When its policies are under threat, Europe’s elite always try to frighten people into compliance, but it’s impossible to say that the consequences for Britain if the euro falls apart are worse than those arising from a long struggle to make the unworkable work (We agree about Europe, 14 May). The latter will demand British contributions to sustain a project we didn’t join and advised against, and if the uncompetitive Mediterranean countries can’t devalue they’ll suffer long and hard deflation. So will Germany, because its Euro markets will decline, and a failing European economy will drag the world down with it.
Breaking out to a more competitive exchange rate will be tough but creates the opportunity for growth, and once some or all of the Club Med states go the euro will rise, making Germany less competitive and stopping its excessive surpluses. That offers a much better prospect of growth and revival than any big EU infrastructure projects, which will take years, or an expanded European investment bank pouring our money down European black holes.
As for structural reforms, they are much easier when economies grow than in prolonged deflation, which despairing electorates won’t accept. Euro guff won’t bring growth, and it’s silly to say we’ll be locked out. If the EU is heading obstinately to self-inflicted disaster, locked out is the best place to be.
Austin Mitchell MP
Labour, Great Grimsby
• Ed Balls and Peter Mandelson are right, the UK should take a central role in ensuring a future of sustainable growth for the EU, with the funding of infrastructure being centre-stage. The crucial question is what kind of infrastructure. To make Europe’s future a “sustainable” one in an environmental sense will mean rejecting the usual old vanity projects of motorways, airports and high-speed trains. A really job-generating but green infrastructure programme would make all buildings energy-efficient, massively reduce use of raw materials through reuse and recycling, and improve regional transport networks. All this could generate jobs and business opportunities where people live, rejuvenate local economies and so eventually reduce public debt. If François Hollande and the Greeks’ Syriza alliance also call for a shift from austerity to greener prosperity, this could at last result in the replacement of the sado-monetarist lunatics in charge of the EU asylum.
Convener, Green New Deal Group
• £130bn to rescue Greece (Europe’s elite braced for Greece exit, 15 May)? Scandalous! Yet this country alone has spent 10 times that amount to save the private banks, with no questions asked, and very little of that money is likely to be recovered. Have the banks had austerity measures imposed on them, or any measures at all? Am I missing something, or has the world gone completely barmy?
• Keynes understood that if you have a currency union you need a mechanism to sort out imbalances, transferring resources from creditors to debtors, otherwise the strain on debtor nations of being part of the union will become intolerable. That was the point of his scheme for an International Clearing Union, launched in 1943 and intended to be a global bank, working on the overdraft principle, so that all those nation-states needing dollars for reconstruction after the war would be able to get their hands on them. And they would run down the overdrafts by selling what they had made to the US and to each other – in other words, via growth. There is no other way.
In the end the ICU never took off – but the US provided aid after 1945 via the UN, loans to the UK and France, Marshall Aid, the Military Assistance Programme, the IMF, funds for development and private foreign investment by multinationals. It took the cold war to galvanise the US to play the part of generous creditor in the global economy, underpinning a generation of unprecedented expansion. On the other hand, the German government and its friends in Brussels and Frankfurt have by their addiction to rules (ordoliberalism gone mad) turned the euro into an economic doomsday machine, and short of a U-turn on their part the only escape is for debtors to abandon it.
Professor Scott Newton
• Ed Balls and Peter Mandelson make some sound points such as the European Investment Bank funding infrastructure investments to recover growth, but are wrong in claiming that “at the heart of Europe’s problems is the fact that the eurozone does not have the institutions or political machinery to project confidence”.
It does. The European Central Bank is obliged to support the general economic policies of the union, as defined by heads of state and government. It must do so without prejudice to the internal and external stability of the currency, but defending the internal stability of the eurozone is such a policy. It could be aided by shifting a share of national debt to the EU, not least since while member states are deep in debt after salvaging banks, the EU itself had none until May 2010 when the ECB started to buy out public and private sector debt.
There are constraints on EIB co-finance because of the crisis, but these can be offset by Eurobonds issued by the European Investment Fund, which is part of the EIB Group. The Fund was designed to issue the EU bonds proposed in 1993 by Delors. It could do so now without a treaty revision, as it recently confirmed to the Economic and Social Committee of the EU. These would attract surpluses from the central banks of the emerging economies and sovereign wealth funds.
Nor do criteria for EU recovery investments need to be agreed. They have been so since 1997, not only for transport networks but also for investments in health, education, urban renewal and green technologies. These already are project-financed by the EIB rather than needing fiscal transfers between member states. Through Eurobonds the EIF could fulfil one of its original design aims of financing a public venture capital fund for small and medium firms.
Further, none of the major eurozone member states – nor Greece, Portugal or Ireland – count EIB borrowing against national debt. Nor need EIF Eurobonds do so. Converting a share of national debt to the EU and issuing Eurobonds does not need unanimity. Both could be by enhanced co-operation, which needs the agreement of only nine or more member states. If they wish, Germany, Austria, Finland or other member states could keep their own bonds but the rest of Europe could undertake a New Deal-style social investment-led recovery.
University of Coimbra
• The euro is a great concept but was badly conceived, without a central bank or political, fiscal and economic harmonisation. But the greatest problem today is how to manage state finances when billions disappear into the world’s tax havens thanks to the absence of any monetary controls and politicians granting their wealthy friends and multinationals all kinds of tax advantages and favours that have diluted tax revenues to the point where there is not enough in the kitty to maintain public services.
Even Paul Krugman has admitted that a return to temporary monetary controls could be an answer. With regard to Greece I would say that, in exchange for handing over more money, all Greek funds abroad in Switzerland or elsewhere must be returned. Then the same conditions should apply to the rest of Europe’s member states. According to the Tax Justice Network, over a trillion dollars lies in offshore banks and companies in tax havens. Recover this money and governments could not only reduce their debts but pave the way for a lowering of taxes across the board to encourage investment and growth, and increase spending power for the majority.