Whatever Germany Does, the Euro Is Dead

Jeff Randall Daily Telegraph May 21, 2010

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By Jeff Randall Published: 7:56PM BST 20 May 2010

Comments 138 | Comment on this article

Angela Merkel's response to the euro crisis is 'doomed to fail' Photo: Bloomberg

"Money can't buy you friends, but it does get you a better class of enemy" – Spike Milligan

For Angela Merkel, leader of the eurozone's richest country, a queue is forming of high-quality adversaries. As she tips German Geld und Gut into the furnace of a rescue package for the euro, while going it alone in a misguided ban on market "manipulators", the brass-neck Chancellor has infuriated domestic voters, angered her EU partners (in particular the French) and invited the so-called wolf pack of global traders to do its worst.

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In one respect, Mrs Merkel is right: "The euro is in danger… if the euro fails, then Europe fails." What she has not yet admitted publicly is that the main cause of the single currency's peril appears beyond her control and therefore her impetuous response to its crisis of confidence is doomed to fail.

The euro has many flaws, but its weakest link is Greece, whose fundamental problem is that for years it spent too much, earned too little and plugged the gap by borrowing in order to enjoy a rich man's lifestyle. It flouted EU rules on the limits to budget deficits; its national accounts were a moussaka of minced statistics, topped with a cheesy sauce of jiggery-pokery.

By any legitimate measure, Greece was unworthy of eurozone membership. That it achieved card-carrying status was down to the sleight-of-hand skills of its Brussels fixers and the acquiescence

By Jeff Randall Published: 7:56PM BST 20 May 2010

Comments 138 | Comment on this article

"Money can't buy you friends, but it does get you a better class of enemy" – Spike Milligan

By any legitimate measure, Greece was unworthy of eurozone membership. That it achieved card-carrying status was down to the sleight-of-hand skills of its Brussels fixers and the acquiescence of central bank bean-counters. Now we know the truth, jet-hosing it with yet more debt makes no sense. Another dose of funny money will delay but not extinguish the need for austerity.

This is why the euro, in its current form, is finished. The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med. No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality. You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.

What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the eurozone of one or more of its member countries. At the bottom end, Greece and Portugal are favourites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new "hard currency" zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.

When asked on Sky if, in five years' time, the euro will have the same make-up as it does today, Jeremy Stretch, a currency analyst at Rabobank, the Dutch financial services giant, told me: "I think it's pretty unlikely." The euro was a boom-time construct. In the biggest bust for 80 years, it is falling apart.

Telegraph loyalists with long memories will be shocked by none of this. In 1996, Sir Martin Jacomb, then chairman of the Prudential, set out with great prescience in two pieces for The Sunday Telegraph why a European single currency, without full political integration, would end in disaster. His prognosis of the ailments that might afflict the eurozone's sickliest constituents reads as if it was penned to sum up today's turmoil.

"A country which does not handle its public finances prudently will find its long-term borrowing costs adjusted accordingly," Sir Martin predicted. "Although theory says that default is unlikely, nevertheless, a country that spends too much public money, and allows its wage costs to become uncompetitive, will experience rising unemployment and falling economic activity. The social costs may become impossible to bear."

Welcome to the headaches of George Papandreou. The bond markets called his country's bluff. Greece is skint, but its unions don't want to admit it. There is insufficient political will to tackle incompetence and corruption, never mind unaffordable state spending. But, locked into the euro, Greece cannot devalue its way out of trouble, so it relies on the kindness of strangers.

Dishing out German largesse to profligate Athens, with little expectation of a reasonable return, is a sure way for Mrs Merkel to join Gordon Brown as a political has-been. Fully aware of the revulsion felt by Mercedes and BMW employees at the prospect of their taxes being used to pay for a Hellenic car crash, she has resorted to creating a bogeyman – The Speculator.

By announcing a ban on the activities of short-sellers (those who bet to profit from falling prices in financial markets), she is hoping her decoy will avert German attention from the small print of Berlin's support for Greece, which talks of developing processes for "an orderly state insolvency". This sounds ominously like a softening-up process for a form of default.

Greece's severe difficulties were home-made. The euro has come under pressure not from dark forces of speculation but respectable investors, many of them traditional pension funds, which, quite correctly, worked out that when the crunch came, the Brussels elite would sanction an abandonment of its no bail-out rule and cough up for a messy fudge.

In 1990, the late Lord Ridley, when still a government minister, caused a storm by telling The Spectator that Europe's planned monetary union was "a German racket designed to take over the whole of Europe". One knew what he was getting at, but it has not turned out that way.

