On my holidays earlier this year, I read “The Lost Continent” by Gavin Hewitt, the BBC News’s Europe Editor, about the causes, effects and response to the European financial crisis, with its outlying crises in Portugal, Ireland, Greece and Spain.
It was a great read and I heartily recommend it to any of you, especially those going on holiday as it both rewards in-depth attention and travel makes a good backdrop to its change of focus between different countries. I find travel often makes me think about the world as a whole, so this book is a great accompaniment to that mood.
He opens with a dramatic image of a one-man-and-a-cement-mixer protest outside the Irish Parliament in September 2010. As an image it’s arresting, and it also proclaims the structure of the rest of the book. Hewitt Starting chapters often with human stories, both at the micro level of individual people in the country whose lives have been adversely affected by the economic crisis, and contrastingly, the leaders at the top of the food chain.
Special focus is given to Angela Merkel, as the “pivot” for a lot of the resolution to the (many) crises, and I came to understand how her innate cautiousness was responsible for the (at times) seemingly glacial progress of the response. Our own response as Britain receives a chapter’s worth of attention, though you are reminded once again how little part we played here.
If like me, you’ve lived through the crisis, but really only been aware of the day-to-day headlines, this is a fantastic book to get a handle on a lot of the big picture and the machinery of government behind the scenes. Themes that I became more aware of included the extent of the property speculation within PIGS – Portugal, Ireland, Greece, Spain – and how exposed this left a lot of their businesses, banks and governments. At one point he describes how an airport was built facing the wrong way in Spain, because of the scramble to build prestige projects, and baffled locals had been rode roughshod over because of a need for “development” which wasn’t actually there. It is that level of detail which really makes the point again and again, rather than the sheer mind-numbing size of sums required to bail out countries – though those numbers and the reasons for them are also explored very well.
Hewitt seems opposed to the idea of further integration, and though some of us may have a different view, or be waiting to see what is proposed before making a decision it is definitely a good account of the major players and individuals affected by and responding to the crisis. I’d venture to say you shouldn’t miss out on reading it, and I’m sure it will be an important book both now and in the years ahead, as we place what just happened in historical context.
* Louise Shaw is a member in Hazel Grove, a board member of Liberal Reform and a member of the working group on the OMOV proposals
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12 Comments
The birth of the Euro, was the final nail in The Lost Continent. You cannot have ‘shared sovereignty’, (which is an oxymoron), once your country begins to use a shared currency. The country that holds the cheque book has the say. No-one cares what (EU members), Greece, Portugal or Cyprus thinks. All they can do is hand over their democracy and assets, and wait for the next bail out cheque from Brussels ~ Berlin.
You can’t have shared sovereignty? Countries in pursuit of their national interests agreeing to abide by a common set of rules and to a process for agreeing those rules in future. We have got it, so it must be possible.
Joe :
Ask the people of Athens what their view is of shared sovereignty is.
@ Joe – “Countries in pursuit of their national interests agreeing to abide by a common set of rules and to a process for agreeing those rules in future.”
Built on the common aims and expectations that arise from a shared social and cultural history, thus permitting a common assent to indirect rule safe in the knowledge that even if your chap (oops, involuntary sexism), doesn’t get in they will still act in a predictable and acceptable way.
Themes that I became more aware of included the extent of the property speculation within PIGS – Portugal, Ireland, Greece, Spain – and how exposed this left a lot of their businesses, banks and governments.
Indeed, yet this factor has largely been ignored in media comment in this country, which has put the plight of the PIGS as due entirely to Euro membership.
“Indeed, yet this factor has largely been ignored in media comment in this country, which has put the plight of the PIGS as due entirely to Euro membership.”
And yet, did not germany hold ECB rates too low for peripheral economies in the boom years?
Yes, the plight of the PIIGS was partly due to financial shenanigans. However, the Euro is at least partly to blame for these.
If Germany and Spain must trade at an identical exchange rate, then the prices of German exports are forced down while those of Spanish exports are forced up. Consequently, good quality German white goods are priced attractively for the external market, they sell well and the German manufacturing economy booms. The reverse happens to Spain, whose overpriced goods fail to sell, so their factories close.
It then becomes very difficult to make an honest engineering buck in places like Spain. Those who want to get rich are thus encouraged to try things like property speculation. Those who want jobs are encouraged to build up a bloated state sector and sponge off the taxpayer, there4 being not much else that will work for them.
It isn’t that the Germans are virtuous hard workers and the Spanish feckless layabouts – much as the Germans would like to believe that. It’s that a common currency without full integration has this baleful effect.
If there was a real united States of Europe then the Spanish region would have the political clout t solve this problem a better way, by demanding a “regional policy” and financial transfers from the centre to the periphery. But there isn’t. The halfway-house Eurozone delivers the worst of all worlds.
@ David – “If there was a real united States of Europe then the Spanish region would have the political clout t solve this problem a better way, by demanding a “regional policy” and financial transfers from the centre to the periphery. But there isn’t. The halfway-house Eurozone delivers the worst of all worlds.”
