Conference to confirm our internationalism

For years now committed internationalists in the party have complained that our reputation for internationalism is fading and that parish pump politics has taken over. Worries are being expressed that we could lose that internationalist core vote that has identified with us for decades. Despite serial attempts at proposing emergency motions on international crises to conference, these have repeatedly fallen way behind domestic issues in the ballot and not received a debate. Similarly droves of new members who joined us as pro-Europeans to fight Brexit have not seen their key issue high enough up the agenda. The good news is that change is on the way.

At Spring Conference our Europe motion which restated our long-term aim of getting back to the centre of Europe kicked off a new international focus. Working with our European allies is fundamental to the UK reclaiming a meaningful international presence. Autumn Conference this year will see several international themes on the agenda, as well as starting a series of detailed motions to give us a road map to the closest possible relationship with the EU, and eventual membership.

Starting with Europe, FPC have created a subgroup to bring forward specific policies relating to our relationship with the EU. The first of these looks at cultural links such as Erasmus Plus, as well as the much-publicised problems for performers in touring productions getting the necessary work visas. This is one of many areas where the government has taken an unnecessarily hard line on Brexit and could have negotiated a much closer deal, even within its own ideological straitjacket. Next year it is planned to look at the trading relationship with the EU, as we will need to clarify our position before a possible early election, which is likely to take place in 2023.

FIRC, in collaboration with Sarah Olney have put together a more general international trade motion for this autumn, looking at the principles which should be employed in signing trade deals with countries around the world. The government has rushed headlong into trade deals with Cambodia and Cameroon, both of which have been sanctioned by the EU and US respectively, for their retreat from democracy and respect for human rights. We have since seen the Australia deal which allows the import of foodstuffs produced using methods that are illegal for our own farmers. What are the principles that we as a party should bring to bear?

Congratulations go to Young Liberals who I am told have managed to get a foreign policy motion accepted for debate for the first time since apartheid in the late 1960s. Their motion on the Uyghur genocide will no doubt produce a passionate debate. They were good enough to consult our China subcommittee for comment and we responded with suggestions aimed at getting the debate selected.

Layla Moran and her team have drafted a motion after consultation with FIRC on the current situation in Israel/Palestine, where there has been a recent upsurge in conflict; in the West Bank related to evictions and in Gaza where the Israelis have overreacted yet again to a wave of rocket attacks. With Netanyahu suddenly ousted, is there a space for the new government to get peace talks back on track, or will the differences between Bennett and Lapid prove too great to develop a coherent position?

We also have plenty of stimulating fringe events to savour. LD Friends of Palestine have a fringe developing the theme of the Layla’s motion. The majority on FIRC thought the text was balanced, but the subject never finds unanimity.

FIRC are also running a fringe on policy towards China organised by George Cunningham, who chairs our China subcommittee. The appropriate approach to China’s more assertive foreign policy has caused some hot debates within the party, with disquiet over its human rights record in Xinjiang, The tearing up of the agreement and ending of press freedom in Hong Kong and the mixed results of the belt and Road Initiative. German Green MEP Reinhard Butikofer has confirmed as a speaker. He is Chair of the EP China delegation and was my principle help in getting imprisoned Uyghur academic Ilham Tohti the Sakhraov Prize in 2019. He is one of the parliamentarians banned by the Chinese government.

LDEG will be running a one-day conference based on the EU’s Conference on the Future of Europe on 30th October but will be having a preliminary debate on the UK position at their fringe event. FPC may also be consulting on future detailed Europe policy that is likely to emerge next year. LIBG are organising a fringe on Russian interference in other countries such as Belarus and Ukraine in another debate with geopolitical importance.

I write this as an encouragement for all with an interest in matters international and European to register for Conference, which will have the strongest international flavour since I became a delegate in 1996.

* Phil Bennion is Vice President of Liberal International and former MEP for the West Midlands.

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  • Brad Barrows 26th Jul '21 - 6:34pm

    I’m sure I’m not the only person who has been disappointed by the Liberal Democrat’s position regarding the EU. I would have expected a firm commitment to rejoin the Single Market at the earliest opportunity and a commitment to support a new referendum on rejoining the EU. The first bit happened, but no commitment to a fresh referendum? Doesn’t feel as though we are that committed to reversing the disaster of 2016.

