Eurozone in Deep Trouble
Greece is already a basket case, Portugal, Italy and Spain are going in the same direction, and there are serious fears for Ireland. Civil unrest has already started, while mass unemployment and hyper-inflation are now real threats.
The strategic role of the ECB in coming weeks will determine the long-term prospects of the euro, perhaps even the EU itself.
Last week I wrote the following letter to Mr Tricket, president of the European Central Bank in Frankfurt. (Parliamentary convention requires such correspondence be sent via the chairman of the Economic and Monetary Affairs committee, but since Mrs Beres regularly "loses" my letters I exercise my right as an Englishman to address whomsoever I please!)
Dear Mr Trichet
I understand you are so busy right now it is difficult to answer letters from MEPs, especially when Mrs Beres has not been able to censor or withhold them. Nonetheless, I must write to you again with more pressing questions.
In view of the huge financial stresses now appearing in your eurozone, with bond differentials at unprecedented levels and the PIGS (Portugal, Italy, Greece and Spain) struggling to survive and unable to act in their own best interests, what does the ECB plan to do to restore confidence - justifiable confidence at that - in the euro?
Can Germany reasonably be expected to bail the eurozone out? Of course not. No wonder they retained the facilities and gold to re-launch the Dmark if all else fails.
Would you not agree that no currency can survive without a central bank as the lender of last resort? And would you not agree that pumping credit or other monetary instruments into the banking and financial sectors, without any substance behind them in terms of wealth creation, is essentially inflationary?
And would you not further agree that what you and other central banks are doing is fundamentally unsound and will - eventually - lead to raging inflation? Indeed, would that not be the only way to devalue the liabilities you and other central banks are building up for yourselves, and which would otherwise become an intolerable burden on future generations?
Or have I missed something here?
Currently we see a toxic mix of high and growing debt, and deflation. The Fed is already stoking inflation as it buys in bad debts and worthless 'assets' from the ailing private sector. If that eventually gets fed back into the market in the form of US government bonds another market sector will go into freefall.
Back in the real world, the eurozone economy as a whole has shuddered to a halt, while huge structural economic and commercial problems have emerged. Mr Barroso tells the European Parliament that the best way to get Europeans back to work is to ensure equal opportunities for all, suggesting he - for one - is still not back in the real world.
Meanwhile no-one has any clear answers simply because none of us have been here before.
Thank goodness we Brits did not join, and have been able to allow market forces to devalue sterling. No wonder you wanted us in, and no wonder you now say we are not in a fit state to join.
You bet we aren't, and long may that continue.
Ashley Mote
PS:
When are you planning to regularise the nickel content in euro coins, to comply with EU directive?
Friday, 23 January 2009
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