Opinion: Britain should join the Euro

Lib Dems have gone remarkably quiet about Europe, whilst the Conservative Euro-sceptic agenda gains ground, certainly within its party conference, and probably within its party at large. Euro-scepticism flourishes in large swathes of the UK media. This swing of opinion is fuelled by the perspective that the Eurozone economy is in dire trouble, that the Euro might not survive, and that the UK was very sensible to have kept out of it. We are told all this every night on Newsnight. Gillian Tett wrote recently in the FT, that her father was correct in dismissing the Euro project as unworkable 16 years ago, and she had been wrong in her Euro enthusiasm.

All this current group think is parochial, misplaced UK gloating and hype. It ignores the reality of a host of pertinent facts.

First, the Eurozone has weathered the crisis better than either the US or the UK. Whilst US banks like Lehman, and UK banks like Northern Rock have failed, there has so far not been one failure of a major Eurozone bank.

Secondly, there is no possibility of the Euro failing, whatever commentators who use this phrase mean by it. It is not doomed. It will survive. The Euro is underpinned, not by Gadarene bond markets, but by the performance of the real German, Dutch, French etc economies ; by their Siemens, Philips, and Alstom, the equivalent of which, GEC, the UK has lost.

Thirdly, the European standard of living is higher than the UK’s. In 2011, Holland, Austria, Ireland, Sweden, Denmark, Germany, Belgium and Finland enjoyed a GDP per capita between $38,000 and $43,000, with Norway peaking at $62,000, against the UK performance of $35,494. Their standard of living is therefore some 12.5% higher than the UK’s. Within the Eurozone, only Spain, Italy and Greece have lower GDP/capita standard of living than the UK.

Lastly, even the much derided Spanish economy is not bust. UK commentators rarely point out that Spanish firms now own Heathrow airport (owner Ferrovial who also owns Amey UK), the UK O2 mobile network (Telefonica), and a consolidation of several former UK high street banks (Santander, now the UK’s 3rd largest bank measured by deposits). Meanwhile Germany’s Siemens employs 13,000 people in the UK, and for all the ongoing outrage at Siemens winning the Thameslink railway carriage order, the factory at Derby preferred by the critics, is in fact owned by Canada’s Bombardier.

Lib Dem MP Sir Malcolm Bruce used to tour the country explaining the irrefutable case for joining the Euro. The fundamental argument is that exchange rate fluctuations massively increase the risk of investment in UK manufacturing for the EU market, which is the UK’s largest customer. Malcolm apparently even presented this case to no avail to the doubting Gordon Brown when the latter was PM. The validity of Malcolm’s argument remains as strong as ever, and should remain core Lib Dem policy.

Sure, the Greek fiasco has to be resolved so that Euro members cannot simply issue as many Euros as they wish. Otherwise by definition a currency is common, and efficient trade needs a common currency. The Euro makes immense sense, and contrary to current ‘group-think’, we should join it.

* Geoff Crocker is a professional economist writing on technology at http://www.philosophyoftechnology.com and on basic income at www.ubi.org. His recent book ‘Basic Income and Sovereign Money – the alternative to economic crisis and austerity policy’ was recommended by Martin Wolf in the FT 2020 summer reading list.

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  • This is weak.

  • Richard Dean 11th Oct '12 - 6:05pm

    I agree, and am very happy that you have assembled formidable arguments in favour. The Euro will certainly be much strinfer as a result of surviving the present crisis. Staying outside the Euro would mean a major loss of sovereignty for the UK, in the form of a major loss of control over the rules which will govern trade and financial transactions.

    The one potentially credible alternative – a functional union rather than a geographic assembky, with the likes of Singapore and other small states globally – doesn’t look viable to me. EAnd uroskeptics would likely have worse issues with a funcational union as they have with their misunderstanding of the Euro.

    Euroskeptics are fond of saying that the population wouldnlt accept joining, but really they have no evidence for that view. I think we need to join the Euro as soon as we can. Otherwise we may end up simply having to accept rules that will by then have been determined by other interests.

  • Good piece. Once you discount the endlessly repeated British argument that devaluation is magic and will solve all your economic woes – proved utterly wrong again and again by British governments over a period of fifty years – the arguments against the euro dissappear.

    In Britain every business has to deal with constant uncertainty because of the fluctuations in our currency. Any trade involves ridiculous exchange costs, while we get fleeced by banks every time we go on holiday, or on any short trip to the near continent or the Irish Republic. Not being in the euro is just a massive and pointless waste of money.

  • Richard Dean 11th Oct '12 - 7:08pm

    It is indeed a pity we were outside the Euro. If we had been inside it, we might have foreseen more, and we might have prevented Germany making such a mess. The Eurocrisis might even have been avoided.

  • Geoff Crocker 11th Oct '12 - 7:19pm

    Hi Stephen (my local MP) Good to see we agree on the EU political project, but your piece doesn’t say whether you support my argument for joining the Euro (or Schengen for that matter which I also think we should join).

    Did you see my other piece on why austerity is the wrong answer to debt at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html ? I suspect we don’t agree so much on this but it’s central to my defence of the Euro proposal, ie that it’s misplaced accountancy led austerity policy which is the Eurozone problem, not the Euro itself? Geoff

  • Geoff Crocker 11th Oct '12 - 7:20pm

    Well Dan, your comment is rather weaker ?

  • Geoff Crocker 11th Oct '12 - 7:32pm

    Yes Julian, I’m well aware that Greek and Spanish unemployment are high, and that Greek GDP has shrunk by 25% in the last few years. I don’t pretend at all that there isn’t a problem here. But the question is whether Greece should be a member of the Euro not whether UK should be a member. You’re wrong to imply that Eurozone growth will be lower than UK’s as the IMF forecast issued this week has both declining at 0.4% next year. The real issue here is one I have argued in my other piece at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html that the fault is with austerity policy which are common to the UK and the Eurozone and which is a technically incorrect answer to the debt crisis. We have a crisis in demand. There is insufficient demand in the economy due to productivity rising faster than real wages. This is inevitable in all technologically advanced economies, as is debt. The only solution is a citizen’s income.

    Sorry to boggle your mind Tim Oliver but there is zero willful blindness in my analysis. Rather it is you who have ignored the really important economic data in my piece. I included the Norway GDP/capita figure as a benchmark but I am well aware that Norway is not in the Euro. You can dispense with that single comment and the rest of my argument about European GDP/capita stands. If you want an economic view dictated by the bond markets and the Murdoch press then you are welcome to it. You are correct that, due to their misrepresentations and misunderstandings, joining the Euro may well be electoral suicide. But this means that the media, rather than economic logic, determines Lib Dem policy. The problems in the Spanish economy are not due to the Euro but to austerity policy which is the wrong answer to the debt crisis.

  • Like the author, I have no idea what can possibly be meant by statements such as ‘the Euro will fail’, ‘collapse of the Euro’ or ‘to save the Euro’. These empty and unquestioned phrases underpin the prevailing anti Euro and anti EU assumptions or ‘group think’ as the author puts it. The Euro is actually a strong currency is widely popular among countries that use it. No one refuses the Euro and there are no serious moves against it in these countries.

    The author is right to draw attention to BBC voices. Recently there have been complaints against the BBC amongst which is that it maintains (allegedly) a pro-EU and pro Euro line. All I have witnessed is the opposite, but then I am obviously pro EU and pro Euro and the BBC takes impartiality to mean to take a middle position amongst the loudest voices at any one time. However, some time in the future, I imagine there will be a swathe of cod documentaries along the lines of ‘how the Euro was saved’.

  • Paul in Twickenham 11th Oct '12 - 7:52pm

    First, the Eurozone has weathered the crisis better than either the US or the UK. Whilst US banks like Lehman, and UK banks like Northern Rock have failed, there has so far not been one failure of a major Eurozone bank.

    You don’t regard Dexia, Bank of Ireland, Bankia, Alphabank or Hypo as “major” Eurozone banks? All of these (and more) required bailouts.

    In addition, the “bailout” of Greece had significantly more to do with preventing the collapse of major French banks than with helping the people of Greece. The French banks were wildly overexposed to Greek debt on the basis that Germany would backstop any losses – whither moral hazard?

    As for the assertion that “efficient trade needs a common currency” I don’t see any sign of how that works for economies such as Portugal or Spain that are locked into a currency that is significantly over-valued for them. Without the option to devalue they are locked into a death spiral of austerity/deflation and so they cannot gain the benefits of reduced export costs through devaluation.

    I’m sorry but all they arguments I’ve ever heard in favour of the Euro are ultimately motivated by an ideological belief in the European Project. Commitment to the euro is reminiscent of belief in creationism or rejection of global warming – a manifestation of ideological commitment that has no time for rational argument.


  • At best the Euro has possibly been irrelevant. The countries that seemed to do well out of it were already wealthy and in the case of Norway were not in it anyway. . In the case of Spain and Greece, it doesn’t look so good. To be honest, I don’t think the Euro is single handedly dragging the world down either. I think the crisis is more general with governments blaming each other rather than admit that maybe the banks got too big to succeed. and that where the biggest impact is felt ordinary people resent taking the hit.
    Anyway, I’m getting old(ish) and don’t want to have to learn some new-fangled currency just because it seems all cool and modern.

  • Richard Dean 11th Oct '12 - 8:25pm

    It is not true that the UK is doing better than continental Europe. Listen to Cameron’s speech. Not four years, not six, I think I heard him say ten years of hard slog. Every month or so there’s new news about cuts. That’s a government which hasn’t been telling us the truth, or hasn’t realized what a truly bad state of the economy is in. Spain’s job crisis is now, ours might be yet to come.

    But crises pass. What happens then? The Euro becomes strong, low risk, in control, and it serves a big market, one that attracts investors who want Euros. The Pound is weak, risky, subject to swings it has no control over, and it serves a small market that can only be attractive if investors can make much larger profits out of the workforce. So who is better off, in the long term?

    A policy to join the Euro may be the only policy that is distinctive enough to allow LibDems to identify themselves as different from other parties in 2015. A policy to get voters’ attention. The absence of a difference is what we have now, LibDems with just 8% of the vote.

  • In an earlier thread I put a challenge out to pro Europeans. I asked anyone that felt able, to make the case for Europe. Flesh out the case for Europe, by drafting a bullet point list showing the benefits to be had from continued EU membership.
    If Euro membership is as good for the average person in the street as you say it is, then surely it’s not a big ask to sell it in simple terms that a voter can understand?
    I put this challenge to you Geoff. Sell Europe to the average voter.

  • Richard says : ” That’s a government which hasn’t been telling us the truth”. And I assume you acknowledge that Nick Clegg, Danny Alexander and Vince Cable are part of that government that ‘hasn’t been telling us the truth’ ?
    It could also be Richard, that our government are finally starting to fess up to the fact that it will be a decade of hard slog. Whereas, Europe is still at the denial stage of the shit storm that is about to descent upon them?
    The UK is in a very bad position. but as others have pointed out, thank the lord we didn’t have to deal with it inside the strait jacket of a Euro currency.

  • Keith Browning 11th Oct '12 - 9:34pm

    @ Paul in Twickenham
    The stance of the pro-Pound and anti-Euro Tory right and their press supporters is totally ideological. The rich and powerful of UK don’t want to dilute their 1000 years of control over the population. Personally I would far rather be ruled from Brussels than Eton.

  • Paul Wilcox 11th Oct '12 - 9:42pm

    You lost the argument to me when you used Norway as an example… since when have they been in the eu let alone in the eurozone? the eu and the euro is a busted flush – regardless of the economic crisis! It has been built on false promises, lies and deceit; and fraudulent national bank balances and economic policies. And finally, it has been built to protect German and french workers! Being a part of Europe is one thing, being a part of the eu is another; and none of that whether we are engaged or not is good for the British!

