| Speeches |
Among many fine speeches delivered at the meetings were two which provided excellent examples of the perils of EMU, and which might be quoted when confronting those whose worship of the EU is only exceeded by their ignorance of basic economics.
The first comes from a speech by Henrik Overgaard-Nielsen of TEAM and concerns the effects of asymmetric shocks, which will inevitably be experienced by any large economic area such as the EU
As the intensity and nature of economic activity across the EU is not uniform then there will be occasions when one part of it suffers adverse effects from an event which is of little consequence to other parts. An example of this would be if the price of timber were to decline steeply, as Scandinavia would be much more affected than, for example, Portugal.
Before the advent of EMU a country would alleviate the effects by use of the financial levers available viz.
Once members of the single currency none of the above solutions are available!
The only ways in which a nation locked within the EMU area can respond to the asymmetric shocks will be
in order to have the equivalent effect of a three per cent reduction in the exchange rate the wage level will have to drop by thirty percent, neither a popular, nor easily achieved, method.
this is of course one of the methods by which the USA deals with this problem. However the EU possesses neither a common language, nor a common cultural background and, as a consequence labour mobility will very much less than in America. For example how likely is it that a decline in the building trade in Wales will lead to Welsh bricklayers moving lock, stock and barrel to Austria and how popular will that be with the Austrians?
We see this happen within nations, as for example when money is transferred from the relatively prosperous South East of England to areas such as the industrial North East. However, in order for the EU to do this, the budget will require access to some four to five percent of the EU GDP in order to make the difference necessary. At a time when we see Germany beginning to question the vast sums she pays into the EU budget it will be highly unlikely that the sums required will become available
The reality is that none of the above methods will solve the problems of those nations suffering asymmetric shocks and that the inevitable consequence will be a massive increase in unemployment. It will be the jobs and living standards of the ordinary citizens which will be sacrificed to provide the oil to keep the wheels of the EU turning, immunity only being available to those politicians and bureaucrats whose feather bedded posts in Brussels, Frankfurt etc. are the real reason for their enthusiasm for the whole project
The second example comes from a speech by Norman Lamont, whose experience as Chancellor of the Exchequer puts him in an excellent position to comment on interest rates
Mr Lamont points out that in a group of individual countries, such as are to make up the EMU area, some are constantly at different points in the economic cycle than others and therefore require different stimuli to ensure optimum performance of the economy. If, for example, France were to be experiencing an overheating of her economy while Germany was bumping along at the bottom of a downturn then interest rates in France should rise to dampen down economic activity while they should fall in Germany to encourage growth. However under the EMU arrangements the European Central Bank will only be able to set one rate for the whole of the EMU area. For the example given, if it is set to suit the French needs then Germany will plunge further into depression, while if it is set to suit the Germans the French will experience an unsustainable boom which will quickly turn to bust. To select a midpoint in rates will fail to meet the requirements of either nation.
That these problems will arise is certain and Mr Lamont advises that the nation to watch will be Eire, whose economy is very much part of the British cycle. Although at first the higher interest rates needed by those continental nations emerging from their current recession will ensure that the Irish will seem to be enjoying great benefits, the inevitable overheating will lead to a crash and tears before bedtime!
The EU countries recognised this basic structural problem when setting the convergence criteria at Maastricht. However political considerations overrode economic ones and the blatant fudging and fiddling which took place will ensure that the scenario presented by Mr Lamont will inevitably come to pass. It is a receipt for economic disaster and subsequently social disorder.