  • The government has rushed headlong into trade deals with Cambodia and Cameroon, both of which have been sanctioned by the EU and US respectively,..

    They’ve just rolled-over the current EU trade deals. Both countries are WTO members so in order to be in a position to impose similar trade sanctions we need a free or preferential trade agreement first.

    We have since seen the Australia deal which allows the import of foodstuffs produced using methods that are illegal for our own farmers.

    Really? How do you know? The agreement has not been published yet. What we do know is that EU farmers are now allowed to produce food using PAP from mammals, which remains illegal in the UK.

    ‘EU to lift its ban on feeding animal remains to domestic livestock’ [June 2021]:

    A ban on farm feed made of animal remains introduced during the BSE crisis is to be lifted in the EU to allow cheap pig protein to be fed to chickens over fears that European farmers are being undercut by lower standards elsewhere.

    The use of processed animal protein (PAP) from mammals in the feed of cattle and sheep was banned by the EU in 1994 as the full horrors of BSE, or bovine spongiform encephalopathy, emerged.

    The UK continues to ban the use of PAP in the feed of farm animals. A spokesperson for the Department for Environment, Food and Rural Affairs said: “The UK is committed to maintaining the highest animal welfare and biosecurity standards, and following our departure from the EU there is no legal obligation for us to implement any of these changes.

  • John Shoesmith 26th Jul '21 - 9:20pm

    It’s great to see some emphasis on internationalism. It’s the only way to limit and slow the climate crisis and to tackle other environmental problems.

    The opposite of internationalism is nationalism. It sees us always putting the short term interests of the UK first. It sees us showing how much we can hurt EU citizens, and the EU reciprocating. It sees us effectively confining our young people behind a wall of paperwork. Johnson is a nationalist. It’s a pretty bleak philosophy.

  • Peter Martin 27th Jul '21 - 8:48am

    The assumption, as usual, from LibDems is that internationalism starts and ends with Europe, or , to be more precise, the mainly EU Western part of it.

    Are the Canadians any less internationalist because they have never shown any desire to join up with the USA?

    Would the countries of South America be more internationalist if they had a EU style common currency and shared parliament etc?

  • john oundle 27th Jul '21 - 9:48am

    Peter Martin

    ‘The assumption, as usual, from LibDems is that internationalism starts and ends with Europe’

    Yes, EU membership = internationalist.

    Global trade including EU = Nationalist.

  • Peter Martin 27th Jul '21 - 11:19am

    @ Martin @ John,

    I notice neither of you have any answer to my questions re Canada and the South American countries. Presumably Martin would argue that Canadians want to stay separate from the USA because they are too right wing to want to become assimilated.
    I’m sure there is a very good economic argument to be made that the benefits of a single North American market to Canadian exporters would far outweigh any drawbacks. So, why can’t Canadians see that they are ” simply not big enough to have a chance of being sufficiently influential” and tie the knot with their Southern neighbours?

    I seem to remember someone on LDV making the point that the UK was made up of 4 separate nations rather than being a nation in its own right. So according to John Oundle’s definition, the UK is internationalist too, no matter how selfish it might be with any vaccine export policy.

    So that’s OK then is it?

  • Peter Martin 27th Jul '21 - 11:49am

    ” We have since seen the Australia deal which allows the import of foodstuffs produced using methods that are illegal for our own farmers. What are the principles that we as a party should bring to bear?”

    I would suggest that you might want to start by not turning too many blind eyes to what goes on everywhere in terms of food production. I’m not sure exactly which Aussie practices you’re objecting to, but it can’t be as bad as this. I don’t remember any Lib Dem objections to this kind of thing in the EU but you certainly would be shouting loudly if it went on anywhere else.

    Google (you tube cruelty in pate de fois gras production)

    Warning! This is not something that can be watched by anyone of a sensitive disposition.

  • @ Peter Martin

    South America has the Mercosur common market which means that for example Brazil and Argentina currently have a closer trading relationship than Britain now has with the EU. You cannot do a trade deal with Brazil, Uruguay Paraguay or Argentina individually you have to deal with the bloc.

    Meanwhile the USMCA agreement (formerly NAFTA) trade deal arguably gives Canada and the USA a closer trading relationship than the UK has now with the EU. 2/3 of Canada’s exports go to the USA or Mexico.