  • Geoff Crocker 11th Oct '12 - 10:03pm

    Paul in Twickenham, I agree that the Eurozone faces a debt problem, very big in some places, but this is nothing to do with the Euro. Rather it is a problem of deficient macreconomic demand resulting from the divergence of productivity and real wages in all developed economies. The common line that it is the fault of banks and (previous) governments is nonsensical – it is statistically extremely unlikely that all banks and governments in all developed economies made the same mistake at the same time. Rather another common factor is at work and my claim is that it is the divergence between productivity and real wages. A citizen’s income is the only robust solution to this, It is a separate argument entirely divorced from the Euro argument. Misplaced austerity policy should not be allowed to cloud the argument for the Euro.

    You argue correctly that the Euro is overvalued for low productivity countries. But this argument works equally in favour of an argument for regional economies which should therefore on this basis have their own currency. Addressing the productivity issue is more urgent than clinging to the option of devaluation to avoid it if living standards are to be enhanced.

    Your final paragraph is too dismissive. I have presented logical support for joining the Euro, as has Malcolm Bruce. It is irrefutable, and as Keith Browning correctly points out, it is support for keeping the £ which is entirely emotional and nationalistic. If a nation’s national identity depends on its currency, then it’s not much of an identity.

  • Utter insanity, this article. From direct personal experience of how the Italian economy is doing under the Euro and the policies designed to support it, I can tell you that the disaster is unfolding right now. Friends and acquaintances are struggling to find work, shops and factories are closing and roads that were previously choked with traffic are now eerily calm. Politically, everyone knows that however they vote in the forthcoming national elections, the only answer that “Europe”will accept is the continuance of the Monti government. The former centre right led by Berlusconi is in meltdown and the centre left is both fragmented and – more importantly – unlikely to be able to reach agreement on any programme acceptable to those running the Euro project.

    The very idea that we should anchor ourselves to a disastrous and destructive project like this, which is extinguishing economic growth and democratic legitimacy at the same time is, frankly, utter lunacy.

  • Geoff Crocker 11th Oct '12 - 10:37pm

    RC, not sure that insanity is a very polite comment thanks, but the problem in Italy, like elsewhere (apart from the Berlusconi complication) is nothing to do with the Euro. The US and the UK economies face exactly the same debt problem and this is clearly not because of the Euro. The common problem is the divergence of productivity from real wages which has left deficient demand in technologically advanced economies. Demand stimulation cannot be by further consumer credit and government debt funded welfare payments but has to be by a citizen’s income not charged to the public sector debt. See my other insane article on this at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html

  • Paul in Twickenham 11th Oct '12 - 11:08pm

    @Keith and @Geoff:

    While opposition to the euro is typical of an unattractive little-englander nationalism, that does not in itself make it wrong. No one can regard 25% unemployment in Spain and the 34th successive month of increasing unemployment in Greece as success. And how do those economies escape and grow?

    To continue my previous response to Geoff’s original article: you highlight the fact that Norway has the highest per capita GDP in Europe, but as is pointed out by Tim Oliver, Norway is neither in the Euro nor indeed in the EU. That seems at odds with your assertion that staying outside the Euro is a bad idea. Of course Norway has substantial oil reserves – both crude and cod-liver varieties – and it is oil and gas exports that explain their high GDP, not membership of the Euro.

    Similarly neither Denmark nor Sweden (also listed as high per-capita GDP economies) are in the Euro. And the UK is higher than France, Italy and the EU average. I’m not quite clear what any of that is proving really.

    The companies that Geoff mentions all existed and were successful before the Euro. Indeed some of them (Philips is an obvious case in point) are struggling now – they made a loss of €1.3 bn last year although they have returned to profit this year. Again, I don’t see what any of that proves – although it might be argued that the permanent depression that is the apparent fate of the Eurozone periphery will depress demand for consumer products indefinitely.

  • Old Codger Chris 11th Oct '12 - 11:13pm

    Staying out of the Euro does cause the UK some problems. But they’re insignificant compared to tying ourselves to an exchange rate which tries – and fails – to suit widely different economies. It’s not a question of flag-waving “save the pound” retoric, it’s just the simple truth.

    Misguided EU enthusiasts thought a single currency would force countries to adopt full economic union. Presumably they thought this preferable to arguing the case for such a union.

    There’s no use complaining about being under fire from EU sceptics when the EU’s friends have gifted their enemies the bullets.

  • Geoff Crocker 11th Oct '12 - 11:33pm

    Paul in Twickenham, it’s true that France’s GDP/capita slipped marginally below UK’s in 2011 but otherwise my assertion that only Italy, Spain and Greece have GDP/capita lower than the UK stands. The unavoidable point from this is that UK cannot claim some immense success from its remaining outside the Euro. As I’ve said in other replies, debt problems faced by Euro economies are not due to the Euro. They are common to all developed economies. So being outside the Euro hasn’t helped the UK economy and being inside it is not the reason for debt. Austerity policy is the problem and I have critiqued this in another post. Consumer demand can only be restored through a universal credit such as a citizen’s income. You don’t comment on my point that UK has lost its GEC, and that exchange rate instability is inimical to investment in the UK with costs in £ sterling to supply the Eurozone market but revenues in Euros. This is the core argument.

  • Paul Pettinger 12th Oct '12 - 12:26am

    I am embarrassed by the Party’s former support for joining the Euro, and am embarrassed that I went along with it. If the UK had been in the Euro then interest rates would have made our boom bigger, and our bust much worse. We got the economics wrong. There isn’t a compelling economic case for the UK to join the Euro & loose control of monetary policy – Sterling is big enough to go it alone.

  • Richard Dean 12th Oct '12 - 12:51am

    Where is the evidence that “sterling is big enough to go it alone”? The UK is in trouble just like everyone else in Europe. If the euro is set to fail, we are too.

    But the Euro is big – much bigger than sterling, and it has the potential to grow more as its weaker parts grow stronger over time. And the UK’s influence will fade as the BRIC economies begin outpace the UK’s many fold.

    Did’t we just today or yesterday get some more bad news about ou economy? I don’t remember, there’s so much of it these days.

  • Adam Edward 12th Oct '12 - 2:56am

    Personally I’d rather give the money they hand over to Europe to African NGOs and build really beneficial friendships with countries offering genuinely different trade products and in genuine need of help . Why can’t you put something like that in your manifesto and print it? Just do something good and help get us out. Being liked is not always the same as being good and that applies to nations as well as people. Do you want ID cards imposed on the peoples of Europe from Brussels? They’re not democratic and we are losing control of our future. Please, get us out.

  • Adam Edward 12th Oct '12 - 3:11am

    @Keith Browning, “Brussels rather than Eton,” that is to say the central bankers rather than the landed gentry. I don’t come from either but I’m sorry some of the nicest people I’ve ever met are from the landed gentry and some of the nastiest are bankers. Traditional loyalties and populist ideas are blinding people from the truth. I am a social democrat but there are two parties in the tories, and you are siding with the wrong ones.

  • Geoff Crocker 12th Oct '12 - 7:14am

    Jedibeeftrix, voters can’t possibly determine economic logic. A decision to join a currency is a very technical economic question and in my view is best left to the Parliament of a representative democracy responding to specialist business advice, rather than being put to a referendum. Paul Pettinger, there is nothing to be embarrassed about in having supported the proposal for Euro entry. Plenty of countries did and of those, the vast majority have economies performing better than ours measured by delivered standards of living. They are facing the same debt crisis we face, just a little later than us, and this is clearly not caused by the Euro, since UK and US and everyone else faces it.

    The main argument remains that the business risk of having costs in sterling and revenues in Euros raises the cost for UK business in its EU market, and is an investment deterrent. We have become hugely reliant on European capital. Not only as I pointed out do Spanish companies own major infrastructure assets in the UK, but the German utilities Eon and RWE own the vast majority of our coal fired powerplants, we rely on France’s EdF for our future nuclear power, and we have no indigenous car manufacturer. Thankfully we do still have world class in Rolls Royce (aero engines), but we foolishly sold our share in Airbus. We simply are not the success we delude ourselves into thinking we are.

  • Paul in Twickenham 12th Oct '12 - 7:49am

    Again I must disagree with you. You say thay “debt problems faced by Euro economies are not due to the Euro”. Now it is self-evident that sovereign debt is not specific to the Eurozone, but in the context of the Eurozone countries, it is clear that a lot of the debt is due to the Euro.

    Spain experienced a property bubble due to a combination of low interest rates imposed by the ECB (primarily to help the stagnating German economy – remember GDP growth in Germany was about 0.5% annualized for most the the last decade) and capital flowing into Spanish property mostly from German banks looking for real returns. The story is similar for Ireland. The consequence was a classic bubble.

    Similarly, Greece was able to borrow on the money markets (to both increase and roll over debt) at rates far below what would have been offered if the markets did not believe that the bonds were underwritten by the ECB and Germany.

    So while sovereign debt is a global phenomenon, it is in my opinion wrong to assert that indebtedness in the Eurozone owes nothing to the Euro.

    As for your point about the sorry state of British-owned manufacturing, that is indeed an indictment of failed labour policies and Thatcherism, but again this was already the situation long before the Euro. On balance I do not believe that the advantage of a fixed exchange rate when trading with the Eurozone outweighs the downside of loss of monetary policy.

  • Geoff Crocker 12th Oct '12 - 8:02am

    Paul, you’d have to prove that the debt problem is larger in Euro economies than in non Euro economies and I don’t think the data will support this claim. I agree that the superior performance of European manufacturing companies may not be due to the Euro, but it is a challenge to the claimed superiority of the UK economy outside the Euro.

    I simply have to disagree with your last point. We have very little flexibility in monetary policy by being outside the Euro – our interest rate has to be competitive. And we definitely increase the risk of doing business from the UK to the EU market and therefore its cost.

  • Surely the Euro is all about creating a single market. Any country not in the Euro is not fully part of the single market. Are we or are we not in favour of trade barriers within the EU? Do not confuse this with a free market, a single market is just that – aseamless market where national boundaries are irrelevant.

  • Richard Dean 12th Oct '12 - 10:12am

    Surely no-one is going to be “ruled by Brussels”? That seems to be fiction that national politicians use to deflect blame away from themselves, and that the press use to gain attention.

    The truth seems to be the opposite, that almost everyhing that comes out of Brussels first went in as an instruction from the council of ministers whose members are appointed by the PM’s of the individual sovereign governments.

    So Brussels is just a way of implementing, treaties freely agreed to by sovereign nations.

  • Richard Dean 12th Oct '12 - 10:24am

    Debt in Europe is not confined to the Eurozone – we in the UK are one of the most indebted countries of Europe.

    Nor did the Euro cause extra debts. Those were caused by an absence of transparency, which allowed the politicians in some countries to hide their real exposure, allowed bankers to go on monumental ego trips, and allowed financial service companies to make money by looking the other way.

    That absence is now being addressed by the Eurozone members. The Euro itself is succedding at one of its designed functions – keeping the Zone together while problems are resolved- so the Euro will emerge stronger than ever.

    And certainly in much better shape than the Pound!

  • @ Martin

    Creating the Euro is neither a necessary nor sufficient condition for having a single market. There remain massive differences in price levels between various EU countries despite the supposed levelling effects of the Euro and there are also far more significant barriers to the completion of the single market like language, varying tax levels and regulations, cultural differences etc and above all, actual local implementation of EU rules. There was always a whole host of higher priorities in creating the single market that were lower profile than creating the Euro, but the politicians decided to run before they could walk and went ahead with it anyway.

    To return to the particular country I am familiar with, the Euro enabled Italy to carry on borrowing at advantageous rates while putting off any necessary reforms and modernisation of its public sector. The discipline of the market was, for a while, suspended, with disastrous consequences. In a country where the sense of national responsibility is weak anyway, it encouraged the view that if Italy mucked things up, “Brussels” would somehow sort things out for it.

