Living in a fantasy world
There have been a number of prominent people who this week have made remarkably silly statements.
First there was Richard Branson's claim that "The UK would be better off in the Eurozone." The Virgin founder told the BBC that
"If we were part of the euro right now, our currency would be a lot cheaper,” and
“Great Britain would be doing that much better in trading in Europe.”
he added that
“Because the pound is a lot stronger than the euro, it makes it more difficult for us.”
Branson is a great businessman but would be the first to admit that he is not a politician. His statement that it would be easier to trade in Europe if our currency had been dragged down like that of the Eurozone is true so far as it goes, but unfortunately for his argument this is very far from being the whole story.
It causes problems if your currency is too high or too low. Too high makes it hard to sell abroad: too low pushes up your costs and leads to inflation.
Britain is a world trading nation: about half our trade is with countries which use or are linked to the Eurozone and the other half with countries which use or are linked to the dollar.
As we found out the hard way in the run up to Black Wednesday, it is an absolute disaster for the UK if we are aligned with one of those zones but not the other.
We went into the precursor to the Euro, a fixed currency regime called the European Monetary System or EMS, at an exchange rate which worked for our trade with Europe - exactly as Branson is arguing for now - but was way out in terms of our position in respect of the rest of the world. Except that back then the problem was that the German Mark was very high relative to the dollar, and now the Euro is very low relative to the dollar. The results for the UK economy were dire.
Britain needs to have a sensible overall currency level, and that means adjusting relative to both the dollar and the Euro. When one is high and the other low, we float between them and it balances out. Which we cannot do if we are in the Euro. I'm astonished that Richard Branson doesn't get that.
But he's not the only person expressing very odd views this week. even as almost everyone else, including Angela Merkel's deputy, the President of France and the Prime Minister of Italy - says that a "No" vote in the Greek referendum means leaving the Euro, EU Commission President Jean Claude Juncker continues to insist that a Greek exit from the Eurozone is not an option.
Not only is it very much an option, it is entirely possible that within the next few months - and possibly even this week - we may reach the situation where it is unavoidable.
But an even stronger candidate for the daftest statement of the week has to be the Greek Prime Minister Alexis Tsipras who argues that
"They will not kick us out of the eurozone because the cost is immense."
He's right that they don't want to, but the idea that the other Eurozone countries will not let Greece leave under any circumstances, regardless of how his government behaves, is complacent to the point of fantasy. Greece is very close to the point where they may have no choice.
First there was Richard Branson's claim that "The UK would be better off in the Eurozone." The Virgin founder told the BBC that
"If we were part of the euro right now, our currency would be a lot cheaper,” and
“Great Britain would be doing that much better in trading in Europe.”
he added that
“Because the pound is a lot stronger than the euro, it makes it more difficult for us.”
Branson is a great businessman but would be the first to admit that he is not a politician. His statement that it would be easier to trade in Europe if our currency had been dragged down like that of the Eurozone is true so far as it goes, but unfortunately for his argument this is very far from being the whole story.
It causes problems if your currency is too high or too low. Too high makes it hard to sell abroad: too low pushes up your costs and leads to inflation.
Britain is a world trading nation: about half our trade is with countries which use or are linked to the Eurozone and the other half with countries which use or are linked to the dollar.
As we found out the hard way in the run up to Black Wednesday, it is an absolute disaster for the UK if we are aligned with one of those zones but not the other.
We went into the precursor to the Euro, a fixed currency regime called the European Monetary System or EMS, at an exchange rate which worked for our trade with Europe - exactly as Branson is arguing for now - but was way out in terms of our position in respect of the rest of the world. Except that back then the problem was that the German Mark was very high relative to the dollar, and now the Euro is very low relative to the dollar. The results for the UK economy were dire.
Britain needs to have a sensible overall currency level, and that means adjusting relative to both the dollar and the Euro. When one is high and the other low, we float between them and it balances out. Which we cannot do if we are in the Euro. I'm astonished that Richard Branson doesn't get that.
But he's not the only person expressing very odd views this week. even as almost everyone else, including Angela Merkel's deputy, the President of France and the Prime Minister of Italy - says that a "No" vote in the Greek referendum means leaving the Euro, EU Commission President Jean Claude Juncker continues to insist that a Greek exit from the Eurozone is not an option.
Not only is it very much an option, it is entirely possible that within the next few months - and possibly even this week - we may reach the situation where it is unavoidable.
But an even stronger candidate for the daftest statement of the week has to be the Greek Prime Minister Alexis Tsipras who argues that
"They will not kick us out of the eurozone because the cost is immense."
He's right that they don't want to, but the idea that the other Eurozone countries will not let Greece leave under any circumstances, regardless of how his government behaves, is complacent to the point of fantasy. Greece is very close to the point where they may have no choice.
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