The proper way to bail out a Euro member would be to amend the Treaty to allow a formal system of loans and grants to Euro members who get into trouble. The Treaty could provide for suitable controls over the member state’s conduct in return for seeking and being granted aid. I would favour that approach, as I think the Euro area needs a better system of transfers.
As a non Euro member it would give the UK a good opportunity to bow out of more of the needless EU government that we do not want, and would give us the opportunity to have a refererendum on the Treaty as modified. Clearly the UK should not be party to the bails outs or the rules imposed on Euro members. The EU would doubtless need to give us substantial powers back to make a new Treaty palatable to the UK public.
A single currency scheme either needs a single government which can make the calls on how much to borrow, how much to print, and how much to spend, or it needs a set of rules over how much each of the individual memebrs can spend, borrow and print. If I were a German taxpayer I would not wish to bail out Greece. I would not be satisfied they have done enough to cut their spending. I would be worried in case Portugal, Spain and others were in the queue for my support as well.
Why do these governments whinge and whine so much about the need to reduce their costs? Business accepts that in recessionary times you may need to cut costs by 10% or 20% to survive. You just get on and do it. You don’t do it by threatening your customers with a worse service, or by cutting back your front line service or best product offerings. You do it by working smarter and cheaper.
These EU governments – and the UK – have failed to make themselves efficient and to discipline their costs for years. That should make it easy to cut the costs of doing what they need to do. They should be told to get on with it, instead of seeking new ways to milk the taxpayer. Borrowing more is just delayed tax.
March 13, 2010
Yes indeed, this scheme might well save face for the single currency and save Greece for now, but what happens when moral hazard strikes i.e. Spain wants the same treatment?
March 13, 2010
“Why do these Governments whinge and whine”
Because the leaders live in some sort of fantasy land, where the real World is some other place, in some other time, and someone else’s responsibility.
In short leaders want to be popular, and you cannot be popular if you reduce services and cut back on jobs.
Payback time comes, but on someone else’s watch.
March 13, 2010
“Business accepts that in recessionary times you may need to cut costs by 10% or 20% to survive. You just get on and do it. You don’t do it by threatening your customers with a worse service, or by cutting back your front line service or best product offerings. You do it by working smarter and cheaper.”
Unless you’re Vauxhall, with lots of jobs in marginal Labour constituencies. Then you go ask the Government for £54’000 per worker at your factory and get given it.
March 13, 2010
JR: “They should be told to get on with it”
Please tell your friends Cameron, Osborne et al before we are confronted by another five years of the big clunking fist. By the way, I mean David Cameron not Samantha!!!
March 13, 2010
Off topic. Been thinking a bit about the budget on 24th. My bet, Labour will cuts taxes saying that money needs to go back into the economy to boost recovery. When they do that you’re screwed. Get Osborn out there now saying that cutting taxes is the best way to boost recovery – and explain to him why this is case (I don’t think he has a clue as to how the world works to create wealth) so he can explain it. Of course cutting spending is also vital so you need to say that that will follow and again train Osborn on how to explain how doing more for less is what freedom and human action does every day.
You have been warned.
March 13, 2010
BROWN WINS WORKING MAJORITY. ED BALLS NEW CHANCELLOR. BIG INVESTMENT IN NHS AND PUBLIC SERVICES. – The Times, May 7th 2010.
March 13, 2010
I can't understand how you can have a common currency without a common, enforceable, financial policy. If you look at America, the individual states had joined to become the United States long before the dollars used in individual states were replaced by the US dollar. The EU, as with everything else they do, is doing it the wrong way round!
March 13, 2010
On the US financial channels some commentators are comparing some individual states to Greece. Will certain states default?
On the same channels there is concern about overvalued Dollar assets.
There is a strange attitude among some people to regard the US economy (with its huge deficit) as some sort of wonderful example that the rest of us should follow. The USA was of course created by a bunch of tea tax dodgers!
Regarding Mr Redwood's point that borrowing is deferred taxation I reckon that is not always the case – if the government borrows to build transport infrastructure that boosts the economy then the extra taxes raised (as a consequence of the new infrastructure) may more than cover the loan's principle and interest.
March 13, 2010
One thing that is blindingly obvious to me is that the pan european concept is going to be bad for Europe in the long run, if the end result of federalisation politically and economically is a huge continental state with equality from corner to corner, where's the competitive market gone, ?. Because with everyone in the same bubble and the protectionism we already see hinted, all the big manufacturers will be departing in droves to go somewhere where there will be more competitive rates of pay and tax, where is Europe then ?
Do we become 3rd world with the huge populations we have becoming an agrarian society ?. Or do we become a land of the old and stupid who cannot leave to get work in one of these new world leaders ??
March 13, 2010
As the "Stability Pact" has already been seen to have failed, what hope is there that any new arrangement would fare any better?
