By Andrew Moffat. “Euro-realists” have long warned of the dangers that would arise from the single currency. Simply put, different countries have evolved dissimilar economies. Those economies reflect varying economic models, trading patterns and infrastructures. They also function at diverse degrees of efficiency and are, to a significant extent, a product of their peoples.
The advent of the European currency has stripped the governments of the 17 member nations of their rights to determine their monetary affairs. By ‘monetary’ affairs, we mean the ability to set interest rates – usually via their Central Banks – and to determine the value of their currencies, usually via the markets.
The prevailing interest rate and the value of a currency, in general terms, reflect the health of a nation’s economy.
In recent years, the Bank of England has cut interest rates to record lows, currently at 0.5%. Sterling, the UK’s currency, has lost approximately 20% of its value, reflecting the condition of the UK economy and its yawning trade deficits. Had the UK joined the single currency in 2005, say, the UK’s interest rates would have been set by the European Central Bank (ECB) and would now stand at 1.25% – following the ECB’s recent cut. There would, moreover, have been no depreciation to Sterling; the UK economy would be locked into the value of the Euro currency, against which Sterling has devalued in recent years.
One of the principal difficulties afflicting the single currency, amongst the 17 nations who comprise the Eurozone, is differing rate at which the individual economies grow.
In general terms, the northern economies, particularly Germany, are dynamic and efficient. In the south, the reverse is generally the case: these economies are less dynamic and inefficient. As this gulf widens, so do the economic strains between the two blocs.
Up until the advent of the Euro currency and since the 1950s, the German economy has only ever revalued upwards its currency. By contrast, the southern member nations always devalued their currencies.
Such revaluations are no longer options. This means that as the German economy, for example, becomes more efficient, its exports grow more competitive on world markets. Unlike in the past, there is no mechanism by which an equilibrium can be reached, simply because there is no longer any Deutschmark which can be revalued.
In the south, the opposite is true. The Italians and Greeks, for example, whose economies are becoming more inefficient against their northern competitors, cannot devalue their currencies. Nor can they reduce their interest rates, now determined by the ECB.
What can be done? The answer is that to become more efficient are regain their competitive edge under the current system, the southern economies must reduce their costs. This means they must also reduce their wages.
This is easier said than done. If wages are to be decreased instead of increased each year, how do families pay their mortgages, debts or rents?
If wages are reduced, where does the money come to pay the taxes the government requires to maintain its spending? Indeed, where does the money arise to keep the economy in shape and industry healthy?
The answer might be found in this interesting statistic. In all of the past 10 years, the Italian economy has grown by less than 1%.
Wage levels are still enormously out of line and there is a wide divergence in costs with the more dynamic northern economies. A cut of some 25% in Italian wages would be necessary to restore competitiveness, given there is no Italian Lira to devalue and restore competitiveness.
The backdrop is even more ominous because the Italians possess a vast national debt of some Euros 1.9 trillion. Simply put, there is no growth in the economy to pay off this debt and the Italians are instead running structural deficits where the national debt keeps rising.
The Italian dilemma, rather like the bigger Euro-currency dilemma, has not been lost on the markets. The perceived inability of the Italian government to address its deficit has resulted in its government’s bond yields rising from less than 4% in recent months to more than 7% last Thursday.
Some readers may recall that these were levels that precipitated crises in Ireland, Portugal and Greece, causing their bail outs by a combination of the EU, the ECB and the IMF and, in the case of Ireland, by the British taxpayer. The UK, of course, also contributes to the IMF.
The difficulty last Thursday involved merely Euros 4bn of Italian debt. Next year, the Italian Government must refinance Euros 300bn of debt, which it needs to roll over to later maturities. How will this be possible? Certainly, at a coupon of 7%, it will be unaffordable to finance this level of debt.
Who owns the Italian national debt? For the most part, other banks own this debt, especially Italian banks. Should these banks fall into difficulties, the Italian Government will have to bail them out and raise further funds on the bond markets to do so – creating a further downward spiral in the value of its existing bonds, held by the same banks!
Greece is a forerunner of the type of predicament in prospect. Its economy is a fraction of the size of Italy’s and the country has become entirely dependent upon bailouts from the ECB, the EU and the IMF, with its bond market no longer operable and its existing bonds trading at high double digit yields. Greece has therefore had to re-schedule its debts – a form of default.
In order to balance its budget, to pay for its bailouts and its rescheduled debts – largely owed to the banking system – Greece will be placed even more firmly through the EU’s wringer. As one commentator stated recently: “Greece has been subjected to the greatest fiscal squeeze ever attempted in a modern industrial state, without any offsetting monetary stimulus or devaluation.”