  • The real point that Peter Martin misses is about values.

    One of the main attractions of EU membership is not just that it provides a common market with free trade but at the same time it has a social side where it upholds consumer and employment rights and prevents a “race to the bottom” among European nations.

    The USA’s economic system is not based on the same values so Canada’s concern would be that to enter into a common market with the USA would mean weakening their standards.

    If Canada were a European nation they would probably want to be in the EU.

  • One of the key arguments rolled out in the Brexit campaign was the trade deficit with the EU (and by extension that the EU had a lot more to lose than the UK from the loss of trade).
    George Monbiot writing in 2008 comments “One of the reasons for financial crises is the imbalance of trade between nations.” He revisits Keynes proposal for the Bancor at the 1944 Bretton Woods conference as a solution.
    One of the key challenges facing the Eu is the organisational arrangements for addressing imbalances within the Eurozone trading area. To date this has been addressed with the creation of a stabilisation funds, ECB purchase of EU members bonds and steps towards a banking union. Keynes Bancor offers both a potential solution and basis for a future trading relationship among EU members.
    The euro could serve as a “bancor” for the EU, run by a “European Clearing Union”: with national currencies, but trade in euro, with adjustable exchange rates by the European Clearing Union, following Keynes’ proposal from Bretton Woods 1944. If the euro had functioned like the bridge currency bancor in his International Clearing Union proposal, it may have experienced far less turbulence. Greece and Italy could devalue and Germany and the Netherlands would have to revalue. German and other foreign banks would not have the death grip on the Greeks and Italians that they have today, since the latter would retain control of their own currency on the basis of domestic policy.
    A reversion to national currencies for domestic and non-eu trade and the Euro for inter-Eu trade. As Keynes proposed “…any EU country racking up a large trade deficit would be obliged to reduce the value of its currency and to prevent the export of capital. The nations with a trade surplus would be subject to similar pressures. Any country with a Euro credit balance that was more than half the size of its overdraft facility would be obliged to increase the value of its currency relative to the Euro and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations’ inter-EU deficits.”

  • Paul Barker 27th Jul '21 - 1:13pm

    The whole point of The EU is that it is a project, a Direction. The state of The EU at any point is less important than the Story of its progress. The same is true about the various EU-inspired Organisations around The World, in South/Latin America, The Caribbean, Africa & South-East Asia. All these groupings have aspirations towards “Ever closer Union” but they start from a long way behind Europe. The EU Story starts back in the dark days of WW2 with Goverments-in-exile planning how to build a New Europe where War would be impossible.
    North America of course cant follow the same Road because of the sheer size of The USA, thats just a Historical/Geographic fact & theres no way round it.

  • john oundle 27th Jul '21 - 2:19pm

    Peter Martin

    ‘So according to John Oundle’s definition, the UK is internationalist too, no matter how selfish it might be with any vaccine export policy.’

    Are you not aware of the fact that the AZ vaccine has been licensed to be produced in India? I assume you are not from a business background otherwise you would know that licencing is just another form of export, widely used across the globe.

    Prior to the AZ vaccine approval the Serum Institute of India (the world’s largest vaccine producer) had produced 40 million doses of the AZ vaccine by the end of November 2020. The so called EU vaccine exports are peanuts in comparison.They even blocked 250,00 that were ordered & ready for shipment to Australia.

  • Peter Martin 27th Jul '21 - 2:53pm

    @ Marco, Paul

    Most Leavers could have lived happily, albeit with a few grumblings about the metric system and the shape of sausages from the older guard, with the old Common Market. If various South American countries want to form something along similar lines who can possibly object? It is entirely up to them. Equally if some South American countries wish to stay out that’s their choice too. It was “the Project” of the EU, as Paul Barker puts it, which followed on from the Treaties of Maastricht and Lisbon which caused the alarm bells to ring loudly in the UK.

    Joe, and George Monbiot too, is quite right to suggest that “One of the reasons for financial crises is the imbalance of trade between nations”. The Rest of the World has largely, but not completely, solved the problem by having floating exchange rates. So the UK has always been very much more aligned to the intranational community in this respect than the EU. The euro using nations are bound in a straitjacket of their own design.

