Dominic Lawson: The fate of the euro is the chronicle of a death foretold

The outbreak of mutual blackmail exposes how the euro has made the nations more divided

Share

What began with solidarity is ending in blackmail threats. Everyone associated with the acceptance of Greece into the eurozone knew that it had fiddled its budgetary figures to appear compliant with the terms of the Maastricht treaty that set up the euro; but this was thought of minor importance compared with the greater mystical truth of pan-European harmony via common banknotes. The non-compliant Italians had earlier been let in to the club for the same reason, so the argument went: why discriminate against our Greek cousins, descendants of the very inventors of democracy?

Now the German government has long stopped paying homage to the glories of Athenian culture, and instead bluntly declares: cut your budget as you promised or you will be out of the euro – and even the European Union. Last week, a spokesman for the Syriza coalition, the big gainer in the recent Greek elections, retorted that European finance ministers, led by Germany's implacable Wolfgang Schäuble, had no choice but to let Greece get the next tranche of the €246bn bailout even without Athens agreeing to any further public expenditure cuts, because: "If we left the euro, the financial markets would attack Italy next."

Or, in other words: "Nice little currency you've got, Wolfgang; pity if anything were to happen to it." Indeed, it has seemed a wonderfully benign currency for the Germans. By having effective exchange rate parity with its much less competitive southern European neighbours, Germany has built up an enormous trade surplus within the eurozone, to the great joy of its exporting industries. Yet the idea that this has been good for all Germans – and that, therefore, they can be blackmailed in perpetuity – is mistaken. Those vast German surpluses have been recycled into a credit boom in the rest of the eurozone – and where do you think much of the improbable sums of money squandered on speculative Spanish property has come from? The situation is painfully similar to that now confronting China, which, also seeking to benefit as an exporter from an undervalued currency, found itself massively exposed to losses on its vast accumulated dollar deposits.

In fact, it was North American economists who were in the forefront of predicting disaster for the euro (and not just we British sceptics, derided as tweedy "anti-Europeans"). In the year the Euro was launched in virtual form, 1999, Robert Mundell of Columbia University won a Nobel Prize for his work on "optimal currency zones". He had pointed out that a successful currency zone required complete mobility of labour (but would a Greek leave to work in prosperous Finland when things got bad in Athens?); it would require the business cycle to be aligned throughout the zone (yet Germany was in deep retrenchment in the noughties, causing Euro interest rates to be kept at levels far below what was suitable for booming Ireland, for example); above all, such a currency required some form of central government to make fiscal transfers from the strong parts of the zone to struggling peripheral areas (yet Germany agreed to the single currency only on the understanding that there would not be a fiscal union: her own taxpayers would never have stood for it, and still won't).

Another Nobel Prize-winning economist, the late Milton Friedman, put it even more clearly, back in 1997: "Europe exemplifies a situation unfavourable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe." As Friedman hardly needed to point out to his American readers, currency union in the US took place after, and not before, political union: the right way round.

Naturally, such critiques from the other side of the Atlantic were regarded in Brussels as merely emanations of fear of a united Europe by a jealous rival for economic trading supremacy. The view of the Eurocrats was that the cart really could be put in front of the horse. They wanted political union – a European superstate with a currency to challenge the dollar as the global reserve currency – but knew that the electorates of the individual nations were not remotely ready for such a joint and several abnegation of national parliamentary sovereignty. So the idea was to introduce a common currency – the euro – in defiance of both economics and history, in order to make the peoples involved feel "more European" and, therefore, more receptive to political union at some point in the not-too-distant future.

 

Yet the outbreak of mutual blackmail threats between Greece and Germany have exposed with shocking clarity how European Monetary Union without proper democratic accountability has actually made individual nations more rather than less divided – precisely as another American economist, Harvard's Martin Feldstein, warned it would back in 1997.

Never fear: some of the original proponents of this grossly irresponsible experiment have come up with a rescue plan for the dream of a united Europe. The former President of the European Commission and the moving force behind the euro, Jacques Delors, the former German Chancellor Helmut Schmidt, and the former Secretary General of the Council of the EU, Javier Solana, are among the eminent signatories of a letter entitled "Let's create a bottom-up Europe". It's a bit of a nerve from people who created a top-down technocratic model of European integration, but, anyway, their new manifesto proclaims: "We, the undersigned, wish to provide a mouthpiece for European civil society... as a counter to the top-down Europe, the Europe of elites and technocrats that has prevailed up to now [and] that considers itself responsible for forging the destiny of the citizenry of Europe – if need be, against its will."

Adapting the great appeal of President John F Kennedy, these creators of the current European system declare – without the slightest sense of irony – that their "aim is to democratise the national democracies in order to rebuild Europe in the spirit of the rallying cry: 'Don't ask what Europe can do for you but ask what you can do for Europe!'". Good luck with that on the streets of Athens.

d.lawson@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***ASP.NET Developer - Cheshire - £35k - Permanent***

£30000 - £35000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***Solutions Architect*** - Brighton - £40k - Permanent

£35000 - £40000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Senior Research Fellow in Gender, Food and Resilient Communities

£47,334 - £59,058 per annum: Coventry University: The Centre for Agroecology, ...

Day In a Page

Read Next
 

Taking on Ukip requires a delicate balancing act for both main parties

Andrew Grice
Today is a bigger Shabbes than usual in the Jewish world because it has been chosen to launch the Shabbos Project  

Shabbes exerts a pull on all Jews, and today is bigger than ever

Howard Jacobson
Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker