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Margaret Thatcher Knew The Single Currency Would Devastate Europe

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This is an epic article from the Telegraph regarding the Euro. The final word on the UK joining the Euro I would of thought. There's simply no way anyone could countenance such a thought from this point onwards. Euosceptics WIN !

http://blogs.telegraph.co.uk/news/peteroborne/100064330/margaret-thatcher-knew-the-single-currency-would-devastate-europe/#dsq-content

Next week it will be 20 years since Margaret Thatcher fell. Pressure had been building on a number of fronts, but the issue which finally destroyed her was the yet-to-be-born euro. In the last weekend of October 1990, she travelled to a European summit in Rome, where Jacques Delors’ dream of European Monetary Union was high on the agenda. But while Mrs Thatcher was fighting her lone battle against the prospective single currency abroad, she was being fatally undermined at home. Geoffrey Howe, her bitterest cabinet critic, went on television to tell the interviewer Brian Walden that in principle Britain did not oppose the euro.

In her Commons statement after returning home, she was forced to slap Howe down: “this government believes in the pound sterling.” Howe resigned, and days later delivered the famous speech from the back benches that set in motion a leadership contest.

Today, Margaret Thatcher’s autobiography, first published in 1993, reads like a prophecy. It shows how deeply and with what extraordinary wisdom she had examined Delors’ proposals for the single currency. Her overriding objection was not ill-considered or xenophobic, as subsequent critics have repeatedly claimed.

They were economic. Right back in 1990, Mrs Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.

It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her. President Mitterrand of France and Chancellor Kohl of Germany dismissed her words of caution. And when Mrs Thatcher was driven from office in 1990, a crucial voice was lost, and a new consensus started to form in Britain in favour of the euro.

This consensus stretched across the entire spectrum of the British establishment. It took in Tony Blair’s New Labour and all of Paddy Ashdown’s Liberal Democrats. The CBI came out for the euro, and so did the trades unions. The Foreign Office was doctrinally pro-single currency. Leading businessmen, such as Peter Sutherland (chairman of BP and Goldman Sachs International) and the fashion-conscious Richard Branson were strongly in favour. The Financial Times, a newspaper whose judgment has been wrong on every great economic issue of the last 40 years, was another supporter.

This consensus was all the more powerful because it contained Conservative grandees. The Britain in Europe campaign, featuring an ambitious young Liberal Democrat called Danny Alexander, now the Chief Secretary to the Treasury, was launched in 1999. Ken Clarke and Michael Heseltine treacherously spoke alongside Tony Blair and Peter Mandelson.

“The price we would pay,” announced Mandelson, “in lost investment and jobs in Britain would be incalculable.” He projected that “outside the euro, there is little we can do to protect industry against destabilising swings in the value of sterling.” Michael Heseltine spoke apocalyptically about the terrifying consequences for British competitiveness outside the euro. Chris Huhne, now a Lib Dem cabinet minister, was scathing about eurosceptics who warned that entry to the euro would cause the Irish economy to overheat – warnings that proved to be all too accurate.

Irishman Niall Fitzgerald, chairman of the industrial giant Unilever, forecast British economic obliteration outside the euro. In a dark irony, it is his native country that now faces obliteration. Those who challenged this consensus were ridiculed. Even William Hague, then leader of the opposition, received this contemptuous treatment. Hague made a series of speeches which, reread today, rival Margaret Thatcher’s in their prescience. He predicted that membership would “lead to huge booms and deep recessions”. Hague chillingly added that “the single currency is irreversible. One could find oneself trapped in the economic equivalent of a burning building with no exits.” He noted that euro membership could lead to a “full-blown banking and financial crisis.”

Nobody listened, many mocked, and Hague was accused of dragging the Tory party to the Right. The BBC, an integral part of the pro-European alliance, played its full role in marginalising critics such as Hague. The state-owned national broadcaster lumped the Tory leader in with cranks and xenophobes. By contrast, euro supporters were invariably presented as mainstream and sensible.

