Remaining in the single currency is no longer a rational choice for many countries – but will its creators listen?
Already in Greece, Spain and the Netherlands, the voters are rejecting austerity – and once they start to link that austerity to eurozone membership, monetary union will collapse quite quickly
More than six months have passed since Frances Weaver and I published our pamphlet, Guilty Men, identifying those financiers, politicians and propagandists who advocated the creation of the European single currency 15 years ago, and exposing the dishonest or even brutal methods they used.
Our pamphlet was not an exercise in academic point-scoring. As Winston Churchill told the House of Commons, in the context of appeasement in 1936: “The use of recriminating about the past is to enforce effective action at the present.” Our task was no less ambitious. We wanted to silence and, if possible, to shame those voices in British and European public life who have been responsible for the tragedy of the euro, and therefore enable the resurrection of sensible and humane economic policies.
We failed. It must be acknowledged this week that the main reason for the depth and longevity of the economic and financial catastrophe striking Europe is that all the policy-makers who are dealing with the crisis were advocates of the euro right from the beginning. In other words, the very people who caused the conflagration in the first place are in charge of putting it out.
This is a disaster. For them, the logical step of abandoning the failed policies of the past decade is unthinkable. It would be an admission of defeat and mark the disruption of their demented vision. This means they are determined to reinforce failure. Far from being driven out of public life, which is what they deserve, the creators of the eurozone crisis remain very much in charge of events.
Let us consider some of the farcically mistaken pronouncements of the past few weeks. The famous Irish Eurocrat – and Goldman Sachs International chairman – Peter Sutherland boasted in The International Herald Tribune that the euro “saved the European economy from fracturing in the economic and financial crisis unleashed by the collapse of Lehman Brothers”. This is delusional.
Or consider this remark from the witless former Conservative foreign office minister, Lord Garel-Jones, who is a managing director at the Swiss financial conglomerate UBS. Just a few days before the collapse of Bankia, Lord Garel-Jones presciently informed readers of The Times that “all the main Spanish banks are solvent”, adding for good measure that the euro is “too big to fail”.
Such is the sensibility of the European political class as they confront one of the largest financial crises in our history. Collectively they are quite unprepared to acknowledge defeat, as this week’s call for eurobonds shows. This new financial device has been inaccurately described as a merger of the European banking system. In truth, the creation of eurobonds will be more important even than that. They would have to be underwritten in common by all European countries, making Germany responsible for the debts of Greece and Spain (and, in theory, vice versa). The introduction of eurobonds would therefore lead immediately to the full economic and political integration of Europe, which has been the objective of the European political class from the very start.
Leaving aside the awesome institutional implications, eurobonds might indeed provide yet another temporary financial fix. But they could not confront the deep structural problems which have brought about headlong economic and social collapse in Greece and elsewhere. The only lasting solution to the crisis is a total reversal of the policies being pursued by the European elite.
The weight of respectable opinion (which most unfortunately embraces all three British mainstream political parties, all of whom appear to have been frightened out of their wits and rendered incapable of rational thought) is that such a solution is out of the question. But respectable opinion has been 100 per cent wrong from the start of this crisis. Hence the importance of a paper published this week by Jonathan Compton of Bedlam Asset Management, a heretical investment company which (almost alone among City firms) predicted the banking crash of four years ago.
Mr Compton expertly makes the case for the weaker eurozone countries to default on their debt and to pull out of the single currency. He argues that such a move, far from leading to the chaos and devastation predicted by an out-of-touch Euro elite, would very quickly cause the return of economic buoyancy.
Inside the eurozone, a number of countries – among them Greece, Spain, Portugal, Ireland and Italy – are facing intolerable levels of distress. Bank depositors are withdrawing their money, the banks are in collapse, capital investment has stalled, while foreign investors are pulling out as fast as they can.
Mr Compton argues that the moment that these countries quit the eurozone and default on their debt this process will go speedily into reverse. The bank depositors, no longer having anything to fear, will return. New owners will buy the failed banks and foreign investors will flood back in, while a surge in inflation will stimulate a revival of economic activity.
Certainly, there is likely to be a brief period of chaos, but that is a negligible problem compared to the guarantee of permanent austerity and recession these countries all face inside the eurozone. Within a very short space of time, unemployment will start to fall and as a result wages will rise. Social discontent – today an ever-present danger on the streets of big European cities – will be averted. Above all, systematic economic collapse, which is a stone-cold certainty for many countries so long as they remain inside the eurozone, can be avoided.
We are reaching a very important turning point in the story of modern Europe. Until very recently the euro was a rational proposition for the majority of citizens. It brought tremendous benefits, including jobs, stability, and prosperity, which could never even have been dreamt of outside the eurozone. Now the balance of advantage has turned the other way, and membership holds out the unlovely prospect of rapidly falling living standards, job disruption, and political chaos.
The Euro elite, whose devotion to their single currency bears some of the characteristics of a religious cult, are fighting to save the status quo. But there are very interesting signs that a popular revolt has at last begun.
Already in Greece, Spain and the Netherlands, the voters are rejecting austerity – and once they start to link that austerity to eurozone membership, monetary union will collapse quite quickly. This partly explains the warnings of economic Armageddon that would follow from euro collapse emanating from Brussels and Frankfurt. In fact, the opposite is the truth.
The last time Europe was in the grip of a rigid financial dogma was in the immediate aftermath of the First World War, when the collective bureaucratic and political mind was unable to envisage an alternative to the prevailing gold standard. This outdated economic thinking inflicted devastation and untold suffering, while sowing the seeds for the rise of fascism and the outbreak of the Second World War.
It is not going too far to observe that the chanceries of Europe are in the grip of a similar madness today.