    The Euro remains first and foremost a political project and judged purely on that basis, it is having a negative and corrosive effect on the EU’s internal cohesion by creating conflict where previously there was none.

  • Paul Pettinger 12th Oct '12 - 10:49am

    Richard Dean – the economic case for joining a monetary union is stronger for smaller countries – although too small, the UK still has a diverse range of export industries, and there is little labour mobility for Brits in the EU due to language & cultural barriers. Call me a Liberal, but if there isn’t a compelling case to centralise power then why do it? If you see joining the Euro as a step to greater political integration then fine, but the UK can still be an active member of the EU without surrendering control over monetary policy. Recent history indicates that the UK would have fared worse in the Euro, with lower interests rates in the boom time, and higher rates than during the trough. Spain’s predicament highlights the problems of the Euro as currently constituted – unlike Greece it can raise taxes properly and it’s Govt saved during the boom years, yet it is on the verge of default.. The Eurozone needs to integrates further if it is to work properly, and putting economics to one side for a mo, selling fiscal and monetary union to the British public is going to be almost impossible. We need to look to pursue our internationalist dreams in other ways.

  • Richard Dean 12th Oct '12 - 11:11am

    Paul Pettinger.

    Diversity of a country’s industries is a reason why that country should taking advantage of the stable exchange market conditions that joining a Euro would provide.

    Inability toi speak the language of another country, or understand its culture, is a failing that we need to address, because it is a barrier to a big export market. But it has no bearing on whether to join the Euro or not – that failing will cause just as much problems if we remain outside the Euro as it might if we were in.

    Hindsighting what might have happened in history if things were different is a very uneliable exercise.

    There are no credible other ways of interacting with a world that is growing faster than we will be. Should we join forces with SIngapore? No! Singapore won’t have us, they’d rather have direct access to the Eurozone!

  • RC: How is a single currency not necessary for a single market? It is the creation of the Euro that has made the single market tangible across the EU. Social barriers, such as language and nationalistic or even regional preferences are quite different to economic barriers.

    You claim

    There remain massive differences in price levels between various EU countries

    The point is that people in the EU are now free to choose a lower price, without restrictions. I have no idea what “massive differences” you are thinking of. My experience is that apart from highly taxed goods such as alcohol and tobacco, the differences are modest.

    Despite your comments about democratic legitamacy, most Italians welcome the Euro and characterise the Lira as the disaster. Your earlier comments on Italian politics reveal how anti EU you are: firstly you assert that a Monti government is “the only answer that “Europe”will accept “, which is nonsense anyway (see Richard Dean above – there is no “Europe” in any ‘ruled by’ sense); then you go on to state that the right is in melt down and the left fragmented, which is a sufficient explanation why a continuation of a Monti government is what most Italians hope for.

    You appear to assert that Italian industry is on its knees as a result of the Euro, on the contrary, my understanding is that since adopting the Euro, industry has done well, at least better than the UK, and exports have been boosted.

  • Richard Dean 12th Oct '12 - 11:41am

    The failure of nerve that jedibeeftrix celebrates is indeed a barrier to be overcome. British politicians need to start leading instead of hiding in fear of their voters – leading is what much of the electorate expect.

    I remember when the Euro first started, Uk politicians and press were almost unanimous in predicting that the French would never give up the Franc, the Germans would never “surrender” the Mark, the Spanish the Peseta. But the Euro happened.

  • This is the wrong debate.

    Whether Britain should or should not join EMU and the Euro is not a question we’re being asked, nor does it relate to reality as it is currently playing out.

    Of course Britain should recognise the advantages of integration and the single market, which requires a single currency, so the substantial question is not whether we should join, but when we will join and under what conditions.

    I for one was glad we didn’t join originally because it was plain for all to see that the rules for Eurozone membership were being fixed and fudged every which way possible, making a future crisis inevitable when the faces of the politicians began to change.

    I am also very glad we aren’t looking to join now because we haven’t yet found or implemented a working solution to their botched job of regulation – the legacy of previous governments across the continent.

    It cannot, however, be restated strongly enough that Europe needs Britain, and Britain needs Europe – the success of our relationship is paramount on both sides of the channel.

    It is an enduring scar on our economy that consecutive British governments have failed in Europe – their failure is the direct cause of the problems our neighbours now suffer. It is a failure of design, a failure of construction, a failure of regulation, a failure of enforcement, a failure of participation. It is their failure of vision. They didn’t just fail, they failed miserably.

    Europhobes can crow in the wake of those failures that their arrogant genius has saved us from the plague next door, but while it still rages their celebration is wholly premature because contagion has a habit of finding ways to spread – they should be wary with Chinese growth slowing the next ripple is about to bounce back…

  • Bill le Breton 12th Oct '12 - 12:42pm

    Geoff – you wouldn’t stand a chance of getting that the citizens’ income you favour if we were in the Eurozone.

    It is bad enough surrendering control over monetary policy to ten (mostly male) and totally unaccountable members of the Monetary Policy Committee of the Bank of England without making Parliament even more powerless to provide democrat control over monetary policy by surrendering it to the ECB.

    The ECB was even slower to cut interest rates at the time of the credit crunch than the Bank of England, even quicker to try to raise them gain than the Fed and is still running a policy that targets CP inflation at what the Germans regard as an acceptable level – which results in stagnation in most other Eurozone countries and deflation in a few more.

    The monetary policy as managed by the ECB and the German Central Bank is part of the global problem not part of the solution.

  • Richard Dean 12th Oct '12 - 12:53pm

    The failure of nerve is evident in the assertion that “If there was a viable market for the euro-adoption within the British electorate it would be serviced by a political party willing to claim leadership in arguing the merits of it.” Well, a party has to start somewhere, and the fact that it hasn’t started yet is no reason to stop it starting now!

    The failure of nerve is evident in the argument that it can’t be done because someone else (usually “the British people”) won’t accept it. The British people are not experts, and have been battered by a biased press and pusillanimous political parties. All it will really take to change things is a bit of courageous and informed leadership.

    The failure of nerve is evident in the rush to take cover in “logic”. It’s not logic that holds a political grouping together. Goodwill and mutually supportive self-interest do that. They bind strong, and that’s why the Euro isn’t failing and won’t fail.The rules and the logic change to fit.

  • jedi,
    I don’t set any store by opinion polls conducted in the febrile atmosphere before the debate is formalised – that’d be like saying a baying lynch-mob outside the courtroom should storm it and execute summary justice.

    Britain hasn’t had a proper debate on Europe since the mid-70s, and from what I’ve read about it even that was severely flawed.

    I never liked the ‘in-out’ style question, it is utterly hokey: we have a relationship with Europe, we must decide how we want our relationship.

    To postpone or delegate our decision again, as has happened since the outset, will be to repeat the mistakes of the past and demonstrate the continued irresponsibility of the political classes.

  • Jedibeeftrix says :
    “…if a referendum votes to join the euro i will make my peace and accommodate myself to the new reality.”
    I stand 100% behind that statement also.

  • Geoff Crocker 12th Oct '12 - 12:56pm

    Jedibeeftrix, the only tyranny is that of logic, and logic is on the side of UK joining the Euro. The critics of my argument need to answer the question of whether they would personally invest in a UK business with a business plan to supply the Eurozone market when their costs would always be fixed in £, but their Euro revenues could easily go down by 10% or more very quickly, even overnight, and hence bankrupt their business plan. I think they wouldn’t, or I’d like to hear if they would. It’s too great a risk. We need to join the Euro.

  • Geoff:
    You might want to re-phrase your comment :
    “the only tyranny is that of logic, and logic is on the side of UK joining the Euro”
    I read that as :
    Tyranny equates with logic
    Logic is pro Euro
    Therefore Tyranny is pro European
    I’m sure that is not quite what you meant, but it’s how it reads. By the way my challenge still stands. Draft a bullet point list of the benefits of EU membership that a pro European party could push through the letterbox of the average voter.

  • Bill le Breton 12th Oct '12 - 2:03pm

    Geoff, Transaction costs are as nothing compared to the costs of an inappropriate monetary policy – that would have been too loose in the early Noughties and even tighter than ours since 2008.
    Everything that Richard wants in terms of Community – the great gain of internationalism that Cobden would have rightly treasured – is ours as things are.

  • Richard Dean 12th Oct '12 - 2:30pm

    I’m not very good at bullet points, but here are some to start with. (Apologies for any typos – my copy of Word is stuck in a loop). …. Joining the Euro would ….

    > maintain and enhance our national sovereignty, by giving us a say in some of the major decisions that will affect our financial future, our exports, and our financial services, and a say in the rules and regulations that others in Europe shall follow

    > eliminate exchange rate fluctautions with our major export destinations, thereby helping to ensure that UK exporters face less risk , and helping to attract inward investment in UK jobs, while avoiding pressure on investors to seek excess profits to manage risk, safeguarding UK wages and worse working conditions

    > stimulate our national life, and waken our somnolescent leaders, through the fresh air of continental thinking, artistic development, and challenge

    > provide us with the additional economic and financial strength that will be needed in a world in which powerhouses emerge from the huge industrial developments in Brazil, Russia, India, China in the medium term, and from Africa, South America, and the Near and Far East in the longer term.

    I’m sure people can find many more. These ones are a bit complicated, I suppose – perhaps they could be better split up into ten or twenty points, each one being more focussed and accessible?

  • Richard Dean 12th Oct '12 - 2:32pm

    delete “worse” !!!

  • oh how I agree with Richard Dean, but the problem is however good the argument we need people to listen before they could become convinced. Trouble is, no-one is listening to the pro-euro case becaus ethey have been sold the euroskeptic line for so long by our friends in the media. we could cope with the misinformation from the Tories if it wasn’t for the bias of the daily rag.
    By the way, the Euro is bigger than the US Dollar in terms of its population, isn’t it?

  • Peter :
    At least Richard Dean has had a stab at putting the case forward for Europe.
    Frequently on these threads we are told, by very intelligent and articulate people that, the media is poisoning the EU debate. Indeed Peter, your comment is typical.
    “Trouble is, no-one is listening to the pro-euro case becaus ethey have been sold the euroskeptic line for so long by our friends in the media. we could cope with the misinformation from the Tories if it wasn’t for the bias of the daily rag.”
    What I find perplexing is that those same intelligent, and articulate commenter’s, are unable to string together, a simple rebuttal, and put together an uncomplicated point by point list of the benefits of EU membership, that would bring the voter to ‘see the light’, cut through the media poison and misinformation, and embrace the EU at the ballot box?

  • Bill le Breton 12th Oct '12 - 4:58pm

    In 2009 we were able to manage the depreciation of our currency by 25 which saved many of our exporting companies . Had we been members of the Euro unemployment wd have been higher, output even lower and even more long term capacity lost: all those liberties, life chances and opportunities.

  • Richard Dean 12th Oct '12 - 6:19pm

    What the 2009 devaluation did was force those individuals and companies who were doing well to lose the value of their sterling assets by 25%. It was a way of taxing succesful businesses to keep unsucessful ones and an unsucessful government afloat.

    No-one can say what “would have” happened if this had not been an option. Conditions would have been different. Sometimes a bit of pain early on in a disease alerts you sufficiently that you take the medicine which prevents the disease becoming fatal.

  • Richard Dean 12th Oct '12 - 6:23pm

    The idea of exchange risk morphing into something uncontrollable sounds very science fiction. Shows that British imagination is alive and well, Something for the cinema perhaps? But raises questions about connectivity to reality.

