The crisis that has burst upon the Eurozone was one which has been for a long time deferred by Finance Ministers and the European Central Bank. The Euro is not, was not and has never been intended to be a economic and monetary project but a means to a political end driven by the need to vest powers over budgets and fiscal policy in the EU to complete it. Now this is being demanded in order to fend off catastrophe.
Italy, Spain and Portugal are suspended over a chasm of debt and the prospect of sovereign debt defaults. Such an outcome has been predicted by all those who were able to look dispassionately at the EMU project when it was first conceived at the time of the Maastricht Treaty. For any economic union to succeed it is necessary that certain prime conditions are fulfilled. There must be in the economic area (1) mobility of wages (2) mobility in the employment market (3) a system of transfer payment to relief distress in one region due to shocks not experienced in the others (4) interest rates which can be adjusted in the light of economic performance (5) a common or related business cycle and (6) a responsive floating exchange rate. If none of these factors are present then economic shocks can only be absorbed by levels of unemployment.
In the Eurozone none of these conditions apply. Interest rates are set for the entire Eurozone on a one size fits all basis notwithstanding that the absence of budget disciplines and/or the business cycles in the zone participating states vary widely. Rates that are close to insanity for states with runaway credit in a booming economic cycle will be too high for states seeking to recover from recession and downturn. There is no mobility of wages and very little of employment. There is no system of transfer payments such as is now required to assist Detroit with the collapse of the US car industry in that region. The exchange rate is governed by the level of interest rates – for Greece by way of example a devaluation is desperately needed to redeem her balance of payments but is a remedy beyond its power to achieve.
All this does not affect us directly since, mercifully, we are not in the Eurozone. However a collapsing Eurozone is a very serious matter for our trade and our financial services. Nearly 50% of our exports are to the zone and we are heavily committed as creditors of states that are in prospect of defaulting. It must be understood it is a disaster driven by the pride and folly both of the creators of this fantastic scheme who well knew the risks that they were taking and of those states who have allowed their peoples to fall over the cliff of credit.
Now the call from the EU is for control over budgets and taxation – the ultimate steps to political servility. If ever there was a time for a party to stand for national self determination it surely is now. That must be a matter of pride for us in these uncertain times.