Decisiveness isn't just for others

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Yesterday, Gordon Brown came out strongly in support of David Cameron’s position on the Euro.  The former Labour Prime Minister and the current Conservative PM are united at last in demanding decisive action from someone else – Germany, apparently – to bail out the Euro zone. 

I’m sure that it’s far from being the first time that they have agreed – after all, their economic policies presented at the last election were almost identical – but they usually manage to avoid saying it, and somehow pretend that there is a huge gulf between them.  But then, Gordon Brown isn’t the only former PM to seek to wear the mantle of statesmanship after losing an election, even if the garment doesn’t fit him any better than it has fitted its previous wearers.

That decisive action is necessary is, as far as it goes, difficult to disagree with.  It does, however, rather gloss over the analysis of cause which should precede that decisive action.  And most of all, it glosses over the UK’s rôle in the Euro crisis.

Any financial crisis of this nature has two elements which combine to impact on its seriousness.  The first is the financial problem itself.  On that score, there can be little doubt that Greece, the centre of the current crisis, has got itself into something of a self-inflicted mess after, to all intents and purposes, having doctored the figures to qualify for Eurozone membership.  That is not to excuse those who could and should have spotted the doctoring, such seems to have been the scale of it, but the root cause lies with Greece itself.

If the crisis were limited to that, I don’t doubt that it would be manageable with good will on all sides, but then the second factor kicks in – the reaction of the ‘markets’.  The way this factor is usually treated, one might think that market reaction can be treated as though it were a rational phenomenon; a group of people taking a long hard look at the financial fundamentals before coming to a considered conclusion about the prospects, and setting interest rates accordingly.

The reality bears little resemblance to that.  It is more a case of a group of wild animals stampeding in a particular direction because one of them got spooked and the others are afraid of being left behind unless they blindly follow.  It is often irrational and subject to a herd mentality.

And that brings me back to the UK’s rôle in all of this – for where is the pre-eminent European habitat of these wild herds if not in the City of London?  And how have they been allowed such free rein to bring down whole economies in the interests of pursuing their own narrow financial interests if not for the deregulation – or studious lack of regulatory action - by the last five UK Prime Ministers, Labour and Tory alike?

We undoubtedly need some decisive actions, but two of those are in the hands of the UK PM himself.  The first is a firmer regulatory control over the speculation and gambling in the City, and the second is the financial transaction tax which both parties in government have so firmly rejected.  Neither of those actions would do anything to touch the underlying problems, but they might help, at least a little, to stop the exacerbation.

But the UK Government seems intent on doing exactly that of which so many accuse (with some justification) the Welsh Government – criticising others as a substitute for acting themselves.

Fiscal Union

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Staying on the European theme, the latest conventional wisdom seems to be that the difficulties of the Eurozone prove that the UK’s decision to stay out was the right one.  I’m not so sure – the problem is that we only get to run history once, so it’s impossible to be certain how things might have turned out if a different decision had been taken.

It is surely at least possible, however, that the currency itself would have been stronger and more able to resist speculative pressure if the UK had been part of it from the outset. 

It’s not just that the UK is the third largest economy in the EU, and that having one of the biggest players staying outside was inevitably going to cause continuing doubt about the project.

It’s also that, by staying outside the Eurozone, the UK did two other things which were less than helpful.  Firstly, it provided a home within the EU itself for the financial speculators who have done so much to undermine the Euro in particular and the global economy in general.  And secondly, sterling provided an alternative currency to use in financial trading on those markets – credible alternative currencies are a key element in the operation of the financial markets.

I doubt that such considerations will affect for one moment the view of those who have been hostile to the single currency from the outset; and as I noted above, I cannot be certain that things would have panned out very differently.  My point, though, is that those who are claiming that the UK Government’s decision was the ‘right’ one cannot really be that certain either.

One other point, almost as an aside.  If it is true – as many are now claiming – that monetary union is impossible without fiscal union, where does that leave the idea – proposed by some nationalists – that an independent Wales could continue to use sterling? 

It’s not an exact parallel, of course, but neither is it a completely irrelevant one.  Being part of a monetary union implies similar fiscal policies; the lack of that has been the Euro’s weakness, and the need for it the justification of many for staying out.  Those fiscal policies can either be set jointly, in some sort of club or federation, or be set by the larger partners and imposed on the others. 

That’s the choice facing the Eurozone; it would also be the choice facing members of any sterling zone.