The euro needs a controlled demolition… Yorkshire Post 23 June 2011
Published on Thursday 23 June 2011 00:00
THE Mayor of London, Boris Johnson, has made a series of seductive proposals to the British people. No further bail-out for the Greek economy, write off some Greek debt and a new economic future for Greece – and other weak European economies – outside the euro.
Mr Johnson’s ideas could save hard-pressed British taxpayers serious money. We have already contributed about £10bn to bail out Ireland and Portugal, and put up another £20bn to the IMF, which is at stake in another bail-out of Greece. They would also punish Britain’s least favourite people – greedy, stupid bankers and arrogant Europeans.
The bankers have been up to their old tricks with Greek loans. Just as in the sub-prime mortgage crisis, they have pretended that people who have been lent too much money can afford to pay it back.
Once again, they have played pass-the-parcel, wrapping up Greek loans in complex financial instruments they cannot value or understand.
Once again, the bankers, therefore, do not know which of them are exposed to bad Greek loans and for how much.
So, once again, the world’s financial system faces meltdown and British taxpayers and savers are called on to save bankers from their bad decisions.
It would be nice to say no to them, and at the same time snub the self-appointed elite who created a bad currency, the euro, in the name of a “European project” which was unwanted and unworkable.
However, Mr Johnson’s attractive ideas should be rejected – for the time being. The British economy is still sickly. It has just left the emergency room and can barely totter out of bed. It cannot risk shock and sudden movement – even one so satisfying as kicking the bankers and the Eurocrats.
A few years ago, the world economy, and ours, almost folded because of the failure of one single bank – Lehmann Brothers.
No-one can predict the consequences if an entire European nation goes bankrupt.
Even with a bail-out last year, the Greek people have already endured the fastest fall in peacetime living standards in modern times.
A new bail-out would entail even more pain, and yet it would still be even worse for the Greeks if they simply crashed out of the euro and defaulted on their debts. They would have to restore the drachma overnight – a currency no-one could trust.
Anyone holding the new drachma would seek to turn it as fast as possible into goods and services, or into any other form of money which can buy goods and services.
This is the classic scenario for hyper-inflation and total economic collapse – a country unable to pay for its food and energy and other essential imports, its businesses unable to trade and pay their bills, its government unable to pay the armed forces, police, teachers and public servants. The political fall-out would be incalculable.
The Greeks, understandably, have already lost confidence in their political class and their political institutions. No-one knows what kind of government would emerge from the economic ruins – or if the Greeks would have any government at all.
Whatever one thinks of the euro, the European Union and the wretched “European project”, Europe is simply not ready for a crisis on that scale, which would rapidly be repeated in other countries.
As soon as the markets discovered that one weak country can be forced out of the euro, they would turn on all the others.
After Greece, no-one would want to risk being caught with the debts of another country in default and devaluation. Governments and bankers who have already failed to cope with the Greek crisis would then have to deal with panic on a European scale.
In short, Mr Johnson’s ideas are simply too risky. They create too many problems, too suddenly, and the world does not have the leaders or the institutions which are ready to cope with them.
The euro is a dangerous structure, but it needs a controlled demolition rather than collapsing piece by piece.
We need to shore up the Greeks, the euro and the bankers for a little bit longer – and that means another bail-out.
But we must use that precious time to plan a better financial future for Europe and the world. We need an orderly return to national currencies, managed by democratic governments, which people believe in and which are used to finance trade in real goods and services rather than uncontrolled speculation in the figments of fantasy.
Such a system was achieved at Bretton Woods after the Second World War and it produced stability and rising living standards for a generation.
We need a new Bretton Woods conference and Europe’s leaders must go to it with imagination and also humility, abandoning the deluded pretensions of the euro and the European project.
If Europe’s present leaders cannot manage this, they should get out of the way.