  • Geoff Crocker 12th Oct '12 - 6:56pm

    Here’s a second attempt to post this .John, I remain a child of the Enlightenment and the rule of reason and logic. It’s a loss in my view that post-modernity is moving us away from this paradigm. To me it’s a question either of convincing the average voter of the case for the Euro as they have been convinced against it by Tory nationalism and the Murdoch press, or of relying on the process of representative democracy. The same is true of the vexed question of capital punishment which a referendum would undoubtedly restore. So your challenge fails. But you haven’t answered my core challenge in my 1256 timed post.

    Bill Le Breton – we simply disagree. I have far more faith in European monetary policy than in UK attempts to use the interest rate to control the economy with all the undesirable side effects this has on net household income after mortgage payments, business costs, investment, the exchange rate and balance of trade. And our interest rates are constrained since they have to stay competitive.

  • Geoff Crocker 12th Oct '12 - 7:03pm

    To the comment about Eurozone banks failing or not, I’d refine my point if you like to say that, whilst Eurozone banks have needed capital injections, not one has gone out of business like Lehman, or been taken into public ownership like Northern Rock or LTSB. But this is not core to my argument as Liberal Eye claims. What is core is the argument on exchange rate risk. This is not simply a minor transaction cost, it is a huge risk on the value of business revenues. Of course one cannot eliminate risk Liberal Eye, but it’s doesn’t make sense to add a further huge unnecessary risk. Ask anyone running a major business supplying the Eurozone market.

  • Geoff, your response concluded:
    “Here’s a second attempt to post this .John, I remain a child of the Enlightenment and the rule of reason and logic. It’s a loss in my view that post-modernity is moving us away from this paradigm. To me it’s a question either of convincing the average voter of the case for the Euro as they have been convinced against it by Tory nationalism and the Murdoch press, or of relying on the process of representative democracy. The same is true of the vexed question of capital punishment which a referendum would undoubtedly restore. So your challenge fails. But you haven’t answered my core challenge in my 1256 timed post.”
    I consider myself a fairly intelligent chap, but I frankly have no idea what the above means? Your comment feels almost esoteric, and evangelical in content, and (curiously), what on earth is a 1256 timed post?
    You are clearly serious (and care strongly), about your beliefs about the EU dilemma, and have a zealous belief in the ‘citizens income’ which you have mentioned countless times.
    Your intelligence is clearly way above my pay grade, but all I can advise, is that you need to bring it [the worth of EU membership], down to my humble level, and that of the man and woman in the street if you hope to win the EU debate.

  • Paul in Twickenham 12th Oct '12 - 8:34pm

    Geoff- you say that no Eurozone banks have been taken into public ownership. Of those I listed previously I think you’ll find that Hypo in Germany is in full public ownership (check their wiki page). Bankia is 45% owned by the Spanish government. Dexia’s retail banking division in Belgium was bought outright by the Belgian government. And Bank of Ireland is only around because all of its bad debt (as with all the other Irish banks) has been passed to NAMA, which Brian Lenihan described as “preferable to nationalization”.

    Yes, the UK had its fair share of stupidity in the banking sector but it is disingenuous to suggest that the Eurozone was in any way better.

  • Richard Dean 12th Oct '12 - 11:00pm

    No, I do not think the “morphing” is like that. Maybe for casino banking, but not for anything else. The key to understanding seems to be to recognize that exchange-rate risk is a muddled average of many different risks, some low, some high, some now, some later.

    For normal commercial transactions, buying and selling of goods, at least one bank will be involved. If the bank knows its customers well, it accurately assess the risks associated with the companies involved, and will charge a hedge fee just for those risks. The risks and the fee will be low for well run companies and high for poorly run ones.

    But if a currency exchange is involved, the risk is not assessed on those companies alone. An exchange-rate risk is an average of low and high. So the bank would have to charge low risk companies more than they would otherwise pay, and may end up charging high risk companies less.

    This means that well-run companies are penalized, badly run ones are subsidized. Worse, … the process does not involve any learning by the badly run ones, and does not help us identify which is which. Put simply, exchange-rate risk is good for banks and bad for everyone else.

    So, by removing the need for currency exchange, the averaged risk associated with the exchange rate will morph into a much more useful entity – a range of risks that are low for the companies we want to keep, and high for the companies we want to improve. The ones who need to improve will be identifiable, and the higher risk-charges they face will give them extra impetus to improve.

    Trade allows a more efficient distribution of tasks, and everyone can benefit. Removing currency exchanges allows the most efficient distribution of risks, so everyone (except bad banks) can benefit more.

  • Geoff Crocker 12th Oct '12 - 11:00pm

    Sorry Paul, I simply meant that your post seems to say that all that matters is what voters think, and I am disagreeing with this, because I think that reason and logic are what should determine matters. I offer the case of capital punishment where voters would most likely vote in favour in a referendum but that this does not make it right. I was simply referring to a post I made timed at 1256pm.

    Paul I accept that my claim is wrong and that Dexia which is the Eurozone’s 10th largest bank is now in public ownership, but I can’t find any other of the top 40 Eurozone banks by assets which are. I may have missed more. My argument might simply be wrong or else it might need further refining eg to list the major Eurozone banks which have not gone out of business or into public ownership. Not sure I will get round to this demanding task which you have rightly challenged me to. But my overall feeling is that the proportional extent of bank failure has been less in say France and Germany than in US and UK. Is that a possibly fair overview?

    It doesn’t as I say weaken my argument that exchange rate risk is too great a disincentive to investment in UK manufacturing for the Euro market sales.

  • Richard Dean 13th Oct '12 - 12:39am

    I certainly agree that the banks got their risk calculations wrong, but getting calculations wrong is not the same as morphing risk. Being wrong honestly is part of a process of learning how to be right. It has nothing to do with the question of exchange-rates.

    I agree that it’s likely that some banks got the calculations wrong dishonestly, by deliberately gambling that governments would not allow them to fail. But bad bankers gamble on anything. Putting exchange rates in their line of sight just gives them something more to gamble with.

    The inescapable conclusion is that currency barriers damage prosperity, by creating muddled risks, by preventing clarity and learning, by providing banks with more opportunities to gamble, and by providing governments opportunities to save themselves at the expense of the good parts of the economies they manage.

  • Paul McKeown 13th Oct '12 - 12:56am

    I rejoice at the news of the Nobel prize for peace, it has given me a lift all day and a certain schadenfreude at the confusion that the news has engendered amongst the phobes. I believe that the UK may ultimately join the Euro, but I doubt that it will happen for several decades. Until British attitudes change, I really don’t see the point in articles such as this, they merely make the Lib Dems look out of touch. There are many more immediate battles to be fought in the area of Britain’s relations with European institutions, both in reforming those institutions, particularly in bringing them closer to the people, and in fighting the European corner in internal British debates.

  • Richard Dean 13th Oct '12 - 1:29am

    Tomorrow never dies. A political party should seek to lead beneficial change, not wait for it to happen.

  • Geoff Crocker 13th Oct '12 - 7:41am

    Paul McKeown, your view amazes me. Instead of arguing policies through rational debate, it is apparently more important to be ‘in touch’. In touch with what? With the prevailing anti Euro sentiment successfully spread by the Murdoch press, Conservative party nationalism, and emotional views about keeping the £? Or are we simply to pander to the the national mood? This isn’t a politics I could have any respect for.

    Paul inTwickenham, I am interested in getting this point right and you seem to have a lot of data on the Eurozone banks. I think it would be correct to refine my original point to say that the UK and US did not fare any better than the Eurozone in the question of bank failure? And would it also be supportible to claim that there has in fact been less bank failure in the core Franco-German part of the Eurozone? Certainly the ECB requiring recapitalisation to higher capital ratios cannot be characterised as banks failing but as prudent management? Geoff

  • Geoff Crocker 13th Oct '12 - 8:24am

    We’ve just heard that Spain’s Santander bank has pulled out of its bail out of UK’s RBS which was to have been by rescuing 316 RBS branches. Ironic? Those of you who claim that UK banking is stronger for being outside the Euro would surely have expected the relationship to be the other way round? Are any UK banks even thinking of rescuing any Spanish banks?

  • Geoff Crocker 13th Oct '12 - 8:26am

    Richard Dean 13th Oct ’12 – 1:29am
    Tomorrow never dies.
    Looks like Richard never sleeps 🙂

  • Bill le Breton 13th Oct '12 - 8:38am

    Good to see you up and about Geoff. I also applaud your commitment to Enlightenment and the appeal to the rational rather than the emotive.

    It is nerdish but incredibly important to focus that beam of light on the way Central Banks have reacted to the rise in oil prices and general commodity prices around 2006/7, which in my opinion has turned a ‘normal’ and therefore manageable recession into the Great Recession – which if we are honest is really another Great Depression.

    The ECB has been particularly complicit in this mismanagement. It cut interest rates even later than the Fed and the Bank of England, did not cut them as far, raised them precipitously and only tardily reduced them in the face of the wholesale destruction of the nominal and real outputs of most of the constituent economies. It is still 1%, and is only now beginning to hint at more unconventional policies, as fascists terrorize the streets of Athens and vigilante communists come to their aid in images reminiscent of the 1930’s.

    The EU may have won the Nobel Peace Prize, but its Central Bank is producing the conditions for civil strife on a scale not seen since Kristallnacht.


  • Bill le Breton 13th Oct '12 - 8:41am

    Good morning Geoff, I applaud your commitment to Enlightenment and the appeal to the rational rather than the emotive.

    It is nerdish but incredibly important to focus that beam of light on the way Central Banks have reacted to the rise in oil prices and general commodity prices around 2006/7, which in my opinion has turned a ‘normal’ and therefore manageable recession into the Great Recession – which if we are honest is really another Great Depression.

    The ECB has been particularly complicit in this mismanagement. It cut interest rates even later than the Fed and the Bank of England, did not cut them as far, raised them precipitously and only tardily reduced them in the face of the wholesale destruction of the nominal and real outputs of most of the constituent economies. It is still 1%, and is only now beginning to hint at more unconventional policies, as Golden Dawn terrorizes the streets of Athens and vigilante communists come to their aid in images reminiscent of the 1930’s.

    The EU may have won the Nobel Peace Prize, but its Central Bank is producing the conditions for civil strife on a scale not seen since The Night of Broken Glass.


  • Geoff Crocker says :
    “your post seems to say that all that matters is what voters think, and I am disagreeing with this”
    You’re right Geoff, to hell with voters, what’s the matter with those plebs, do they think we live in a democracy or something?

  • Richard Dean 13th Oct '12 - 10:54am

    Bill le Breton’s point about the ECB is certainly nerdish, but it’s also fundamentally wrong. It’s like saying that we should get rid of the institution of government because we don’t like one of its policies. The correct response to that kind of disagreement is to argue the case for a change of policy, not for a dissolution of the institution.

    Voters need information, and they need guidance on how to process and use information. Asking voters what they think is not enough.

    It seems that, having lost all of the other arguments, the anti’s last resort is to imagine that the pro’s are pushing some peculiar moral agenda? Pull the other one, it has bells! The moral case is simply that joining is better for all good people. It’s just those bad people, bad bankers and whatnot, that won’t necessarily be better of.

  • What sort of puts me of f the Euro zone is that a lot of its advocates seem to be saying everything would be great if it wasn’t for the pesky voters. But Is it really a great progressive leap that an unelected Italian government is better at delivering Euro zone policy than those of Spain and Greece?

