OK, let’s start by clarifying that an ‘A’ level in economics does not make me an economist and I hardly consider myself an expert in globalisation but if there is one thing that the recent crisis has solidified in my mind it is the importance of maintaining an independent currency.
I’m not a Euro Sceptic, although I’m sure like most people I would like to see Europe become less bureaucratic and expensive and more democratic, but, seeing as few of us bother to vote or take an interest in Europe then we’ve only ourselves to blame on that front”.
When the Euro was first proposed I was in favour. I was younger and more idealistic but I could see the personal and economic advantages of a single currency in a single market. But the events of the last two years and to an extent the two years previous have definitely convinced me otherwise.
Let’s look at yesterdays good news for the UK economy -
FT - “UK manufacturing surges as demand picks up”.
And why?
“Manufacturers reported a flying start to the second quarter, with the weak pound boosting export growth to the fastest for at least 15 years,” said Rob Dobson, economist at Markit
Weak pound boosting exports for fastest for 15 years. And what happened 15 years ago? Well in September 1992 after a property market crash with the economy deep in recession the Pound dropped out of the ERM, the fixed exchange rate mechanism that was the prequel to the Euro. Prior to this, in an attempt to remain in, the current chancellor Norman Lamont had raised interest rates as high as 15% and chucked an estimated £10 billion into the markets.
The pound subsequently plummeted against all currencies, including the emerging Euro, interest rates were reduced and 2 years later the economy recovered. Sound familiar?
Then lets look at what happened just prior to this recession. During 2005 to 2007 nations such as Ireland, Portugal, Greece and Spain started to see massive house price rises and inflation. The UK also witnessed similar rises but, unlike the European Central Bank, the government was able to crank up interest rates rapidly.
Greece, unfortunately, is stuck, with most of its economic powers unavailable. As Steve Barrow, head of Group of 10 foreign-exchange strategy at Standard Bank, London put it in December 2009 -
“Countries like Ireland and Greece may not be able to grow out of the current crisis. With interest-rate cuts, exchange-rate depreciation and significant fiscal support all off limits for these countries, bailouts or even pullouts from EMU may happen next year.” (Source – Bloomberg - Ireland, Greece May Leave Euro, Standard Bank Says).
Locally, in Northern Ireland, we’ve witnessed this first hand with shoppers from the Republic of Ireland (or “Down South”) flocking to Newry and Belfast to do their shopping. Similarly, anecdotally, everyone knows Dublin and the South are just to expensive to visit or buy in.
So, the next time governments start talking about Euro entry criteria being met, remember those riots in Athens yesterday.
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