    I’m sure economists will appreciate the arguments for getting rid of the euro by introducing some convoluted mechanism similar to Keynes’ Bancor as Joe describes. I personally don’t see the point. The Bancor was conceived to run alongside a gold standard so is largely an outdated idea. The euro using countries would be just as well going back to their own currencies. I doubt the EU technocrats would disagree. The whole point of the euro is that it is supposed to be simple. The snag is that simple doesn’t equate to viable unless the EU has a single government to run it.

    @ John Oundle,

    I think you’ve possibly misunderstood. The accusation of selfishness came from Martin. Not me! I don’t necessarily agree that we’ve been quite as bad as Martin suggests and you provide a good example to support that view. All countries need to look after their own populations as a priority but do also have a wider duty to the international community. And I don’t mean the EU!

    So I wouldn’t agree with a reduction of 0.2% of GDP in foreign aid for example. That could have been used to help the fight against the Covid pandemic globally.

  • Keynes Bancor did not require a return to the Gold Standard. However, he did suggest that stabilised currency values are essential to ensure equity and stability in global trade.
    The key to Keynes’ proposal for currency stabilisation was that currencies should be aligned and valued according to a basket of commodities. He suggested wheat, oil, copper etc.
    Today, wheat grown in one country may, due to a devalued currency, cost a fraction of wheat grown in another.
    This leads to the country in which wheat is cheaper becoming a heavy exporter — regardless of need, or the capacity to produce better quality wheat in other locations.
    In addition, currency values can change dramatically and the situation can reverse. Critically, such wheat ‘prices’ bear no relation to genuine comparative advantage of climate, soil type, geography and even less to indigenous/local/regional needs.
    Neither does it have any stabilising element that would promote a long-term stability of production with relation to need.
    Following Keynes’ ideas, then, the price of wheat in country A and country B (and all countries) would be related via the agreed (fluctuating, but not wildly) currency level.
    Since many, or all, commodities would be employed in determining the actual level of each nations currency, the market price of wheat would, in fact, vary from country to country — but not probably by the wild disparity today, that leads to global exchange of goods that could be grown more locally and regionally.
    This would allow a more stable geography of production and consumption to emerge.
    By imputing value to a nation’s produce, and allowing this to determine the value of a nation’s currency, one is imputing value to its resources, its labourers and acknowledging its own needs.

  • Peter Martin 27th Jul '21 - 4:29pm

    @ Joe,

    “Keynes Bancor did not require a return to the Gold Standard.”

    The return to the gold standard was already being planned for as WW2 ended. As I understand the system, as proposed, there would be a requirement that certain countries would be forced by Treaty obligation to either sell or buy a mixture of gold, foreign currencies and Bancors if their trade patterns deviated from what was considered to be generally permissible.

    It’s not at all surprising that the Bancor has found little appeal outside the more nerdy! Why should a sovereign national government allow an unelected international body, such as the IMF, to implement a policy that will affect its electoral appeal? A deficit nation under a Bancor will still face austerity and deflation to try to maintain the value of its currency against the Bancor. The currency issuing nation states will still be subject to the pressures of speculators and/or the IMF, or whoever is in charge . By letting a currency float the speculators are fighting each other for crumbs rather than the riches pocketed by the likes of George Soros when he took on the UK government prior to Black Wednesday.

  • Robert Skidelskey has an article giving the background to Keynes proposals and the rationale for a new International monetary system today
    As he writes “Keynes’ long term aim was to de-monetise gold and make bancor the ultimate reserve asset of the system.”
    The US was a large creditor nation at the end of WW2, held the great bulk of gold reserves and was in a position to insist that the dollar be promoted as the International reserve currency. That necessitated exporting capital to the free world (the Triffin Dilemma). As the USA was running trade surpluses that was largely done through non-US banks via the Eurobond system whereby offshore banks would make dollar denominated loans.
    During Lyndon Johnson’s presidency in mid-1960s, the USA saw inflation go from 2% to 6% in the wake of Vietnam war spending and the great society reforms. At the end of the 1960s, the French started converting their dollar reserves into gold. Nixon introduced wage and price controls and ended gold convertibility as part of the measures to control spiralling inflation. The US became a debtor nation and that led onto the breakdown of the Bretton Woods system by 1973 concurrent with the Opec oil crisis which further exacerbated inflation.
    Today, as Skidelskey writes “Just as the first Bretton Woods system rested on a “grand bargain” between the US and Britain, so a new Bretton Woods would require an agreement between the leading surplus and the leading deficit country. The challenge to the statesmanship of the US and China is to strike one.”
    In the absence of a US/China grand bargain, the EU could create its own “European Clearing Union” for intra-community trade.

