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Herman And His Frankenstein Euro Have Done Enough Damage Already

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http://www.telegraph.co.uk/finance/comment/liamhalligan/7783224/Herman-and-his-Frankenstein-euro-have-done-enough-damage-already.html

Last week I heard something that almost caused me to lose my temper. It came from the lips of Herman Van Rompuy, a profoundly uninspiring man who, somehow, is European Council President.

Van Rompuy's position makes him, on paper, the most senior policy-maker in the European Union – with its 27 member states and 500 million people. No one elected him to high office and few voters know what he thinks. Until his elevation was stitched up in the well-upholstered Eurocrat backrooms of Brussels, his EU-wide profile was zero.

Last Tuesday, Van Rompuy deigned to comment on the fiscal, financial and political chaos that is the eurozone – a chaos now in danger of plunging the entire Western world into a second bout of systemic instability, similar to what followed the collapse of Lehman Brothers in September 2008.

"We are clearly confronted with a tension within the system," Van Rompuy opined. "The dilemma of being a monetary union and not a fully-fledged economic and political union. The tension has been there since the single currency was created. However, the general public was not really made aware of it."

It was the last sentence that got my goat. My initial response, I admit, was a four-letter word. It could have been "What?!" but it wasn't. Despite what Van Rompuy says, some of us – economists, politicians and commentators – have been shouting about the dangers of the eurozone for many years.

When we did, the trough-nuzzling, self-appointed EU elite, which Van Rompuy represents down to the tip of his Mont Blanc pen, dismissed our concerns as "alarmist" and "anti-European". Meanwhile, the Brussels publicity machine spent vast amounts of taxpayers' money on propaganda telling the Western European public that the eurozone was not only safe, but if their countries didn't join then "jobs and growth" would suffer.

There was, of course, always a fundamental contradiction at the heart of the single currency project. While the European Central Bank controls interest rates and the money supply, each country's fiscal surplus or deficit is driven by the tax and spending decisions of its own sovereign government.

So it's simply impossible to enforce collective fiscal discipline in a currency union of individual states, each answerable to its own electorate. The only alternative is to subjugate domestic voters and create a federal government across the eurozone, with a common fiscal policy allowing cross-border transfers. But that's political union – something voters absolutely don't want.

"Call me a killjoy," I wrote in a national newspaper column over a decade ago, "but I find it difficult to see how an 11-member eurozone can be maintained over the long term in the absence of substantial fiscal transfers".

The former chancellor, Denis Healey – not my kind of politician, but an intellectually able and honest man – was another shouter. "European Monetary Union is either a step towards political union or it will fail," he boomed in April 1998.

Nobel-Prize winning economist, Milton Friedman, also weighed in early, warning the single currency would ultimately cause major problems. "The euro was really adopted for political and not economic purposes, as a step towards the myth of the United States of Europe," Friedman declared in September 1997. "I believe its effect will be exactly the opposite."

How right he was. How right many ordinary voters were as well – those without media platforms. Right across Europe, much of the public has been deeply suspicious of the euro ever since the idea was conceived. The French only voted "Oui" to joining by the narrowest of margins, after their government cobbled together votes from former colonies. The German public, like citizens in so many other member states, was never granted a referendum.

Since the single currency's launch in 1999, in fact, there hasn't been a single independent opinion poll in Germany in favour of euro membership. No wonder the hard-working German public is seething about the Greek bail-out – and who can blame them.

The economic contradictions of the eurozone are being laid bare, exposing for all to see the political hubris and vanity upon which the entire edifice was built. Yet Van Rompuy and his ilk are incapable of admitting they were wrong. Instead, they claim "nobody" ever warned the public about the dangers of joining the euro. Well, that's a deeply disingenuous and incendiary statement. And anyway, much of the public, not least in the UK, always knew the single currency would end in tears, despite the EU elite spending our money trying to brain-wash us otherwise.

The sovereign debt crisis that started with Greece is now casting a long shadow not only across the eurozone, but all of Europe and the entire Western world. Just as the global economy is climbing out of recession, the instability of the Frankenstein currency union which the Brussels crew created could spark another deeply damaging asset-price plunge.

Even if that's avoided, the euro's fall is harming other economies. The single currency is down 25pc against the dollar since last October – making life more difficult for US exporters to Europe.

Many say sterling's recent "depreciation" is helping the UK economy recover. But while the pound has indeed fallen 12pc against the dollar during the past six months, its appreciated 11pc against a suffering single currency. Britain does over three times more trade with the eurozone than it does with the States, so the euro's decline has undercut the UK's trade-weighted competitiveness.

The Chinese government, which holds around half a trillion euros in its vast reserves, is looking to dump exposure to the single currency. Once that starts, sterling could climb further against the euro, harming UK exports even more. The pound would also then become more vulnerable to a later "sudden correction".

As if they haven't done enough already, the eurocrats seem determined to do even more damage with their economically-illiterate meddling. While they should be helping to push through the massive fiscal consolidation that needs to happen across the whole of Western Europe, the EU elite has instead dreamed up a levy on the region's banking sector, the proceeds of which could deal with a future banking crisis.

It would appear that the Euro is in serious trouble and was from the start as it was created for political ego rather than sound economic fundamentals. The Euro should only have included the fiscally disciplined from the start, as soon as fudging the membership criteria started it was always a disaster waiting to happen.

Still it's contained, perhaps Van Rompuy's needs to get some sort of consensual agreement from the people of Europe to be screwed over by the political elites again.

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  • 142 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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