Great article… Seems to have 2 points: a) Euro is great, b) Britain needs to get its finances in order.
It perhaps overstates the benefits of the Euro/ of having a benevolent German central banker with a suitably long stick. 3 points:
1. Greece is already at ~100% debt/GDP and its government still looks errant as it plays chicken with Germany. This clarity of purpose for public finance clearly hasn’t got through the heavy red wine to those leaders in Athens either now or during the last 8 years.
2. Forced competitiveness sounds a bit like the UK’s experience in the 20’s with the Gold Standard.
3. I’m not sure the Government and all those overindebted consumers are too upset about ~4% inflation: an example of where they are clearly not paying “the price”.
Rob
,
As an Irish person living in London for the past five years your analysis is interesting. The problem for the U.K. is that it is carrying a large feckless welfare-dependent underclass which increases government spending. The advantage over Ireland is that the public sector is leaner and less overpaid.
I note that the Irish figures relative to the U.K. do not reflect the cost of NAMA, which is being kept off the state’s balance sheet by a manoeuvre that would but to shame the swap that Goldman Sachs did for Greece.
Hi Ben, thanks for the comment. A couple of quick points in reply. I wouldn’t argue for a minute that the euro has been an unqualified good thing (cf. inappropriate interest rates), however for countries with a history of currency volatility and speculator bullying, it did bring straight away an environment of stability that can only be a good thing in the medium/long term.
Secondly, I would make an important distinction between “can’t learn” and “won’t learn”. The Irish economy, for example, got itself into all sorts of hot water in the late 1970s and the 1980s, because it thought it could spend (i.e. borrow) its way out of recession. The lesson has been learnt and learnt hard – very few commentators are arguing that we can borrow our way out of the current mess, which is a product of another lesson Ireland (and the UK) must learn: we can’t spend our way through a boom/spending can’t be acyclical (cf. Gordon Brown’s now risible rule of “balanced books”).
I would agree with you that were the UK in the eurozone, they would probably have stared down any Franco-German calls for better budgets in the good days, due to economic/political clout, but you would have to think that it would have had *some* ameliorating effect and that the UK wouldn’t be heading for 100% debt/GDP by 2014, but instead perhaps 80%.
On Greece, I actually think the Finance Minister in Greece is very much on top of his game, he’s an ex-OECD pro and can definitely see the bigger picture. Politics comes into play though, so they can’t be seen to be rolling over to international capital markets for political reasons. They need to be seen to be playing some sort of middle ground.
Lastly, on inflation – I think you and I are in agreement, but just on opposite sides. Someone has to pay, and while debtors and exporters may be happy to see inflation, but ultimately bondholders, future generations, consumers in a year’s time, etc., will not be very grateful if the pound in their pocket is worth, say, 15% less through inflation and devaluation. This is particularly relevant for the UK, as part of the reason its debt is well-regarded is because it has a role as a reserve currency. No-one likes gradually weakening reserve currencies.
Ben ,
Great article… Seems to have 2 points: a) Euro is great, b) Britain needs to get its finances in order.
It perhaps overstates the benefits of the Euro/ of having a benevolent German central banker with a suitably long stick. 3 points:
1. Greece is already at ~100% debt/GDP and its government still looks errant as it plays chicken with Germany. This clarity of purpose for public finance clearly hasn’t got through the heavy red wine to those leaders in Athens either now or during the last 8 years.
2. Forced competitiveness sounds a bit like the UK’s experience in the 20’s with the Gold Standard.
3. I’m not sure the Government and all those overindebted consumers are too upset about ~4% inflation: an example of where they are clearly not paying “the price”.
Rob ,
As an Irish person living in London for the past five years your analysis is interesting. The problem for the U.K. is that it is carrying a large feckless welfare-dependent underclass which increases government spending. The advantage over Ireland is that the public sector is leaner and less overpaid.
I note that the Irish figures relative to the U.K. do not reflect the cost of NAMA, which is being kept off the state’s balance sheet by a manoeuvre that would but to shame the swap that Goldman Sachs did for Greece.
Ronan Lyons ,
Hi Ben, thanks for the comment. A couple of quick points in reply. I wouldn’t argue for a minute that the euro has been an unqualified good thing (cf. inappropriate interest rates), however for countries with a history of currency volatility and speculator bullying, it did bring straight away an environment of stability that can only be a good thing in the medium/long term.
Secondly, I would make an important distinction between “can’t learn” and “won’t learn”. The Irish economy, for example, got itself into all sorts of hot water in the late 1970s and the 1980s, because it thought it could spend (i.e. borrow) its way out of recession. The lesson has been learnt and learnt hard – very few commentators are arguing that we can borrow our way out of the current mess, which is a product of another lesson Ireland (and the UK) must learn: we can’t spend our way through a boom/spending can’t be acyclical (cf. Gordon Brown’s now risible rule of “balanced books”).
I would agree with you that were the UK in the eurozone, they would probably have stared down any Franco-German calls for better budgets in the good days, due to economic/political clout, but you would have to think that it would have had *some* ameliorating effect and that the UK wouldn’t be heading for 100% debt/GDP by 2014, but instead perhaps 80%.
On Greece, I actually think the Finance Minister in Greece is very much on top of his game, he’s an ex-OECD pro and can definitely see the bigger picture. Politics comes into play though, so they can’t be seen to be rolling over to international capital markets for political reasons. They need to be seen to be playing some sort of middle ground.
Lastly, on inflation – I think you and I are in agreement, but just on opposite sides. Someone has to pay, and while debtors and exporters may be happy to see inflation, but ultimately bondholders, future generations, consumers in a year’s time, etc., will not be very grateful if the pound in their pocket is worth, say, 15% less through inflation and devaluation. This is particularly relevant for the UK, as part of the reason its debt is well-regarded is because it has a role as a reserve currency. No-one likes gradually weakening reserve currencies.