whither the euro? a discussion about why the euro must work and why it will not work (as it is...

Whither the Euro?

A discussion about why the Euro must work and why it will not work (as it is today)

Andrew White

“An Englishman living in Atlanta”

Agenda

Introduction / Frame of Reference Why the Euro needs to work Why the Euro will not work How should it work

Introduction

Andrew White BA Hons (Economics) Lived in US 3.5 years Watching from afar Scared of what might be left when I

return…..if….

Why the Euro has to work...

Natural Evolution– Historical Direction– Winston Churchill’s “United States of

Europe” Required for Success in a Global

Economy– Power Bloc versus US and ASIA

Afraid of being third, or worse...

What if the Euro doesn’t work?

Subservient to Global Cycles– Interest rates no longer a national

boundary Lack of Global Influence Loss of opportunity to rationalize

resource allocation at a supra and super national level

What is the Euro?

Single Currency– Businesses already use one: Ecu– Eliminate currency-based loss between

nation states Part of an…

– Economic Phenomenon– Political Phenomenon

What is the Process?

Maastricht Treaty 1992– Treaty of Rome

Qualification…or not– UK, France, Finland, and Luxembourg– Austria, Belgium, Germany, Ireland, Netherlands,

Portugal, and Spain

Euro launched January 1 1999– Exchange Rates to be fixed– ECB sets interest rates

Why will the Euro go wrong?

Soft– Lack of public support– Lack of political reconciliation

Hard– Exchange rates are rather useful things– All previous examples of fixed exchange rate

systems have failed• Bretton Woods; Gold Standard; Snake; EMU

(Sterling and Lira) Round One

Soft

Lack of Public Support– Legislatures not ratified with own public

• UK and Denmark (“No” and change of leadership)• Germany (“No” to DM loss)• Insufficient awareness of the issues

Lack of Political Reconciliation– April 98 saw the Commission sue UK and Germany

and 6 other states for bilateral trade agreements with US

Soft

Lack of Political Reconciliation– Foreign policy examples

• GATT; US/Libya; Iraq War; Argentina/UK

– Oh what a happy family..• Wim Duisengerg and Calude Trichet (Jacques

Chirac, 4 of 8 year term), May 1998

– Unanswered questions...

Soft Unanswered Questions

Sovereignty– As the Parliament is to the People so should the European

Parliament be?

– But what about the Commission?

Parliament Policy

– Who sets it and where is the national and super-national line drawn?

ECB– Who votes here?

Hard Exchange rates are rather useful things

– When in an economic down-cycle it is far easier for a country to devalue a currency than to put people out of work

• UK political and economic strategy 1945-1979: Devaluation 1949; Convertibility of Sterling

• Most recent was Labour Policy pre-Monetarist experiment by Margaret Thatcher 1979

– Countries have to give up this option…and ask for money instead from the ECB

• What about Interest Rates...

Hard

All previous examples of fixed exchange rate systems have failed

• Bretton Woods and Gold Standard - WW II and Post War

• Snake; ROBOT• EMU (Sterling and Lira)

Hard

A Fudge for Qualification?– Economic guidelines and goals laid down

in 1992• Based on economic convergence

– Deadline came and Germany and Italy failed

• German economic advisors did not want Italy in EMU anyway...

The Real Issue

Timetable to EMU was drawn up by politicians with economic input - should have been the other way around– Many politicians were focused on re-election;

Khol…. Political considerations outweigh economic

at every point– Qualification; Election to key posts;

Membership

The European Thing

Italy - economy ‘broke’– Profligate social services; corrupt and

corruptible legislature Germany - not so solid as a rock

– Trying to emulate UK labour practices France - torn between mortal enemy and

enmity…never did like the UK anyway UK - Want to be USAb

EMU - How to make it work

Open debate of the real issues– Get the people to buy-in– Be prepared that some my buy-out…

Integrate Political Union with Monetary Union or loosen penalty (common currency rather than single currency)– Publish rules and regulations– European-wide elections throughout

EMU

E - entirely M - motivated U - underlings

Thank You!