A timely rehearsal of the argument over the euro. Apart from
anything else the euro is likely to have problems of its own this
year. At present its value is kept artificially high by having the
highest interest rates. But if the European Bank does not want to
see a disintegration of the eurozone these will have to come down.
And as long as they stay high German exporters will be crippled and
German exports have been the main prop of the eurol
The problem the world’s financiers face is what can be the future
main reserve currency. The structure of the eurozone makes this a
very dangerous bet, so I predict - without enormous confidence ! -
that the dollar will continue to lead.
xxxxxxxxxxx cs
=========================
DAILY MAIL 2.1.09
The pound may be in trouble but don't be fooled by the euro gloaters.
Their bogus currency will never see its 20th birthday
Peter Oborne
This week marks the tenth anniversary of the euro - and every
eurocrat in existence is hailing the single currency as an exquisite
success.
According to European Commission president Jose Manuel Barroso, the
euro has helped create 16 million jobs. [How does he arrive at that
bogus figure I wonder? Tell that to the 13% -and rising- unemployed
in Spain, even more in Greece and bad in Italy and Ireland -cs] The
French finance minister Christine Lagarde hails it as 'a zone of
security and stability'.
Joaquin Almunia, the European Commissioner for Economic and Monetary
Affairs, declares that: 'The euro has become the symbol of EU
identity and is protecting us against the tremendous external shocks
that we have had to cope with since the summer of 2007'.
Meanwhile, there are many within the British political and business
elite - among them Business Secretary Peter Mandelson and former
Prime Minister Tony Blair - who secretly wish Britain was in the
euro, and believe we made a terrible mistake when we refused to join
in 1999.
To be fair, the europhiles do appear to have reason to celebrate.
Consider these statistics. Following yesterday's accession of the
Eastern European state of Slovakia, there are now 16 members of the
single currency, compared to a mere 11 in 1999. This means an amazing
330 million people now use the euro as their national currency - more
than the population of the U.S.
No wonder, say the eurofanatics, that it has strengthened over the
past few years and now stands at parity with the pound sterling -
stronger than it has ever been.
Not merely that, there are also those who now believe that the euro
will soon overtake the dollar as the world's reserve currency.
Indeed, even the villain in the latest James Bond film, Quantum Of
Solace, chooses to pay his debts in euros because, so he says: 'The
dollar isn't what it was.'
But the truth is very different. As even its strongest supporters
must admit, the new currency was mollycoddled during a decade of
benign global economic conditions - and only now is being tested for
the first time. And it is already showing signs of being unable to
survive the strain.
Indeed, far from being the staggering success its supporters claim,
the euro-zone is already inflicting huge damage on the nations within
it. Many currency market experts believe that some of these
struggling members may be forced to peel away from the euro - with
devastating consequences for the rest of the world.
The greatest problems, in the short term at least, are in the four
Mediterranean economies known as the PIGS - Portugal, Italy, Greece
and Spain.
For each of these countries, the euro has already proved a disaster.
Put simply, most of the PIGS are so heavily indebted that the market
no longer believes they will be able to repay their borrowings.
Normally, if a country falls into too much debt, it can devalue its
currency, essentially devaluing its debt burden - this is exactly
what Britain has done over the past few months. In the euro-zone,
however, the currency's value is set centrally.
This means the only way out for the struggling PIGS is to crash out
of the euro, default on their debt and start again. At the start of
2009, this prospect is beginning to cast a huge shadow over the
global economy, for the sums involved are huge.
Take the terrifying case of Greece, which was an economic basket case
even before it entered the euro, and is even more of a shambles today.
Greek unemployment is soaring, and its current account deficit is a
whopping ten per cent of gross domestic product (Britain's deficit is
bad enough at three per cent).
But the largest problem is Greek government debt, which stands at a
monstrous 94 per cent of gross domestic product - and rising fast.
Already investors have reached the obvious conclusion that there is a
very high chance that the poor old Greeks will never be able to repay
their debts. That is why the markets now demand to be paid an extra
two per cent in return for lending to Greece compared to Germany,
even though both countries denominate their debt in euros.
The brutal truth is that if the markets really believed the euro was
going to survive, Greek and German debt would cost the same.
But soaring debt is not the worst of Greece's problems. The economy
has tilted into recession, and unemployment has risen. Greece
desperately needs interest rates to fall - but the European Central
Bank is refusing to cut them. The effects are being felt on the
streets, and the past few months have seen the worst riots in Athens
since the country was a military dictatorship in the Seventies.
There have not yet been riots in the other PIGS - but Portugal-Italy
and Spain are all heading for trouble. Spain, thanks almost entirely
to the misguided policies of the European Central Bank, is now an
economic disaster zone.