Protecting the euro has become a project via which profligate states dip their fingers in Berlin's till. Germany is taking on nasty obligations without gaining ownership of the assets. Germany's version of The Sun, Bild Zeitung, feeds its readers a regular diet of stories about the way ordinary Germans are being taken for mugs. Trust has turned to suspicion. Next stop is divorce.

As for the United Kingdom, we must be grateful that those frightfully clever Europhiles, such as Lord Mandelson and Kenneth Clarke, did not get their way. Had they been able to scrap the pound and embrace the euro this country would be even closer to ruin. Without a flexible currency, the colossal deficit clocked up by Mr Brown would have crushed us completely. We have little to thank him for, but it would be churlish to deny that his decision to reject Tony Blair's blandishments in favour of the euro was a life-saver.

Sterling's devaluation has not been pretty, but it is helping to keep our exports competitive while the coalition Government begins rebuilding the nation's finances. Siren voices from across the Channel, calling for closer integration between Britain and the rest of the EU, can be confidently rejected. As for joining the euro, I find it impossible to imagine any circumstances under which it would be in the UK's interest to do so.

Comments: 138

I have to sat that my "favourite" part of all this is the demand by the EU to audit the budgets of member states. Can someone remind me, please, for how many years the auditors have refused to sign off on the EU's own accounts? The lunatics have indeed taken over the asylum.

Britain is fast becoming the pits of europe,within 2yrs we will be in more turmoil than Greece,roll on the long hot summer of discontent, it promises to be a summer like we have never seen before.

Article seems a bit marxist...good on why things are the way they are but poor on how to move forward.

It would be fine to join the Euro if the time was right so long as we also had the right to get out of the Euro when the time is right. Economics and politics doesn't work like that, so it's safer to never join the Euro at all.

FOR WHAT IT'S WORTH: Why is it that when i point out that the original European Union is the United Kingdom, with its central currency, clearly stating it is backed by a weightage in Gold/Sterling Silver, backed up by a Commonwealth which gives it supreme power around the UN table with its 54 votes, out numbering the EU bunch, MY POST NEVER GETS PUBLISHED? Why the heck are we having devolution on these shores, only to pick up with a bunch on mainland Europe, that need our expertise in the first place? Wars created our Union and that Union has made sure those within it, have not been at war with each other, neither has any other force attempted to start a war with us! Nope, it was the the UK that declared war on Germany! What we have had in the past 30 odd years is arrogant Tories, which allowed the cabal to buy up what was not a sitting governments to sell, then we were conveniently handed over to the Communists, who took the door away and laid a red carpet down for the Tribe! When the tribe were kicked out of England, RIGHTLY, in 1290, where do you think they went, if not to the North to financed an army to fight the English? I suspect the financiers and their trick houses of Freemasonry ran through the heart of the Bonny one, till the defeat a Culloden! Keep your powder dry boys, we'll have those English bastards one day, with the help of the tribe! No EU, No devolution, No back door for foreign troops to occupy one foot let alone acre on these shores. Within our European Union, THE UNITED KINGDOM, we need to take back our Bank of England and with it stop the daily robbing of our future by a foreign fifth column, akin to parasites! When the German people were out for the count and their women were being raped by Stalin's forces, a humungous lie was being created, to which they have been enslaved ever since. Who said the tribe had brains anyway, oh don't tell me, members of the tribe!

It is possible to compare current EU antics with the BBC 1970s "Its a Knockout" programme. Instead of one Stuart Hall style madcap commentator we now have plenty in all the newspapers. The teams from the European Nations look just as ridiculous in their efforts to overcome the obstacles only the slip sliding knockabout is not so funny for real problems. The only saving grace is that teams that genuinely worked together, and came up with ideas to overcome the obstacles were always the winners. Surely a lesson for the Eurozone leaders, and a harbinger for what the UK coalition could achieve.

I am glad we did not join the Euro, and am sorry we joined the EU, which, we were told was to be for trade. Then, once the gullible public voted for it , the politicians did their usual thing and made it what they intended it to be in the first place. I voted against joining the EU as I didn't want to be joined up with those we fought to keep out. Now we are ruled by them.

