Camborne is wrong on the eurozone

Cameron and Osborne have a clear line on the eurozone.  While they think the €uro was a misguided venture, and they don’t want to join — ever — the argument goes that a disorderly breakdown of the €uro would be a disaster for the UK economy, and that the eurozone is such a key trading partner for the UK that any recession there would cause us huge damage.

Based on this analysis, Cameron makes encouraging noises about “Big bazookas”, and (despite the Veto) about the UK’s moral support for efforts to save the €uro.  And he is prepared to cough up billions of British tax-payers’ money for the IMF, knowing that much of it will be diverted to “Saving the €uro”.

I think this analysis is fundamentally flawed.  For a start, I don’t believe that the €uro can be saved, and I believe that attempts to do so are just throwing good money after bad.

I wrote yesterday about the importance of seeking trade and growth outside Europe, and I quoted Matthew Lynn in Money Week, who argues cogently that a eurozone melt-down may do the UK a great deal less damage than the pundits predict — and may even offer net benefits.  Of course every silver lining comes with a cloud.  For example, if the UK becomes a “safe haven” from the eurozone, we may see capital inflows that drive up Sterling and damage our competitiveness.  The Bank of England is reported to be looking at emergency capital controls to deal with this contingency.

Nonetheless, we should bear in mind that there are credible voices challenging the “disaster for Britain” scenario.

There is a broader reason to believe that a €uro melt-down would not be all bad — for Britain and, indeed, for Europe.  Lord Lawson has described the €uro as “one of the most irresponsible political initiatives of the post-war era”.  Sajid Javid has described the €uro, with some justification, as “A Bankruptcy Machine”.

To get past the current hard times, we need growth.  It will benefit the UK hugely if our major trading partner, the EU, resumes a growth trajectory.  In my view, that cannot happen so long as the €uro is in place.  You can’t grow when your currency is a bankruptcy machine.

Remember when we left the ERM in 1992?  All the pundits predicted disaster, yet growth and recovery started almost instantaneously.  Imagine, for a moment, Greece defaulting and devaluing.  Suddenly their ouzo and their olive oil, their tourism and their tavernas, would be competitive again.  Growth and recovery come with a competitive currency.  Within the €uro, Greece faces nothing better than decades of grinding deflation, and very likely civil unrest as well.  The same applies to Portugal, Italy, Spain.

Of course all this won’t be pain-free, and many banks will suffer from sovereign defaults.  But we have to bite the bullet sometime, and all our efforts to rescue a failing currency just postpone the day of reckoning.

To summarise: the Camborne policy can’t succeed.  It will prove hugely expensive.  And far from delivering growth, it actually prevents growth and keeps Europe in recession.  Bad news all round, and time for a new, euro-realist approach.

This blogpost first appeared on ConservativeHome.

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11 Responses to Camborne is wrong on the eurozone

  1. Mike says:

    The devil is in the detail. Of course every sensible person wants a peaceful, prosperous Europe which is united like the United States under a democratically elected and democratically controlled government which can be replaced out of a set of free thinking and open parties.

    What we have got is a small group of unelected people controlling a vast and increasing budget to pay for an enormous and all powerful bureaucracy.
    The result is that our freedom to trade, to think, to invent, to decide what we will buy, eat and use are all controlled by a group of distant, arrogant and quite often second rate people in Brussels.
    No wonder we are getting poorer by the day!

    • Sorry, Mike, but I certainly don’t want a Europe “united like the USA”, nor do I believe that such a union is possible. I think there are fundamental reasons why democracy cannot work without a demos, and why the diverse populations and nationalities of Europe can never constitutue a single demos. John Stuart Mill put it best: “Where peoples lack fellow feeling, and especially where they speak and read different languages, the common public opinion necessary for representative government, cannot exist”.

  2. Edward Green says:

    I agree so much that the Euro is going to fail, come what may. I have been convinced of this for a couple of years now. However, I think that Cameron and his Cabinet are in a very difficult position from a diplomatic and political point of view. I very strongly suspect that Cameron and Osborne have come to the same conclusion but saying so publicly would do massive damage to our relationship with all of the other members of the EU, not just the Eurozone. It would also go some way to making them a sort of scapegoat for the fools who are really responsible for the mess.

    I also think your criticsm of providing funds to the IMF is fair. Unfortunately I think this is also a delicate matter, especially when one remembers that the UK has had to be bailed out by the IMF in the past. The choice of Christine Lagarde as its chief after the Strauss Khan scandal has proven to be the disaster that many of us predicted. Whatever the purpose of the IMF is, I’m sure it is only there to help countries and currencies that have some sort of fiscal discipline and at least a reasonable chance of rectifying whatever their problems in the foreseeable future. The IMF is not there to shore up a currency that simply cannot be saved. Lagarde clearly thinks otherwise.

    On a more general note I respectfully ask that you and your Eurosceptic friends think about the following Roger. I’m not a Eurosceptic who wishes to leave the EU but I am not a Europhile who wishes to see the UK join the Euro, not that it could happen anyway, and I don’t want the UK involved in the Common Foreign and Domestic Policy Ideal either. I suppose I am a “Euro-pragmatist”.

