Election Eve

The most uncertain British election in recent history nears its thrilling climax; meanwhile hundreds of thousands of Greek citizens are marching on the parliament in Athens, oil is pouring into the Gulf of Mexico and the Financial Services Authority has just told the Prudential to draw back from a rights issue to raise the money to buy the Asian arm of the bust US insurer AIG.

I am not going to comment on the BP disaster except to say that I hope they can pin the blame on Halliburton.

The most significant economic events are those happening in Greece and Germany.  Greek people are understandably angry; the price most ordinary Greeks are going to have to pay for their government’s hubris is very high. It is the consequence of having lived beyond their means for many years, and it is exposing the fundamental weakness in the Euro.

When the Euro was designed, it was understood by the technocrats who put it together that monetary union without political union was risky; so they insisted on a stability pact,  to avoid the sort of destabilising crisis that is now emerging in Greece and the other weaker economies of the Eurozone. That would be fine so long as the stability pact held, but it was a very restrictive system and it – the stability pact – couldn’t cope with the 2008 financial crisis. That, and Greece never met the stability pact rules even when it joined the Euro.

Personally I’m a fan of the Euro. I travel through Europe, and a single currency makes life much easier.  I still have to balance two pockets full of different change, sterling and euro; but it’s a lot easier than it used to be with francs, guilders, pesetas and deutschmarks.  A single currency is necessary to for proper free trade in Europe, otherwise the bankers take five percent of every transaction in forex commission and spread. But it isn’t sufficient, and the technocrats didn’t have the power to impose another necessary condition, which was – and is – a pan-European settlement system. While a Spanish company can invoice a Finnish company in the same money, the Spanish bank won’t accept a Finnish cheque (or its digital equivalent).  Transnational settlement is actually much easier for individuals than it is for enterprises. And it’s the banks who stood in the way. Again.

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