Jeremy Warner:
The euro has been a tragedy for the country and a new populist coalition is itching to cause trouble
For the political class in the UK, Brexit has become an allconsuming obsession, sucking the oxygen out of virtually everything else. Yet for the EU’S high command in Berlin, Brussels, and Paris, it is but one of a multitude of crises, and, despite the importance we attach to it, far from the most significant of them.
Most of these crises, including Brexit, might, on the other hand, be said to have a common cause – Europe’s reckless and deeply divisive rush to monetary union. From the start, the single currency was a classic case of attempting to run before learning to walk, or as the Daily Telegraph put it in a leader at the time of Maastricht, it piled “Mount Pelion on Mount Ossa”.
Instinctively, the UK recognised the risks, and determined to remain apart, thereby putting itself on an eventual collision course with an EU intent on ever greater levels of sovereign subversion to support the foolishness of its monetary experiment.
Most of the countries that have signed up to the euro are still a million miles from being ready for a common currency with Germany. For the first seven or eight years, things muddled along without serious mishap, but beneath the apparent calm the single currency was incubating the mother of all economic and financial crises. Voluminous money printing by the European Central Bank eventually succeeded in extinguishing the worst of the fires, but the crisis never entirely went away, and now, with the possible formation of a populist government in Italy, it threatens to come storming back again.
Most of Italy’s problems are home grown; the great tragedy of modern Italy, the birthplace of much of what is good and civilised in the world, is that it has become little more than a museum, a place of entrenched vested interest and immunity to serious political, judicial and labour market reform.
Yet the euro has greatly compounded this predicament. By imposing inappropriate macroeconomic policies and an uncompetitive exchange rate, monetary union has made an already dire condition very much worse. Almost unbelievably, the economy hasn’t grown in nearly 20 years, a hiatus whose duration is unprecedented in the modern age.
There is a lot of love among British Eurosceptics for Italy’s new brand of populist political leader, as there was at the beginning for the hard-left Syriza-led government in Greece. My enemy’s enemy is my friend seems to be the logic; anything that pushes against Brussels is by definition welcome, however deluded the proposed policy agenda.
But deluded, incoherent and utopian it most certainly is, to judge by what has so far been said by and attributed to the mooted Five Star alliance with La Lega Nord, a bizarre and manifestly unstable pick and mix of Left and Right that combines a flatrate tax to satisfy the more prosperous north with guaranteed handouts for the impoverished south. The chances of the alliance holding together seem remote, which is partly why markets have so far been relatively relaxed about the threat it poses.
What unites these two very different brands of populism, however, is a determination to kick against the political establishments of both Rome and Brussels. They don’t so much want to leave the euro – with the entire financial system denominated in euros, including the vast bulk of debt, it would in any case be virtually impossible without instantly bankrupting the country – as blow it up from within.
Similar threats from Greece’s Syriza were easily swotted away; Greece was too small to hold the eurozone to ransom. But Italy is another matter. If Italy blows, the whole thing will blow.
Luigi Di Maio, leader of the Five Star Movement, says he senses fear among the Eurocrats; they would be right to be scared, because by proposing a “pre-maastricht” economic policy setting, he threatens to drive a coach and horses through the fiscal rules that stand at the centre of Europe’s monetary union.
He also proposes that the European Central Bank cancels €250 billion of the government bonds bought trying to stem the previous Italian debt crisis, making the ECB doubly wary of applying the same strategy a second time. Both proposals are anathema to Berlin, which rightly fears being left with the tab.
Yet to push Italy out of the euro would be to risk catastrophic loss to Germany as well. When you owe the bank just a little, goes the saying, then you’ve got a problem, but when you owe it a lot, it is the bank that has the problem. The same holds true for Germany’s exposure to Italy.
If Angela Merkel wants to save the euro in its current form, she is going to have to row back on her previously uncompromising stance, and loosen the fiscal straitjacket. Yet she is caught between a rock and a hard place: to do so risks a further political backlash at home.
Brexit? This is but a minor irritant compared to the wider rebellion the EU’S hubris has brought on our benighted continent.