I confess it, I was surprised, and to an extent proven wrong. I really didn’t think euro leaders would come up with such an ambitious and far reaching plan to save the single currency. Then again, judging by their reaction, the markets had been equally cynical, and were just as surprised. The danger is obvious: it matters not how much money authorities find, in the long term whether or not the euro is saved boils down to things like competitiveness and productivity. But the resolve of euro leaders really did impress me, and the reaction of the British media irritated me. I wonder whether the ultimate loser may be the UK.
So the markets liked it, with main stock indices across the world hitting their highest level since August. The price of UK and US bonds fell. Interestingly, gold rose, hitting a four week high. Oil is up too, US Sweet crude has risen $17 from this month’s low. The stubbornness of the price of oil worries me. The fact that it has not fallen further in times of such uncertainty, maybe provides evidence that the peak oilers are right, and that in the medium term it is set to shoot up.
Personally, however, I think the markets have overdone it. There is a real risk that the Eurozone, the UK, and maybe the US will follow Japan into ten years or more of economic paralysis. In such circumstances, I find it hard to believe China’s growth will be maintained. I still reckon oil will fall sharply in price.
But let me say this. The EU does offer one incredibly important benefit, and the euro scepticism I read day after day across the British media really fills me with alarm. Remember that before there was an EU, Europe was a continent that had seen internal wars ever since the day when we had a Roman Emperor. Bearing in mind, the events of 1914-1918 and 1939 to 1945, the fact that France, Germany and Italy, not to mention Holland and Belgium, have moved so closely together is little short of a miracle. The leaders of these governments are motivated, above all, to ensure their close ties remain. It is something the UK press seems to forget.
Personally, I think that Sarkozy Merkel and co, by making the single currency so important, have unnecessarily boxed themselves into a corner.
But suppose I am wrong. One thing that has become abidingly clear over the last few weeks is that most British so called experts think it is inevitable the euro will in some way fall apart. Most of their equivalents from within the euro disagree. One of these two sides must be wrong. And I sometimes think that in Britain we underestimate the resolve of the people in the euro to make the currency work, and that we also fail to understand how the legacy of two world wars is influencing this determination. The fact that Britain was neither occupied, or was an occupier in Europe during these periods has influenced our thinking today far more than is commonly realised.
The British/euro clash also boils down to ideology. According to an article in the ‘Economist’ from a few months ago, if you ask the average Brit what the opposite of competition is, they will say monopoly. In contrast, the average French person will say solidarity.
Of course, the euro bailout won’t work unless the euro region itself sees improvements in competitiveness. Countries such as Greece and Italy must become more competitive relative to Germany. But the region as a whole must become more competitive relative to the rest of the world. It is also my view, that Germany must spend more, and other euro nationalities spend less.
But it seems that most British economists are of the opinion that this objective can only be achieved by encouraging greater competition, and letting capitalism do its worse, by punishing poor business practice and rewarding good practice. In contrast, many within the euro think the objectives can be achieved via cooperation. Greece can be made more competitive via a mixture of EU encouragement and threats. The euro view seems to be that in the long run, the single currency will make the region stronger.
I disagree with the euro perspective, but then I am not viewing the crisis through the prism of being a citizen of a euro country.
Let me finish on one more note. I really believe the UK needs Europe, more than Europe needs the UK. Last night on TV Will Hutton, a man who I respect, argued in favour of the euro and in favour of us eventually becoming a member of the single currency. His arguments are not being taken seriously at the moment, and the flaws in his ideas are obvious for all too see. And yet, such has been the determination to save the euro that I do wonder sometimes if maybe the euro will survive. After all, if it can survive the current crisis, it can survive almost anything.
It took nigh on 15 years for Germany to recover from the costs entailed in uniting East and West. And in fifteen years’ time, maybe the Eurozone will be as stable as Germany is today. And if that is so, maybe the UK will look like a sorry outsider.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees