We can take no pleasure from the euro’s fall
Euro-sceptics should not gloat over the eurozone crisis – we’ll feel the pinch too, says Boris Johnson.
Talking yesterday to my old friend and colleague Phil Johnston, who happened to be editing this page, I was reminded how right we were, all those years ago, about the euro. In 1990, he and I were sent by this newspaper to cover the Rome summit – the one where European leaders ruthlessly ambushed Margaret Thatcher and tried to get her to agree to what was then called the Economic and Monetary Union of Europe.
It was a blood-curdling scene. Thatch was backed into a corner – a minority of one – as they all piled into her, Kohl, Mitterrand, Andreotti, Delors. Come on, they said, let’s create a single currency! Let’s scrap the franc and the Deutsche Mark, and let’s scrap the pound while we’re at it. No, said Thatch.
It wouldn’t work, she said, because there was no history of a successful currency union without a political union, and she certainly didn’t want Britain to be swallowed up in a United States of Europe. “No, no, no,” she famously said to Parliament a few days later – in a display of ideological obstinacy that infuriated the Europhiles and led shortly to her defenestration at the hands of Heseltine and Howe.
On and on the other EU countries went with their plan, and I was there at virtually every stage. I remember when they decided it had to be called the euro, because Helmut Kohl thought “ecu” sounded too much like the German word for cow. I remember when they decided the Eurobank had to be located in Frankfurt, and all the while we sceptics offered sheeplike coughs of dissent. You can’t just control interest rates, we said. What about tax? What about spending? How, we asked, can you have a single monetary policy while you let a very diverse bunch of economies continue to run independent fiscal policies? How, bluntly, can you jam northern and southern Europe together? How can we expect Germany to be part of an effective currency union with Greece?
And all our objections were brushed aside. The process was unstoppable, we were told. It was as natural and ineluctable, said Helmut Kohl, as the flow of the Rhine. It was history, they said; and for the first few years it must be admitted that our fears seemed unfounded. The euro seemed to hang together pretty well. It was a handy thing for travellers.
It was only when the financial crisis came along in 2008 that we suddenly saw that the Greeks had been doing exactly what we said they would do. With the help of some smart bankers, they had massaged their debt figures to qualify for the euro, and then they had used the low interest rates of the eurozone to hitch a giant free ride. They’d been paying themselves far more than they earned. They had been racking up huge debts. They were rumbled, and, according to Angela Merkel herself, the euro is in danger of collapse as a direct result of their bad behaviour.
European governments have stumped up for a colossal 750 billion euro (£650 billion) fund to guarantee the debts of southern Europe – and still the markets are not satisfied.
The crowds regularly seem to be rioting in Athens in response to the programme of cuts, and there is a general mood of panic reminiscent of 1992, and the destruction of the Exchange Rate Mechanism. The Germans have actually tried to ban short-selling, and everyone is wondering who will be the next target. Portugal? Spain? Italy?
For the Euro-sceptics, for those who had their doubts from the beginning, the whole situation offers an almost irresistible temptation to gloat. Told you so, we cry. We said it would end in tears, we say. Nah nah na-nah nah, we say. And yet if we think we can just settle back in our island home, twiddle our toes and thank our lucky stars that we never joined the euro, I am afraid we have got another think coming.
This euro disaster affects us here in the UK and at every level. It’s not just that the euro’s fall has hit UK exports to the eurozone, and makes it more difficult to attract European tourists to London. Dealing with the current crisis means, above all, managing the sentiment of the markets. As James Carville once said, if reincarnation existed it would be nice to come back as the bond market, because the bond market can intimidate anybody. The markets have scared the hell out of Greece; they are scaring the eurozone, and one of the side effects of the whole crisis is that other countries have to work extra hard to convince the bond markets that they are not Greece.
It is that terrifying Greek comparison that today obliges the coalition Government to set out the first £6 billion of cuts; because unless we see some fiscal rigour, they fear, the markets will come sniffing around us and demanding a higher price for our borrowing; and interest rates will go up so high that we will be plunged back into a double-dip recession. And if we cut too much, we risk choking off demand and we have the same outcome.
Of course we need to sort out our finances, and I don’t wish in any way to minimise the role played in the fiasco by Gordon Brown (remember him?). It is the Labour government that is responsible for our parlous fiscal position. But it is the Greek crisis that means we have to be so theatrical and draconian in our cuts; and the Greeks would never have got themselves into such a mess if it had not been for the flawed constitution of the euro, with its unholy mixture of low German interest rates and high Greek government spending.
It would be monstrous if vital infrastructure projects in this country – Crossrail and the Tube upgrades – were to become collateral victims of the crisis in the eurozone. And it would be doubly monstrous if we were to start slicing the sinew of the UK economy in the hope of showing the bond markets that we are not Greece. Truly, my friends, we have been proved right about the euro. But, as so often, there is little joy in being proved right.
You can read this column in The Daily Telegraph here