  • @ Peter Martin

    So it’s fine with you if we join the EEA / single market then?

  • Peter Martin 27th Jul '21 - 8:45pm

    @ Marco,

    I’m afraid my vote was just one of the 17 + million !

    For what it is worth, and it really doesn’t matter whether or not it is fine with me, I would accept that staying in the Customs Union rather than single market would have been a sensible option for at least a period of time. Say 5 years or so.

  • Peter Martin 27th Jul '21 - 8:53pm

    Isn’t Germany the leading surplus country? Even if not quite then surely they would have to be included in the negotiations.

    And they are going to agree be told by outsiders how to run their economy? I don’t think so!

  • The EU, China and USA account for around half of world trade. Within that, Germany accounts for about 7%. Skidelskey’s article is focused on the volatility in global financial markets arising from the China/USA trading relationship.
    This paper notes “The crisis of the euro area has questioned the fairness, sustainability and viability of the current setting of the European Monetary Union (EMU). In this article we use a four-country stock–flow consistent (SFC) model in the tradition of Godley/Lavoie (2007a) to examine to what extent an adaptation to Europe of Keynes’s plan of a clearing union with bancor balances could help reduce the imbalances that, at least in part, drove the eurozone into crisis. Our simulation experiments suggest that the implementation of Keynes’s ideas may conduct European countries to a stronger and more sustainable growth cycle.”
    “the mainstream explanation of the crisis blames the allegedly profligate behaviour of southern countries. Taking the case of Greece as an example, Nikiforos et al. (2015) have shown that the causality between the external to the fiscal deficit ran from the former to the latter, and not the other way around. According to these authors, ‘the main source of the problem is to be found in the structural characteristics of the EMU’. It is these characteristics (no transfer and no adjustment mechanism to reduce the intra-European imbalances between heterogeneous countries) that cause both the chronic deficits of peripheral countries and the possibility of financing them cheaply with the single currency and the increasingly integrated capital markets. In many respects the current setting of the EMU suffers from the same problem of the European Monetary System (EMS), that is, the way of adjusting internal imbalances is asymmetrical. Deficit countries alone are obliged to adjust. Wage deflation and restrictive policies have replaced exchange-rate adjustments.”
    Ultimately, it is German household savings that fund the EU imbalances. “..the TARGET2 system that is already in place has many of the features of Keynes’s plan. More recently, Amato et al. (2016) have focused on a simple reform of the TARGET2 system introducing symmetric and increasing charges on positive and negative TARGET2 balances.” As Skidelskey writes in his article “The Keynes plan was vetoed by the US, which was not prepared to allow its “hard earned” surpluses to be automatically at the disposal of “profligate” debtor countries”. However, by the 1970s, the shoe was on the other foot and the US no longer has surpluses. Germany’s surpluses will go the same way as ageing workforce retires and begins drawing down savings.

  • Joe Bourke

    ‘The EU, China and USA account for around half of world trade. Within that, Germany accounts for about 7%.

    But in terms of the EU, their share of world trade is shrinking.

    -2019 EU 15% of world trade.

    -2019 CPTPP 13% of world trade – 16% if UK joins

    By 2050 CPTPP 25% of world trade v EU 10%

    Figures from Eurostat.

  • @john oundle – Does the percentage share really matter? Also, what did you really expect from all the investments we made in the 80’s and 90’s in emerging markets?

