The flaw in the euro 'grand projet'

The snag in the grand plans for the euro was so blindingly obvious, it's amazing it's come as news to so many people, says John Stepek.

Staying on top of the Greek saga is tricky. After the umpteenth "final" deadline, there's yet another coming up this Monday. The date, 20 July, will mark the day Greece has to pay €3.5bn to the European Central Bank (ECB). As usual, the powers-that-be are racing to put together a fudge to drag us as far as the next "final" deadline. It's a terrible mess, and a situation which regardless of your view on Greece's economic competence or otherwise has inflicted an awful lot of unnecessary pain on the country.

It was also entirely predictable. As economist and author George Magnus tells our editor-in-chief Merryn Somerset Webb, this is the inevitable result of putting monetary union ahead of political union.

If a country like Germany wants to share a currency with one like Greece, then German taxpayers have to be willing to subsidise Greece just as taxpayers in wealthy parts of the UK subsidise the less well-off areas. But in the absence of shared nationhood, values, or closer political integration, the idea of paying for Greek public-sector pensions is a non-starter for your average German worker.

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The most interesting aspect of the Greek crisis is that this blindingly obvious flaw in the grand projet has come as news to a surprisingly large group of people. Long-term eurosceptics who always said this would happen are being joined in droves by horrified former believers who somehow imagined that the eurozone would be run by a Platonic guardian class of technocrats who would consistently do the right thing, make the right decisions, and set aside national self-interest in favour of the greater good and that voters would put such people in charge of their nations.

Twitter declarations that "this is a coup" are hysterical nonsense but at least people on all sides of the political spectrum are finally waking up to the fact that Europe's "democratic deficit" is a serious problem that needs to be addressed. That may not spell the end of the eurozone, but this could certainly mark the point at which expansion stops. For example, Poland's pro-euro governing party is now decidedly more circumspect about the idea, as are most other eastern European candidates, reports The New York Times.

The good news for investors is that eurozone stocks remain cheap compared to those of many other markets, and are still worth investing in. But you'll need to accept that rolling, interminable crises are likely to be a feature over the months and years ahead. That's why you should also invest in a country where genuine reform, aided and abetted by monetary policy, is taking hold Japan.

Asia expert Rupert Foster, who predicted the recent 30% correction in China's stockmarket a month or so ago in these very pages, looked at why Japan, after years of setbacks, really has changed for the better.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.