Bob Jones: Currency a dead duck but union can still fly


Britain's historic aversion to Europe reached silliness proportions after Waterloo and led to its unnecessary involvement in the Crimean War and ultimately, in the even more fabricated World War I. But as the saying goes, the winners write the history books.

Reflecting the mood of 19th century Britain in the Regency period, spurred by both the Regent and the Prime Minister, every young gentleman took boxing lessons to avoid what was insultingly described at the time as "Continental effeminacy". Remember also, it was only France's interest in this country that led to us becoming a British colony, this a reflection of the European antipathy which prevailed in England at the time. British chest-beating militancy reached a peak towards the end of the 19th century with the popular music-hall jingoism ditty, "We don't want to fight but by jingo if we do, we've got the ships, we've got the guns, and we've got the money too." They wanted to fight, all right. It's in their DNA.

Britain has been a huge loser through this belligerent nationalism but, and there is a but, for once it has served them well, in staying out of the terribly ill-considered euro. Has there ever been a dumber construct in modern times? Essentially it amounted to abandonment of economic sovereignty and, more important, a denial of the wisdom of free-floating exchange rates to cope with trade and currency flow fluctuations.

In his Budget speech, Bill English mentioned our dollar was too high. I'd love to grill him on where it should be, and what formula he used to decide that figure. He might just as well complain there's not enough sunshine as he's not so silly as to seek a return to a fixed currency. Price fluctuations, although deplored by central bankers, are part and parcel necessities of the market economy system.

The motives for the euro were excellent, being to facilitate trade by avoiding currency exchange inconveniences and costs, plus prevent inflation. It's achieved all of those objectives. But the dangers were ignored, and I'm not being wise after the event as I've frequently written predicting its inevitable collapse.

In creating a common currency the unavoidable effect was to give Germany, in particular, an artificially low currency advantage, and the weaker southern economies, a contrived high one. This gave those weaker economies an unearned ability to raise cheap but unsustainable loans.

We now see the consequences with mass unemployment and increasingly desperate people, many ominously turning to political extremists for salvation. Talk about history repeating itself! That said, there's a lovely irony in Germany pumping billions into the suffering economies, solely to save the euro. Aside from being money they can wave goodbye to, it's insane, for even if the euro is "saved", a collapse would only reoccur with this flawed common currency for uncommon economies. Germans are now awake to this and complain bitterly about Chancellor Merkel's obstinacy in persisting at their expense. She faces an election later this year and her unpopular actions may result in her political demise.

Now finally, one of the euro's original architects, Oskar Lafontaine, the former German Finance Minister, has seen the light and called for the euro to be dismantled. This will be incredibly messy but not doing so will lead to even greater catastrophic consequences.

Meanwhile, on the sidelines, some Brits continue pushing their anti-European sentiment, reflected by the rise of UKIP (UK Independence Party) which has the primary objective of Britain leaving the European Union. As the bulk of the UKIP's support comes from Tory voters, Prime Minister Cameron has now promised a referendum on the issue. The latest polls show 46 per cent in favour of quitting. It's madness.

But let's face it. At the bottom of this sentiment is an antipathy not just to annoying over-zealous Brussels regulations, but also immigration. Talking to an English friend about this I suggested the Poms should be grateful for Polish builders and Indian nurses and doctors, otherwise they're in big trouble. "Oh we are," he said. "It's the trouble-making blacks and Muslims flowing in we object to but we're no longer able to say that." Similar strongly held views are held across Europe.

What Europe needs is a larger but less busy-body union and an immediate end to the euro but, even so, the disastrous consequences from the ill-fated common currency venture will linger for years. It's strange today to recall Jack Marshall's continual back-and-forth trips to Europe, begging for special terms for New Zealand, with the advent of the European Union. Thanks to Britain going to bat for us we were given time, a challenge our exporters rose to magnificently. Who would have though four decades ago that Europe would become almost irrelevant to us, now taking a minuscule 7 per cent of our exports? Thank goodness for that.

- NZ Herald

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