Monday, 22 December 2008

Euro behind Greek riots

The credit crunch has, of course, resulted in the usual group of EU-obsessives calling for Britain to join the euro.Interestingly, they never name the specific rate at which they think we should join, or would be allowed to join at - a rather critical piece of information around which all arguments about the economic implications of such a move would rotate.

Nor do they explain how, exactly, we would be economically better off by joining - putting to one side the enormous constitutional/anti-democratic implications of taking this extreme course of action.Presumably, the euro-obsessives are not seriously suggesting that it would be to our advantage to lose the capacity to set our own interest rates, or allow the pound to fluctuate according to the specific requirements and features of the UK ecomomy?

Floating exchange rates and adjustable interest rates are safety valves that Britain would be crazy to abandon.

One eurozone country that is providing a real-world example of what can happen when your government passes all key macro financial control to the European Central Bank is Greece.The continuing riots in Athens and elsewhere - while they may have been originally instigated by anarchist groups in response to the shooting by police of a fifteen year old youth - have grown in size because of the poor state of the economy and rising unemployment.

The Greek government is virtually powerless to tackle these underlying economic problems. The only option left to them to try and stimulate domestic economic activity has been to drive down real wage levels at a time when the lower paid - those still in jobs that is - have already seen their living standards reduced. In part, of course, because of the significant price rises that have accompanied the transition to the euro.

In properly constructed, national currency unions central government has the means to redistribute money to those regions that are particularly suffering during a recession. But because the EU currency has been established without a massive treasury behind it, Greece will not be in receipt of fiscal transfers from the taxpayers of other euro member countries.German chancellor, Angela Merkel has made it very clear that she has no intention of using her taxpayers' money to bail out debt-ridden countries like Greece, Italy and Spain.

So, the Greek government is in a real bind with no room for manoeuvre, have been turning down the lid on the economic pressure cooker, and now we are seeing the public response.Similar unrest is predicted soon for Spain, where the economic situation is also highly precarious. Ireland is also in an increasingly bad way.

What the electorates of these and other crisis-ridden euro economies will soon realise is that kicking the incumbent 'government' out of office and replacing them with the 'opposition' will make very little difference, as the main levers of economic control have left the country for good.The incredible political and economic implications of the euro have not yet sunk in among the peoples and the media classes of the Eurozone members. They soon will and then things will get very interesting. And potentially very nasty.


Gawain Towler said...

Let us pray that it will not be a long hot summer