Yes. The sloshes around about 5% of GDP between regions in order to iron out these differences.
to expand on the above:
Federal US taxation is ~25% of GDP and the variation in spending levels between rich and poor states is ~5% of GDP, so a variation of roughly 20% of federal spending.
How big a budget would the EU need to be able to slosh around 5% of combined GDP into the poor regions (bearing in mind the current budget is only 1% (and heavily constrained by CAP payments)?
The other point is that americans accept this, they are all american, whereas we are rapidly finding out just how german the germans are, and finnish the finns are, when it comes to firehosing cash at nations they consider to be essentially delinquent! In the UK this ‘sloshing’ occurs in the form of:
national pay-bargaining which benefits poorer regions (teachers, nurses, etc)
national social benefits more generous than poorer regions could afford alone (eg.housing benefit in glasgow)
targeted regional development grants/discounts to encourage business growth (objective 1 EU/WEFO funds)
additional infrastructure spending to support the local economy (the mainland-skye bridge)
operating national services hubs from depressed regions to boost wages (DVLA in swansea, etc)
Unless Germany recognises the ‘familial’ relationship, and the obligation that goes along with that, then it needs to leave for the good of its neighbours.
This principal applies equally to the netherlands and finland, but since it is Germany that is the driving economic power for the euro’s sake the answer must be ‘right’.
David Allen
It then becomes very difficult to make an honest engineering buck in places like Spain. Those who want to get rich are thus encouraged to try things like property speculation.
I think in fact you will find it is the other way round – the property speculation came first.
The Euro was formed at what were then the market rates for the currencies that were merged into it. Your argument only works if either the peseta was too highly valued at the start, or something has happened since that has caused the imbalance. I think the something that happened since was the property speculation, causing people to take on loans based on loans which eventually became unfeasible, as with all such booms. The same has happened in the UK, it is now being sustained by foreign money at the top end of the property market, and by higher taxation going through housing benefit and private renting at the bottom. We are already seeing in the UK how property prices are sucking money from everything else, how intelligence and skill is all going into jobs around this sort of speculation rather than around engineering and the like.
Devaluation and inflation are a form of wealth tax – in effect debt is lessened at the cost of cash wealth being reduced. So those who say the Euro is a bad thing because it stops the devaluation strategy being used are indirectly arguing for a sort of wealth tax. I’d rather see an honest wealth tax. That is, if those with wealth hoard it in property instead of using it to build up productive investment, they should not be surprised to find some of it taken away from them to pay the bills.
Matthew,
We have a chicken-and-egg problem. We agree that the peripheral PIIGS economies in Europe have gone downhill, and that productive enterprise has tended to give way to shenanigans such as property speculation (Spain), a bloated state (Greece), organised crime and tax avoidance (Italy), speculation and corruption (Ireland). I suggest that the problem starts with industrial uncompetitiveness due to an artificially high exchange rate. You suggest that it starts with the shenanigans.
The question you have to answer is, why didn’t similar shenanigans happen in Germany, the Benelux, and France? Why were so many of the peripheral countries prone to shenanigans, and the central economies not? Should we blame cultural factors? Or is it more logical to argue that the more successful countries in Europe are mainly, quite simply, at the geographical centre and/or well placed to trade, and thereby advantaged? That would be in line with our understanding of comparative advantage all over the world, where riches accumulate at trading centres. (London, of course, wins twice over as being both a port and a central location within the nation.)
Unless you want to argue that the PIIGS are just naturally feckless layabouts, I think the commercial imbalance model works better. It didn’t just start with the Euro, of course. But the Euro made things worse by preventing devaluation. Meanwhile, we in the UK are able to get away with running a very high deficit, because our floating currency has devalued, protecting us from market panic. That’s the reason why Osborne’s obsession with the deficit has been a deliberate and unnecessary bogyman designed to frighten us into austerity, state shrinkage, and rising inequality.
You say “those who say the Euro is a bad thing because it stops the devaluation strategy being used are indirectly arguing for a sort of wealth tax”. No, I’m arguing that floating currencies work better. A wealth tax, whatever else its merits might be, would do nothing at all to make our goods more competitive abroad. Devaluation does.
Of course it isn’t unalloyed joy if we devalue our currency, it does cause hurt, it is understandable if it arouses feelings of distaste. Those feelings need to be put into a context of reality. If it hadn’t been for devaluation under Osborne, we would now be in a much worse pickle than we are.
@ David – “The question you have to answer is, why didn’t similar shenanigans happen in Germany, the Benelux, and France?”
Quite, because the interest rate was geared to the needs of germany, rather than the group as a whole, and without the pressure release mechanisms built into any ‘normal’ state.
http://www.telegraph.co.uk/finance/financialcrisis/8960332/Graphic-How-exchange-rates-could-collapse-after-a-Euro-break-up.html