In the early years of the euro, the ECB kept interest rates far too
low - fostering an inflationary property boom which has ended in
inevitable collapse.
Now rates are much too high for Spain's broken economy. The Spanish
jobless figure, thanks to the country's membership of the euro, is
already 13 per cent. It is expected to approach a truly unbelievable
20 per cent by 2010.
Things are already bad enough in Britain, where the jobless rate
stands at six per cent.
At least Spain's public debt is relatively manageable, but that is
not true of the remaining PIGS - Italy's government borrowing is
actually larger than its gross national product.
The truth is that all the PIGS are paying a terrible price for their
membership of the euro. If they had kept their own currencies, they
would be able to use the traditional tools of economic management.
They would set their own interest rates and they could inflate or
deflate their national currencies as circumstances demanded.
As it is, however, governments in the euro-zone are utterly powerless
to do anything about the menace of joblessness and economic collapse.
And to appreciate how damaging that is, one only has to contemplate
the fate Britain would now be facing if had we made the mistake of
joining a decade ago.
In the early years, we would have suffered the problems of the poor,
hapless PIGS.
The interest rates set by the European Central Bank would have been
far too low - meaning the credit boom of the past decade would have
been even more inflationary and damaging than was actually the case.
And the recession would have bitten far deeper. Interest rates have
stayed far higher on continental Europe, driving millions who would
otherwise have a job out of work.
And our currency would have been tied to the strong euro, rather than
being allowed to depreciate, find its own level, and give vitally
needed assistance to exporters.
Bad though the recession already is, it would have been far worse for
Britain had we - as Tony Blair so desperately wanted - joined the euro.
That is why, as the euro celebrates its tenth anniversary, I predict
two things.
First, it will never reach its 20th anniversary. The drachma, the
lira, the peseta and the Portuguese escudo (and the Irish punt -
Ireland can be regarded as an honorary PIG) will all make a return as
the PIGS plunge for the exit.
Second, the collapse of the euro-zone will not be a peaceful process.
Expect the European political elites to fight to save their beloved
single currency.
Eventually, however, their citizens will take to the streets and
force their hands. In Britain we can thank our lucky stars we do not
have to go through the same painful and bloody crisis.
Gordon Brown had a mixed record as Chancellor of the Exchequer, and
bears a heavy share of the responsibility for the recession. But he
did one thing for which we should all be thoroughly grateful - he
kept us out of the European single currency.
anything else the euro is likely to have problems of its own this
year. At present its value is kept artificially high by having the
highest interest rates. But if the European Bank does not want to
see a disintegration of the eurozone these will have to come down.
And as long as they stay high German exporters will be crippled and
German exports have been the main prop of the eurol
The problem the world’s financiers face is what can be the future
main reserve currency. The structure of the eurozone makes this a
very dangerous bet, so I predict - without enormous confidence ! -
that the dollar will continue to lead.
xxxxxxxxxxx cs
=========================
DAILY MAIL 2.1.09
The pound may be in trouble but don't be fooled by the euro gloaters.
Their bogus currency will never see its 20th birthday
Peter Oborne
This week marks the tenth anniversary of the euro - and every
eurocrat in existence is hailing the single currency as an exquisite
success.
According to European Commission president Jose Manuel Barroso, the
euro has helped create 16 million jobs. [How does he arrive at that
bogus figure I wonder? Tell that to the 13% -and rising- unemployed
in Spain, even more in Greece and bad in Italy and Ireland -cs] The
French finance minister Christine Lagarde hails it as 'a zone of
security and stability'.
Joaquin Almunia, the European Commissioner for Economic and Monetary
Affairs, declares that: 'The euro has become the symbol of EU
identity and is protecting us against the tremendous external shocks
that we have had to cope with since the summer of 2007'.
Meanwhile, there are many within the British political and business
elite - among them Business Secretary Peter Mandelson and former
Prime Minister Tony Blair - who secretly wish Britain was in the
euro, and believe we made a terrible mistake when we refused to join
in 1999.
To be fair, the europhiles do appear to have reason to celebrate.
Consider these statistics. Following yesterday's accession of the
Eastern European state of Slovakia, there are now 16 members of the
single currency, compared to a mere 11 in 1999. This means an amazing
330 million people now use the euro as their national currency - more
than the population of the U.S.
No wonder, say the eurofanatics, that it has strengthened over the
past few years and now stands at parity with the pound sterling -
stronger than it has ever been.
Not merely that, there are also those who now believe that the euro
will soon overtake the dollar as the world's reserve currency.
Indeed, even the villain in the latest James Bond film, Quantum Of
Solace, chooses to pay his debts in euros because, so he says: 'The
dollar isn't what it was.'
