I was perusing an article in today’s US print edition of the Financial Times titled, ‘ECB alarned at UK push to rebrand union‘. Mario Draghi, president of the European Central Bank, is quoted as he comments ondesigns by David Cameron, UK’s prime minister, to rebrand the euro a ‘multicurrency union’. The facts are that 19 of 28 European countries use the euro. Britain and Denmark have an opt-out clause and have free floating currencies, and other 7 countries peg their currency to the euro. Cameron’s plan is to change wording (the multicurrency part) and ensure, with treaty changes, that Britain and any one else can keep their own currency if they want too – and won’t be pressured, or lose out to other advantages unique to the euro zone.
The FT article suggests: “Mr Dradhi shares concerns in Brussels that the EU single market could permanently devide around two regulatory spheres, with eurozone countries facing unafair competition if there was a lighter-touch regime on the outside”. Eurozone countries facing unfiar competition? What is he talking about? Surely the premise of the single currency is predicated on some advantage? How can being part of a single currency suddenly be something that loses out to a region that is not part of that currency? Is Draghi admiting that to have ones’ own currency is an advantage? What silliness is this?
The fact is that all currency pegs and currency alignments have given way. Not one has lasted, from the early beginning of monetary union to recent times. The euro is certainly lasting a long time, but it is under extreme strain. The same interest rate policies, set to meet the needs of the euro’s largest paymaster, Germany, created bubbles in Greece and Spain that have since exploded, and are creating new bubbles in Ireland now – which was only bailed out by the ECB and IMF just a short time ago. Ireland’s GDP is running rampant – and cannot be taimed since they cannot alter their interest rates.
Draghi has done us all a favor – he states what he fears the most. A single currency removes the ability for a country to buttress its own inherent wage ‘stickiness’ (its inflexibility to change, i.e. drop, when competitiveness drops) against the needs of a flexible interest rate to manage currency exchange. When the UK was booted out of the ERM, the last time it was party to the euro’s predicessor, it’s economy went from malaise to growth in rapid time. This happens time and again through history. Thank you Mario for telling us your greatest fear. I guess keeping the euro keeps you in a nice, cushy job.