  • Geoff Crocker 13th Oct '12 - 11:26am

    Thanks Bill le Breton. But I object. I did not apply the argument about Enlightenment to the ECB interest rate policy, but to the idea that what voters think should not be addressed by counter rational argument. I’d need to run the graphs but UK ran wildly high interest rates of up to 15% whilst European rates were much lower. And I repeat my argument that interest rate policy is a mess in the UK. It’s used by monetarists as the price of money to try to control the volume of money in circulation. But its real effects are i) as a tax by changing the net disposable income of the large number of people paying mortgages (uniquely in the UK and therefore less a concern for the ECB) ii) to alter business costs wreaking havoc with business plans iii) as long as UK stays out of the Euro, to change the exchange rate, and hence export competitiveness, the balance of trade, with employment consequences etc. So the interest rate is far too blunt an instrument to run the economy. Even the idea that a high interest rate is the right instrument to curb inflation is much less clear than it seems because of the side effects I list above.

    I also object to John Dunn. I am not saying to hell with voters. I do however think that referenda would reinstate capital punishment and reject Euro membership, Schengen membership, and maybe even EU membership. I strongly disagree with these views. So either I and others can campaign widely amongst the electorate to persuade voters of the alternatives, or I can advocate representative democracy so that those elected can give proper and full time and consideration to all the factors involved in these decisions. Since I don’t have access to extensive media like Rupert Murdoch does, then it’s very difficult to see how I or other fellow minnows can start to persuade the electorate, so I fall back on representative democracy where at least the arguments can be presented to those voting in Parliament . There are also some issues, and I would actually include Euro membership in this, though not capital punishment, where the issues are very technical and I for one would prefer to elect a competent person to represent me and to make the best decision. I don’t think that’s anti-democratic, I think it’s a more informed version of democracy and is the one we practice most of the time.

  • Geoff Crocker 13th Oct '12 - 11:30am

    + Bill le Breton, I maintain my argument that the problem leading to social havoc in Greece and Spain, is not the Euro, neither ECB interest rate policy, but austerity policy. As you know I have written in another op-ed why austerity is the wrong answer to debt and why a citizen’s income is the only ultimate answer to the crisis. It would also quickly assuage social unrest.

  • Richard Dean 13th Oct '12 - 12:00pm

    jedibeeftrix … you have perhaps not been paying attention? 🙂

  • Richard Dean 13th Oct '12 - 12:14pm

    No-one is saying that voters don’t matter. Quite the reverse. What is being said is that it is important that voters get accurate and complete information to use in making their vital choice. Unfortunately, accurate and complete information is not what is being provided by the media.

    An example is the idea of being “ruled from Brussels”. As pointed out in an earlier comment, this idea is completely at odds with the facts. And joining the Euro represents an enhancement of our national soverignty, not a diminuation of it, as also discussed in an earlier comment.

  • I think denigrating the average voters intellect, over their ability to make a decision about Europe is just arrogant. And I’m guessing that when you say that we should let ‘experts’ decide, you no doubt include yourself in that select group?
    Lets remind ourselves that 99.9% of ‘experts’ didn’t see the financial brick wall looming in 2007. Even the queen was shocked at the ‘experts’ incompetence when she asked “Did no one see it coming?
    And again, I put it to you; could not you, and a few of your experts put together a simple summary of the benefits of EU membership? It begs the question, if you and your experts, can’t sell the benefits of EU membership, then maybe the reason is because those arguments are feeble?
    I think perhaps at the beginning of this thread, Dan was more accurate and succinct than all of us when he said ;
    “This is weak”

  • Bill le Breton 13th Oct '12 - 12:53pm

    Austerity is wrong Geoff but it is driven by the fact that the leading alternative – depreciation – is not available to Greece, Spain, Italy, Ireland and Portugal … and soon to France because of their membership of the Euro and the inappropriately tight (Germanic) monetary policy it has adopted.

    And Richard, if France can’t change ECB policy then what chance would Britain have had? The price that Germany ‘charged’ for supporting the Euro was to have an ECB dictated to by the German Central Bank and committed to policies that kept Germany free of inflation. (Spreading first inflation (easy credit) and now deflation almost everywhere else.)

    It required a slower evolution that might have allowed for greater convergence, more time for the internal political changes that were required by the PIIGS to reform structurally and a stronger sense of the value of the Community which might have sustained an appreciation by the northern countries that economic support would need to flow from them to those other countries. This is holding by a thread at the moment.

    Every deep and long lasting recession/depression is caused by politicians in a country committing themselves to a system of fixed exchange rates, be that the Gold Standard, 1930, the EMS 1990 and now the Euro; and then as now hanging on for the sake of their reputation until the forces of markets sweep them aside.

    By the way, Geoff, surely the funding of your citizens’ income is a form of monetary policy? And no less useful, for that.

  • Richard Dean 13th Oct '12 - 12:56pm

    Germany is not demanding rule from Brussels. Where on earth did that mis-comprehension come from … the incompetent and biased press perhaps? The German people would never tolerate it.

  • Richard Dean 13th Oct '12 - 1:02pm

    Depreciation and devaluation are bad options too Bill. Both impoveish a nation. Both force austerity.

  • I covered some of the nationisation of foreign banks here: http://joeotten.blogspot.co.uk/2008/09/with-apologies-to-william-mcgonagall.html

    Clearly joining the Euro is unthinkable at the moment. The only scenario would involve the following:
    1. The Euro surviving (probable)
    2. In te process solving its problems (possible)
    3. Sufficient time passin that we can look back on the crisis wit perspective.
    4. Clear economic advatages following for Euro members.

    Even then it woukd be a tough sell.ks at the time here: http://joeotten.blogspot.co.uk/2008/09/with-apologies-to-william-mcgonagall.html

  • Richard Dean 13th Oct '12 - 1:37pm

    Joing the Euro is thinkable at the moment – we are thinking about it! Indeed, crises are ideal times to make big changes – the motivation is less when things calm down. Some of the many clear economic and other advantages of joining are discussed in this thread.

  • Geoff Crocker 13th Oct '12 - 4:18pm

    John Dunn, I did not denigrate the intelligence of voters. I did not and do not say that I should be a member of any expert group, and I strongly object to your unfounded ad hominem attacks. I repeated the perfectly defensible case for the representative democracy we operate to govern virtually all matters. I’m not a fan of referenda. I think some decisions are very technical (eg setting the interest rate which is done each month by the BoE Monetary Policy Committee). People should either be democratically elected to such responsible roles, or be delegated by our politically elected representatives, which is what happens. I happen to think the same about EU and Euro membership. I respect your right to disagree.

    You ask for the benefits of EU membership. They are economic (a very large market), political (a bloc to counter the hegemony of US and China) and cultural (shared intellectual roots, nice people etc).

    I think you are repeating your challenge for the benefits of Euro membership? Ask anyone leading a serious UK business. If the CEO and board of directors consider an investment of £100m in UK manufacturing and expect to achieve sales of €100m (let’s say = £80m)with costs of £70m then profit will be £10m and the investment might proceed and create UK jobs. But if the Euro depreciates and the sales revenues are then worth only £65m, then the business will go bust. Swings in exchange rates of this amount can and do occur. They are a huge deterrent against establishing businesses whose costs are in one currency (£) and the majority of whose revenues are in Euros. They cannot be overcome by currency hedging as is often blithely assumed, and which if it were available, would be hugely expensive.

  • Geoff Crocker 13th Oct '12 - 4:27pm

    Thanks Bill Le Breton. Debt is clearly universal and austerity the universally adopted corrective. I do not agree with you that the only alternative to austerity is depreciation. As you know, I argue that i) it is the gap between productivity and real wages which has led to consumer credit and government debt, ii) the only solution to this is a citizen’s income. I consider this citizen’s income to be primarily a fiscal instrument to boost aggregate demand to equal output GDP, but I accept that it has a monetary definition in being created outside PSBR in a government bank with a ratio of the emission of citizen’s income against its deposits.

  • Paul in Twickenham 13th Oct '12 - 6:09pm

    Bill Le Breton has made a very important point about the role of the ECB. In the early part of the 2000’s they set the interest rate in the Eurozone very low. Why? Because the German economy was in a funk. This led to the bubbles in property that did for Ireland and Spain.

    I remember once hearing someone say that the ECB thinks carefully about what is the right monetary response to conditions prevailing in the Eurozone and then does what is in the best interests of Germany. Harsh, but with a definite element of truth.

    As for Geoff’s point about Santander withdrawing from the offer to buy the RBS branches, I have to say that once again I do not grasp the relevance of the point. Santander UK is a UK registered company that is autonomous from Banco Santander and the money in the UK PLC cannot be passed to the Spanish Banco (most likely through a dividend payment) without the approval of the FSA. Santander UK PLC is for all practical purposes a British bank.

    More generally I’m rapidly coming to the conclusion that the austerity versus monetization debate is largely sterile. The choice is austerity where you (initially) get the poor to pay our debts, or monetization where you (initially) get savers and pensioners to pay for it. Either way, eventually everyone will pay because both paths ultimately lead to ruination because the debt can never be repaid.

  • Richard Dean 13th Oct '12 - 6:47pm

    No one seems to dispute the draft bullet points in favour of joining that I compiled on request and in agreement with Geoff and other´s approaches. I guess they are very persuasive! (12 Oct 12 2:30pm). There have also been many other confused arguments against that have been defeated by cogent arguments for. Perhaps that is why the antis are resorting to repetition and ever more bizarre positions?

  • Richard Dean 13th Oct '12 - 6:51pm

    Typos again, apologies. ” Geoff and other´s” should be “Geoff´s and others´”. And I think the link is

  • Paul in Twickenham 13th Oct '12 - 7:40pm

    Yes, perhaps we should for a currency union with the renminbi. China has a large manufacturing base, a huge population and a GDP of over $7 trillion. A currency union with such a vibrant and massive market would surely be hugely attractive.

    There’s a perspective that did the rounds in The City a few years ago that connecting the disparate economies and cultures of the Eurozone into a single currency is less economically sensible than one involving all the countries in the world whose names begin with the letter M.

  • Richard Dean 13th Oct '12 - 8:36pm

    The China idea may already be Conservative Party policy. But would it be better than the Euro?


  • Geoff Crocker 14th Oct '12 - 12:33am

    Graeme Cowie, no you didn’t get it straight.

  • Geoff Crocker 14th Oct '12 - 10:29am

    Let’s try to get Graeme Cowie straightened out.

    1 The Eurozone has been relatively successful in averting widespread bank meltdown by requiring recapitalisation of its banks. Greece is a special basket case and probably should not have been allowed Euro membership. The reason this recapitalisation is necessary is the same as for everyone else – productivity has exceeded real wages in all developed economies, leading to an unsustainable surge in consumer credit and bank debt. This recapitalisation isn’t corporate welfare but financial prudence. The funds do not come from the European taxpayers’ pockets as is so often reported. It’s either from asset sales or the injection of virtual money. All money is virtual and all banks have extended loans greater than the deposits they have to back them. A run on any bank would cause it to collapse. It’s all a matter of confidence. But the one point I am making is that the UK has no grounds to take a complacent, superior and aloof view on the question of bank failure compared to the Eurozone. This issue does not vindicate remaining outside the Eurozone as is frequently claimed.

    2 The Euro is underpinned by strong demand for German, French, Dutch etc exports. This is the fundamental driver, not the speculation of bond dealers. We can take a bet if you like on whether the Euro will ‘fail’ but you’ll have to define what this means first.

    3 The fact remains that UK cannot crow about superior economic performance. Within the Eurozone, only Spain, Greece and Italy have consistently lower GDP/capita than UK. I agree that it’s too simplistic to then say let’s join a currency union because it’s members have stronger economies than ours if there were no other underpinning logic (although there is some simple logic here by making trade easier with a huge successful market on our doorstep with a compatible culture, rule of law etc). But there is such logic. It is the risk of exchange rate uncertainty which must be a deterrent to investment in the UK when costs are in £ and revenues in €. I give a simple worked example in a post above. Here it is again.