Paul T.Horgan, May 21, 9.14 a.m. 'the UK was created as a defence measure in the Napoleonic Wars'.. Only 90 years' out, Mr Horgan - the Act of Union with Scotland was 1707 - Napoleon didn't become an issue until 1797... The Act of Union took place because Scotland was bust, and it suited the English not to have a weakness on their northern border. As to the subject of this column - if anyone thinks the EU elites will give up on their pet project OR the constant ratcheting up of federalism they are living in cuckoo-land. They now have a compliant and willing ConDem Govt in the UK who will continue to support them politically and financially(with UK taxpayers' Capital Gains Taxes of course..). I am willing to have a wager with anyone that the UK WILL be members of some sort of currency union within 10 years - possibly sooner. Obama and Co will also push for this as the ultimate aim is a One-World Currency/Govt. You could see Sarkozy rubbing his hands together when he met the ConDem PM...more British Lambs to the slaughter !

Methinks, the BoE and the pound are in their last few days. Jeff is a brave warrior, but the battle for Britain is over and has been lost this time. R.I.P.

John Williams wrote: And still some, like Clegg and the boys Miliband, sorry the Marx Brothers, still think it's a good idea to join the euro 'When the time is right' The Germans have invested billions resurecting the old East Germany and are very much against bailing out the Mediterranean basket cases. Great Britain ploughs in way way more than our fair share. When. not if the euro collapses, the main loses will be France. They rely heavily on subsidies, and without them would collapse. Still, it'll be cheap for holidays!

It beggars belief that anybody could look at the last two years in economic terms and say 'Britain must join the Euro!' One of the best things about yesterday's coalition policy statement was that joining it, or even preparing to join it, was ruled out for the course of this parliament. If sense prevails, then Greece and several other nations, possibly including Portugal, will leave the Euro soon. But as has been said, the political imperative for EU enthusiasts, like most leading German and French politicians, is for the EU to survive and 'increase its competences'. So anything that threatens the single currency will be opposed, even if this involves Germany 'throwing good money after bad'. On a more flippant note, a good pint of Yorkshire bitter is in a different league from a cool glass of Italian beer (Italy, that famous brewing nation!).

What things will get so bad the EU will fall apart? OK maybe it will but how bad does it have to get and how long does it take? Things got bad in Zimbabwe, cash was printed etc and now they use the dollar but the regime is still in place. No the worse it gets the stronger the EU will become, one reason for this is that those in key jobs wont want to be in the same state as the majority. When security services start shooting they will think they are just doing their job and that containing the unruly mob has to be done. As George Orwell put it; the future, if the people allow it is a jack boot in your face. Every crisis is met with greater emergency powers. Unfortunately the creation of cash will continue until savers and pension holders have no real means of exchange and only debtors will be left. And gold well we shall see but no way will they have gold bugs ruling the financial world, or will they? I bet quite a few elites have allocated accounts in Switzerland which might well not be affected by exchange controls. What a potentially fantastic opportunity to acquire foreclosed assets. And still some cling to the idea that Europe is for the benefit of the citizens.

Another powerfl analysis form Jeff. Why is France not mentioned in the hard currency zone postulated? The French hate the Euro and have blamed it for a massive rise in the cost of living over the Euro years. Many would dearly love to see the Franc and French economic identity restored in a country losing its culture its cuisine and its whole national identity at a steady rate. French quality products -and some do still exist -are undercut by EU and world imports of third rate junk in all sectors from domestic products to food. The bottom half of the population live on pizzas, pasta and cheap pork products with the growth of cheap fast food oulets and factory produced junk food. At the back of ths is the Euro - a European currency for a chauvinistic and zenophobic people who refuse to learn,speak or understand the languages of the millions of foreigners who empty their wallets into the country's rapacious tourist economy every year . Without tourism France would be broke -and yet they hate tourists and long for the return of the national currency with which the whole nation identifies..the Franc.

this is one scary piece, for the very simple reason that we who rejected the notion of a single currency, on the basis which it was delivered, did so without much exercise of too many brain cells. Indeed, Sir Martin Jacomb, whom Jeff refers, probably made his assessments during his sleep-it would have been that easy. that is what makes this piece scary; the fundamental dichotomy that existed within the platonic heaven of this whole venture was so clearly obvious and plainly ignored because the political will was so expedient. It doesn't take a rocket science formula to find out why the whole thing failed, it is simple, and it is the very simplicity of it that should make us wary anytime the politics of anything takes over and dominates the empirical values of anything. As an aside, are we about to have our own mini-single currency in the UK, with the introduction of Calman for Scotland? I would have recommended that the Tories call the SNP's bluff by giving the Scottish executive(let's stop playing house by calling it a Government) taxing-raising powers. but we all know what will happen when tax and spend takes Scotland down the Greece route. England will be asked to do a Germany

I think you will find that joining the Euro was also official Tory policy under Thatcher and Lawson, irrespective of the formers reluctance. Your snide remarks towards Mandelson and Clarke are really rather unnecessary. Paul Byard on May 21, 2010 at 06:00 AM There is no such thing as an unnecessary snide remark about Mandlescum!

