It is a sad indicator of the state of the debate on the EU and the euro that commentators find it necessary to resort to extreme language to justify their prejudices; thus Camilla Cavendish in this weeks Sunday Times: “The intransigence of the eurocrats and their political backers, their refusal to accept that the euro was one of the most hubristic acts of sabotage ever committed against sovereign democracies has only served to prolong the crisis.” She goes on to write about “a crazy currency union.” Of course the picture of a bunch of crazed power brokers recklessly ignoring the objective wisdom of Camilla Cavendish and her ilk has its attractions in this media obsessed age but does it really represent the truth.
There seems to be a widespread delusion that before the euro we lived in a monetary paradise where precise adjustments in currency alignments made for smooth and sustainable growth with no down side in the form of painful adjustments; benevolent bankers managed a market system whose only concern was to create wealth for all. In fact the collapse of the Bretton Woods in 1971 ushered in a period of unparalleled turbulence in which re-alignments were a regular occurrence with fortunes being won and lost on exchanges that were little better than casinos. As a product manager for a famous brand of fast moving consumer goods in the 70s I had to re-calculate my prices on a daily basis and the value of my inventories priced any one of half a dozen European currencies but made of materials that were mostly valued in dollars fluctuated wildly from month to month. It was almost impossible to make any sort of plan for the range let alone develop new products as all ones time and energy was taken up with exchange rates, the only winners were the speculators who were able to target weaker currencies with a one way bet.
In the 1990s when the euro was being debated one of the most effective advocates for the currency union was the owner of a medium sized UK business that made very high value precision tools; he had to purchase components from a number of different currency areas assemble them and then re-export. Even when the European Monetary System (EMS) had attempted to impose a measure of discipline on exchange rates he found it impossible to establish a consistent value for his product let alone calculate a reliable margin; he had no control over his business.
The logic behind the euro which is now conveniently forgotten was that free floating currencies constituted a fundamental barrier to trade and were incompatible with a single market based on free circulation of goods and most importantly capital. The sovereign right to devalue a currency was an invitation to protection and an impediment to necessary structural reform that could alone foster competitiveness. To see the force of this one merely needs to reflect on how things would have worked out if we had still had a proliferation of national currencies in 2007/08 floating freely against each other, the recent experience of the “swissie” gives a clue. Had the euro not been in place the single market itself could not have survived the shock and the problems faced by all Europeans today would have been infinitely worse. The most likely outcome would have been a de facto Deutsche Mark area managed exclusively by a Bundesbank with a national obligation to maintain its value and scant concern or interest in the needs of the bankrupt states surrounding it.
I wonder what Camilla Cavendish and her friends would have said about that!