But it is Hague’s speeches that have stood the test of time, while the excitable expostulations of Heseltine, Blair, Mandelson and Clarke all look ridiculous today. So let’s try a thought experiment and ask where Britain would be today if they had won the argument.

The first point to note is the British economic boom which ended in 2008 would have been headier still, thanks to the soft interest rate policies pursued by the European Central Bank in the early years of this century.

The second is that the subsequent crash would have been far, far worse. We would not have been able to lower rates as far and as fast as we did. We could not have devalued out of trouble. We would have been unable to fuel economic growth by printing money.

With these options unavailable, the recession would have turned into depression. It is likely that unemployment would now be heading towards five million and our already broken public finances would be in ruins. Just like Greece and Ireland, we would be unable to raise funds on the international markets and the IMF would have moved in. Angela Merkel of Germany would be offering a bail-out – but only on condition that we follow policies set for us in Europe. We would have lost our independence and become a wholly owned subsidiary of Brussels – the fate Ireland faces today.

Yesterday, I tried to reach the leading politicians who tried so hard 10 years ago to abolish the pound – Heseltine, Leon Brittan, Mandelson, Neil Kinnock, Charlie Kennedy. I wanted to ask them whether they stood by their extravagant warnings. I wanted to ask them for an apology. Not one of them came back.

Other apologies are called for. From the BBC, which distorted the debate. From the superior commentators who sneered at politicians like William Hague, John Redwood and Iain Duncan Smith as they fought against the euro. From Heseltine and Clarke for their calculated betrayal of Hague. From the CBI, which (under its then director general Adair Turner, now chairman of the Financial Services Authority) sold the interests of British business down the river.

One other point. Margaret Thatcher may have been the first victim of the single currency, but there have been many more since: the millions who have lost their jobs and the nations that are being stripped (as she forecast) of their pride and independence. Baroness Thatcher has often been accused by her politically motivated enemies of callousness. But backers of the European project are today happy to countenance unlimited human suffering in their mission to enforce economic and monetary union. Mrs Thatcher knew this would be the result of their deranged plan, which is why she fought to stop it. Her last battle as prime minister could not have been fought in a greater or more compassionate cause.

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We would not have been able to lower rates as far and as fast as we did. We could not have devalued out of trouble. We would have been unable to fuel economic growth by printing money.

Fine until here.

The difference is that Greece and Ireland are forced by the euro to face reality now, where as we kicked the can down the road.

Edited by Britney's Piers

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Fine until here.

Their point is that we maintain full fiscal and monetary policy control. How those policies are employed will always be up for debate, but the fact we maintain a full spectrum of economic policy options somewhat differs us from our European chums.

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The euro could have worked fine if financial markets had been pricing credit correctly. The trouble is they didn't: countries with poor fiscal controls like the PIIGS were lent money at interest rates just 0.25% above the rate Germany had to pay. It was subprime lending on the scale of nation states. Unfortunately the euro was a botched job from the start as it was not made clear whether or not euro countries would be allowed to default. There was a widespread assumption that if periphery nations looked like defaulting, Germany would bail them out. This created huge moral hazard, with the consequences we can see today.

There is nothing inherently wrong with countries adopting the same currency or linking their currencies together (e.g. via a gold standard). Elimination of currency risk can be very beneficial. However it only works if interest rates are allowed to move freely to reflect real economic returns and the risk of default. Unfortunately that flexibility was not built into the euro: one currency, one interest rate, no defaults. It was too rigid from the start, and now it is at risk of shattering to pieces.

Edit: By the way, if Germany ultimately decides it is not willing to print to bail out the PIIGS while the BoE decides to QE until the pound reaches parity with the Zim$, we might regret not joining the euro when we had the chance. The multinational nature of the ECB may prove better for currency stability than a BoE which likes being an offshoot of the Treasury.