The EU is, in effect, repeating the mistakes of the Federal Reserve between 1929 and 1932, during the great depression. Unlike the USA, however, the EU is not a nation.
Monetary stimulus is impossible so long as Greece remains within the Euro currency. In other words, Greece has lost its monetary sovereignty and, as a result, its fiscal sovereignty.
The constraints it has had to endure are prescribed because it is a member of an internationalist political scheme, overseen by unelected EU Kommissioners, which has resulted in its economy contracting by some 15% since its problems began. Its debts ill magnify to over 180% of GDP next year and even after re-scheduling, will stand at 120% of GDP by 2020.
In other words, future generations of Greeks will become wage slaves to serve the ideal of ever ‘closer political union’.
There are several measures the EU may take to facilitate the continuation of monetary union. It could, for example, create a system whereby the wealthier northern nations guarantee or purchase the debts of the poorer nations. It could also encourage a new competence, whereby the EU gains the right to tax the citizens of the ‘Union’ and it could require that the tax revenues of the wealthier countries be used to finance the borrowing or some of the expenditure of the poorer countries. By means of compensation, the EU would tightly regulate the budgetary policies of the poorer nations and oversee the regulation of their economies.
Another possibility is to provide the ECB with more flexibility.
Currently, the ECB has been purchasing the bonds of the afflicted member nations in an attempt to support their prices and maintain or reduce their yields. Invariably, it has suffered colossal losses. The ECB is backed by the subscription capital of the EU member states, including the UK. Ultimately, if the ECB experiences financial difficulties, it will be backed by the taxpayers of the member states.
The ECB could be provided with the right to create new money to buy the bonds of the afflicted member nations. This would be the equivalent of the Bank of England’s programme, known as ‘quantitative easing’ (QE). Like the other possibilities, this proposal is opposed by Germany. The German Government sees no reason why its taxpayers should rescue the economies of the afflicted member states. It also considers ‘QE’ to be akin to a sticking plaster, that fails to address the underlying causes, whilst risking the spectre of inflation – which it experienced in extreme circumstances in the 1920s.
There are, of course, some alternative solutions which will not be countenanced by the EU.
Germany could leave the Euro currency. It would regain its Deutschmark, which would soar on the currency markets. The Euro would fall in value without the German anchor and the southern nations would then become more competitive.
The southern nations could also form a separate currency bloc, which would align their interests more closely. This possibility has already been discussed by Germany but it would create a two-tier system, which is unattractive to the Kommissars of the EU.
Better, Greece could leave the currency union and recreate the Drachma. The Drachma would plunge on the currency markets but the Greeks would again become competitive and would, after a year or two of upheaval, enjoy economic growth. Clearly, Greece would have to re-price Euro debt into Drachma debt, to avoid paying devalued Drachma’s to redeem more expensive Euro debts. Such a scenario would entail a further default on its Euro debts. On the other hand, the Greek Central Bank could again issue its own currency, a right it lost when it joined the Euro – which partly explains why it is now dependent upon EU bailouts to keep its economy afloat.
Whilst the UK remains outside the Eurozone, the UK Government is obliged to produce annual budgets that meet the convergence criteria of the EU, with a view ultimately to joining the single currency bloc. Andrew Brons, MEP, obtained this information in a Question he put to the Commission recently, which can be found here and here.
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Why can’t Jefferson, the Walkers and the others around Griffin write similar informative articles for the bnp website?
Thinking people, of course, ask questions. Griffin doesn’t like questions, especially about money. So he doesn’t appoint thinking people.
Now, reading the article above, I can rather see similarities between Griffin and Greece. Which one will go under first and who, if any, will bail them out?
Answers on a post card to Martin Reynolds and Clive Jefferson.
Another aspect not commented upon is that Greece has been reduced to the status of a de facto German protectorate – with an unelected prime minister imposed upon them by the powers that be.
The Greeks are a proud people who suffered terribly under the Turkish yoke for centuries.
World War 2 was terrible for Greece, the Greeks being completely innocent and blameless were attacked first by Italy and then Germany.There was massive loss of life, much of it down to famine and starvation.
Griffin has destroyed the London region, just as he has destroyed other regions in the past. Yesterday’s results from two ward by-election reveals this. St Mary’s ward Islington BNP vote 22 ( 0.9%) Aldborough ward, Redbridge 34 votes (1.2%) In 2008 during the GLA Election we received 137 votes in St Mary’s equal to 4.1% and 176 in Aldborough ward, equal to 5%. Things are looking very bad indeed for the elections on May 3rd in London.
