Currency without a Head

On my desk as I write are two banknotes — £20 sterling and 20 euros. On the former is a picture of the Bank of England, the signature of Andrew Bailey, its Chief Cashier, and the head of the Queen. The euro note also carries a signature. It is illegible but, since it comes under the letters “ECB” (European Central Bank), perhaps it is that of Jean-Claude Trichet, the bank’s President.


There is no picture of a financial location, and nobody’s head. Instead, one side of the euro note depicts a couple of gothic windows, and the other, beside the map of Europe, a fine old bridge. It is no accident that the note carries no head. It is because the single European currency came into being without a single European economic government and without political union. It therefore has no ultimate authority. When the euro was launched at the end of the last century, both its friends and its foes predicted that this lack of authority could not last. At some point more power would have to be put behind it, or it would collapse.

We have now got close to that point. Euro notes carry the word “euro” in Roman lettering, of course, but also, in deference to one EU member, print it in Greek characters. It is Greece’s sovereign debt crisis which began the current agonies. Will those Greek letters have to come off the notes? The same crisis threatens Portugal and now — much more serious — Spain. If it reaches Italy, the country with the third biggest public debt in the world, the game would appear to be over. The fine old bridge would be blown up. So far, European leaders have tried to deal with this spreading disaster by ruses. Existing European treaties ban bail-outs of member states. So the “European Stabilisation Mechanism”, recently set up precisely to provide these illegal bail-outs, does so under Article 122.2 of the Lisbon Treaty. This article gives emergency assistance to a member state “threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control”.

Natural disasters! We are experiencing a totally unnatural disaster, one brought about by the artificial structure of the European project. Exceptional circumstances beyond its control! It was this system that every eurozone member state proudly (though usually without asking their electorates) voted for. The situation is not funny for the people of Greece, Portugal, Spain, and so on, because their governments have run up dreadful public debts while sacrificing their power to devalue to become competitive. They cannot cut their exchange rate, so they must cut wages and jobs. Unemployment in Spain is already 20 per cent — and 40 per cent among young people. It is not funny for Germany, either. German banks are overcommitted in the southern countries now afflicted. The German people are fed up with paying for the profligacy of their poorer neighbours and furious at the suggestion that the only solution is that they should pay even more.

What will actually happen? Among people who follow bond markets and consider financial realities, certainty about the European currency has evaporated. Many think that the £750 billion “shock and awe” fund promised by the EU and the IMF is a bluff. The unthinkable idea that the eurozone might break up is now being thought. And the version of break up gathering ground in people’s minds is not that the poor, indebted countries would fall out — they are prostrate and helpless — but that Germany would rise up like Gulliver, snap the insubstantial euro-ropes tied round its body, and walk away. Offering a foretaste, a German stockmarket website called Borsenews has now started pricing shares in Deutschmarks as well as euros.

On the other hand, what makes economic sense also looks politically impossible. Angela Merkel, the German Chancellor, promised to put her foot down and punish the Greeks three months ago, only to give in and launch the rescue a few weeks later, a delay that dramatically increased her country's bill. The German political class has spent 60 years recovering respectability through “Europe”. It simply cannot face losing it.

But there is no alternative vision in the eurozone. The leaders remain determined to have no Plan B. So what we are about to get is the missing bit of Plan A. They will try to create a sort of European Treasury with centralised economic and fiscal policy — the imposition, in short, of undemocratic European economic government.

Again and again in politics, great schemes don’t work — Soviet Communism, for example, and now the euro. Rational people tend to conclude that, because a scheme doesn't work, it will quickly stop. Unfortunately, rational people are wrong. Bad political schemes are usually given up only when they have been tested literally to destruction. It would be much better for Europe if the euro had never happened, and I long for it somehow to fade away, but the process of destruction will be horrendous, and it is only just beginning.

© The Daily Telegraph