21 October 2011

The Economic Future of Europe

There are more euros in circulation than any other currency, including the US dollar.  About 900 billion.

There was once a suggestion that it would be adopted by the UK, but we sensibly decided that it wouldn't work and decided to opt out.  Unfortunately, we are inextricably linked into the EU economy and so to the unfortunate consequences of this piece of arrogant stupidity.

Now, I must make it clear that I am not an economist.  I am a writer.  Yet how is it that I could anticipate the inevitable disaster from the moment the prospects of the euro were first announced?  Surely, much cleverer people than I were involved in the euro's creation?

It appears not.

My limited understanding of these matters is as follows:

Currency is important to a country because it has a controlling effect on its economy. As an economy strengthens, the value of its currency rises.  More people want to hold it and deal in it.  As it rises, the cost of exports effectively rises as well.  This makes exports less competitive but has the benefit of reducing the cost of imports.  By manipulating interest rates, a government can fine tune the situation and find a balance.

Someone managed to persuade rather alot of people that having the same currency as Germany would be good for them.  It wasn't.  It has only been good for Germany.

The currency weakness created by having Greece, Portugal and Italy in the same economic zone has allowed Germany to export lots of Porsches, Mercs, Audis and VW's and other stuff.  Now they are faced with a request from the rest of Europe to share some of their gains and they aren't keen to do that.

The consequencies of a eurozone break up may well be better than to paper over the cracks with newly printed banknotes.  The alternative would be to make europe one big ungovernable country.  Either way, there's going to be lots of civil unrest and uncertainty.

The idea that growth is the way out of this mess is also not tenable.  Buying stuff with money we have borrowed is exactly the reason we are now financially insecure and suffering huge cutbacks in employment.  Consumption is how we arrived in this parlous state.  Buying things we don't need with other people's money can't be a good thing, even if your country is leading by example.

There's no easy solution to our economic plight.  My policy is to think carefully about everything I consume.  Do I really need it?  Can I afford it? What effect am I having on the world?

Reducing consumption will save the world even if done a tiny bit at a time.  It's not hopeless, far from it.  It can be a joyful experience, deciding what really matters in my life and realising how much I can easily let go.