Edited by Dorkins

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Thatcher may well have known that "The Single Currency Would Devastate Europe" it's just a pity she didn't realise her "Big Bang" would devastate the world:

In 1933 Senators Glass and Steagall, prompted by Roosevelt, had sponsored the Glass-Steagall Act, prohibiting investment bankers betting deposits on the buying and selling of tradeable financial securities that can create huge losses. Banking and investment banking should be separate. For 50 years the act kept American banking honest. But after Mrs Thatcher decided in 1986 that banks could own stockbrokers and market-making stock jobbers in her new anything-could-go casino City of London - the "Big Bang" - American banks complained to the US central bank, the Federal Reserve, that they could do things in London not possible in New York. Paul Mason explains how in 1987 the Fed relaxed Glass-Steagall to allow 5% of a bank's deposits to be used for investment banking, further relaxed to 25% in 1996. The act's abolition in 1999, which opened the floodgates for today's financial catastrophe, was inevitable - even if it cost the banks $300m in lobbying fees.

Tett shows how the regulators rolled over in another core area. In the late 1990s they accepted the banks' argument that their alchemy in creating collateralised debt obligations (bundling up income-generating assets of varying quality into one security) and then insuring against the risk of default (credit default swaps) both merited the triple A credit scores the credit agencies were awarding and, crucially, needed less capital to stand behind them. By 2000 the stage was set for what was to follow: investment banks having balance sheets 30 times or more larger than their core capital, refinancing as much as a quarter of their trillions of dollars of liabilities every day from the so-called wholesale money markets, and lending/investing in a range of highly risky financial instruments. The system could not insure against its own systemic failure. It was an edifice built on sand: $1 trillion of sub-prime debt had been bundled into various categories of structured, tradeable debt; when American house prices began to crumble in 2007, the whole interlinked pyramid came crashing down.

http://www.guardian.co.uk/books/2009/may/02/big-bang-will-hutton

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People pick up on things to hate Thatcher for. Many like to go on about the pit closures without considering the economic realities. Whatever people say about Thatcher they have to admit that she understood economics and figures. She was explaining things to her chancellor, Major, I dont think we have seen that since.

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Considering the fudging at the start and the lack of enforcement on the fiscal rules the Euro was always going to run into trouble if there was a major recession. However what happens when you financial crisis like now is anyone's guess, although it doesn't look good for it's long term survival as it currently stands.

The restructuring of the Eurozone now would be a nightmare, eject the PIIGS and people in those countries will move their money to German banks, it will be a bank run on nations. If the Germans decide to leave I also suspect you'll get a mass bank run as people with Euro's seek the stability of the new DM.

Either way I they are all screwed. If they anyone is going to be ejected they are going to have to shut down the entire banking system and do it in secret, ie announce say Ireland leaving after the banking system has been shutdown.

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People pick up on things to hate Thatcher for. Many like to go on about the pit closures without considering the economic realities. Whatever people say about Thatcher they have to admit that she understood economics and figures. She was explaining things to her chancellor, Major, I dont think we have seen that since.

Aye.... she was right up there with crash Gordon.

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For all her faults - and they are legion (she is human)

Thatcher did do some important things, and even the labour party didn't repeal her union legislation like ending the closed shop etc.

But she was brutal, the problem with a lot of these things is that, like we have the banks now, they would not accept a slow winding down and closure.

We have the option of bailing them out in full (which we have gone for and I think is wrong)

or letting them fail. no middle ground would be politically feasible.

Ireland, Greece, Portugal and Spain would have undergone currency devaluation years ago if they had not been in the euro. As a result they would have had a much softer landing, and a much smaller bubble to deflate now.

The Euro has not been kind to them.

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Edit: By the way, if Germany ultimately decides it is not willing to print to bail out the PIIGS while the BoE decides to QE until the pound reaches parity with the Zim$, we might regret not joining the euro when we had the chance. The multinational nature of the ECB may prove better for currency stability than a BoE which likes being an offshoot of the Treasury.

Yes. Its not over yet, now is not the time for triumphalism.

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Many like to go on about the pit closures without considering the economic realities.