  • John Oundle,

    China is growing in terms of world trade but as regards currency use the US dollar is the global reserve currency and dominant medium of International exchange. That is beginning to change as we transition to a kind of multi-polar world. Russia has been engaged in de-dollarising . Much of it’s foreign currency reserves have shifted to the Euro and Russia’s largest oil producer, state-owned ‘Rosneft’ has shifted its international trade to the Euro. EU trade with Russia is now conducted in Euros not dollars. Less than 50% of the trade between Russia and China is now conducted in dollars under the strategy of the Shanghai Cooperation Organisation, with a switch to the Euro taking place,
    The Russian government insists that the BRICS countries’ move to using national currencies for mutual trading could also reduce dependency on U.S. politics. Countries that have joined in the initiative, include China, Turkey, Iran, India and Brazil.
    The Eurodollar system is centered on banks in the City of London and other offshore centre’s like the Cayman Islands, where the bulk of dollar denominated deposits are held by Non-US banks or at the overseas branches of American banks. The Eurodollar system is a deposit and loan market for offshore dollars. It is the biggest source of global funding. It’s basically a large unregulated financing system with thousands of participants globally. It’s estimated over 90% of international trade is financed through the eurodollar market.
    As the Euro grows in importance in world trade and the eurodollar market begins to lose a share of global capital flows in the financial markets, it will affect everything from equities to bonds and currencies themselves.
    Phil Bennion in his article writes “next year it is planned to look at the trading relationship with the EU, as we will need to clarify our position before a possible early election, which is likely to take place in 2023.” To do that we may need to clarify our position on the Euro as it becomes a significant global reserve currency.

  • Peter Martin 28th Jul '21 - 1:57pm

    @ Joe,

    The figures on % on world trade you mentioned may well be correct. However, previously, you said:

    “a new Bretton Woods would require an agreement between the leading surplus and the leading deficit country. The challenge to the statesmanship of the US and China is to strike one.”

    But even DW say “Germany poised to set world’s largest trade surplus”

    So the negotiations should at least include Germany even if China is also included.

    Mind you, there’s no chance at all that the USA, China, or Germany will sign away their sovereign power to decide on their international trading arrangements. Why should they? What is in it for them?

  • Peter Martin 28th Jul '21 - 2:35pm

    “we may need to clarify our position on the Euro as it becomes a significant global reserve currency.”

    It won’t while the eurozone rules are an extension of German ordoliberalism. Ie Large trade deficits are ‘verboten’!

    The conventional view is that If your currency is a reserve currency, you can pay for things by writing cheques, which nobody cashes. You can spend more than you earn to a far greater extent than anyone else. This is exactly what the US has done. National expenditure has consistently and by considerable amounts exceeded national income in recent decades. You are running up deficits and debts.

    But this is just the opposite of what the German approach dictates.

    Another was to look at the issue is to acknowledge that the euro can only become a reserve currency if the EU as a whole consistently buys more in international markets than it sells. The euros then end up outside the EU to be used as a reserve currency. No significant trade deficit means no significant number of euros outside the EU which means that the euro cannot be a reserve currency. Certainly not one to challenge the use of the US dollar.

    This is not to say that oil cannot be priced in euros or anything that anyone wants to price it in. But this doesn’t make it a reserve currency. A buyer in Australia and a seller in Russia could negotiate a price for a transaction in euros. But the Aussies will pay in Aussie dollars and the seller will convert that to roubles on the FX market. Providing everything matches up on paper to the number of euros agreed everyone is happy even though no real euros change hands.

  • Peter Martin,

    the IMF’s SDR seems the most likely alternative to the dollar as an International reserve currency It is in the mutual interest of both the US and China to have a stable global financial system for the conduct of world trade.
    “In 2009, the United Nations suggested a new SDR-based ‘global reserve system’ – ‘feasible, non-inflationary, and … easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries.’ That same year, Zhou Xiaochuan, governor of the People’s Bank of China, proposed that the SDR could become the pivotal international reserve currency, disconnected from individual nations, as ‘the light in the tunnel for the reform of the international monetary system’.
    Now, as a result of Covid-19, the world’s monetary system based on national fiat currencies may be approaching a turning point. With the SDR revival, Zhou’s ‘light in the tunnel’ is shining a little brighter.”
    With respect to the EU the paper by Jacques Mazier and Sebastian Valdecantos concludes:
    “Regardless of the nature of the crisis in the eurozone, there is a possible way out that could provide the system with a higher level of stability and fairness. The current payments system in the euro area is rather close to the one that Keynes proposed for the reform of the international monetary system at the beginning of the 1940s in spite of some important differences. The Eurosystem already has many of the institutions that would play a key role under such a regime. Our model shows which way the existing institutions should be modified in order to make the eurozone an area less prone to producing large imbalances which, in the absence of either a system of fiscal transfers between regions or a central bank that can provide unlimited liquidity to deficit countries, will inevitably suffer from recurrent crises (Bibow 2012). The expansionary proposals that take up Keynes’s ideas may conduct European countries to a stronger and more sustainable growth cycle…we found that Europe could move towards a brighter future should there be the political will either to reduce the structural heterogeneity within the area (through supply-side policies that help develop the productive structure of southern countries) or to allow for exchange-rate adjustments when external imbalances within the area become unsustainable.”

