Samuel Brittan in today’s FT:
The selling point of the original Common Market was that it would bind the basic industries of Germany and France so closely together that the wars that had split Europe asunder would become inconceivable. Oddly, the economic logic was less clearly spelt out; but the thought was that, at a time when the future of world trade was in doubt, here, at least, was an area where trade would flow freely; and production take place in the most efficient centres with a strong safety net to protect the victims of change. It is not a coincidence that this was also the guiding philosophy of the German social market; nor that agriculture was subject to a different and more protectionist regime. Some of the most job-destroying rules came from the later social charter, from which John Major’s government secured an opt-out; even Tony Blair dropped it.
The enlarged EU has moved in a perverse direction. Its ruling spirits combine a penchant for micro and industrial policies that destroy jobs with an espousal of deflationary macro policies. Blaming Brussels for what has happened is just shorthand. Quite often the worst decisions originate with national governments. But one mindless slogan uttered too often is that the solution to problems is “more Europe” rather than less.
If I had to give a snap judgment on the embryonic plan to “save the euro”, I would say it is deflationary in the short term and inflationary in the long term – the opposite of what is needed. If the Republicans do well in the 2012 US elections, the stage will be set for a repetition of many of the economic errors of the 1930s, when countries tried to fight depression with cuts of all kinds.
I will end by citing Lombard Street Research’s Charles Dumas. The “eurozone rot is caused by divergence of competitiveness over 13 years, not budget deficits”. Italy is seen as “lost” compared with Germany. As with the futile struggle to prevent the UK devaluation of 1967 and the dollar’s departure from a fixed peg the following decade, some preparatory work will no doubt have been done in secret to prepare for a disintegration of the euro – but not nearly enough to stop that disintegration being unnecessarily messy and disruptive.
