Toby on Tuesday

'Banknotes and Bankruptcy'

 

Last week I wrote about EFTA, that sensible Swiss-based institution created by British civil servants to further European trade and co-operation.   Its members thrive while the truly insane ambitions of the EU are drawing the whole Continent deeper into the abyss.   We can only hope that a vote for “Leave” on 23rd June will act as a wake-up call for Europe and ensure that the EFTA model, not the EU model, is the way ahead.   Maintaining the balance of the Continent, after all, has been Britain’s strategic role in Europe over the centuries and this time will be no different.   And where better to start than by bringing realism to the whole failed structure of the Eurozone, described recently by Mervyn King, Governor of the Bank of England from 2003 to 2013, on the Andrew Marr programme as an “economic disaster” for Britain.   Now no one understands the Euro currency better than Mervyn King who guided our country through the 2008 banking crisis.   This fine central banker has just published his memoirs which he calls “The End of Alchemy” and which is essential reading for anyone interested in the EU.   And when interviewed about his book and the June Referendum the other day he declared, “I saw this letter from business leaders this week saying we should stay in.   Some of them are the same people who said Britain should adopt the euro.   Why on earth should we listen to them?”   And his book could not be more explicit in its condemnation of the whole EU project.

Although couched in central bankers’ language, the immensely practical Mervyn King cannot hide his frustration at the devastating effect of the euro on large parts of the EU, in particular Greece.   Of this beleaguered country he writes, “The situation in Greece encapsulates the problems  of external indebtedness in a monetary union.   GDP in Greece has collapsed by more than in the US during the Great Depression.   Despite an enormous fiscal contraction bringing the budget deficit down from around 12pc of GDP to below 3pc in 2014, the ratio of government debt to GDP has continued to rise, and is now almost 200pc...Fiscal austerity has proved self-defeating because the exchange rate could not fall to stimulate trade...It is evident, as it has been for a very long while, that the only way forward for Greece is to default on (or be forgiven) a substantial proportion of its debt burden and to devalue its currency so that exports and the substitution of domestic products for imports can compensate for the depressing effects of the fiscal contraction imposed to date.   The inevitability of restructuring Greek debt means that taxpayers in Germany and elsewhere will have to absorb substantial losses.”   The longer that the EU fails to acknowledge the basic design flaws of the euro, the greater will be those losses and you can be certain that, as long as Britain is an EU member, even if not a Eurozone member, we will have to pick up part of the tab when the moment of truth arrives.

For my own part, and this is not UKIP policy, I believe that the euro should now become a fiat or artificial currency to be used as wished by anyone wanting to trade within the EU.   However, Eurozone member states should now be free to reconstitute their own national banks and currencies which can issue their own money.   The old pre-euro currencies can be restored which can then fluctuate against the euro and find their own market level.   The Greek “New Drachma” could then depreciate against the euro, helping its economy to return to growth, while the same could apply to all of Southern Europe.   By contrast Germany could restore its own “New Deutschemark”, which would strengthen against the euro and give comfort to German savers.   Only in this way could equilibrium return to the eurozone, with the euro itself running as a parallel currency alongside the restored currencies of the EU’s member states, each with its own national bank once more.   Now you may ask why Britain, where we have retained Sterling in large part thanks to fine central bankers like Mervyn King, should be interested in these things?   The reasons are twofold, the first being that we have been and also certainly will again be asked to bail out the euro during its next crisis and the second being that the effect of the Eurozone on the whole EU is, in Mervyn King’s words, an “economic disaster” for Britain.   And an overwhelming vote for “Leave” on 23rd June could just be the catalyst that will at last bring the whole EU to its senses!

Until next Tuesday!

Toby