    The reason that I point that out is that Eurosceptics can be seen as too hostile and too happy to see it fail. While this upsets Europhiles, it is also easier to dismiss regardless of its at least equal validity to any other point of view. While, like you, I don’t think the break up of the Euro is going to be as aweful for the UK as some want us to believe, it is important not to belittle the damage that will still happen. I’m not suggesting you or anyone is doing that, but it can easily be done if one is not careful.

    Some people are basically saying that they hate the EU, they hate everything to do with the EU and they are greatly enjoying the difficulties in the Eurozone regardless of the reduction of our trade with it. When it crashes, they will go around saying “I told you so, and isn’t it wonderful!”. I’m not saying that you go that far but some some do and others would wish to interpret your position as the same.

    It is still potentially dangerous for this point of view to push Cameron or any other UK prime minister into a political stance that is seen as hostile and arrogant when he would wish to be involved sorting out the mess that is left after the Euro’s failure. On the other hand he should not recklessly and foolishly sign up to stuff that is clearly going to fail. Again this is a delicate matter. Perhaps it is about acting with strength, but talking with a bit of humility.

    My own view is that I do not want the Euro to fail. I never have. I never wanted the UK in it either (interest rate setting) but I would much rather see it flourish and “UK plc” trade well with those countries that have adopted it. As the fact that it cannot survive becomes more obvious though it is much better to put it out of its misery and stop throwing good money after bad. The sooner this happens the sooner we can all get back to sustainable and respectable growth.

    While that message still cannot be publicly said by Cameron, I suspect it might be better to come from Eurosceptics than the “We wanted it to fail all along!” idea that seems to be coming from some of them.

    In summary, I suppose it could be explained thus:

    The only thing worse than being told “You are wrong!” is being told “I told you so!”

    • You have a good point, Edward. We should avoid schadenfreude. But when one has been dismissed for years by the bien pensants as foolish, ill-informed, prejudiced, ignorant and wrong, one can surely take a little satisfaction in being fully, finally and overwhelmingly vindicated?

      Equally I think one is entitled to be hostile to the EU if one believes, as I do, that it is making us poorer, and less democratic, and less free (Dan Hannan’s phrase). It is taking away our freedom, and it is failing to address the mess it has made with the €uro, which is now threatening the global economy. As my bumper sticker puts it, “Love Europe. Hate the EU!”.

      • Edward Green says:

        Fair points Roger.

        The reason I raise the “I told you so!” issue is because I see the best way forward as actually putting the Euro out of its misery. It actually needs to be killed, and killed yesterday. I believe that this massively is in our interest in the UK but I believe that it is also equally massively in the interest of the EU generally and of the Eurozone itself. I believe now that we should actually seek ways of accelerating this. However, such a message coming from you, respectfully, might be interpreted as “more of the same” and have less of an impact than coming from a politician with a similar view to my own.

  3. Maureen Gannon says:

    I can be labelled a euro sceptic but I am not a badge wearer, prefer to be called if anything, a believer in democracy, I am anti , being ruled by unelected ideologists,the one size that fits all that allows Germany to thrive on the backs of non manufacturing countries,
    Of the way they move the goalposts such as the egg debacle which will in all probability bankrupt some of our farmers, how when people are losing livelehoods and homes across Europe they spend billions on monolithic buildings to house the unelected president and forgein ambassador.
    And finally I do not want my country aligned with what is a fraudelent body, A trading area yes a federalisation of the land mass that is europe no.
    I have no objection to being called a Eurosceptic/a Little Englander/ or cleggys termonology a Pygmy I left school many years ago and we had a saying “sticks and stones may hurt my bones names will never hurt me” so any sneering name calling will not stop me from holding my views, and am wise enough to know these are used as an emotive tool to suppress debate.
    So if you wish to label me I don’t mind “Pro Democracy.”

    • I agree Maureen. But note my comments above about the impossibility of “democracy at the European level”.

      • Maureen Gannon says:

        100% agree with you Roger we were taken in on a lie to a house built on sand , and it is the working man and woman who are suffering, I would have us out tomorrow give the contract to all manufacturing to our own workforce, I see Bombadier has been thrown the crumbs before the cake is handed to the Germans, OUT Now is how I feel.

    • Maureen Gannon says:

      correction foriegn

  4. Gail says:

    Correct me if I’m wrong, but I seem to remember a previous attempt at one single currency before the Euro (the name escapes me for the moment) which did not get off the ground. So let’s change it’s name to the Euro and give it another try. Whilst it may have lasted longer than the first attempt, it is just as doomed as the other one. If P.I.G.S. still had their own currency they could devalue it and put their own house in order without any interference from outside influences.

    • Gail: I think you’re thinking of the 19th century Latin Monetary Union. But there have been repeated attempts at monetary unions and exchange rate mechanisms, and you can say two things about every one of them: they all failed. And they all made their participants poorer.

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