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Economic Europe

A fortnight ago the Europeans said that they were on the verge of sorting out the debt crisis but now expectations are being down played.

Unless there is a major breakthrough today, to quote Private John Frazer from Dad’s Army, ‘we’re doomed, we’re doomed.’

In politics you can hype up proposals, under deliver later and usually get away with it. Why? Because the average voters memory span is just slightly longer than that of a goldfish.

Not so, when you’re dealing with economic issues. Financial Institutions make fortunes on the prediction game. Consequently, they weigh and balance every word uttered on financial and economic policy.

For European leaders to reassure that they’re on the verge of producing a master plan to sort out the crisis and then not deliver, courts disaster. The disappointment felt by the market, almost certainly, will make a bad situation a whole lot worse.

Unless today’s Euro zone summit meetings produce a plan with two elements it will have failed. One element, actual wads of cash in large enough numbers to convince the market that there is enough firepower to deal with the crisis. This on its own will buy time.

But to solve the problem a viable long-term solution that creates a healthy economic Europe, is necessary.

If either element is missing from the final communiqué the crisis will continue unabated and Europe will face a deep and long recession. If there are only warm words expect the worse.

Greece will default on its loans, banks will take a hit, some will sink, and there will be a domino effect. Trade throughout Europe will grind to a halt.

Only a believable plan will do to settle the market once and for all.

What should that plan be? Forget the finances, the only long term solution to the crisis is a single economic authority for the whole of the euro zone.

There are seventeen democratic countries in the Euro zone and each has an economic minister, consequently you have seventeen different economic policies to run one single currency. Result -chaos.

To sort it out there needs to be one creditable economic policy. This can only happen with political union. Yes, a Federal Europe.

Now if today’s European summit doesn’t lay the road map for such a State, the markets will react accordingly. Yes, more misery for the citizens of the continent.

If, against all expectations, the seventeen decide to take that quantum leap forward and pool their sovereignty and move towards a Federal Europe, what then for the ten refuseniks outside the euro currency, of which the UK is, of course, one.

Can the European Union go on with a single Federal State of seventeen countries at its core? The answer is likely to be, no.

The EU that we know and love it will have changed so much that it’ll no longer be functional. A new relationship with the ten will have to be negotiated.

New negotiations. What an opportunity for those eighty-one that voted against Mr. Cameron on Monday to make mischief. They might yet see their dream come true and the UK out of Europe. Alas, England can again refuse to be part of the game. Wales and Scotland would have to forge their own destiny, maybe.

What can be predicted is that Europe will dominate the political debate, awhile yet.

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5 Responses to “Economic Europe”

  1. BetterWales says:

    >Oh dear, another journalist who learnt little from Margaret Thatcher.

    Inflation, inflation, inflation. This is what kills currencies, countries and continents. And printing money just postpones the real problem … asset prices are still overvalued and debts must be repaid.

    Talking of journalists, I read on the A Change of Personnel blog the following '… recognition that the Welsh media has been prone to reproducing Welsh Government propaganda on the Welsh economy for too long rather than questioning decisions and offering at least some basic analysis.'

    Any thoughts?

  2. Gareth Hughes says:

    >t is King and Osborne that are printing money at the moment under the grand name of quantative easing. But that said I agree with any measure that will stimulate growth.
    Ah! if only the Welsh Government had an economic policy or had economic powers then I would certainly offer my views but alas they don't so its Westminster that's in my frame. Rest assured this blog calls it as it sees it and is not in the pocket of any party.
    26 October 2011 19:46

  3. Democritus says:

    >Gareth,
    So many points one doesn't quite know where to start!
    Once upon a time the Euro was accompanied by a thing called the 'stability & growth pact' intended to limit structural deficits in a way similar to the UK govt's ill-fated 'golden rule'. It was scrapped when Germany and France started finding it inconvenient. We could well see this reborn in a stronger form that would for instance prohibit deficit budgets of over a set level unless the majority of Euro member govts consented. I shouldn't have thought this would require a new treaty, since the principle is already there in Maastrict.
    It's not just the 17 who are affected though. Only the UK and Denmark have opt-outs enshrined in the Treaty. The remaining countries (Sweden, Poland, Czech, Slovakia, Rumania, Bulgaria & the Baltic countries) are all legally committed to joining in due course; and therefore cannot straightforwardly be excluded from a redesign of the system, particularly if new treaties are required (although its fair to say the Czechs have zero intention and the Swedes are highly unlikely to try a referendum again anytime soon).
    Regardless of whatever 'fix' is agreed this week, the harsh truth is that for any country consistently less productive than Germany, the only way out is going to be long term austerity to cut workers wages in the name of competitiveness. This is the inevitable consequence of ruling out devaluation and it will likely as not lead to a decade of stagnation, if not worse, all around the Med.

  4. BetterWales says:

    >Good for you. And thanks for replying.

    Much appreciated.

  5. BetterWales says:

    >Democritus, don't disagree with anything much you have written except to point out that German workers endured almost a decade of austerity during the early part of this century.

    The rest of Europe just has to catch up (meaning suffer similar salary & wage cuts to restore market competitiveness).

    Here in the UK we will have to likewise, but the government seems to think it delay the pain until after the next election. Let's see.

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