Douglas Carswell

06 DEC 2016

The euro is overdue a popular revolt

Matteo Renzi has become the latest prime minister to quit after losing a referendum. The vote was on constitutional reform, but it could herald another referendum on Italy's membership of the euro. That has been a long time coming.

The economies of southern Europe have been in crisis for almost a decade. Italy's economy has contracted by 10% since 2007. Youth unemployment is 39% - and even higher in Spain and Greece. Banks across the Mediterranean are overexposed to their own governments' debts.

Much of this is directly attributable to the single currency.

First, the euro enabled southern European countries to borrow too cheaply. Currency parity with Germany made imported goods cheaper than they should have been. The result was debt-fuelled consumption – which couldn't be sustained.

Having created the debt bubble, the euro then prevented the correction southern Europe needed to overcome it. If Italy, Spain, and Greece hadn't joined the euro, the value of their currencies would have dropped when the downturn hit. That would have made their exports more attractive, stimulated tourism, and made many of their debts cheaper to repay.

Instead, they had no way to devalue, while the ECB – which had made monetary policy too loose for southern Europe before the sovereign debt crisis hit – kept it too tight afterwards.

Economically speaking, the main beneficiary of the single currency has always been Germany. With southern Europe dragging its value down, the euro is cheaper relative to other major currencies than the deutschmark would have been. That makes German exports more competitive.

But, even for Germany, the costs of maintaining the single currency now outweigh the benefits. If Italy goes down, it will take German banks – like Deutsche – with it. German taxpayers have already had to fork out to keep Greece (and her German creditors) solvent. Doing so again for Italy – a much bigger economy – will provoke huge public resentment.

Yet amidst all this, the EU maintains the fiction that the euro is a roaring success. According to the European Commission, the benefits of the single currency include "improved economic stability and growth" and "greater security" – along with "a tangible sign of a European identity".

The Commission's blissful ignorance of reality could be its downfall. No one would bet against a political backlash against the euro across the Continent. The "tangible sign of European identity" may soon pull the entire European project apart. For southern Europe's sake, let's hope it does.

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