Two years ago, I interviewed Bernard Connolly about the eurozone. Given the title of the book he published 20 years ago The Rotten Heart of Europe I wasn't expecting him to be much of a fan of the way things were going. But it was still sobering. The people who built the eurozone cared nothing for economics, said Connolly. They cared only for politics.
The idea from day one was to put in place a mechanism that its architects hoped would eventually force full fiscal, and hence political, union, however painful that might be financially.
Connolly reckoned it couldn't work. It would never be possible to homogenise enough, and without currency movements to reflect that fact, the less-productive countries would be caught in an endless spiral of internal devaluation collapsing wages, falling living standards and rising unemployment which quantitative easing will only cover up for so long. It could only work if Germany was prepared to keep transferring money to the weaker economies which its population just wouldn't be.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Worse, the attempt to homogenise economies and force political union would, said Connolly, result in social unrest. People need to feel a sense of belonging to a group and having power within that group. If they don't get it via their nation, they end up "viewing themselves as belonging to a religious sect or a racial or linguistic group", or holding more closely to their sense of nationhood than before.
That doesn't tend to end well. Connolly looked right in 2013. He looks even more right now. Greece has found itself in exactly the downward spiral he saw for it, Germany is kicking up about the transfers, and it already isn't ending well.
But one more point needs to be made. Many City experts are sanguine on 'Grexit'. Everyone has had so much time to prepare, that the impact will be minimal. I wonder. Look to the Greek people. Capital controls have been openly discussed for several months. They had plenty of time to prepare. But there are still queues around every block with a working ATM. Prepared? Perhaps. But still shocked and behaving in ways you wouldn't expect. Why should markets be any different?
So while others might not be worried about the impact of Grexit, I am particularly given that it is hard to see what our central banks can do to deal with another crisis. As the Bank for International Settlements says, with rates already this low, they are out of ammo. What do you do about it? That's not so simple.
Firstly, I'd suggest a holiday in Greece. If there is anything they need now, it's cash. So take lots and spend it. Then remember there is a world outside Europe. This week, David C Stevenson has finally come round to my way of thinking on Japan and, of course, our Roundtable participants have come up with their usual range of interesting investment ideas. Cheer yourself up by reading those.
-
A long bull market beckons for copperOpinion Ignore short-term volatility: a worsening supply squeeze implies far higher prices in future, says Albert Mackenzie, copper analyst and market reporter at Benchmark Mineral Intelligence
-
Starling Bank to use AI to help you with your money - how will it work?Starling Bank is using AI to show customers how their daily spending is impacting their bank balance, we analyse if the tool is offering anything new and if it can improve your finances.
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Everything is getting more expensive – including moneyEditor's letter Investors are about to start feeling rather more pain, says Merryn Somerset Webb – from the rising price of money.
-
We may be heading for recession – and it will be no ordinary recessionEditor's letter Just as the downturn in 2020 was not a typical recession. the next downturn could be very different too, says Merryn Somerset Webb.
-
What companies should be prioritising this decadeEditor's letter In a world beset by uncertainty, companies should be prioritising slack over efficiency, says Merryn Somerset Webb.
-
Inflation could soon start to hurtEditor's letter Inflation is not going away. And with people's wages not keeping up, things are going to start to hurt, says Merryn Somerset Webb.
