Roger Bootle and the future of the €uro

(if it has one)

With Roger Bootle at the meeting in Brussels

Yesterday I had the privilege and pleasure of attending a seminar in Brux by Telegraph columnist Roger Bootle on the future of the €uro.  Roger is of course one of the UK’s most distinguished economists.  He is Managing Director of Capital Economics, and a former adviser to Ken Clarke (as Chancellor), and former Chief Economist of the HSBC Group.  He is also the winner of the 2012 Wolfson Prize for the best paper on the mechanism by which a country (let’s say Greece) could leave the €uro, with as little damage as possible.  The event was organised by the ECR Group and Chaired by Martin Callanan.

I have to say that I found it just about impossible to disagree with Roger Bootle at any point of his analysis.  He regards the €uro as an economic disaster, and while conceding that it was primarily a political initiative, he reminded us that its proponents also claimed (and perhaps believed) that monetary union would also be good for growth and prosperity.  Clearly they were wrong (as many of us pointed out at the time).

His Wolfson paper sets out a way in which a country could leave the €uro with minimum damage.  But that of course rather depends on European leaders deciding to admit they were wrong, and agreeing to a Greek exit.  This seems unlikely, given the political capital and political will tied up in the project.  Though as I reminded Roger, he himself had written in his column that “No amount of political will can enable you to hit the moon with a pea-shooter”.

Nonetheless, he feels that it would be possible, at least in theory, to maintain the €uro, given sufficient willingness by Northern Europe in general, and Germany in particular, to keep bailing-out the periphery.  We could envisage an on-going series of crises, with Germany solving each one with a bail-out.  But Roger adds that this would be hugely expensive — an open cheque-book.  He didn’t make the comparison, but it would be comparable (on a larger scale) to the regular subventions from London to Scotland under the Barnett Formula.

He also points out that such an arrangement would keep Greece in grinding austerity and deflation for the foreseeable future.  It would also prevent the Eurozone from achieving growth and prosperity.  But it could perhaps be done.

Except for politics.  I don’t believe that the Greeks will stand for indefinite austerity, nor that the German Bundestag, or the German people, will stand for bail-outs much longer.  I put it to Roger that if Greece leaves the €uro, it will suffer eighteen months of chaos followed by recovery, while if it stays in, it can look forward to decades of abject poverty.  He agreed.

Roger thinks the most likely outcome is a series of crises in Greece (and perhaps other peripheral countries), with Germany reluctantly financing bailing-outs until its patience finally runs out.  I agree.  Then Greece will make a forced exit, rather than a planned and orderly exit.  As usual, the EU seems dedicated to the worst of all possible worlds.

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7 Responses to Roger Bootle and the future of the €uro

  1. Tony says:

    “No amount of political will can enable you to hit the moon with a pea-shooter”. Excellent! Sums up the result of all those EU leaders’ futile summits.

  2. Jan says:

    I believe that before you deal in politics you should all have to work in the real world. Are you not the man who said White Asbestos isn’t dangerous, when the whole scientific world disagrees. Get a grip of what is real and then maybe people may listen to you.

    • Thank you Jan. Of course I only worked in “the real world” for 33 years, so I suppose that doesn’t count? And the UK government’s own report on white asbestos shows that contact with it entails no measurable health risk.

  3. maureen gannon says:

    I believe that Frua Merkal is smelling the coffee at long last. Her threat to Cameron sounded desperate to me ,the threat that we would be lost in a big world sounded more like a diguised plea.

    “Germany needs you, you are the only country whose people have spirit, Germany will be left on her own without you, ” who else will give us 54 million a day ?

    Well that’s how I read it..

  4. Wilfred Aspinall says:

    I have responded to comments on the euro before in your blog. The trouble as you identify is that the political leaders of the EU and the unelected Commission and their officials are reluctant to admit that you cannot have monetary union without political and fiscal union.

    What is interesting is that some German academics, economists and business leaders appear to be pressing for Germany to establish a new super currency – I have heard one call it a “golden mark” – leave the eurozone and together with Finland, Netherlands, Austria, and Luxembourg develop a better and more competitive instrument. What they have not answered is whether they would go for political and fiscal union. Remember many EEC Countries pegged the D Mark prior to the establishment of the euro through the ERM, even the UK until Black Wednesday.

    The rest of the eurozone would have to fend for themselves by devaluation and making peace with their citizens that austerity was there to stay for quite some time.

    Don’t forget the UK came out of the ERM and we never looked back.

    The UK government should make it quite clear on membership of the euro, political and fiscal union – as was said by Mrs T to another EU proposal – NO; NO; NO

    Wilfred Aspinall
    Former Member
    European Economic and Social Committee

  5. Tedgo says:

    I don’t agree with several aspects of Mr Bootles plan. What he is forgetting is democracy, I cannot see how Greece could carry out any of these plans with out the approval of the Greek Parliament. There is no way it can happen secretly or quickly.

    The Greek government needs to ‘secretly’ draw up a plan and then present it to the public at large. Such a plan should present a time table and put emphasis on how peoples private wealth will be protected. The difficulty with Mr Bootles plan is that he intends to effectively confiscate everyone’s bank account by turning them in to Drachma accounts over a weekend, yet he admits such people have the least dept.

    What he fails to appreciates is how long bank software changes and the like would take. His plan relies heavily on electronic transactions in the initial stages.

    Not a very good plan.

    • I suspect that Roger Bootle knows at least as much about these issues as you or I, Tedgo. In Greece’s position, you can’t possible announce the intention to leave the €uro months in advance, and spend time debating it. No plan for a Greek exit is simple, but I believe that Bootle’s plan is as good as it gets. Obviously Wolfson thought so too.

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