(if it has one)
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.