  • Peter Martin,

    this article explains why the Euro is the world’s second largest reserve currency and concludes:
    “…we are happy to report that on its 15th birthday, the euro is the world’s No. 2 reserve currency. We remain confident that future market and economic pressures on the euro will force Euro governments, the ECB and other institutions to take whatever action is necessary to defend the euro and hence its reserve currency status. And to the extent that the U.S. mismanages its “exorbitant privilege” of being the No. 1 reserve currency, the euro will benefit as the only alternative to the dollar.”

  • Peter Martin 28th Jul '21 - 6:05pm

    @ Joe,

    The author of this piece clearly doesn’t share your positive outlook re the euro.

    I would put it that it hasn’t so much failed as that the export oriented approach towards financing economic growth which we see in the EU doesn’t fit well with also having a reserve currency. The euro could only displace the dollar if the EU was competing with the USA on getting euros out into global circulation rather than dollars. It would have to be more like America than even America itself has been in recent decades. The “Swabian housewife” would never allow this to happen.

  • Peter Martin 28th Jul '21 - 6:32pm

    “Now, as a result of Covid-19, the world’s monetary system based on national fiat currencies may be approaching a turning point.”

    What does this mean? I suspect the answer might be anything we’d like it to mean.

    The SDR you mention has a value determined by summing the values, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi). So what? In principle anyone set up a new “pseudo-currency” and guarantee its value against one or more other currencies. This is all the IMF is doing. As the IMF is internationally well supported its guarantee would be considered to be reliable.

    But it doesn’t mean the SDR is “disconnected from individual nations”. It simply means that it is less reliant on any one particular nation. The only way to achieve a complete disconnection would be for the IMF to revert to putting the SDR on a gold, or other precious commodity, standard.

  • Peter Martin,

    This historical Perspective on the Reserve Currency Status of the U.S. Dollar
    notes “Most of these factors suggest that the dollar and the euro would account for equal shares of global reserves…The key factor that may explain the smaller share of the euro as a reserve currency is the size and depth of government bond markets. Although total sovereign debt outstanding in the euro area rivals that of the United States, there is no common euro area sovereign debt market. This reduces the ease with which holders of euro-denominated securities can buy and sell them, compared with U.S. Treasury securities.
    This speech explains how the initial constraints of the Triffin dillema have been overcome:
    “Today, the United States and the euro area are not obliged to run rising current account deficits to meet the demand for dollars or euros This is for two main, interlinked reasons. First, well-functioning, more liquid and deeply integrated global financial markets enable reserve-issuing countries to provide the rest of the world with safe and liquid financial liabilities while investing a corresponding amount in a wide range of financial assets abroad. The euro has indeed become an important international currency since its inception and the euro area has been running a balanced current account. In a world where there is no longer a one-to-one link between current accounts, i.e. net capital flows and global liquidity, a proper understanding of global liquidity also needs to include gross capital flows. Second, under Bretton Woods global liquidity and official liquidity were basically the same thing, but today the “ease of financing” at global level also crucially depends on private liquidity directly provided by financial institutions, for instance through interbank lending or market making in securities markets [the aforementioned Eurodollar market system]. Given the endogenous character of such private liquidity, global official and private liquidity have to be assessed together for a proper evaluation of global liquidity conditions at some point in time, and there is no endemic shortage of global liquidity, as the empirical evidence confirms.”

  • @Marco – “So it’s fine with you if we join the EEA / single market then?”
    You know that isn’t going to happen, as to a Brexiteer than means giving away “sovereignty”, however, as reported today, its okay to rejoin the Lugano Convention…

  • Roland

    ‘however, as reported today, its okay to rejoin the Lugano Convention…’

    Where was that reported? Link please.

  • @John Oundle – well I know you really shouldn’t believe what the Express publishes, however…

  • I see William Keegan, an economics editor at the Guardian, is urging Labour to adopt a policy of reversing Brexit

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