MONETARY POLICies
impossible to finance other than by printing money. These
countries
would quickly have found themselves in an inflationary tailspin that would have negated any benefits of devaluation.
For all these reasons, I never seriously expected the
euro that would zone to break
up. To my mind, it seemed much more likely that the currency would survive—but Union all,
the European disintegrate. After there was no legal mechanism
for a country like Greece to leave the monetary union. But under the Lisbon Treaty’s special article 50, a member state could leave the EU. And that is precisely what the British did.
Britain got lucky. Accidentally, because of a personal feud between Tony Blair and Gordon Brown, the United Kingdom didn’t join the euro zone after Labour came to power in 1997. As a result, the U.K. was spared what would have been an economic calamity when the financial crisis struck.
With a fiscal position little better than most of the Mediterranean countries’ and a far larger banking system than in any other European economy, Britain with the euro would have been Ireland to the power of eight. Instead, the Bank of England was able to pursue an aggressively expansionary policy. Zero
rates, quantitative easing
and devaluation greatly mitigated the pain and allowed the “Iron Chancellor” George Osborne to get
ahead of the bond markets with pre-emptive austerity. A better advertisement for the benefits of national autonomy would have been hard to devise.
At the beginning of David Cameron’s premiership in 2010, there had been fears that the United Kingdom might break up. But the financial crisis put the Scots off independence; small countries had fared abysmally. And in 2013, in a historical twist only a few die-hard Ulster Unionists had dreamt possible, the Republic of Ireland’s voters opted to exchange the austerity of the U.S.E. for the prosperity of the U.K. Post sectarian Irishmen celebrated their citizenship in a Reunited Kingdom of Great Britain and Ireland with the slogan: “Better Brits Than Brussels.”
Another thing no one had anticipated in 2011 was developments in Scandinavia. Inspired by the True Finns in Helsinki, the Swedes and Danes—who had never joined the euro—refused to accept the German proposal for a “transfer union” to bail out Southern Europe. When the energy-rich Norwegians suggested a five-country Norse League, bringing in Iceland, too, the proposal struck a chord.
The new arrangements are not especially popular in Germany, admittedly. But unlike in other countries, from the Netherlands to Hungary, any kind of populist politics continues to be verboten in Germany. The attempt to launch a “True Germans” party (Die wahren
FX
Deutschen) fizzled out amid the usual charges of neo-Nazism.
The defeat of Angela Merkel’s coalition in 2013 came as no surprise following the German banking crisis of the previous year. Taxpayers were up in arms about Ms. Merkel’s decision to bail out Deutsche Bank, despite the fact that Deutsche’s loans to the ill-fated European Financial Stability Fund had been made at her government’s behest. The German public was simply fed up with bailing out bankers. “Occupy Frankfurt” won.
Yet the opposition Social Democrats essentially pursued the same policies as before, only with more pro- European conviction. It was the SPD that pushed through the treaty revision that created the European Finance
Funding Office (fondly
referred to in the British press as “EffOff ”), effectively a European Treasury Department to be based in Vienna.
It was the SPD that positively
welcomed the departure of the awkward Brits and Scandinavians, persuading the remaining 21 countries to join Germany in a new federal United States of Europe under
the Treaty of Potsdam in
2014. With the accession of the six remaining former Yugoslav states— Bosnia, Croatia, Kosovo, Macedonia, Montenegro and Serbia—total membership in the U.S.E. rose to 28, one more than in the precrisis EU. With the separation of Flanders and Wallonia, the total rose to 29.
FX TRADER MAGAZINE January - March 2012 45
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