    If the CEO and board of directors consider an investment of £100m in UK manufacturing and expect to achieve sales of €100m (let’s say = £80m)with costs of £70m then profit will be £10m and the investment might proceed and create UK jobs. But if the Euro depreciates and the sales revenues are then worth only £65m, then the business will go bust. Swings in exchange rates of this amount can and do occur. They are a huge deterrent against establishing businesses whose costs are in one currency (£) and the majority of whose revenues are in Euros. They cannot be overcome by currency hedging as is often blithely assumed, and which if it were available, would be hugely expensive.

    4 It’s not a matter of some Spanish and some German companies doing some trade in the UK. It’s far more integrated than that. Apart from the huge UK holdings of Ferrovial, Telefonica, Siemens, and Santander mentioned in my original post, UK is dependent of RWE and Eon of Germany to operate and develop nearly all our coal fired powerplants, on EdF of France to develop all our new nuclear powerplants. We have no indigenous car manufacturer compared to our EU neighbours. India’s Tata now controls Jaguar and Land Rover and what was British Steel. Nippon Glass has taken over Pilkington, Alliance, Italy controls Boots etc ( I know before you leap on me that India and Japan are not in Europe  – it’s part of a wider point). If we allow such widespread takeover of our industry and infrastructure, what’s the point of currency independence?

    I’ve never agreed with a single thing Norman Tebbit has ever said so far, but if he wants to support UK joining the Euro, then I’m happy to make an exception.

  • Geoff Crocker 14th Oct '12 - 10:47am

    By the way, those who derided my call for a citizen’s income as the only ultimate answer to the debt crisis might take note that, according to Stephanie Flanders at the BBC, none other than Lord Adair Turner of the FSA and a possible next governor of the Bank of England, is now saying virtually the same at http://www.bbc.co.uk/news/business-19925013. Good that Lib Dem Voice got there first and can claim precedence ? 🙂

  • Bill le Breton 14th Oct '12 - 11:09am

    The world faces a serious bout of deflation – as serious, if not more so than the 1930s.

    In the last five years most commentators have focused on the role of fiscal policy. There has been little mention of the role of monetary policy (well those ‘monetarists are all right wing head-bangers, right?). Where there has been commentary it is broadly assumed that monetary policy works through interest rates and when these are close to zero as they are now nothing more can be done.

    Monetary policy in this country has been given to a the Bank of England’s Monetary Policy Committee and although Westminster through the Chancellor and the Treasury havs an oversight responsibility, throughout this crisis first Darling and then Osborne have been passive, accepting their actions.

    This is also true in the Eurozone, the US and Japan – especially Eurozone.

    But monetary policy can always (and does always) trump fiscal policy. Fiscal policy is set once or perhaps twice a year. Monetary policy is formulated at least every month. Monetary policy can and does react to fiscal policy. It has the last say over the sovereignty of Parliaments, Presidencies and Commissions.

    In the UK, if the MPC thinks changes to fiscal policy are inflationary it will tighten money., even if that negates a democratic decision to stimulate the economy. Also, if it thinks that changes in exchange rates or commodity prices will threaten its ‘target’ it will amend policy. It sets the nominal value of GDP. We can see what that does to the real economy later.

    So the first policy should be to restore Parliamentary control over monetary policy – so that we are all in it together, through our elected representatives and their Government team. This is even harder in the Eurozone where the ECB has even less oversight and where there is a record of leaning towards the needs of the major player, the German economy (thanks Paul T and this is not euroscepticism, Richard).

    Paul also begins to write about the trade off between austerity and monetization. He is right to see certain costs to differing sections of the population from these alternatives. Let’s leave austerity aside. It is totally discredited and is only defended by those who would otherwise be found out to have been negligent (for us) in 2010.

    In the long run if you double the supply of money you will double the price level. And as Paul points out this will penalize savers and pensioners. (Anyone who had parents and grandparents facing these problems in 1970s will have first hand experience of this. Though interestingly most regained much of their wealth in the 1980s recovery.

    But in the short run, monetization gives a boost to nominal expenditure or aggregate demand. (Recall; the Central Bank can always set the NGDP it wants). The trick then is to use this increase in confidence among firms and investors to ensure that the capacity of the economy increases so that the increase in the money supply (from monetarization) leads to an increase in output.

    To me, that is worth a go.

    If you build a bridge without funding it through the money markets it will increase aggregate demand (both through the purchase of those delivering the bridge and through the increased expenditure of those working for the deliverer), confidence and investment and, yes and .., increase the capacity of the economy.

    In fact, because of the role of expectations, if you announce that this is what you will do, firms and investors will anticipate the rise in demand, increase stocks, take on new staff, invest in new projects. The actual amount of monetization will be much lower than first announced. You just need a believable communications strategy.

    Britain as a member of the EU, but not of the Eurozone is in an ideal position to start that policy today.

  • Richard Dean 14th Oct '12 - 11:27am

    It’s not true that the Chancellor has no control of the Bank of England or the MPC. I remember watching a parliamentary select committe in which Osborne himself emphasised that, where there was a serious diagareement between the Chancellor and the BofE, the Chancellor view or instruction would prevail. It’s also the case that MPC targets are set by the government. Consequently fiscal policy can readily trump monetary policy if the Chancellor is up to the taks of understanding these things. MPC tactics probably change daily, weekly, and monthly, but there’s no evidence that its policies chnage as fast as that.

    It also seems very naive indeed to suppose that an economy can be tricked into growth. Invetsors see what is nhappening and take immediate account of the expected consequences. The world slowdown has occurred because promises to pay have not been kept, by US mortgage holders, by Greece, and by Icelandic and European banks, and because houseold credit has increased dramatically. Those promises led to investment in means of production aimed towards a demand that cannot materialize because debts are now due. This serious and stable situation requires rather more than magic trickery to fix.

  • Geoff : Since you mentioned the citizens income, I don’t think £30 per week is going to change the world. Especially if its paid for as the Citizens Income Trust have designed it.
    http://www.citizensincome.org/ They say :
    In order to pay for the Citizen’s Income:
    Income Tax is to be collected on all earned income above a Personal Tax Allowance of £4,000 pa as follows:
    From £4,001 to £20,000 pa, 25%
    From £20,001 to £40,000 pa, 35%
    Above £40,000 pa, 45%

    Yes that’s going to go down well.

  • Bill le Breton 14th Oct '12 - 5:24pm

    Richard, of course in theory the Chancellor can do these things but in practice when has that been the case?

    The MPC has persistently undershot its target (following the advice of Lars Svensson ) of 2% inflation in its forecast for the medium term (i.e. two to three years out) –. Yet there has been no admonishment from Osborne and Alexander. The MPC has been over deflating the economy and suppressing any kind of recovery.

    Britmouse here http://uneconomical.wordpress.com/2012/08/11/monetary-policy-stance-under-inflation-targeting/ plotted the performance against target of the MPC – it is a real eye opener to see how badly they have performed since 2008.

    He graphically demonstrates: ‘As the CPI rate drifts high in late 2008, the Bank allows the forecast to drift downwards. In Q1 of 2009, the Bank are saying the monetary policy stance is very very tight; they are expecting inflation to be barely positive looking two years out. By the last quarter of 2009, they had raised the forecast above 1.5%, but it is still below target, and remains so going into 2010. (*By this stage there is also a massive negative output gap*.) [my ** emphasis]

    This is what he writes about the period since 2011: ‘The Bank is targeting roughly 2% for the first three quarters of 2011, so, if we ignore the fact that they should bias the target upwards to reduce the output gap, that’s fine. In Q4 of 2011, they are again saying monetary policy is really tight. This has been corrected somewhat by Q2 2012, but the Bank is still expecting to significantly undershoot its 2% target.’

    ‘So where is the inflationary bias of the Bank of England, on the very metric that Svensson (et al) say we should hold the central bank accountable under inflation forecast targeting?’ [The question that Osborne, Alexander and Parliament should be asking.]

    ‘I’d say it is very clear there is none.’ continues Britmouse, ‘In fact, I’d say it is very clear they have a disinflationary bias: every time the current CPI rate shoots too far up (right on my graphs), they “passively” tighten policy by allowing the two year forecast to shift downwards. And never mind the depression.’

    This is the reason that we are in a double dip recession with a good chance of a third dip to follow any meagre recovery.

    If you follow Britmouse’s analysis – which I do – you would want to know a) why Alexander on our behalf is not taking immediate action and why the Treasury Select Committee has chosen to examine the distributional effects of QE rather than the persistent deflationary action of the MPC.

    As Britmouse says, this is a bit like someone inquiring why the Titanic had so few deckchairs!

    I can’t see why you think that the MPC which in certain circumstance by doing nothing can actually tighten its policy on a daily basis doesn’t always have the last ‘say’, when the Chancellor has a budget once a year and an autumn statement on spending.

  • Richard Dean 14th Oct '12 - 5:39pm

    Getting within 1% of a target most of the time looks good to anyone who remembers double-digit inflation.
    I’ll agree that the Chancellor doesn’t have a clue, but does he also not have a phone?

  • Bill le Breton 14th Oct '12 - 6:02pm

    Target 2%, performance 1% is getting within 1% of the target only ‘literally’ Richard. When that equates to 1% of nominal GDP that is a lot of billions not achieved!
    What did you think of Britmouse’s graphs?

  • Richard Dean 14th Oct '12 - 6:53pm

    When dealing with these numbers, it’s helpful to see them in perspective. For someone taking home £200 per week, overshooting an inflation target by 1% is equivalent to gaining or losing £2 per week. Under-achieving by 1% means that that person gains by £2 per week, compared to what would have happened on target. A family on £1000 per week is losing or gaining £10 per week.

    Another comparison is with the stock market. We are used to hearing of sharp falls and sharp rises, and 1% down or up per DAY is not uncommon. So missing a target by only 1% per YEAR is very, very good. It shows that the BofE and MPC do actually know how to control inflation. In fact it’s so good that there’d be a suspicion that they might be damaging other targets – ones they are not responsible for – just in order to achieve the inflation target.

    I ony had a quick glance at the graphs because I was called away to mediate a dispute that was geting out of hand between two 90-year olds. I thought the first few graphs were boring and not presented properly, and the ones with spirals looked prettier.

  • Richard Dean 14th Oct '12 - 6:55pm

    More typos, sorry! “gaining or losing” on line 2 should be “losing”. What a pity LDV doesn’t allow editting

  • Geoff Crocker 14th Oct '12 - 7:12pm

    Dane Clouston

    The EU requirement for the sale of 316 RBS branches was a requirement of the rescue package and so is part of it. You think that we cannot convince the electorate of the case for joining the Euro? Why not when there is a strong case as I have made out above? And you have wrongly interpreted my proposal for a citizen’s income. It is important that it is not repaid and hence it is equivalent to Adair Turner’s proposal. I have written more on this at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html which contains a link to my longer paper at the end of the post.

  • Geoff Crocker 14th Oct '12 - 7:15pm

    John Dunn, in 2007 the citizen’s income should have been £55bn or £1000 per person. It should not be financed from tax, in fact it should not be financed at all but be simply virtual money as Adair Turner is now reported to be proposing. Banks create such virtual money every day.

  • Geoff: I didn’t make it up, it’s here, on page 2 of the Citizens Income Trust website. Are you saying they are wrong? And as I said before, £1000 per person per year, isn’t going to set the economy ablaze.
    I think the bottom line, is that your citizens income needs a lot more work, and my advice would be, not to wheel your prototype, out into the glare of sunlight, until you have thought it through.
    By the way:
    This Lord Turner you mentioned who thinks like you, that a citizens income is a good idea. Is this the same Lord Turner that was in charge of the FSA when banks were playing ‘Guess the LIBOR’? Or, the same Lord Turner, who’s up for the BoE job, and thinks we should just carry on with QE, and just ‘not bother’ to pay it off?
    You just couldn’t make it up. I can only hope our children will eventually forgive us.

