THERE HAVE been many warnings about the future of the Euro, but so far it has survived the many shocks and crisis it has faced. Now the economic and political challenges from Italy presents its biggest threat yet – and together with Brexit opens up a war on two fronts for the European Commission.
Long before it started I argued the Euro currency was for some countries a bad idea, most of those reasons were economic. It would be bad for Ireland as the interest rates that suited Germany would be too low to dampen the property inflation the country faced. And so it proved, when the financial crash came and left behind half-built estates and developments.
It would be bad for those countries that had a tendency to run large deficits unless they were put in a tight straightjacket that brought greater fiscal and financial convergence with the more prudent members. And so it proved, for unfortunately the straightjacket was never tight enough. Public spending binges by many of the Southern European countries were accommodated instead of being restricted. The resulting pain for Portugal, Spain and Greece in particular could have been avoided by tighter fiscal controls or not joining the Euro, unfortunately those countries got both things wrong.
In Italy the economic consequences of the Euro have not been dissimilar – economic growth has never recovered from 2008, employment remains dangerously high and national debt as a proportion of GDP is 134% – but the problem is more deep seated, for it is political too.
There were many people that argued the UK – and especially Scotland – should join the Euro, but they were wrong. It would have been an economic disaster for the UK as our trading patterns are completely different from Germany's - which has the greatest influence over the Euro's management. Having a separate flowing currency made more sense for the UK, it brings with it a certain fiscal discipline whilst allowing the UK to set its own economic policies that suit its needs. With 60 per cent of our trade in goods and services outside the EU (and growing) there would actually be a better case for pegging to the dollar than being in or linked to the Euro – but by far the best position is to have our own currency.
Nevertheless, economics is not the main issue at stake. The Euro was always a political project and therefore political decisions are what make its economic reliability unpredictable.
Following the Italian general election and the eventual emergence of a coalition that could form a government the threat to the Euro has become more political than economic. The difference between Ireland or Greece – and Italy – is that the desire in Dublin or Athens to leave the Euro never presented as serious a political threat as does the growth of the ‘populist’ parties in Italy.
In Dublin few in government were advocating leaving the Euro, they simply wanted baled out, and at practically any price. Everyone, including the UK obliged. Going back to an exposed floating currency or pegged to Sterling would have been far too humiliating for Ireland.
In Athens there was serious consideration given to leaving the Euro – and it did have its advocates – but the country just did not have the means or the political will to see it through – and the troika of the IMF, the ECB and the EU commission new it.
In Italy, however, the coalition parties have identified the Euro as an enemy of good government for the country, they have argued that it works against the national interest and made it difficult for Italy to recover from the financial crisis. The arguments against the Euro have become part of those parties’ appeal.
The reason that the EU, through its institutions and various players from individual countries such as German ministers intervened in the composition of the Italian coalition government is because they know the threat to the Euro is a real and present danger.
The EU authorities wanted the coalition to reduce debt but the coalition planned to increase debt and launch a parallel domestic currency that would give it the opportunity to leave the Euro – or at least provide a bargaining counter to gain leverage for debt write-off. Non-performing Italian bank loans are on the rise thanks to increasing interest rates that occurred earlier this year and predate the Italian political crisis. Any resulting collapse in Italian banks must impact on banks elsewhere on the continent.
The EU’s defence of its political project precipitated a political crisis. Having had their first nomination for Finance Minister rejected by the Italian President – because he wanted to take Italy out of the Euro – the Italian coalition government found a new candidate that was accepted – ironically he thinks Italy should stay in the Euro, but Germany should leave. He has a point, for the Euro works to Germany's benefit by providing an undervalued currency that makes German exports more attractive than they would otherwise be if the Deutschmark still existed.
What the risk of an Italian constitutional crisis showed is that the EU will stop at nothing to prevent the failure of the Euro. It is not an economic project – it never has been – it is a political project and a nation’s democracy is worth nothing to it in comparison.The EU was willing to sacrifice Italian democracy – just as it has done before, and just as it has done with other countries such as Greece.
The same goes with the establishment of an EU military establishment, the provision of EU flags and identity – these are not about security or marketing but establishing the components of a nation state – an army and an identity. That we see people parading around painted blue and wrapping themselves in a blue flag with yellow stars tells you people have bought into it.
For the UK – as we limp into the final stages of Brexit negotiations, led by donkeys at war with themselves, and undermined by enemies of the country whose goal is the break up Britain working in league with Brussels – we ignore this political truth at our peril. Like the Euro, Brexit is a primarily a political project, not an economic one, and our leaders and negotiators must waken up to that or lose at home and abroad.