Roger Helmer MEP blogs here.
I was delighted to see that Peter Oborne, in his Daily Telegraph article today about the €uro, quotes my line (tweeted earlier in the week). I said that asking “Can the €uro be saved?” is a bit like asking a cancer patient how we save the tumour. I received an e-mail recently from a constituent pointing out that the EU’s single-minded objective is solely to save the currency, when it ought to be about saving the eurozone economies.
This is a key point. We talk about monetary issues and economic problems, and it’s all too easy to forget that we’re talking here about a real human tragedy. People, families, communities, companies, nations, are in despair as they lose jobs, incomes, pensions. Poverty is stalking large parts of Europe, and the light at the end of the tunnel seems to have gone out entirely. The issue is not how we save the €uro (described rightly by Lord Lawson as one of the most irresponsible political experiments of the post-war era). It is how we rescue millions of people from penury and depression, and how we avoid years – decades – of grinding deflation for countries like Greece and Portugal.
Of course George Osborne is probably right to insist that the best thing that could happen for British economic prospects (at least in the short term) is the resolution of the €uro débâcle. But restoring confidence to the financial markets will not, by itself, solve the underlying problem of massive economic divergence between Germany and southern Europe . The disorderly demise of the eurozone would indeed create major problems for the UK . As my former staffer Sally McNamara (now a senior European analyst with the Heritage Foundation in Washington ) has pointed out, the damage to the UK has been estimated by Ing Bank at £5 billion off GDP. But as Sally also recalls, that’s just about the estimated cost, annually, of European regulation to the British economy. We need to get this in proportion.
The solution proposed by Angela Merkel – and now (it seems) meekly accepted by Sarkozy – involves a fiscal union with draconian powers and sanctions, ending forever the economic independence of the eurozone nations. The sanctions will (presumably) take the form of fines. But then that was proposed for the Maastricht criteria. Yet just about all the eurozone states broke the Maastricht criteria, and none was fined. Why not? Partly because no one would vote for fines that were as likely to affect their own country as others, but largely because the sanctions wouldn’t stick. What is the point of imposing a massive fine on a country that’s already over-borrowed and close to bankrupt? It merely makes their problems worse.
There is also, of course, a timing problem. Markets want an answer by Monday. Merkel’s new treaties (on past form) will take years to put in place.
And common Eurobonds are all very well, but unless the plan also includes massive fiscal transfers (this doesn’t seem clear yet), then it will condemn Southern European countries to long-term poverty, uncompetitiveness and deflation. That would be politically unacceptable in Spain or Portugal.
But Merkel’s dilemma is that the alternative – accepting that Germany makes the fiscal transfers, and becomes the paymaster of Europe – would be politically unacceptable in Germany. German voters would ignore the massive benefits to their economy of a €uro which (for Germany ) is undervalued. They will not feel any obligation to subsidise profligate Greeks – or at least not €20 billion a year’s worth.
So any “solution” agreed this week by EU leaders may mollify the markets for now, but it is (forgive the tired cliché) just kicking the can a little further down the road, buying a little more time – but storing up trouble for two or three years’ time.
The problem is that southern European countries simply cannot recover competitiveness within a currency union with Germany . We need to recognise that the €uro is the disease, not the patient — the problem, not the solution. We need to start worrying about the human tragedy the €uro has caused, and how we address it. And the only answer, one way or another, is to dismantle the failed experiment of monetary union. There are various ways in which this could be addressed – Greece et al breaking away, a North-South split into two €uros. And it must be done in a planned and relatively orderly way, or we can wait for the train to hit the buffers.
We need to recognise reality, to take the hit, to minimise the damage – and to benefit, as we surely will, when floating exchange rates in Europe facilitate a return to growth. If we fail to do these things, then we shall be having this debate all over again in a few years (or months) time. That is why Conservative back-benchers will not take kindly to a British policy of backing fiscal consolidation in the eurozone with no countervailing concessions to Britain.