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Bernie, the bolt

“Monetary union is not only inefficient but undemocratic. A danger not only to our wealth but also our freedoms, and ultimately, our peace. The villains of the story… are bureaucrats and self-aggrandizing politicians.” Monetary union “is a mechanism for subordinating the economic welfare, democratic rights, and national freedom of the European countries to the political and bureaucratic elites whose power-lust, cynicism, and delusions underlie the actions of the vast majority of those who now strive to create a European superstate.”

Bernard Connolly, in The Rotten Heart of Europe: The Dirty War for Europe’s Money (1995)

A poorer country* will first boom, but over time the economy falls back, domestic demand declines and exports are needed to fill the gap. But the exchange rate cannot adjust to aid this process. As competitiveness worsens the economy goes into a tailspin. Unemployment rises, credit spreads widen, and government default becomes a real possibility.

In Connolly’s words: “The circle is vicious indeed. If nothing is done to break it, the outcome will be not just economic and financial collapse but social and political chaos.”

Bernard Connolly (2002) (*He gave Greece Portugal and Ireland as examples)


7 Responses

  1. Sounds like someone should have heeded his warning BUT!

  2. The second part is just economic orthodoxy. Anyone with half an interest in economics in the lead up to, and the inception of the Euro knew this. A single currency would always have to move towards fiscal union. This is what is being put forward to break the circle that he describes. The second possibility is for the southern European countries to leave Euro.There is of course the third, and real possibility of meltdown and dissolution.
    Do you think that the countries in question would have deteriorated to the same extent without the massive economic crisis that came in 2008? For them, the Euro is only part of the problem, not the whole one.

    The first part is just typical overstated, foaming mouthed, swivel eyed rhetoric from a book aimed at a market largely consisting of Telegraph and Mail readers.

    “Inefficient and undemocratic”
    17 different currencies in one massive market, with significant economic effort put into currency changing – not to mention the effects of speculation – is this efficient?
    Do you advocate the U.S. splitting the dollar? After all, Michigan is adversely affected by policy decisions made for the metropoles. California is held back by decisions made to help the rust belt. This is surely undemocratic is it not?
    The Euro was not forced on to any nation, although the mistake was letting some of them join.

    It was not all bad for Mr Connolly. As one of the parasitical speculators, he became very wealthy from the misfortune of southern Europe. Being a speculator of course, the impact of his actions were far from neutral. I wonder if he sees himself as a villian for this in the same way the he sees politicians and bureaucrats as villians?
    He worked for AIG in New York at this time. What ever happened to them I wonder?
    Perhaps if he had been as vociferously critical of his private sector employer and the industry in which it operated,as he had been of his previous employer, he may have actually done the world a favour. He was maybe too busy coining it in to notice.

    • Bobby you are obviously a passionate supporter of the EU and that is fine. You are correct that the Euro was only part of the problem contributing to the woes of Greece,Ireland, Portugal et al. However it is by far and away the biggest barrier to their recovery.
      One of the first big national debt crises of recent years was in Iceland. The steps that the Icelandic government took (including devaluation of the krona) to repair the country’s economy are not open to members of the Euro.

      Whilst Iceland is a very small economy, the general feeling is that if a referendum were put to the population to join the EU and the Euro it would probably be rejected. The reason is that their economic figures make pretty good reading and that they have recovered in the fashion that economies tend to do after a crash. Greece on the other hand has had billions thrown at it and yet there is no reduction of their debt or any sign of how the various national debt crises might be solved other than pressing the accellerator of the out of control juggernaut that is the Euro and fiscal union.
      If Connolly’s second quote was just orthodoxy, then why didn’t someone, anyone, turn round and say “You know this guy is right”.

      “The first part is just typical overstated, foaming mouthed, swivel eyed rhetoric from a book aimed at a market largely consisting of Telegraph and Mail readers.”
      Is it indeed? I have heard many, many left wingers express similar opinions including Tony Benn, Dennis Skinner and Bob Crow. Telegraph/Mail readers? I think not.

      “17 different currencies in one massive market, with significant economic effort put into currency changing – not to mention the effects of speculation – is this efficient?”

      Well with different currencies you at least have the safety valve of devaluation when things go wrong. That devaluation doesn’t affect the healthier currencies and bailing out would be much more straightforward.

      For the record I don’t think Bernard Connolly is a folk hero or anything. I do think he was right about the Euro and the EU though.

      Time will tell.

      • I wouldn’t really consider myself a passionate supporter of the EU although I do support a European Union.

        The reason that no one paid any heed to Connolly I think are this. Firstly, the Euro was pushed through as a political project. The imbalances between the member States was something they felt could be addressed later via deeper integration. Connolly’s apocalyptic vision only came to pass when the conditions he noted where combined with a once in a generation economic meltdown.

        Time will tell as you say. If the EU survives the credit crisis, it will have gone a long way towards cementing it’s future.

  3. Time has told!

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