Internalising problems

Tweet 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.