Bill Jamieson: Apocalypse could be now for euro

Published on Thursday 29 December 2011 00:43

At its inception the common currency was going to last for ever, but now it might not see out 2012

In any account of the history of nations there are years that stand out forever. We count among them 1789, 1848 and 1917 for the revolutions they brought; 1914 and 1939 for the onset of world wars; 1929 for the Wall Street Crash; 1989 for the fall of the Berlin Wall.

Each of these convulsive years had a long tail of consequence. The year just ending might fairly claim to be among the most newsworthy and consequential for a generation. But it is 2012 that is more likely to secure a place as a year of epochal game-change.

Recent months have brought a succession of portents and pointers that the modern construct of European institutions is heading for a moment of truth. What were once presented to us as permanent, indestructible stepping stones to ever closer union are working themselves loose. Beware of words such as permanent and indestructible when viewing events in Europe. The Austro-Hungarian empire and the Soviet Union clung tightly to them as they perished.

For almost two years concern has mounted over the durability of the 17-nation single currency. The central preoccupation of finance ministers, central bankers and senior EU officials has been to find a way to defuse the ticking bombs of sovereign deficit and debt that could blow the eurozone apart. Emergency summits have come and gone. Accords have been pronounced and solutions earnestly proclaimed. Yet there is still no clarity as to how a Greek sovereign default is to be avoided or from where the required reserves of bail-out money will come to halt a chain reaction of default and/or secession.

When former UK chancellor Alistair Darling warned earlier this week we are in even more financial danger than ever and that “I just see the situation getting worse and worse”, his words barely registered. This was not new at all, but repetitious – just another roll of wallpaper with the fiery pattern of apocalypse. Altogether more striking were reports of preparations by the UK government: a chilling combination of something portrayed as routine but which could have momentous consequences for all of us.

The reports tell of Foreign Office preparations to evacuate thousands of British expatriates and holidaymakers from countries that may be stricken by a break-up of the eurozone. The Ministry of Defence is also said to have been consulted about evacuation plans should UK citizens find themselves trapped in countries which have closed their borders and where bank withdrawals have been suspended.

In the frontline of this preparation is the Treasury, where reports have been circulating for weeks of contingency planning in the event of a disintegration of the single currency. Key arrangements include plans for the imposition of capital controls. Immigration and border controls would also be tightened.

Cross-border emergency evacuations; curtailment of the movement of money; detailed checks on crossing borders: these are the very opposite of the free movement of capital, goods, services and labour that the European single market was supposed to enshrine. The assumption behind these plans is that there would be a panic-fuelled capital flight as a banking failure took hold. The end result could be a freeze of electronic transfers and a halt to disbursements from hole-in-the-wall machines. And if people have no access to their money, those stricken countries in the eurozone do not just have a banking problem, or a sovereign debt problem. They have a law-and-order problem.

Now these preparations, it should be stressed, are being undertaken only on the basis of “worst-case scenario” and would run alongside similar limited capital controls across Europe that would be invoked to contain the disruption of a break-up and to ease the transition to new currencies.

This does not at all mean that the government believes such an outcome is likely. “Hope for the best, prepare for the worst” is the glib homily routinely trotted out on such occasions: its very banality should surely calm our apprehensions. However, when ambulances and fire appliances suddenly appear at the end of your street and emergency rescue teams fan out across the neighbourhood, assurances to householders that this is merely routine contingency planning cannot but beg questions. That there is nothing remotely “routine” about such preparations is enough to prompt householders to ask why – and why now?

More likely – or so runs the official line – is that such an extreme outcome will be avoided. This can be the result of four possible developments: one, that the 17 members of the eurozone agree to proceed forthwith to greater economic and political union with central oversight of tax, spending and borrowing; two, that massive ECB funds will be made available for the European Financial Stability Facility bail-out kitty; three, that German opposition to such an ECB bail-out will evaporate; and four, that Greece (state debt: $1.2 trillion; budget deficit 14 per cent of GDP) will agree to such a combination of austerity and productivity improvement as to avoid default, create growth and bear down on these horrendous debt levels.

The fact that there is still no resolution despite all the emergency summitry and that the eurozone is set to enter recession in 2012 is a gauge of how credible in the markets any one of these four outcomes now are.

Among the disconcerting truths of Michael Lewis’ compelling book Boomerang is not just the magnitude of the mess we’re in but that the idea of Greece becoming more like Germany is preposterous: national culture and character just do not change overnight. But these are the spent tickets of hope to which the defenders of the euro-zone desperately cling. What fools.

Economic necessity would seem to make a rapid push towards budget and economic integration more likely, however politically unpopular. But even if this prevails short term, how likely is it to last? Such was the confidence in “ever closer union” when the euro was created that the possibility of withdrawal was not even legally provided for in the treaties. But such euro treaties do not have much of a shelf life, as we all now know.

The salvation of Europe would, on the contrary, appear to lie in the overwhelming popular preference for people to be governed locally and by their own people, rather than by supra-national constructs. This is the counter-force that the events of 2012 will unleash as the debt and deficit crisis enters a new and explosive stage. That is why next week we will be in no ordinary year, and in no ordinary new era.

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sassenach101

Sunday, January 1, 2012 at 06:57 PM

"...Perhaps if a wave of Little English style jingoism and Xenophobia sweep Europe..." Ah, whose National Party controls the local Parliament?

