The European Union and the euro: this is a marriage made in hell
Over recent weeks I have traversed the UK debating whether it should leave the EU. I have been struck by the way that most speakers for readily acknowledge that the euro is a disaster yet still argue that the UK should stay in the EU.
Apparently, they regard these two as unrelated, or at least as separable.
Of course, in a simple sense they are right, because it is possible to be in the EU and yet out of the euro – which is precisely our position. But this separation is flimsy. The mess that is the euro goes right to the heart of why the UK should leave the EU.
“If the euro breaks up, whether the UK is in or out of the EU, we are bound to suffer to some degree”
First and foremost, it needs to be understood that the euro is the EU’s creature. It didn’t happen by accident, it was not imposed from the outside and it wasn’t necessary. The euro was the EU’s choice. It emerged from the essential nature of the Union and its tortured politics.
It had always been envisaged by those who dreamed of a United States of Europe that this body would have a common currency. In the Werner Report of 1970, plans were discussed as to how a common currency could come about.
Subsequently, debates raged about whether it was sensible to press on with fiscal and political union first, leaving monetary union to be introduced later as the coping stone (the so-called “German” view), or whether it was best to use monetary union first in order to force the pace towards fiscal and political union (the so-called “French” view).
In the event, what got the plans off the drawing board and the euro emerging into reality was the new dynamic created between France and Germany by the possibility of German reunification. This caused the French authorities to worry that Germany would become overwhelmingly dominant in Europe. President Mitterrand of France insisted that his country could only agree to German reunification if Germany gave up the Deutschmark which, it was perceived, was the source of much of her strength and power. Germany agreed. And so the euro was born.
A Greek flag flies next to a statue of ancient Greek philosopher Socrates in the center of Athens
As nearly everyone now acknowledges, the euro has been a disaster. Not only has it impoverished the countries of southern Europe, with huge numbers of people made unemployed, but it has also allowed Germany to run an enormous current account surplus, now amounting to over 8pc of GDP, obliging other countries to run corresponding deficits.
This economic catastrophe was imposed on the people of Europe in order to achieve the central objective of the EU – and to pander to the French establishment’s (as it happens erroneous) view of what was in France’s national interest.
The key question to arise from this episode is about what might happen in the future. The euro is not an isolated occurrence. It followed upon other barmy decisions, including the Common Agricultural Policy and the Schengen passport-free travel zone. Given free rein, who knows what monstrosities the European elites will yet unleash upon the people of Europe? What about a common pensions policy? Or tax harmonisation? The Remain side argues that the UK has got the best of both worlds by being inside the EU but outside the euro. Yet things cannot stay as they are. Either the euro will survive or it will not.
In order for it to survive, its members must move to fiscal and political union. If they don’t, the euro must break up. Either of these outcomes would have profound consequences for the UK.
If the countries of the eurozone fully integrate to become the United States of Europe, then we would be in an isolated and weak position within the EU but outside this extremely powerful bloc.
Recognising this, in his “renegotiation” with the EU, David Cameron tried to get some protection. In the event he secured very little. We could be forced to accept all sorts of measures that are not in our interests.
In this regard, it is noteworthy that in order to secure his “renegotiation”, David Cameron gave up the UK’s veto over further eurozone integration.
If the euro breaks up, whether the UK is in or out of the EU, we are bound to suffer to some degree. But I think it is clear that we would be in more danger if we were inside the EU at the point of collapse.
Let us imagine a very messy breakup of the euro that sees countries having to scrabble around to form new currencies, with markets in a state of disarray and all sorts of contracts up in the air.
In this country Project Fear has tried to portray a period of chaos for the UK if we left the EU. The perpetrators clearly have a vivid imagination. But if the euro broke up no powers of imagination would be needed.
At least initially there would be chaos. And this chaos would have serious economic and financial consequences.
Supposedly the UK guarantees that we could not be called upon to bail out the eurozone.
But imagine that across Europe a euro collapse causes GDP to fall sharply, unemployment to rise, government finances to deteriorate and banks to wobble. How will it be clear exactly what part of this mess will be outside the UK’s financial responsibility? There could easily be a move to expand the EU’s own budget in order to provide relief.
And in these circumstances of financial and economic collapse, imagine the movement of people. If the UK is faring reasonably well but continental countries are imploding, then there could be a surge of European workers wanting to move here.
In the event of a euro collapse, we would be better placed if we were outside the EU – and thereby able to control both our finances and our borders.
Roger Bootle is executive chairman of Capital Economics. The third edition of his book,”The Trouble with Europe”, has just been published by Nicholas Brealey.
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