Debate about euro future is close to home; Opinion.
AS I write this, the results for the Greek election are still incomplete, but it looks like there will be a coalition of national unity, and the Greeks will stay in the euro.
What happens to the euro is an open question, and it is rash to predict the future, but I think it will survive.
I believe it will because there are strong political and economic reasons why it should. The powerful people in Europe are committed to it, and it also benefits their economies.
Germany, in particular, has done well out of it.
The euro has meant their goods are relatively cheap and, if you travel in Eastern Europe, you will notice that Germans, and Austrians, run the show. If all these countries had their own weaker currencies, German goods would become more expensive. Countries in the Balkans used to use Deutschmarks before the euro was invented.
I think the Germans are playing a game of brinkmanship. They know that if the euro is to survive then they will have to help the weaker countries, but they do not want to give money to people who may waste it, so they force these countries to make reforms.
There is frequent talk about "moral hazard", which means basically people should not escape the consequences of their own actions. If a country has been profligate (in the Germans' eyes) then it should suffer the consequences. If you inflate the economy without more resources you get inflation, and this actually reduces your debt, which loses value. This is what the French did in the 1950s, and the Franc had to be revalued because it became virtually worthless.
Germans do not like inflation as it destroys savings. There is a folk memory of what happened in the 1920s. But perhaps we should think a bit more about moral hazard. Is it moral to force hospitals to run out of drugs, or for young peo- ple to have no chance of a job and be forced to leave the country? A solution will have to entail some reflation and growth as well as re- duction in government spending. There will also have to be some joint control of the banking system for countries which use the euro. There may be some inflation, but it's a price worth paying.
What does this mean for us? I think we need to think a bit longer-term than we do. Our relationship with Europe depends on what sort of society we want to see in this country. The euro works between countries which are similar, have strong manufacturing economies, strong training programmes, and robust welfare states. They also control their banks. This essentially means Germany, France, Benelux, the Scandinavian countries, and Spain and Italy if they can sort themselves out.
Countries like Greece and the Eastern Europeans are not there yet, but they obviously want to be. Neither are we. We have demolished much of our industry, are reducing our welfare system, do not invest much in training, and have let our banks do roughly what they like. It is a system this Government likes, and no one would suggest joining the euro if we go on like this. On the other hand if, as Ed Miliband has argued, we want to be more like Germany, then one day we might.
So debates about Europe and the euro are not about faraway places. They are debates about what sort of country we want to be. If it is Europe or the open sea, I know what I'll opt for.
David Taylor-Gooby is secretary of Peterlee Labour Party and a member of Labour Left
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|Publication:||The Journal (Newcastle, England)|
|Date:||Jun 19, 2012|
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