Friday, 3 June 2011

The Euro - A lucky escape

My first job in politics was campaigning against British membership of the euro. It is hard to believe now, but less than ten years ago, it was seen by many as inevitable that Britain would join the euro even though the vast majority of people thought it was a stupid idea. The debate raged for several years before Tony Blair finally concluded he would not be able to win a referendum and so he kicked the issue into the long grass.

Britain had a lucky escape. For those poor countries who abolished their currencies and locked into the single currency, the experiment has been a complete disaster and has caused havoc with their economies. The central flaw of the euro was always that a single economic policy could not possibly work for every nation in Europe. Each country is unique and faces different challenges at different times and each needs to be free to set its own interest rate and allow its currency to fluctuate in value.

A currency is a bit like a pressure valve. When a country is experiencing economic problems, the value of its currency relative to others goes down. That makes imports more expensive and gives a boost to domestic manufacturers so they can create new jobs and hasten the emergence from recession. That is what Britain has been able to do in the last few years.

But this has not been an option for countries like Ireland, Portugal, Greece and Spain and so their economies have nosedived. As a result, they are all now having to come to Britain to be bailed out.

It is an odd situation to be in and has caused a lot of disquiet in parliament. The issue was debated last week At a time when we are having to take really tough decisions to get our own finances in order, can we really afford to bail out the rest of Europe? And is it right that we should be expected to bail out countries which were stupid enough to join the euro?

The clear message sent to the government was that it should tread with caution when bailing out other EU countries. None of us benefits from economic meltdown among our nearest trading partners so it would be wrong to rule out any help whatsoever. But at the very least, we should insist that any bail outs are done on a bilateral basis, country to country and should not be done through the EU which has proved itself to be an incompetent institution.

Longer term, the backward looking political class in Europe will have to face some hard facts: the euro was an idiotic idea which has no long term future and the quicker they work out how to scrap it, with minimum disruption, the better.