March 13, 2010
"Why do these governments whinge and whine so much about the need to reduce their costs? Business accepts that in recessionary times you may need to cut costs"
Because they can & it works. Same reason kids do. Bankruptcy is probably the single biggest reason free enterprise works. When a business venture fails you stop doing it. When a government one does it gets a bigger budget & allowed to try again.
March 13, 2010
JR “If I were a German taxpayer I would not wish to bail out Greece.”
According to Bild magazine, since joining the Euro, Germany has already given Greece €50 billion. It was also reported in our press last week that some German politicians have told the Greek government to sell off some of their islands to raise money! German politicians are no doubt mindful of the election coming up in May in North Rhine Westphallia and don’t want to antagonise their voters.
March 13, 2010
Your analysis overlooks the plain fact that we may yet very well need Germany's wealth to bail us out.
March 13, 2010
I've said this since day one – we should pledge our full support behind any bailout. When our turn comes it will be more difficult for our European partners to turn us down.
March 18, 2010
Germany would not bail us out. Full stop.
March 13, 2010
Mr Redwood, you are probably ignoring some political realities when you state
“These EU governments – and the UK – have failed to make themselves efficient and to discipline their costs for years. That should make it easy to cut the costs of doing what they need to do”
The reality is that the UK government has created the inefficiences in the name of currying favour with vested interest groups. It is easy to extend favours and commitments and benefits. It is far more difficult to reduce or withdraw them. In particular, much of the inefficiency has come through increase real wages and increasing the payroll. If cutting real wages is not possible, then the cuts in the payroll will have to be larger. This is made even worse by two facts. First, that the initial cuts need to be much larger than the original increase, as there is now the additional debt-financing to cover. Second, the initial increases were made during a prolonged economic boom. The cuts need to made in a recession.
The scale of the problem is enormous. The structural deficit is about 10% to 15% of total expenditure. If you take out the NHS, Education, Transfer payments, Defence and Foreign Aid, the cuts become between a third and a half of what is left. Each tenth of a percent rise in debt interest rates, or another 48 hours of delay in tackling the deficit means another 30,000 public sector jobs going, or a million nurses and teachers forgoing salary increases for two years.
March 13, 2010
You are so right: cutting services leads, eventually, to bankruptcy. Even I know that if I turn up late, finish early or skimp the lessons, then sooner or later word will go round and I will not be asked back again. I only tried once and learned a very hard lesson indeed.
The Greeks, however, are not English and they are not German. The Spanish think they are German. But they aren't. The Italians think they are German, but they aren't. They have a completely different attitude to life and live in a completely different part of the world.
One of the worst mistakes Mr Blair made, I think, was to assume that the rest of the world lived in Islington, or perhaps Brixton and that they all had an identical mindset.
They don't.
March 13, 2010
An interesting twist is that the Greeks are talking about compensation for WWII and the thousands of Greek deaths that that entailed, not to mention theft of art and assets. Russia has a similar way of thinking as Soviet losses where in human terms incalculable.Twenty million at least. Entire industries and workers were exported/deported to compensate. Do they have a point or are they living in the past? Britain's loss was about four hundred thousand, though we were technically bankrupt as a result.
March 13, 2010
"…and would give us the opportunity to have a refererendum on the Treaty as modified."
Pardon ?
A referendum on a Treaty about belonging to an organisation which the vast majority us don't want to belong to and who have never been properly asked if they want to belong to it ?
You know that I know, that you know that I know that given a vote on the EU the people of the original member states (and many of the others) will nearly always vote in the negative on the EU when given the chance. THAT's why we're never given the chance.
Just what freedom are our troops dying for in Afghanistan ?
March 14, 2010
All this sounds perfectly rational, but we need to be careful what we wish for. If the Euro area were to be controlled by a single government, that would be the dominant power in Continental Europe – too large and too dominant. It has long been British foreign policy, for very good reasons, to seek a balance of power within Europe.
We simply cannot afford the Euro to succeed while so many countries are in it. Our aim should be to get enough nations to leave the Euro zone so that the residual Euro based federal state is of manageable proportions. Quite how we do that I do not know, but the phrase Perfidious Albion comes to mind.
March 18, 2010
One of the things I hate most about politicians in this country is their oft ubiquious claim to speak for the people of Britain! Mr Redwood is one such. If the people of this country hate the EU as much as is claimed by the Tories, they would vote for parties which espoused leaving the EU, such as UKIP. So please try to get things in perspective.
And one thing which is patently clear is this – if the current government is so hated, should there not be a much bigger swing to the Tories by now?
I have no doubt that the EU, like any other level of government, has its faults. But it also has positive aspects too.
March 20, 2010
Greece should coin its own money, and so should we.
German Central Bank admits credit is simply create out of thin air.