  • Geoff Crocker 14th Oct '12 - 8:34pm

    Bill le Breton

    You claim that monetary policy is superior to fiscal policy for more immediate control of the economy. You then say that the MPC undershot the 2% inflation target by excessive tightening of the money supply and that this was the cause of depression. I agree that interest rate effects are faster than tax rate effects, but this ignores all the major side effects of trying to control the economy through the interest rate which I have pointed out above – ie raising the interest rate to curb inflation does reduce disposable income for mortgage holders, does increase business costs, but also appreciates the currency, making imports cheaper so also helping to curb inflation, but making exports more expensive thus hurting the balance of trade. These are too many disturbing effects. Tax rates are far more specific for targeted fine control. We currently have a crisis of deficient effective demand. We can hardly reduce interest rates any further and so we need a fiscal solution, ie a citizen’s income.

    I also challenge your view that inflation targeting should not only seek that inflation is no more than 2% but also that it is no less than 2%. I could accept this logic if you could demonstrate that 2% inflation would stimulate demand exactly sufficiently to meet the gap between productivity and real wages. I doubt very much if you can do this, but the fiscal instrument of citizen’s income can calculate the gap between output GDP and aggregate consumer income exactly and be set to equal this amount (£55bn in 2007).

  • Paul in Twickenham 15th Oct '12 - 3:23am

    @Geoff : Where does your figure of £55 bn come from? That sounds like £1000 each to 55 million people – which is the number of adults in the UK. Is that correct or have I got the arithmetic wrong here? The adult population of the eurozone (the primary subject of this discussion thread) is about 300 million so the equivalent number (at the current exchange rate of € to £) would then be about €360 bn per annum.

    Good luck with getting Buba to agree to printing that every year regardless of inflation. If this proposal ever saw the light of day then the price of the “barbarous relic” would go hyperbolic.

  • Geoff Crocker 15th Oct '12 - 8:33am

    Paul in Twickenham, in 2007 £55bn was the amount by which consumer credit was extended in order to supplement flat consumer income to meet the higher value of output GDP, ie to enable consumers to buy the GDP. Yes it does compute to £1000 per capita per annum. As Simon Jenkins in a Guardian article put it ‘Give Us All A Grand’. I explore this more fully in my op-ed https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html and in a longer paper which has a link at the end of that op-ed where there is a thorough graphical analysis.

    This can only happen in the first place because productivity rises faster than real wages. This is the real cause of the crisis ie in the real rather than the monetary economy. This is why I repeat my claim that a citizen’s income is the only ultimate solution. For those who doubt that such a citizen’s income can be funded without adding to government debt, I recommend Gavyn Davies’ piece at http://blogs.ft.com/gavyndavies/2012/10/14/will-central-banks-cancel-government-debt/#postcomment .

    As for the amount of citizen’s income the Eurozone would need, you can’t simply extend my UK analysis pro rata to population but would need to repeat the same analysis to calculate the shortfall between Eurozone output GDP and aggregate consumer income (roughly with some important tweaks).

    As for your claim that ‘the price of the “barbarous relic” would go hyperbolic’ I think this requires a separate op-ed 

  • Geoff Crocker 15th Oct '12 - 8:48am

    Dane Clouston

    1 The banks in the US, the UK and the Eurozone got into trouble because productivity in the real economy grew faster than real wages leaving a deficiency in aggregate demand – a gap which the banks filled with extra consumer credit which became unrepayable (£55bn in the UK in 2007). I explore this in my op-ed at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html and more fully in the link at the end of that op-ed.

    2 You still don’t explain what you mean by the Euro ‘failing’. It won’t happen.

    3 With all due respect to your impressive career as a foreign exchange dealer (sadly a role whose scope and cost my proposal would reduce), I still claim that the cost of hedging for the full potential of UK business investment to supply demand in the Eurozone market for real goods and services would be huge and unsupportable. I’d rather ask the CEO’s of large UK companies .

    4 There is little point in currency independence when we don’t have industrial and infrastructure independence. The decisions about important parts of the UK economy are now made in foreign board rooms.

    Finally, you and Graeme could surely come up with better arguments against my piece than the jibe that Norman Tebbit could come up with better arguments than mine. Sarcasm rarely enlightens and is an argument of last resort.

  • Bill le Breton 15th Oct '12 - 9:32am

    Geoff thank you for again giving your attention to my comments. It may be my inability to express myself clearly but once again you suggest I hold positions which I don’t.

    I was not seeking to suggest the ‘superiority’ of monetary policy, but, that in terms of games theory, the MPC is in a position to out-trump a fiscal policy if it thinks that the fiscal policy prevents it hitting its target and if the Treasury/Quad does not impose itself on the MPC.

    We cannot get out of this mess without an accommodating monetary policy. Monetary policy may not be sufficient, but it is necessary.

    For instance if any government (in a country that is a currency issuer) sets its fiscal policy in a way that its independent Central Bank thinks will lead to missing the CB’s target for inflation, it can (and commonly does) alter monetary policy to offset the fiscal policy.

    I can’t see why that is controversial. The MPC can respond to any change in fiscal policy at least once a month and, if inflation and exchange rates are altering, by keeping its policy unchanged it is effectively tightening/loosening its policy by its very passivity.

    The MPC at the moment targets the 2 to 3 year forecast for inflation 2 to 3 years out at 2%. However, the MPC is consistently undershooting this 2% forecast – see the link to Britmouse above. MPC policy is more deflationary than such a target would warrant. No wonder we are stuck in recession. The engine is being starved of oil.

    Secondly, I am not advocating an inflation target, but if I were, I think that at present even 2% (2-3 years on) is too deflationary for the UK economy. If I were an inflation targeteer, I’d argue for 3-4%. Monetary policy in the UK is sacrificing any chance of recovery on the alter of fear of inflation.

    I realise this would be at cost to savers and pensioners, but if it kick-starts us out of recession, then, that would be a public benefit and in a short while the improved performance of the economy and the return to higher rates should compensate for this short term downside for them.

    Actually I would advocate a NGDP target, level targeting, of 5% (with a short term target above this to compensate for the output gap that has been created by the over tight monetary policy that we have had since 2008).

    Firms and banks need to sense or expect a rise in demand for their goods and services before firms will invest their cash or use their borrowing capacity to expand, and banks willingly lend to firms at sensible prices. A credible communications strategy that convinces them that the government and its central bank will do whatever it takes to increase aggregate demand (say by 6% in 2013) is what is needed. This is how recoveries take place.

    At present they see only stagnation or worse. In many parts of the country a severe reduction in demand that is taking place. Perhaps Londoners find this difficult to perceive. It is getting worse where I live in the North West of England.

  • Richard Dean 15th Oct '12 - 11:28am

    It seems so easy for a banker to say – “adjust the exchange rate”. That has consequences for human beings!

  • Wow – just…wow.

    So much to say, but I’ll highlight my favourtie part.

    I love the way you say that Norway has the highest standard of living in Europe, when it’s not in the Euro or the EU – Brilliant! 😀

  • Geoff Crocker 15th Oct '12 - 3:06pm

    Thanks Bill Le Breton. I take your point that the MPC can override the intended effects of fiscal policy set by the elected government. So if the government intended a Keynesian stimulation to demand (which we currently need) through fiscal policy, and the MPC countered this by tightening monetary policy, then this seems politically unacceptable to me. It argues that the current monetary policy regime should not be as independent as it is.

    My sense is that overall, we agree? You want Keynesian demand stimulation, as do I. You want it to come through monetary policy (do you mean even lower interest rates than 0.5%?) whilst I want it to come through a citizen’s income and have explained why I think this is an inevitable outcome in a technologically advanced society (productivity > real wages). But I accept that a citizen’s income will need implementation through a monetary instrument, not interest rates, but cash. So maybe this squares our circle? Geoff

  • Geoff Crocker 15th Oct '12 - 3:12pm

    Groan JJ 🙁 Yes I know that Norway is neither in the EU or the Euro and owes its prosperity to N Sea oil and gas. But you have misread my third point which starts with the generality of UK/Europe standards of living and ends with the specificity of UK/Eurozone standards of living where I write, ‘Within the Eurozone, only Spain, Italy and Greece have lower GDP/capita standard of living than the UK.’ The point is really the reverse point ie that UK has nothing to crow about in terms of better economic performance from having stayed out of the Euro.

  • Geoff Crocker 15th Oct '12 - 3:14pm

    Dane Clouston

    You make a lot of unwarranted assumptions.

    The first is that I moderated away your comments on LDV. I have neither the ability nor the desire to do this. You should contact the editors at LDV or try posting again.

    The second is that my proposal for a citizen’s income is unfair. Firstly the notion of what is fair is elusive and subjective. But secondly, I have made no proposals for how it is distributed between people. It could indeed be allocated more generously towards lower income people. I am simply concerned at this point with the macroeconomic issue of correcting deficient demand. My analysis makes the novel suggestion that this deficiency of demand is inevitable in a technologically advanced economy as is perpetual debt and we have to find a novel way to deal with it. Your response on this point demonstrates clearly that you have misinterpreted my proposal for a citizen’s income.

    We clearly disagree about the Euro. You don’t accept my argument and I don’t accept yours.

    On the RBS condition it is entirely appropriate for the EU to rule on questions of state aid by any member state to any sector of the economy. This is essential if we are to retain a free EU market, otherwise governments could unfairly subsidise any sector they wished. So because the RBS arrangement would result in effective state aid and a higher degree of monopoly in UK retail banking than is desirable, then the requirement some sale of retail branches was determined. It all makes sense.

    Unlike you, I do want to be part of a wider European community. I am fearful of a US/China dominated world, and there is hope that a stronger Europe mitigates this.


    Geoff Crocker

    Dear Geoff Crocker,

    I am sorry that you “moderated” away my comment on LibDemVoice. I wonder why you did so. Or perhaps it was not you who took the decision? I would be interested to know.

    I took the trouble to read your article and to reply to part of it. It is a pity that I was not able to post that reply. In case you did not see it, I copy it below. You are proposing a new idea. So am I.


    Dane Clouston

    My comments were as follows:-

    “The EU requirement for the sale of 316 RBS branches was a requirement of the rescue package and so is part of it.”

    And is an entirely unnecessary part of it. Not an essential part of the rescue, but just more EU busy body interference in our affairs.

    “ You think that we cannot convince the electorate of the case for joining the Euro? Why not when there is a strong case as I have made out above?”

    There is a very strong practical case for not joining the EU, to do with currency flexibility (six years is hardly an impressive FX career, but long enough to get the point!) which to my mind overcomes your EU ideological case. We are not, and hopefully never will be, one country called Europe. Please stop trying to make us one country called Europe by trying to push us into the Euro. That devious approach in the past is what is causing so much harm in European countries right now. Anyway, please go on trying to convince the Liberal Democrats to declare that as their party policy at the European Elections and at the next General Elections, so that more Liberals will come and join the EU-sceptic Liberal Party.

    “ And you have wrongly interpreted my proposal for a citizen’s income. It is important that it is not repaid and hence it is equivalent to Adair Turner’s proposal.”

    I have not wrongly interpreted your proposal for your unfairly universal citizen’s income for both asset and income rich and poor. Of course it would not be repaid. I was making the distinction between a one off helicopter money drop and an annual citizen’s income. The latter suffers from the fact that it is either enough to live off or it is not. Either alternative leads to difficulties.

    But since you raised the subject of a citizen’s income, I suggested that a more attractive and equitable annual money drop for the economy as a whole, leading to greater equality of opportunity, would be a citizen’s once a lifetime inheritance for individual 25 year olds in each succeeding year, financed by reform of Inheritance Tax. That, unlike, your unfairly universal annual citizen’s income, would be repayable, but only by progressive taxation on those who later received during their lifetime larger totals of gifted and inherited wealth. Those suffering from reduced exemptions from Inheritance Tax have less need to spend than young adults and young adult parents, so spending would increase.