A brilliant and penetrating article from Andrew Moffat, and for anyone who was not at the 22nd October meeting in Leicester, he speaks as well as he writes – he is a vastly better public speaker than David Cameron, or Nick Clegg, or Whatsisname now figureheading Labour. As Jim reflected in his posting above, compare the quality of articles on this site to the bland and repetative “Good Meeting Held In (insert name of town)” type of article regularly hoisted on the BNP “Official” website. In my opinion, Andrew Moffatt is party leadership material.
Hi Peter,
Your last point about Andrew Moffatt is a very good one. I’ve thought this for a very long time. I’m sure that the time was not right for him to challenge Mr. Griffin at the recent election, but I’m sure his time will come.
If the party (in whatever form) is serious about moving forward, it needs to have a leader with no past ‘baggage’ that the MSM will continually pick up on, and constantly use as a beating-stick against the himself and the party. For me, this is VERY important. It needs a leader with charisma and oratory skills when dealing with the media, so as to promote the party’s policies on the wide range of subjects that the general public are interested in, not JUST immigration, and not banging on about race/Indigenous etc. which turns ordinary power giving voters off in their droves. A leader who, if the BBC were to invite him onto question time (and I’m sure they wouldn’t be able to resist), would possibly, just possibly, conduct the format in the usual way, as there would be no grounds for a personal attack fest, due to lack of material with which to conduct one!
A political party without the will of the people to elect it, is impotent. For it to be electable it has to compromise in certain areas, add new ideas, evolve, listen and learn. A huge contributory factor in today’s British elections is the Charisma of the party’s leader.
You have that man in Andrew Moffat.
Peter Thomas makes a very good point in his posting, above. Greece has indeed become a protectorate but of the EU Commission – in which Germany has a strong influence.
The Greek Prime Minister and his Cabinet have become answerable to the Commission and, clearly, it is to it that they owe their allegiance.
Let that be a warning to Croatia, the next candidate country which will join the EU should their people vote yes in the approaching referendum. The debate will be one-sided, with funds in the yes camp outweighing funds in the no camp. Media debate will be firmly in the yes camp and the prospects of EU money (of which the UK pays a considerable share) will settle the question.
For silver, the electorate will sell out but let us hope they may yet see the light.
A more sinister aspect of this situation is that in recent days we have seen two EU countries (Greece and Italy) effectively suspend any remaining vestige of sovereign constitutional government, whilst globalist technocrats have walked in and ‘assumed’ executive power.
‘Technocrat’ is really not a fitting description. ‘Anti-democrat’ is better and more honest.
A great article laying out the economic situation in relatively straightforward understandable terms. I wish I had a better understanding of economics as I think it is essential if you are to have a comprehensive political understanding and opinion. Unfortunately it is not something which you can ‘pick up’ and understand without in depth study. It is an area which nationalists need to take more interest in and I agree that Andrew Moffatt is someone nationalists should be seeing more of. Maybe keep him in reserve for better times?!.
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Here is an interesting Chinese observation of the Western world in relation to the European debt crisis from the Telegraph business section a few days ago.
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“Also last night, the chairman of the supervisory board of China Investment Corporation, the country’s sovereign wealth fund, put further distance between China and the eurozone bail-out, saying that Europe’s bloated welfare state meant that people did not work hard enough.
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“I think if you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies,” Jin Liqun said in an interview with Al Jazeera television. “I think the labour laws are outdated – the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.”
Eurozone leaders had been hoping that China would use some of its trade surplus to back the bail-out fund”.
Europe’s labour laws and welfare systems make workers lazy, says Chinese finance chief Jin Liqun said Europeans should stop ‘languishing on the beach’ and work harder
By Simon Duke
12th November 2011
The head of the Chinese state’s overseas investment arm said he would only help Europe if it reformed its ‘outdated’ labour laws and welfare systems.
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Jin Liqun, chairman of the board of supervisors of China Investment Corporation, said Europeans should stop ‘languishing on the beach’ and work harder it they want to drag the eurozone out of its downward spiral.
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And he said Europeans have become too reliant on state handouts and should stop looking to outside sources to tackle the debt crisis threatening the euro.
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The broadside will deal yet another blow to Europe’s efforts to prevent the crisis in Greece from tearing apart the single currency.
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At last week’s G20 summit of the world’s largest economies in Cannes, China rebuffed requests to put its financial might behind a comprehensive rescue plan to shore up the debt-laden countries on the eurozone’s periphery.
