In case you wouldn’t have noticed, another crisis has come on top of the big one.
For those who understand French, read carefully this article in the March 5 edition of French daily “Le Monde” . A former German finance vice-minister buries the euro as it is now and advises all Southern-Europe economies (including France) to get out of the Eurozone if they don’t clean up their act, behave more like Germany and adopt many unacceptable social measures. Some German backbenchers have suggested these might include selling off some islands (who would buy these? You guess).
That doesn’t yet represent the whole German opinion, but a majority for sure. Angela Merkel on the same day just paid lip service and said that the Greeks didn’t need financial aid. Surely the Germans are not 100 per cent wrong, not least about Greece’s profligacy and number-fudging.
Those are signs of the times. And of more turbulent times ahead.
It seems that from the Greek crisis, only three scenarios might occur. And all of them qualify as “worst case”:
A sharply devalued currency across the Eurozone
The Germans would probably hate this. And as they are the ones effectively in control. Note that helping or not helping Greece with a stopgap would certainly not diminish the risk of an attack against another “PIG” (or Club Med state, to be more polite). On the contrary. Speculators, armed with hedge funding, CDS and other sophisticated weaponry are lying in wait.
Split the euro into two currencies
Could we have two euro currencies – a weaker and a stronger one? Let’s name them EuroFranc and EuroMark. Not plausible? It’s just what the German minister recommends. The French President’s words on the day after, “If we created the euro, we cannot let a country fall that is in the eurozone. Otherwise, there was no point in creating the euro”, might hint at that scenario.
The breakup of the euro and Eurozone and the return of national currencies
This would favour some economies but not all. And exit barriers are high, as it is would require reprinting coins and notes. Who knows about historical precedents here – but wasn’t the euro a precedent too?
There is one other scenario – keep the euro, and eurozone, as they are now, with further political integration and socially unacceptable “adjustment” policies in a majority of the zone countries as the price to be paid. That seems to me so unlikely that I haven’t considered it, leading as it must to deeper political unification process and greatly increased German domination. All attempts in history to achieve that have never worked – at least peacefully. Think of Charlemagne, Charles V, Napoleon and… Hitler. And imagine the Barroso-Van Rompuy-Trichet trio (how impressive) trying it.
Whatever the outlook, all scenarios will show a failure of Brussels bureaucracy. As Paul Krugman summed it three weeks ago in the New York Times: “Europe is in trouble because policy elites pushed the Continent into adopting a single currency before it was ready.” Speculation comes into play and is also giving a helping (though not helpful) hand.
But it is not the major cause or explanatory factor. Imagine what the situation would be had the UK joined the euro-fray a few years ago.
Those who, like me, have stood among supporters of the EU should admit that a more eurosceptic approach is now the right one.
Between the Lisbon treaty ratification, the violation of Irish democracy (if Iceland was a EU member they would probably be “invited” to vote again about repayment) and the awkward appointment of an EU “president” it should perhaps have already been clear, even without these latest difficulties.
But it’s never too late to change: “When the facts change, I change my mind,” said Keynes. Greece is another wake-up call. It’s hard to admit for some, including the Liberal Democrats, but the little enthusiasm shared by Thatcherites and pre-Blairists about ever more integrated European union is proving to be right these days and further down the road.
The European dream is gone. It’s time to think of a looser pattern and other ways to live, work and trade together. Is it bad? Not necessarily.
Mike Guillaume is an economist and financial analyst. He is the author of “The Seven Deadly Sins of Capitalism” (excerpts available on www.mikeconomics.net). His main office is in London and he shares his time and work between other international cities. He is a partisan of the Lib Dems.