Nosemonkey's EUtopia

In search of a European identity

The Euro and the credit crisis

Interesting analysis from European Voice today:

Some members of the European Monetary Union (EMU) – Ireland and Greece obviously, and Italy, too – are discovering that what the International Monetary Fund (IMF) adjudges a global recession is cruelly exposing their failure in the past ten years to adjust to the rigours of membership of a currency union…

But the idea that any country will quit the EMU unilaterally, while it remains a hard-currency club, is mindless.

Long before the printing presses could be greased up to produce reams of new lira, drachma or punt notes, or ‘secretly’ asked businesses and financial institutions to re-programme their computers for a new era of monetary independence, the stampede of deposits from the banks to safer havens offshore would have triggered an economic meltdown. Forget it. The mechanics of leaving the single-currency area unilaterally and out of weakness, notably the pain of the transition to a new currency regime, make it all but inconceivable.

We are, however, already witnessing the beginnings of a process through which the bright hopes for the single currency of a decade ago could begin to dim. One expert calls it the “re-nationalisation” of EU financial market regulation…

Gordon ‘beggar thy EU neighbour’ Brown, the UK prime minister, has led the way in implementing a 1930s-style competitive devaluation to back up his “British jobs for British workers” jingoism…

Protectionism is rife and Neelie Kroes, the European commissioner for competition, is finding she does not have enough fingers to plug the holes in the dyke that the EU constructed long ago to prevent illicit state aids swamping free competition.

Naturally enough, worth reading in full.


  1. I’m not one to defend Brown, but

    “Gordon ‘beggar thy EU neighbour’ Brown, the UK prime minister, has led the way in implementing a 1930s-style competitive devaluation to back up his “British jobs for British workers” jingoism…”

    Is a little unfair – he has done little to devalue the currency, mainly because he _can’t_ – interest rates are controlled by other people, exchange rates are set by the market, and the one thing he is responsible for – increasing public debt – is something that everyone is doing (and however large the UK’s public debt is, as a proportion of GDP there are those a lot worse off). The devaluation of the UK£ is more to do with (as far as I’m aware) the proportion of our GDP made up of financial services, which are cratering, and dwindling oil reserves. Neither of those are Brown’s fault.

    I never thought I’d defend Brown. Ugh.

  2. I think this article is spot on. The mechanics make it impossible, otherwise Greece and the Irish Republic would have gone already. Cowan is in great difficulties taking even Euro 2Billion out of the Irish public sector and he’s got another Euro 12 Billion to go. Look instead for the Baltics to abandon the pegs as maybe the first major moves?

    Stuart, I wouldn’t agree that the MPC is still making independent decisions. UK Treasury for sure has a devaluation policy (probably driven by the officials rather than Brown himself). Wouldn’t exactly call it “beggar my neighbour” though, it’s hardly the fault of the UK government that other countries have locked themselves into a “beggar myself” route.

  3. “Look instead for the Baltics to abandon the pegs as maybe the first major moves?”

    Is that a good idea to do though? A lot of people in the Baltic countries borrowed in foreign currencies (Euros, Dollars and Yen) So if they removed the peg, undervalue their currency. The debt amongst the population would effectively be doubled.

  4. Blaat,
    I’m guessing Latvia et al won’t _want_ to abandon their currency peg, but it is surely becoming expensive to do so. The UK didn’t _want_ to crash out of the ERM in 1992 – but at the end of the day we didn’t have a choice. Granted, I’m not sure how much the situations match up, but… I recall had quite a good discussion on this, but I can’t get their archives to work for me, so can’t give you a link, alas.

    Mark – I’m assuming you believe the treasury’s devaluation policy is a pro-devaulation one? Why?

  5. Stuart,

    yes, pro-devaluation

    is your question why do I interpret it that way (1), or why do I think its sensible (2)?

    1. they can just change MPC criteria and stop briefing about quantative easing if they didn’t want it


    2. for the usual BOP and domestic readjustment/stimulus arguments in favour of devaluation, plus its a very good time to do it as it won’t be inflationary (the main usual argument against devaluation).

    Main worry for me is that this policy will do nothing to put right the structural problems that remain all too evident in the West Indies at the moment.

  6. Mark – yes, thanks, it was 1) that I was after. I do feel that the ‘briefing on quantative easing’ bit is perhaps over-stated (they commented on it, what, twice? To say they weren’t doing it?), but as I’m really quite confused over what is actually meant by the term (‘printing more money’ I can cope with, but it seems to get more complicated than that, shockingly), I think I’ll just be quiet now…