turned into a kleptocracy.

But as I say, I actually find I agree with Randall’s conclusion. Let me quote him in full: “This illusion of political primacy is perpetuated because a confession of impotence would not only undermine the worth of those in power but also expose the euro’s fatal flaw: monetary union without fiscal union is a marriage that weds the prudent to the profligate with no control over the latter’s spending” .  He is dead right there.  There is no solution without ‘more Europe’.

Without increased monetary and economic union, the countries of the world face a stark choice. Either mutually assured destruction through economic nationalism or a massive debt splurge through existing international agencies like the IMF. But the danger of the splurge is that it entrenches moral hazard. All those French banks who lent to Greece will feel an immense sense of relief that they can return to making irresponsible but lucrative loans to countries and households who can’t pay it back secure in the knowledge that the tax payer will bail them out.

And countries like Italy and Spain will give up trying to pay their debts or manage their economies because they know that they will also get bailed out, just so long as they borrow enough money they can’t repay. . That isn’t an alternative. That is economic anarchy. At least the euro was an attempt to resolve these problems through human reason rather than the law of the jungle.   

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


7 thoughts on “The euro is not the problem; it is the solution.

  1. Rubbish.The euro cannot survive because the participating countries play by different rules.The UK is not part of the euro – it's in a mess of its own making and only financial discipline extending into the medium term will get us out of the mess Blair and Brown created and for which Ed Balls will today apologise.Norway chose not to adopt the euro.Its currency is now one of the strongest internationally. It has built up a sovereign wealth fund while we were growing a sovereign debt fund.What we need is free trade, low trade barriers and national currencies.

    Posted by Anonymous | September 26, 2011, 9:56 am
  2. Sorry Iain you wrong about this.12 months max!

    Posted by cynicalHighlander | September 26, 2011, 4:35 pm
  3. The talk is that Greece will get half of its debt written off.Whose going to deny Ireland when it asks for its debt to be written off.

    Posted by Ian Innes, Moray | September 27, 2011, 2:00 pm
  4. Unfortunately I think the euro is the problem. It was brought into existence for al the wrong reasons and now, just as many predicted, it is imploding.I have just finished reading "The Euro: The politics of the New Global Currency" by David Marsh. What was very striking was the similarities between the implosion of the European Exchange Rate Mechanism (ERM) and the Euro. And we all remember how well the ERM ended.It does not look as if anyone learned any lessons from that debacle but just plunged straight into the Euro project without a thought.

    Posted by CWH | September 28, 2011, 2:45 pm
  5. The euro was a one-size-fits all monetary system on states with their own distinct economic performance. It was meant to allow for the less productive states to catch up with the more productive states, which would energise their economies. The problem with states like Ireland is that they benefit immensely during the good times – because of the Euro. As their economy grew and their industries became more productive, their should have been an appreciation of their currency to reflect the inner appreciation of industry. This increased the purchasing power of the state and its citizens, all the while it still took a healthy share of EU grant money! I think this general whinning by the states of the periphery – the PIIGS – should be heard alongside the mistakes they themselves are responsible for.Neil

    Posted by Anonymous | September 28, 2011, 7:20 pm
  6. 'He who pays the piper calls the tune'?The first small step which might, just possibly, save the Euro from extinction was taken when the powers that be within the Eurozone talked of introducong a 'Tobin tax' ie a levy on every financial transaction made by the bankers.Mr Osborne, the Chancellor of the Exchequer at Westminster, was not impressed. Understandable, perhaps, when it has just been revealed that the Conservative party is largely bankrolled by the banks.

    Posted by Anonymous | October 1, 2011, 12:00 pm
  7. 'George Osborne – A puppet on a string?''Revealed: how the City bankrolls the Conservatives''Half the donors since the election work in finance.Biggest cash donations are from Hedge funds.Hedge fund operators..have given the party nearly £1.4 million in the past year.The sector has been lobbying against a tax of 0.1% on each share or bond trade (Tobin tax), proposed by the European commission [but so far opposed by Osborne]..parts of the financial sector are profiting from financial instability.Businesses are funding a lobbying campaign to scrap the 50p top rate of income tax.The Liberal Democrat peer Lord Oakeshot said: "Big financiers are still the Tories' big backers with Hedge Fund gamblers and Private Equity asset strippers leading the way."By supporting a financial transaction tax [Tobin tax] the EU has shown the leadership that many world leaders have been calling for. Osborne should realise this and follow their lead. Anita Tiessen, Deputy executive director, UNICEF UK.'(Extarcts from the Guardian dated 1st Oct. 2011)The Tobin tax will make it easier to trace tax avoiders and fraudsters and traders who abuse the system.It will highlight the totally reprehensible racket which allows companies (insurance cos in particular) making money from lending shares to traders who by their actions add to the volatility of the world's stock markets.The Tobin tax will soon be a reality. The longer Osborne procastinates can only further damage the reputation of the City of London as the major financial centre of the World. Or even of Europe.

    Posted by Anonymous | October 4, 2011, 12:31 pm

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