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SlyFifer

Saturday, December 31, 2011 at 09:18 AM

There is something deeply worrying about the implied destruction of democracy implicit in the 17 countries operating the Euro who want to rush headlong into fiscal union - very dangerous on so many levels. If Greece stays in the Euro as the Germans and French seem to insist that they must, how many generations of Greeks will be consigned to abject poverty and zero levels of expectation and hope for the future ?. How will the young come to terms with this ?. There is revolution fermenting under the surface. Countries who have no real history of heading out on to the streets may well erupt. Will the EU recognise their abject failures, will they slim down and abandon their rampant bureaurocracy and regulation ?. Remains to be seen. One thing is for sure, an independent Scotland would have to have an army of civil servants simply to cope with the deluge of legislation pouring out of Brussels. Much if not all of these rules and regulations guaranteed to stifle the competitiveness of our industries and add hugely to our cost of living. Just what planet are these Eurocrats living on ?.

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Dr. James Wilkie

Friday, December 30, 2011 at 09:45 PM

For years I have been expecting this dénouement, not just in respect of the Euro, but of the entire EU project. From the very beginning it has been driven by emotion, by an ideology that had a lot going for it when it was first devised away back in the 1920s, and then tentatively implemented in the early 1930s under the auspices of the League of Nations. ………………………………………………………………………………….. When Jean Monnet, the former Deputy secretary-General of the League, pulled the plans out of the drawer after the Hitler episode, and put words into the mouth of his ventriloquist's dummy Robert Schuman, the world for which the scheme had been devised had altered out of all recognition, and was to change even more drastically by the time it came to implement the idea. …………………………………………………………………………...……….. The situation nowadays bears no resemblance to the one for which the EU was designed. A whole tier of world government has arisen since then, with hundreds of international organisations carrying out global functions that were once intended to be run at European level. The EU has learned nothing from the disaster of the Soviet Union experiment, and is still trying to micromanage a political and economic situation of a complexity that is well beyond its collective comprehension. Bill Jamieson is right to point out that there are factors at work here that cannot be interpreted in terms of economic and monetary statistics. ……………………………………………………………………………………The original motivation for the EU has evaporated into the meaningless ideology of integration for the sake of integration, of "ever closer union", while the Brussels gravy train rolls on, the corporate gold-diggers exploit the pseudo-ethical Potemkin village to enrich themselves, and Scottish farmers and fishermen have seen their whole way of life overturned or destroyed. ………………………………………………………………………………. What my friend Richard Coudenhove-Kalergi, who published the first plan for a united Europe in 1924, would have thought of this shambles is a matter for conjecture. Fortunately, the other four major European organisations have not fallen into the same trap as the EU with its barefaced pretensions to BE Europe while representing only half of the continent. Regional cooperation at European level will continue, that is certain, but I cannot visualise the EU in its present form playing a significant part in it - unless it is so drastically slimmed down and reformed as to become in effect an entirely new institution.

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MarcAnton

Thursday, December 29, 2011 at 08:36 PM

hermit, where did you buy your Euros? In Kazachstan, Ukraina, or in North Korea ???

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Electric​ Hermit​​

Thursday, December 29, 2011 at 08:09 PM

The Euro has been dead for months now. Euro's are underwritten by individual nations as you'll know if you have any of them. Over the past year I have had a few notes in my possession all of them Greek. It appears that the EU has been punting these on to us knowing when it all goes belly up the Greek ones will be worthless as they are unable to pay up. That coupled with the Germans printing Deutsch Marks again makes me very suspicious indeed. Clear out your drawers folks or you may be left holding a worthless Greek note.

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MarcAnton

Thursday, December 29, 2011 at 07:38 PM

"Should the EURO perish -can the EU itself survive?" _________ You can be shure: The EURO will never perish! Our rotten government in Berlin will be happy to pay the bill. Grrrrrrrrrr...

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Dorset Bloke

Thursday, December 29, 2011 at 05:20 PM

"Should the EURO perish -can the EU itself survive?" Let's hope not.

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Broon Bairn

Thursday, December 29, 2011 at 01:58 PM

People (or countries) who wish to remain within the corrupt madhouse that is the EU are themselves insane. I long for the day when an independent Scotland is a member of EFTA, far away from the destructive EU machine which has already decimated our fishing and farming industries, and which daily spews out gobbledegook Directives on nonsensical topics (rules which even over-ride our own laws).

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Anagach

Thursday, December 29, 2011 at 10:40 AM

There appears to be no current rush to a resolution. But that is not surprising. Debt levels in the EU are well below UK and USA levels the tensions within the Euro make it the hot news. Perhaps if a wave of Little English style jingoism and Xenophobia sweep Europe it will all fall apart but more likley at the moment is that they move closer in tax and benefits, provide central support and a mechanism to drop-out or eject countries that are not in economic alignment and need to devalue. Not quiet Ragnarok or Gotterdammerung.

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unimpressedone

Thursday, December 29, 2011 at 08:48 AM

#1, Let's hope this abortion is put out of its misery finally this year. When this happens it should be the beginning of the end of the EUSSR.

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Cynicus in Exile

Thursday, December 29, 2011 at 01:08 AM

Should the EURO perish -can the EU itself survive?

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