Some of the references to Greece might apply equally to the UK: 'for years it spent too much...and plugged the gap by borrowing' and 'a country that spends too much public money...will experience etc.' Unlike Greece, the UK is free, on the one hand to devalue and has effectively done; on the other hand it is free to pursue its own fiscal strategy. Greece should have either been expelled from the Euro or allowed to suspend its membership. Merkel is acting irrationally i.e as politician and whatever the size of any bail-out this solution will at best buy only time and simply defer the inevitable. A small point and one not so far properly addressed: how exactly will the present bail-out be funded by the other Euro members? Borrowing and from what sources exactly and on what collateral?

Last night on tv, a french finance person tried to justify why Britain should come to the rescure. He said we're all in the Euro zone. However the interviewer said, but we don't use the Euro, its not our currency. Also the frenchman did not criticise Britain, simply because they are now realising maybe we had valid points about this whole ludicrous demo. For those french that post here telling us to get out of Europe. don't come back to us with your tails between your legs asking for favours. Britain took enough flak but based entry on real fiscal principles not political gerrymandering.

One time resident wrote: Who can predict how the 'British' would react now after the Blair/Brown efforts to create a true multi culti society ? Yes. Its one thing to sacrifice for the commmon good but another to sacrifice, when the beneficiaries are going to be the ones who live among us but are hostile to our culture.

Remittance Man on May 21, 2010 at 09:00 AM I think you would do well to focus on the breakup of the United Kingdom. We already have devolved Government and tensions will be heightened by the anticipated cuts. There is too much gloating by eurosceptics about an event that hasn't taken place. They'll end up, as usual, with 'oeuf' on their faces.

Jose. M. Barroso on May 21, 2010 at 08:38 AM I am predicting the collapse of UKIP

The clear solution would be for Greece to surrender its economic sovereignty. I would note that political unions are usually born out of major crises. The USA was born of a revolution, as was the USSR. The UK was created in the heat of the Napoleonic Wars as a national security measure. Churchill offered political union with France to keep them in the war with Germany in 1940. So if Greece faces a major political crisis, then it may not result in its ejection, but closer union. Otherwise the whole project is in jeopardy.

I hope Jeff is wrong;as a European if Germany re-adopts the DM then all that time of single currency integration would have been a fruitless taxing waste. The US with all the states working with a single dollar must be wondering all this sillyness, and risk of Europe returning to the absurd situation of the older European basket currencies.. Croatia seems to be a Greshams law, sitting half on the fence,trading in Euro and Kuna. The only way out to save the Euro is a two speed Europe. Let the Greeks and others sweat it out from their socialistic mistakes,and learn how to run their affairs better and not always relying on Europes gravy train.

Just because the UK is on deep trouble doesn't mean the Euro is not. I have nothing against monetary union per se, but it can only work when it occurs naturally as economies grow closer and closer and integrate more or less fully. The Euro came together because of political vanity and is now held together through political vanity. Those who predicted the Euro's demise never claimed it would happen quickly or soon - it was however always claimed that a serious economic crisis would expose the flaws.

Gary Hyams 07:55 AM ...'euro sceptics have always predicted its demise'... Perhaps because eurosceptics, with their sight unhindered by the rose tinted spectacles europhiles appear to wear permenantly, can see the inherent faultlines in the artifical constructs that are the euro and the eu. Faultlines along which tensions will grow until no amount of Ode to Joy* singing can prevent them unloading. *The europhile's equivalent to Kumbayah

No-one should be surprised that the EU are pepared to ignore their inflexible rule of no bail-out to try to keep the currency from falling apart. After all before it's inception, the eurozone countries were SUPPOSED to meet certain merging criteria. Remember that? Which country was it that fudged their figures in order to qualify? Ah yes! I remember now. It was Germany.

Goldman Sachs enabled Greece to hide its borrowing in the same way that it enables giant companies to hide their debts by using "creative accounting" techniques. That's how trust breaks down between the borrowers and the lenders of money. It takes one to know one: The Greek writer Taki said the Greeks "will wriggle out of paying their debts somehow. They always do".

It's no big deal for Greece to leave the Eurozone and return to the drachma, while staying in the EU. Only doctrinaire Eurocrats with an agenda want them to stay in.

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