The European Union has tried to solve the crisis that is affecting confidence in the Euro. It seems that the wisdom of the leading Euro nations has brought together a series of proposals which may or may not involve changing the treaties governing the European Union and which have the approval of all of the 17 nations that use the Euro as their currency and some of the nations that do not use it. The United Kingdom and Hungary have rejected treaty changes and Sweden with the Czech Republic want to consult with their Parliaments. It is difficult to summarise exactly what has been agreed because as usual the EU’s policy is shrouded in loose and imprecise language which might serve to assuage local Parliaments but does nothing to explain to all of us exactly what will happen. Politicians like loose language and develop its use over their lifetimes. Generally speaking, the more successful the politician the more ambiguous the statements that fall from his or her lips.
I understand that most EU countries have agreed to tight budgets supervised by the EU with strict penalties for those that do not adhere to the budgets. This is odd because a tight budget depends upon strict audit control and the EU has failed to have its own spending cleared by its own auditors who have been unable to sign off EU accounts for very many years. It is another case of “do as I say, not as I do”.
The other agreements reached by the majority of EU nations seems peripheral to the agreement on the budgets and not terribly relevant except to try to use existing structures, like the European Central Bank, more effectively.
The bond markets which are important to the EU do not seem to have much confidence in the solution offered by the EU, and stock markets are also pessimistic about it, but in both cases mildly so because I suspect the detail of what precisely will be done is lacking. The European Union is trying to solve a crisis of confidence in the Euro by acting slowly and carefully with its main object to preserve the Union rather than to preserve the currency.
It seems inevitable to me that the Euro in its present form will not survive. Perhaps a single currency may work in the interests of France, Germany and the Benelux nations but not, in my view in the interests of the other nations now. I have my doubts about the financial strength of France. That has not been well covered in the reporting of the crisis.
It is likely that a Euro encompassing fewer nations will succeed and those that have left the Euro might rejoin after they have successfully controlled their budgets and spending; if that happens there has to be a much more rigorous audit when nations rejoin the Euro than there was last time. Greece, Italy, Spain Portugal and Ireland all to some extent fiddled their books in order to join the Euro and when you fiddle your books eventually the truth emerges and that is exactly where we are now.
In other words the dream of a united Europe became paramount when setting economic criteria for the creation of a single currency, instead of the reality, which is that single currencies can only work if there are similar taxes and a central federal control over the currency. None of that exists now and it remains to be seen as to whether that will exist in future. If it does not so exist then the Euro is doomed.
Many leading economists take the view that if the Euro collapses all will be doom and gloom and we will push into recession or depression. They say that saving the Euro is important because it will save our savings in that banks have lent to the nations in the Euro zone and that money is at risk.
I disagree with these predictions. A collapsed Euro will not necessarily drive the world into a depression or recession. When nations have defaulted on their debts previously the world did not end, in economic terms. It will be no easier or no harder than if we maintain the Euro at great economic sacrifice.
As far as the claim about our banks losing the money they lent to Euro zone nations is concerned, that money is already lost. The only difference in keeping or abandoning the Euro will be the pace at which the loss is admitted to the public. The markets already know that you cannot save what has already gone.