I wrote yesterday of the impending bailout of Ireland by the EU, and some of the implications. Since inception of the Euro, in 2000, we have had a relatively smooth ride in an economic boom-time. All the member countries have enjoyed the increasing strength of being tied to one monetary standard and all has been well. Unless you lived in the UK and wanted to book a cheap holiday in Ibiza or Crete, in which case you got stung by price increases everywhere.
Ten years later and the boom-time is over. We’re well and truly in the bust part of the cycle which Gordon Brown famously pronounced was no more. And we can now see that, as soon as we hit our first economic problem, the single currency starts to teeter as the smaller members struggle and Germany gets tired of propping up other members. As soon as a crisis occurs, Eurozone member-states return to being individual nation-states out for themselves and their citizens.
Because of this, and because the economic reality is that the member-states were all at different stages of the economic cycle when they joined the Euro and all have different economic theories driving their governments, we shouldn’t be surprised if this is the beginning of the end for the European single currency. It won’t collapse now. The EU will prop it up, but that won’t solve the problems in Ireland, Greece, and Portugal. It will just put them off to a later date. Probably the first quarter of 2011.
I am, broadly speaking, pro-European but it seems to me that this crisis in the Euro is a symptom of the fact that the EU is beginning to look anachronistic in the 21st Century. The European politicians who adamantly insist that the EU can act as one – like some sort of United States of Europe – when in fact it can’t. The differences between the economies of Germany or France and Ireland or Portugal can’t sit within one common economic policy while at the same time maintaining sovereignty over tax rates and adhering to no regulation.
The European Central Bank (based in Frankfurt) is now preparing to bail out Ireland as well as Greece, and will no doubt be closely monitoring Portugal, Spain, and even Italy. It will be thinking the same as me. That to make a single currency work, there must be a single central control of tax and spending. Economically, that makes perfect sense. But politically, German control of the economies of other countries in Europe will not be stood for. That is an unchangeable reality.
Given that reality, it is only a matter of time before the German people and leadership – already voicing concern – decide that money being raised by their economic engine would be better spent in Germany and not in Ireland, Greece, or anywhere else. When that happens, the Euro collapses and so does the UK’s trade with Europe.
Maybe David Cameron should head back to Beijing or Delhi and continue strengthening those Asian trade links.