Can The Euro Survive?
… a definite “maybe” but at a cost!
It has never been apparent that a single currency, with centrally fixed interest rates, could be appropriate for economies as widely diverse as Germany, France, Greece, Italy etc. Surely, it could survive only if there were to be an approximation of fiscal policy? That centralisation of economic power may have been the vision of certain proponents of the Euro but it was not something for which the people of Europe were really ready. It has been to the benefit of the UK that we have stayed out of the Euro: we have not been ready to surrender powers to a European superstate.
The present debt crisis in the Eurozone is seeing member states unable to set the economic policies that would help them to recover. They cannot, for example, take the step of devaluing currency. Germany’s appetite for underwriting the debts of other members is fast running out. There is still the memory of the costs of uniting Germany. More recently, there has been the cost of helping smaller Eurozone economies such as Portugal, Ireland & Greece. Similar help to Italy, and perhaps Spain, is unlikely to be affordable. If the Euro is to be prevented from collapse it seems more than likely that help to Italy, Greece and others may have to be in the form of debt issued by the Eurozone as a whole and therefore underwritten, in effect, by the stronger economies. That must, inevitably, come at the price of losing fiscal control: surrendering the ability to control tax, spending and borrowing. A bitter pill to swallow, perhaps, but the alternative may be the collapse of the Euro. So are we moving closer to collapse of the Euro ? Or are we moving closer to a Federal European SuperState?
See also: Robert Peston writing on the BBC website yesterday. This morning European financial markets are down following the release of disappointing growth figures by Germany ahead of talks with France on the Eurozone debt crisis.