To those loudly insisting all this week that Britain should have
joined the euro ten years ago,
I can only say: are you completely mad?
Ambrose Evans-Pritchard 08 May 2008
As travellers, we all love the euro. It made my life marginally easier
But let's be serious. A minor convenience is nothing set against the fate of nations.
Currencies are formidable instruments of economic management, for good or ill. Every great financial crisis over the last century has been linked to a currency cock-up. It was the perverse workings of the fixed exchange Gold Standard that turned the US slump into a global depression in 1931.
(See 'Fetters of Gold' by Berkeley’s Barry Eichengreen. A brilliant book.)
RE: More about 1929 and all that
EMU is the modern Gold Standard, at least for those caught in its web.
I would acknowledge that the European Central Bank came through the credit crisis less bloodied that the Bank of England,
but only because Frankfurt engaged in a pre-emptive bail-out, on a huge scale, accepting mortgage debt as collateral - and moral hazard be damned. It had no choice.
Euroland cannot risk a Northern Rock or a Bear Stearns. To do so would risk the implosion of EMU itself, for there is no 'lender-of-last-resort' in this system, (as the IMF has warned).
Who would undertake such a rescue? The ECB is forbidden to do so by EU law.
There is no EU Treasury, no Euro-Darling, no Euro-Paulson.
Eurozone interest rates fell to 2pc after the dotcom bust and stayed there as late as December 2005, to help Germany recover from perma-slump. (UK rates were 4.5pc at the time
Sir Eddie George, the former Governor of the Bank of England, says he can scarcely bear to think what would have happened to British house prices with rates anywhere near 2pc. As it is, UK household debt levels have reached a world-beating 103pc of GDP. Home equity withdrawal - that piggy bank for holidays, and over-powered cars - hit 4pc of GDP last year.
But one has to ask:
what are the vast benefits to be gained from EMU membership that justify giving up control over the key levers of economic policy and ramming through a cultural revolution?
As an old friend at the European Commission once told me, EMU is like a pressure boiler where the warning thermostat has been switched off, and the escape valve shut. That is how you get an explosion.