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The difficulties being posed to the Euro by the serious economic woes of certain countries within the Eurozone has led to some people questioning whether a single currency is sustainable without the existence of a single state. At this stage, the issue may appear somewhat esoteric to many, but it is of more than passing interest to those of us who believe that we should enter the Euro at some point (whether as part of the UK or as an independent member state).
The question of whether a single interest rate (and therefore monetary policy) set centrally would suit all the different members was an issue from the outset, but as long as the economies of the member states were all growing, the problem didn't really manifest itself. In recession, the problem has become acute.
However, simply turning the EU into a single state wouldn't make the problem go away; it would merely internalise it. In some ways, the position of Wales within the UK mirrors the position of, say, Greece within the EU. Monetary policy and interest rates set in London for the whole UK frequently do not match the needs of Wales. It's not unconnected with the fact that even when the UK economy was growing rapidly, Wales was lagging behind.
Whilst that lag has been, and remains, a serious problem for Wales, it was never something that worried the international money markets, because the problem was internalised within a single state, the UK. It's easy to see, in consequence, why some are arguing that the EU should also internalise the problem by developing into a single state.
That might keep the money markets happy (basically, because they would then know that the larger countries, particularly Germany, would be underwriting the smaller countries such as Greece), but it would not resolve the underlying problem of a series of economies performing at different levels; it would merely hide the problem as far as those outside were concerned.
Internalisation may solve one problem, but it creates another, as Wales' experience shows, because it reduces the incentive to rectify that underlying inequality. I have never understood why so many people seem not only willing to accept Wales' underperformance, but to use it as a reason why Wales should not control her own destiny. It drives me in the opposite direction – to a position which says that the best way (and perhaps the only way) of tackling our underperformance is to take responsibility ourselves.
Countries such as Greece and Ireland are going through difficult and uncomfortable times - it's something which we should watch carefully, and learn from as well.
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3 comments:
independence would be good for Wales at it would force our political class and those who vote for them (i.e us!) to engage in grown'up politics and not hark back to Tatcher and the begging bowl. I´m in the Basque COuntry and one reason for their economic success is that the taxes raised here are spent here and then passed on to Madrid. This leads to an honest assessment of what needs to be prioritiesed with the money raised and also, more importantly, the importance of raising that money yourself.
It´s fiscal responsibility. It´s something Plaid and the Tories, at least, should agree on.
Sion
Ten years ago while I was working for a major Japanese multinational in a London based European HQ. I was required to make the necessary adjustments to the banking and finance systems for all the European subsidiaries, including that of the UK. It became clear that there was significant savings to be made to the business with no need to offset risk on exchange from all the EuroZone subsidiaries and also a major reduction in bank charges. Commercial banks from all corners of the EuroZone where knocking on the door to bid for the requirement as it was possible to implement a single facility at one bank, in one country, and more importantly run a consolidated purchase ledger and payment mechanism for all suppliers with the EuroZone.
Then came a 'what if' moment.
A quick examination of the top 100 suppliers in the UK identified that almost all of them were international in nature and would inevitably be performing the same operation. In fact, in order to extinguish liability to us (in London) they were converting Euro's to Stirling to effect payment, so that we could accept Stirling and we subsequently coverted it back to Euro, the main operational currency of the European group. A prompt email was sent to all of these suppliers in the UK offering to conduct all further transactions in Euro. The response was overwhelming, and soon over 80% of the UK purchase ledger, by value, was being conducted in Euro. A further analysis of these suppliers found that the propensity to business in Euro was different across the UK. Top of the list was London, which would be expected as many corporate HQs were located there. Surprisingly, the second region to be most 'Euro-friendly' was Scotland, closely followed in third place by Wales.
If you trade in money (financial services) it pays to control your own risk and means of exchange, however, if you deal in a real commodity, whether manufactured goods or services for businesses that do, the currency used is merely a measure of a transaction. Your point about Greece has nothing to do with the EuroZone or the 'size' of their economy. As the result of my 'what if' moment was to immediatly eliminate Greece and Italy as a location in which to conduct the EuroZone activity due to the lack of technology and skills to perform the requirement. A Greek Euro has the same value as a German Euro. The contract eventually went to a German bank running a clearing unit in Ireland, which was also best able to service the UK.
Is Wales missing out on something here ?
I also wish to point out that my personal income for providing this work in London for a 10 year period was more than I have earned in Wales before or since. It will be considered in your other discussion threads as the London subsidy to the Barnett formula. It was tax paid in London by a Welsh educated Welshman who had to migrate to do this work of this nature at the time. They still accept Euros at the Severn bridge, but not cards !
"Your point about Greece has nothing to do with the EuroZone or the 'size' of their economy."
I agree - size is not the issue, and I certainly didn't intend to suggest that it is. But there is a question about how to deal with a situation where a currency / interest rate regime set for a large area doesn't always meet the immediate short term needs of part of the area, and it was more that aspect that I was driving at.
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