Europe is one of the issues we talked about way too much in the bad old days. But there is a progressive and compelling case against membership of the Single Currency and it was put quite nicely by the peerless Paul Krugman in the New York Times last week.
In his piece, he suggested that the plight of the Spanish economy is largely brought on by its membership of the Eurozone. To quote Krugman:
“So what happened? Spain is an object lesson in the problems of having monetary union without fiscal and labor market integration. First, there was a huge boom in Spain, largely driven by a housing bubble — and financed by capital outflows from Germany. This boom pulled up Spanish wages. Then the bubble burst, leaving Spanish labor overpriced relative to Germany and France, and precipitating a surge in unemployment. It also led to large Spanish budget deficits, mainly because of collapsing revenue but also due to efforts to limit the rise in unemployment.
If Spain had its own currency, this would be a good time to devalue; but it doesn’t.
On the other hand, if Spain were like Florida, its problems wouldn’t be as severe. The budget deficit wouldn’t be as large, because social insurance payments would be coming from Brussels, just as Social Security and Medicare come from Washington. And there would be a safety valve for unemployment, as many workers would migrate to regions with better prospects. (Wages wouldn’t have gone up as much in the first place, because of in-migration).
The point is that this has nothing to do with a spendthrift government; what’s happening to Spain reflects the inherent problems with the euro, which now more than ever looks like a monetary union too far.”
I have always been surprised that the progressive left have been taken in hook, line and sinker by the Euro argument. This is, after all, the same body that Nye Bevan described as “a vehicle for rapacious capitalism.” In effect, the Euro has taken away many of the key economic instruments that Governments used to have and the Spanish Government is finding its hands tied by Euro membership. At the same time, the single currency has locked national governments into neo-liberal policies around debt and deficits, with insufficient scope given to policies aimed at tackling unemployment. The levels of unemployment in Spain, Ireland and Portugal, robbed of national policy levers and thrown into a one size fits all monetary policy, make a very strong progressive case against the UK ever joining a single currency.
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