Mention problems in Euroland and we all indulge (if we can stay awake) in a mixture of “told you so” and “ho ho ho”.
But in this inter connected World, in a globalised economy, pain in the form of fewer jobs, low growth and so fewer tax receipts from which to pay for our public services, knows no national boundaries and pays no respect to people who say “this has nothing to do with us”.
Thank heavens we’re not in the euro! We have been able to keep our interest rates low without doing what Frankfurt demands. That’s good news for the businesses, the shoppers and the borrowers of UK. We have been able to increase the amount of cash in our system (quantitive easing … printing money as my Dad would have put it!) without only doing what’s in the best interests of France or Germany. And we’ve been able to use those levers at a time of our choosing, not Europe’s. There is a word for countries in the economic mire who can’t do any of that independently … Greece!
In boom times countries can spend away without financial discipline since everyone can have prizes and politicians bask in the reflected sunshine of financial well being. But when the tide goes out and recessionary times arrive, the wrecks that were always there, lurking at the bottom of the economy, come into view and sink many a ship.
In such times you cannot achieve successful monetary union without political union. Effectively one country has to do what another country (or group of countries) tells it to do. What tax rates it can apply: how much it can spend on its public services; at what age people can retire. Loss of sovereignty. One eurostate.
If this doesn’t happen then in democracies monetary union won’t work. German car workers won’t vote for a leader who tells them they are retiring at 68 and paying more tax so that a Greek train driver can retire at 55 and his Government can keep on spending. And elected Greek politicians would much rather blame “Brussels” than themselves. Turkeys don’t vote for Christmas!
So it’s a case of “phew … missed all that then?!” … er … no.
40% of what we export as the UK is bought by Euroland. If they are in an economic crisis, lose confidence, don’t spend then they stop buying what we sell ‘em. They stop borrowing to buy our excellent but expensive cars and planes. Our ability to make money in the UK and thus employ people (and take up the slack from redundancies in the public sector) and pay tax is impaired. Our growth drops. Nothing to do with being in or out of the EU (if we were out there would be free trade agreements in place to facilitate free trade at once – it would be in everyone’s interest so to do) … everything to do with simple supply and demand. Our market can’t afford to buy our stuff.
And that is why is matters to us all that Euroland gets this sorted … and quickly.
Did last Friday’s actions sort it? In the short term, yes. The patient has had another shot of morphine. But the cancer is still there. Only radical surgery will sustainably crack it. Either Greece (or Italy or Portugal or Ireland) hands over the keys to others or it leaves the Club. If it left the Club it could never repay its euro debts in drachma so it would have to wipe the slate clean … default … and start again. Then it has a chance as an independent country.
To allow “temporary default” (whatever that means) only for Greece (so why not Portugal?) and expect it to pay back one day debts which are greater than the money it generates as a country (its GDP) is the economics of politicians not real business life. The Fat Lady hasn’t sung on this one yet … by quite a long way. When she does, Euroland will never be the same again … and the UK, her people and her businesses, had better have been paying attention and preparing for a different market and different rules of the game.