Lord Flight: Why Germany should leave the Euro

Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004 and led for the Opposition on the FSMA.  He is now chairman of Flight & Partners Recovery Fund.

If Baroness Thatcher were still alive and well today, I am sure she would be speaking out strongly against the economic stupidity of continuing Eurozone policies, which have delivered unemployment of 19.2 million, and youth unemployment of 56% in Spain, 38% in Italy and 59% in Greece.  Nor do I think she would like Angela Merkel being compared to her, where the one thing Mrs Merkel has not done is to provide the leadership and courage to address the Eurozone problems effectively.

To any self-respecting economist it is quite clear that the Euro has been an economic disaster, imposing “gold standard” depression on Southern Europe – now even extending to Holland.  The essence of the problem is that Germany made itself super-competitive within the Eurozone, where, without the flexibility of currency adjustment, most of the other economies are locked into depression.  What makes the problem worse is that the German imposed austerity measures are serving not only to depress the uncompetitive economies further, but also to increase their fiscal deficits and funding problems.

Enlightened German leadership should recognise the fundamental problem and exit Germany, (with Finland and Austria), from the Euro, creating a strong, Northern European currency, and leaving a weak Euro which would restore the competitiveness of Southern Europe.

Worst of all, Germany fails to recognise that it was similar austerity conditions, resulting from the post-World War I German reparations, which ended up, politically, with Hitler.  Italian politics have already become unstable.  It is to be hoped that if Germany is not willing to provide the leadership to break up the Eurozone, Italy will do this de facto – at the same time letting off the steam of what might otherwise be politically dangerous.

As for the UK, inadequate recognition is given to the fact that we remain economically afloat because we did not join the Euro and retained our own freedom of exchange rate and monetary policy.  We have no desire to be unfriendly to our European neighbours, but it is time British political leaders recognised the truth that both the Euro and the whole unaccountable EU edifice are economic and political disasters, from which the sooner the UK escapes the better.  A possible referendum promised in 4 years’ time – “fiddling while Rome burns” – is simply not good enough.  Moreover the most effective catalyst for fundamental reform of European economic and political cooperation would likely be for the UK to leave.

What is needed is genuine, open, pan-European free trade and not minutiae rules and regulations.  Few realise that the single market is really about protecting the interests of major players and limiting competition and entry.  The fundamental problem with the EU structure is that it is not accountable and can, therefore, “run riot” with regulatory excesses, wreaking economic havoc in their wake.  The current proposed Transaction Tax, risks undermining London’s position as the main, world financial capital.  Ministers wringing their hands and regretting EU majority votes miss the point.  Where a political structure such as the EU and an economic mistake such as the Euro, cannot be reformed from within, it is time to exit.

Nigel Lawson is right; the EU has become a “bureaucratic monstrosity” and the benefits of leaving “would substantially outweigh the costs”.  Monetary union has also meant that our interests increasingly differ from those of Eurozone members and we are becoming increasingly marginalised, doomed to being outvoted by the Eurozone bloc.  The benefits of exit would also end our forced participation in the excessive EU regulation and red tape, and save the City from an EU “frenzy of regulatory activism”

In this whole sorry economic and political saga, my biggest criticism is of Germany for failing to give bold and principled leadership.  The reality of German policy is to do as little as possible beyond agreeing to short term measures to keep the whole edifice afloat for the time being.  Let not anyone compare Mrs Merkel with Lady Thatcher.