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European leaders had hoped the world’s second largest economy would help underwrite a significant expansion of its £380billion bailout fund.
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But Mr Jin scotched any prospect of China coming to their aid with a candid critique of European working practices.
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In an interview on the Al Jazeera TV station, he said: ‘I think if you look at the troubles which have happened in European countries, this is purely because of the accumulated troubles of their worn-out welfare societies.
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‘Labour laws are outdated, the labour laws induce sloth, indolence rather than hard working. The incentive system is totally out of whack.’
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Mr Jin, a Boston University graduate, said root-and-branch reform of European welfare systems was urgently required.
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Mr Jin said generous safety nets discourage the unemployed from finding full-time work
Generous safety nets merely discouraged workers who have lost their jobs from finding full-time employment.
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He said: ‘The welfare system is good for any society to reduce the gap, to help those who happen to have disadvantages, to enjoy a good life, but a welfare society should not induce people not to work hard.
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‘If you look at the European countries over the last five or six decades, you will find this system will have to be adjusted.’
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Huge discrepancies in social welfare systems were an obstacle to fostering the closer ties between eurozone members that many economists believe are the only long-term solution to the crisis.
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Mr Jin said: ‘Why should for instance, within eurozone, why should some members’ people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach. This is unfair.’
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Read more: http://www.dailymail.co.uk/news/article-2058441/Europes-labour-laws-make-workers-lazy-says-Chinese-finance-chief.html#ixzz1dX2Ttqix
Mr Jin seems to be restating the Victorian view that it is the deserving and not the undeserving who should receive benefits,
I can’t say that there is anything in his statement that I disagree with. He’s right on every crucial point.
This is off the topic somewhat, but when Peter Mills says “Andrew Moffatt is party leadership material”, I agree. But when Manxman says he “is someone nationalists we should be seeing more of ” but “maybe keep him in reserve for better times”, I agree with that too. This is because I believe one should always be wary of good orators. One need only look at Griffin, and history, to see what I mean. Of course it doesn’t mean that all good orators are untrustworthy or worse, and it is essential that we have a good communicator as a leader (either of a new party or a reformed BNP) but we must not make the same mistake that was made when Griffin was elected by now jumping out of the Griffin frying pan into the possible fire of the next good orator that comes along.
I know little or nothing about Andrew so I have no mandate for or against him, but we need to have time to get to know him and to see how he performs, and to see how other possible contenders perform (of which I will not be one) before choosing someone to lead us. In the meantime, for reasons I have already explained, I believe Andrew Brons should lead the party for, say, a couple of years and then have a leadership election. This would also give time, hopefully, for any hidden baggage of the contenders to come into the public domain.
Interesting article. The absurdity of the situation and the key to the problem is in this line ‘Who owns the Italian national debt? For the most part, other banks own this debt, especially Italian banks. Should these banks fall into difficulties, the Italian Government will have to bail them out and raise further funds on the bond markets to do so – creating a further downward spiral in the value of its existing bonds, held by the same banks!’
The present so-called ‘sovereign-debt crisis’ is one based on fraud, let’s get this straight, bankrupt private banks buy government debt with money they create on a computer keyboard out of nothing and charge governments interest on this debt! This is the root of the problem. How absurd that the Italian government as the British government bails out corrupt banks and they use this money to buy more government debt!
Governments can and should issue their money-supply debt-free, the Italians, as with the Greeks and ourselves in Britain have been enslaved by debt, and need to free our nations from the death-grip of the EU Central Banking mafia!
The likes of Clegg and Mandelson employ the typically slippery device of saying it would be fine to join the Euro provided it was at the right exchange rate.
Sounds fine to many people at large I’m sure. The trouble is that the ‘right rate’ changes all the time in response to different inflation rates and productivity changes plus changing desirability of goods sold internationally.
The right rate at the time of joining may be 40% out in a few years as has happened to some countries. But there is then no changing the exchange rate and adjustment falls on lowering internal price levels by an impossible amount or population movements. The whole idea behind an Optimum Currency Area is that such things will not turn out to be problematic.
It was well understood on formation of the Euro empire that it was not an Optimum Currency Area. The politicians did not care.
The EU became unsustainable after the signature of the Lisbon Treaty , by a set of unaccountable , corrupt and power hungry leaders , aided and abetted by the business and financial sectors , who since that date have been behind the repeated financial problems in the many countries.
The one size fits all policies of the EU have proven to be unsustainable due to cultural , economic and social differences , and the fact that Germany has been waging economic war on its neighbours , instead of actual war , its mentality has not changed .