But the truth is very different. As even its strongest supporters
must admit, the new currency was mollycoddled during a decade of
benign global economic conditions - and only now is being tested for
the first time. And it is already showing signs of being unable to
survive the strain.
Indeed, far from being the staggering success its supporters claim,
the euro-zone is already inflicting huge damage on the nations within
it. Many currency market experts believe that some of these
struggling members may be forced to peel away from the euro - with
devastating consequences for the rest of the world.
The greatest problems, in the short term at least, are in the four
Mediterranean economies known as the PIGS - Portugal, Italy, Greece
and Spain.
For each of these countries, the euro has already proved a disaster.
Put simply, most of the PIGS are so heavily indebted that the market
no longer believes they will be able to repay their borrowings.
Normally, if a country falls into too much debt, it can devalue its
currency, essentially devaluing its debt burden - this is exactly
what Britain has done over the past few months. In the euro-zone,
however, the currency's value is set centrally.
This means the only way out for the struggling PIGS is to crash out
of the euro, default on their debt and start again. At the start of
2009, this prospect is beginning to cast a huge shadow over the
global economy, for the sums involved are huge.
Take the terrifying case of Greece, which was an economic basket case
even before it entered the euro, and is even more of a shambles today.
Greek unemployment is soaring, and its current account deficit is a
whopping ten per cent of gross domestic product (Britain's deficit is
bad enough at three per cent).
But the largest problem is Greek government debt, which stands at a
monstrous 94 per cent of gross domestic product - and rising fast.
Already investors have reached the obvious conclusion that there is a
very high chance that the poor old Greeks will never be able to repay
their debts. That is why the markets now demand to be paid an extra
two per cent in return for lending to Greece compared to Germany,
even though both countries denominate their debt in euros.
The brutal truth is that if the markets really believed the euro was
going to survive, Greek and German debt would cost the same.
But soaring debt is not the worst of Greece's problems. The economy
has tilted into recession, and unemployment has risen. Greece
desperately needs interest rates to fall - but the European Central
Bank is refusing to cut them. The effects are being felt on the
streets, and the past few months have seen the worst riots in Athens
since the country was a military dictatorship in the Seventies.
There have not yet been riots in the other PIGS - but Portugal-Italy
and Spain are all heading for trouble. Spain, thanks almost entirely
to the misguided policies of the European Central Bank, is now an
economic disaster zone.
In the early years of the euro, the ECB kept interest rates far too
low - fostering an inflationary property boom which has ended in
inevitable collapse.
Now rates are much too high for Spain's broken economy. The Spanish
jobless figure, thanks to the country's membership of the euro, is
already 13 per cent. It is expected to approach a truly unbelievable
20 per cent by 2010.
Things are already bad enough in Britain, where the jobless rate
stands at six per cent.
At least Spain's public debt is relatively manageable, but that is
not true of the remaining PIGS - Italy's government borrowing is
actually larger than its gross national product.
The truth is that all the PIGS are paying a terrible price for their
membership of the euro. If they had kept their own currencies, they
would be able to use the traditional tools of economic management.
They would set their own interest rates and they could inflate or
deflate their national currencies as circumstances demanded.
As it is, however, governments in the euro-zone are utterly powerless
to do anything about the menace of joblessness and economic collapse.
And to appreciate how damaging that is, one only has to contemplate
the fate Britain would now be facing if had we made the mistake of
joining a decade ago.
In the early years, we would have suffered the problems of the poor,
hapless PIGS.
The interest rates set by the European Central Bank would have been
far too low - meaning the credit boom of the past decade would have
been even more inflationary and damaging than was actually the case.
And the recession would have bitten far deeper. Interest rates have
stayed far higher on continental Europe, driving millions who would
otherwise have a job out of work.
And our currency would have been tied to the strong euro, rather than
being allowed to depreciate, find its own level, and give vitally
needed assistance to exporters.
Bad though the recession already is, it would have been far worse for
Britain had we - as Tony Blair so desperately wanted - joined the euro.
That is why, as the euro celebrates its tenth anniversary, I predict
two things.
First, it will never reach its 20th anniversary. The drachma, the
lira, the peseta and the Portuguese escudo (and the Irish punt -
Ireland can be regarded as an honorary PIG) will all make a return as
the PIGS plunge for the exit.
Second, the collapse of the euro-zone will not be a peaceful process.
Expect the European political elites to fight to save their beloved
single currency.
Eventually, however, their citizens will take to the streets and
force their hands. In Britain we can thank our lucky stars we do not
have to go through the same painful and bloody crisis.
Gordon Brown had a mixed record as Chancellor of the Exchequer, and
bears a heavy share of the responsibility for the recession. But he
did one thing for which we should all be thoroughly grateful - he
kept us out of the European single currency.
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