Prior to the pit closures she was allowing massive tonnage of Polish coal heavily subsidised by the then Communist Government to be imported. Today Poland still exports coal to the UK, great economic sense is that. I`ve always believed Thatcher had a paranoid hatred of the ordinary worker but hero worshipped the loadsa money spivs and wide boys in finance. :rolleyes:

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Prior to the pit closures she was allowing massive tonnage of Polish coal heavily subsidised by the then Communist Government to be imported. Today Poland still exports coal to the UK, great economic sense is that. I`ve always believed Thatcher had a paranoid hatred of the ordinary worker but hero worshipped the loadsa money spivs and wide boys in finance. :rolleyes:

It is great economic sense. The imports were still far cheaper than we were producing for.

The pits were not economically viable, they were being propped up with tax payers cash, money that we didnt have to spend.

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Yes. Its not over yet, now is not the time for triumphalism.

Youre kidding? The battle between pro and anti Euro is now over. We are all anti Euro now. Its a great time of much pointing, laughing and saying "told you so". Enjoy !

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It is great economic sense. The imports were still far cheaper than we were producing for.

The pits were not economically viable, they were being propped up with tax payers cash, money that we didnt have to spend.

So British miners had to work for the same money as the grossly underpaid Polish miners under that communist regime. A few months ago a documentary showed that thousands of ex miners in this country were now living in sterile communities on benefits since the day the mines closed. British coal productivity had increased greatly up to the time the mines were closed. Thatcher hated the miners and closing the mines was her revenge against them challenging her.

As I said in my previous post great economic sense is that. BTW the Polish coal was classed as rubbish during Thatcher`s era where the equivalent British coal was of high quality. <_<

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Aye.... she was right up there with crash Gordon.

Many a true word ect.

It was Brown who stopped Blair from taking us into the euro- 'over my dead body' was the phrase he used.

Both thatcher and brown did share a profound sense of their own manifest destiny, and deep conviction that they knew best- and I guess in this one respect we have to acknowledge that they were right while a chorus of starry eyed invertebrates were horribly wrong.

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I`ve always believed Thatcher had a paranoid hatred of the ordinary worker but hero worshipped the loadsa money spivs and wide boys in finance. :rolleyes:

And it really is a belief system for many on the Left in Britain. They ought to make a category for Thatcher-hating on the census forms so that people can accurately record their religion.

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So British miners had to work for the same money as the grossly underpaid Polish miners under that communist regime. A few months ago a documentary showed that thousands of ex miners in this country were now living in sterile communities on benefits since the day the mines closed. British coal productivity had increased greatly up to the time the mines were closed. Thatcher hated the miners and closing the mines was her revenge against them challenging her.

As I said in my previous post great economic sense is that. BTW the Polish coal was classed as rubbish during Thatcher`s era where the equivalent British coal was of high quality. <_<

yes, my heart bled for those poor black faced miners.

Doesnt change the fact that the mines were being propped up with money that we didnt have though.

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yes, my heart bled for those poor black faced miners.

Doesnt change the fact that the mines were being propped up with money that we didnt have though.

If they had spent less time striking, and more time mining, they might still have a job. Their productivity was dire, their working practices obstructive and their pay far too high. They well and truly screwed themselves and their communities. With hindsight, you'd hope that the most militant are ashamed for the damage they caused.

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yes, my heart bled for those poor black faced miners.

Doesnt change the fact that the mines were being propped up with money that we didnt have though.

Let`s agree to disagree . ;)

From That Time

And it really is a belief system for many on the Left in Britain. They ought to make a category for Thatcher-hating on the census forms so that people can accurately record their religion.

Not only the left but many Tory hardcore supporters in business who saw their companies go to the wall because of her policies. Remember Serpico`s posts.

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Not only the left but many Tory hardcore supporters in business who saw their companies go to the wall because of her policies.

I may be over-analysing but that's a very passive choice of phrase. Thatcher wasn't the one running those companies.

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Let`s agree to disagree . ;)

It wasnt the miners that she hated but the unions. It was also the unions that made coal so expensive and unproductive here so that it bled tax payers dry.

Crushing the unions was the very best thing that she ever did for this country.

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