    “ I have written more on this at https://www.libdemvoice.org/opinion-why-austerity-is-the-wrong-answer-to-debt-30167.html which contains a link to my longer paper at the end of the post.”

    Very interesting, thank you, including “The rest will be imputed to capital…the extreme case of this is the common scare about universal robots : labour is no longer needed at all. How will we then live? ….The ownership of capital will have to be democratised…(needing) some form of universal dividend…Not much thought has been given to this problem’ (in ‘Revisiting Keynes’ by Pecchi and Piga, MIT Press 2010, p92).”

    Exactly! I have written more on this, the democratisation of the ownership of capital, at http://www.universal-inheritance.org! The only time at which it is possible to redistribute the ownership of capital, as opposed to income, is a the point of transfer from each generation to the next. This can be done only within one UK nation, not within one EU nation, so I very much hope that we remain outside the Euro and that a Liberal Democratic party, if calling for the opposite, would be comprehensively rejected at the next European and General Elections

  • Bill le Breton 15th Oct '12 - 5:06pm

    For those who would like to know more about NGDP targeting – which is gaining more and more adherents as each day of the Great Recession passes – there is a great slide show by Yichuan Wang of Michigan University here, http://www.slideshare.net/yichuanwanglulu/ngdp-targeting-an-introduction-with-market-applications

  • Bill le Breton 15th Oct '12 - 5:31pm

    Geoff from the slide show you will see that I am more interested in the M in monetary policy than in interest rates.

    It started for me back in the Early 80’s when I was introduced to the IMF’s Domestic Credit Equation that linked change in the Money Supply with PSBR (or the way the PSBR is funded). Back then that funding was done heavily by private bank lending to the public sector. It seemed obvious to me that what changed inflation expectations downwards then could (by being reversed) change deflationary expectations now.

    Your Citizens Income (on or off PSBR) would do the trick. I am merely providing a monetary explanation of the transmission of your idea.. It could also be done on the PSBR if ’twere done by private bank lending to the public sector. Ditto any stimulus. Your CI would increase the supply of money and in the short run increase NGDP.

    It just has to be convincing to firms, lenders, investors that aggregate demand (NGDP) will rise because of whatever the stimulus funded this way is. Firms wont wait to for it to actually happened, they’ll anticipate it. Banks will change their attitude to investment projects immediately because they too expect them to be more profitable. Ditto investors. Leading to medium term improvement in RGDP provided we sort out matters on the supply side.

  • Geoff Crocker 15th Oct '12 - 5:37pm

    Interesting thanks Bill but Yichuan Wang’s presentation doesn’t explain why actual GDP has been below potential GDP, or how monetary policy would fill the gap. My article shows how actual GDP can be lower than potential GDP because productivity > real wages leads to output with insufficient matching consumer income. A citizen’s income is then the most appropriate policy instrument, ie to boost deficient consumer income, but it should not be counted within national debt, which is the new part for monetary policy.

  • Geoff Crocker 15th Oct '12 - 5:39pm

    Thanks Bill – Keynes would be delighted 🙂 Geoff

  • Geoff: I took the trouble to read your piece ~ Why Austerity is the Wrong Answer to Debt. At least right up until this:
    “Money is virtual, not real.”
    There was no need to read any further.
    Money became virtual in 1971 when Nixon closed the ‘gold window’. Before that it was very much NOT virtual and for some 5000 years was backed by gold.
    The fact that it lost its gold marker, is the very reason why, (since 1971), banks can print, print, print to infinity and beyond. But now we are trapped in the dilemma posed by the question:
    ‘If central banks can potentially create an unlimited amount of [virtual], money out of thin air, how can we ensure that money remains sufficiently scarce to preserve its value?’
    If money is virtual, as you say, why are we hanging back at a QE of £375 billion? Let’s just put those printers on overdrive and go for (say) £100 trillion?
    What could possibly go wrong, give that it’s all virtual?

  • Geoff Crocker 15th Oct '12 - 10:14pm

    Sorry John but you have not read my article carefully. There is a need to read further where I make it clear that the amount of virtual money to be created to fund a citizen’s income should be exactly calculated to equal the gap between output GDP and aggregate disposable consumer income. This will not be inflationary. This gap will increase as technology ever increases productivity and reduces the real wage element of output GDP. Your old weary Weimar republic ‘printing money’ charge is extremist and unfounded. If you want to go back to the Gold Standard, then good luck to you. Money in circulation should be strictly determined by output GDP, not to the amount of some mineral we dig out of the ground. You can read Keynes for more derogatory comments on this.

  • Geoff Crocker 15th Oct '12 - 10:23pm

    John sorry I missed your post yesterday. Try this one to cheer you up 🙂


  • Geoff Crocker 17th Oct '12 - 6:03pm

    I agree that EU fiscal enforcers are politically totally unacceptable and infringe on national liberty. However, it is reasonable that to be a member of a currency union, i) member states have to agree a commonly determined (note, not a unilaterally imposed) interest rate, and ii) to only issue currency to the value of their national GDP/productivity. This second requirement is an obligation for any sensible economic management anyway, and so cannot be regarded as objectionable. The argument is a bout the first.

  • Richard Dean 17th Oct '12 - 8:02pm

    jedibeeftrix, you are up to trix. The actual Telegraph article did not say the country would accept that, It says one person in the country thinks the country would accept it. Quite possibly it is being presented in Germany as a way solely to handle Greece, or as a way for Germany to contrl everyone. Everything changes when politicians actually ask electorates to vote!

  • Geoff Crocker 17th Oct '12 - 8:12pm

    It’s not supranational governance, it’s shared international agreement which is hardly an unknown concept.

  • Richard Dean 17th Oct '12 - 9:54pm

    @jedibeeftrix. Your are having ze little joke again, ja?

  • Geoff Crocker 18th Oct '12 - 10:37am

    Jedibeeftrix. I wouldn’t put fiscal powers in the hands of a supranational commission. I would simply accept that if I want to join a currency union then a rule restricting how much of that currency I could issue so that it was in line with my GDP/productivity is totally reasonable and what any reasonable government would do with its own currency anyway. Greece simply hasn’t followed this rule and should be required to as a condition of staying in the Euro. Your point about electoral annihilation i) begs the question as to what the electorate rather than the Murdoch press and the Toryt right actually thinks ii) apparently forbids argument on any theme about which the electorate is presumed to have already made up its mind. Some political leadership this ? 🙁

  • Geoff Crocker 18th Oct '12 - 10:42am

    So have Germany, France, Holland, Italy, Spain, Austria, Belgium, Portugal etc, ‘drifted into servitude’ ? I think not. They are rightly amazed that Brits see a currency union in such terms.

  • Geoff Crocker 18th Oct '12 - 12:08pm

    Thanks Jedibeeftrix, I will indeed continue to make the argument for UK joining the Euro, It wouldn’t be the first time in human history that a minority view has been the correct one.

  • Richard Dean 18th Oct '12 - 12:33pm

    Perhaps it’s either the dtich or the wilderness!

    This latest development seems to be a proposal, not yet agreed. It’s one of the reasons why the UK has been so unwise in staying out of the Zone – we have essentially given away all possibility of having a significant input into whatever is finally agreed (and electoral reality is likely to make it different from what is proposed). It is this giving away of involvement in decision-forming which is the real problem – we have given away a large chunk of our sovereignty.

    Can we learn? Well, this is hardly likely to be the only time a major decision will be taken in the Zone. Economics is the tool of politics – the tail not the head. If we want to avoid giving away more sovereignty in future, we need to be part of that Zone, not outside it.

  • Geoff Crocker 19th Oct '12 - 7:47am

    My pro Europe and pro Euro view is entirely rational and not at all ideological. It is the opposition which is ideological. Constantly referring to the presumed electoral outcome rather than the logic of the case demonstrates this clearly. We’ve had enough of populist election posturing policies which prove unworkable – remember no new nuclear and no new coal fired powerplants without carbon sequestration? But we forgot to mention that we need 350TWh of power a year and if we don’t change this policy the lights will go out or the power price will rocket.

  • Geoff Crocker 19th Oct '12 - 12:12pm

    I was of course responding to Dane Clouston’s pejorative interpretation of the word ‘ideological’, but I agree with you on this semantic point. However I don’t agree with your conflating of the proposal of joining the Euro with ‘being governed by the common will of the EU’. It’s a currency union and, like any member, we would simply need to agree to the rules, mainly that we accept a common interest rate, and that we agree not to issue more of the currency than is supported by our GDP/productivity. Global competitive market forces would drive us towards a common interest rate anyway, and currency emission limits related to our GDP are also what we would do anyway. It’s like joining a club whose only rule is to behave sensibly. As for persuading the electorate, any sensible person would take advice before making an important decision, and the sounding board might well be the CEOs of major UK plc’s, who deliver much of our prosperity, asking whether they consider that a common currency would enable them to deliver more economic growth for UK by mitigating the currency risk of major investments targetting the EU market.

  • As a soft-eurosceptic Conservative, I do believe the euro is not set to collapse, mainly because it was designed with no emergency exits, and despite my general view, I am not entirely opposed to the euro. If it can really make living standards increase fuelled by a complete, transparant single market due to the single currency, and not fuelled by debt, encouraged by cheaper borrowing poorer EU countries like Greece evidently took advantage of, then there very well may be a ‘phoenix from the ashes’ scenario where the Euro part 2 can be prosperus and sustainable. But whether there’s it suits the UK economy is another question, perhaps the 5 economic tests was a little too critical, the only way we can see for sure whether the UK industry and jobs benefit the single currency is to experiment it for ourselves in the future.

  • So now it is 2013. Britain has spent a number of years with it’s interest rate set at just about zero, has entered a triple recession, has lost it’s AAA credit rating and Sterling is only worth €1.15 a drop of over 30% against the Euro.

    So for those who still cannot see the wood for the trees and still believe the “anti-euro” propaganda wake up and smell the coffee.

    I will put it this way, despite the turmoil the Eurozone has been suffering for the last 5 years, despite it’s inability to drop interest rates to zero to make itself more competitive, despite it’s differing ecomomies and demographics it has risen in value against the UK as a Nation but over 30%.

    Can you smell the coffee yet?

  • The reason why stirling vale has dropped against the euro is due to both devaluation and depreciation. The government is keen to boost export growth and reach a balance of payments hence they would have undertaken some devaluing methods like selling its reserves, the BoE may be doing the same. Also, if Britain adopted the euro in 2002/3, we may arguably be in the position spain currently is because it witnessed a similar crisis to us in 2008. Although Spain has lower debt to GDP (around 60 – 70%,) when Britain’s government debt stands at around 90% to GDP, Spain’s credit rating is BBB, due to the adverse economic conditions like very high unemployment and stagnant growth, thanks to the euro Spain theregore does not have a central bank that can rounds of QE, Spain also has lost the luxury of devaluation, and reviving a country’s export market is a key contributor in emerging from an economic downturn.

  • Paul Wilcox 6th Jan '14 - 1:43pm

    MacCann.. you must be spluttering in to that coffee. As the smell is of BS

  • David Evans 6th Jan '14 - 3:35pm

    @N MacCann – In Jan 2009 the Euro was worth £0.90p; now it is worth about £0.81p. Not a 30% rise in the last 5 years, but nearly a 10% fall. But don’t let facts get in the way of a good argument.

  • jedibeeftrix 6th Jan '14 - 4:12pm

    …. and another year of unemployment in the 25% range for some peripheral countries, 50% when youth employment is considered.

    young people who have been unemployed for five years now, that would be considered catastrophic here!

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