Did the financial elite deliberately build weaknesses into the euro currency system in order to create a financial crisis and bring about closer European political union?
That’s what I’ve been thinking about for the past couple of days, particularly since many of you wrote to me with the very same idea.
Before I get to that, is there any more hated tax in Britain than inheritance tax (IHT)? “Paying your share” while you’re alive is one thing (I suppose). But knowing your family will get whacked with another 40% once you’re gone is enough to make anyone angry. That’s why we’ve put together a practical guide to legally sidestepping as much IHT as possible. Go here for more.
While I’m on the subject of letters from readers, I got one note earlier in the week that said (I’m paraphrasing), “stop writing so negatively about the EU and stick to finance”.
I actually get a couple of those kinds of emails a year. The formula is usually “stop giving your opinion on X and talk about money”. X usually corresponds to a somewhat controversial or divisive subject.
My answer is always a polite but firm no.
Firstly, because the world of money isn’t something that’s separate from politics, society, technology and the outside world at large. It’s deeply interconnected. That’s what makes it interesting.
And it’s important: what happens in the financial world can and does trigger change in the world we live in.
It’s not like football, which – if you ignore the owners of the clubs and their respective litany of dodgy behaviour/crimes – has more or less no impact on the wider world. If Manchester United beat Leicester City in the Premier League tonight, you’re not going to wake up and find yourself 20% worse off. (Famous last words…)
Secondly, I’m a real person. I have an opinion. I’m going to share my own views – and the views of the team of experts I’ve assembled here. If you want a “dispassionate” view of the world, read the newspaper. If you want expert analysis anticipating what the news might be tomorrow, next week, month or year, read our work.
That small caveat out of the way, back to the idea I began this letter with.
Does the European deep state want a systemic euro crisis to create a United States of Europe?
Superficially, no. Mario Draghi promised to do “whatever it takes” to save the euro. That meant he’d print as much money as was needed to bring the bond markets to heel.
But look deeper at what’s happened and you do begin to wonder…
Take the Target2 system. I’ve written about this before, but the short explanation of Target2 is it helps track and settle capital flows between euro nations.
It makes things easier to imagine euros as physical things, like gold coins. Imagine billions of euros flowing from Italy to Germany. In time there’ll be a shortage of euros in Italy.
The Target2 system tracks this process. Sharp trade imbalances and capital flight (say, taking your euros out of a toxic Italian bank and into a “safer” German one) lead to imbalances between nations building.
The problem is, to stop a currency shortage in Italy, Germany has to funnel cash back via the Target2 system. So in effect, Germany is transferring money back to the weaker countries in the form of a Target2 claim.
What’s worse, there’s no real way of Germany making good on that claim and getting the money back. There’s no mechanism for that to happen. The idea is that the imbalances just magically rebalance themselves. Which might happen. Or it might not.
It’s supposed to be a settlement mechanism… but it doesn’t lead to anything being settled. It makes things worse. Why build a system like that?
Then you have obvious points, like the fact the creators of the euro built a shared currency that benefits countries unequally, but built no institutions by which those benefits could be shared.
That’s not an argument for a European superstate. But it is a recognition that if, say, Germany does brilliantly out of a currency that’s weaker than the Deutschemark would be, turbocharging its growth – shouldn’t the result of that growth be shared somehow? Why share the currency but not the benefits?
The cynical answer is, no.
The even more cynical answer is that to share the benefits you’d need a fiscal union to funnel tax revenues around Europe, just as the south-east of England generates revenues that are shared with other regions. (The south-east is the only region in Britain with a surplus – that generates more in tax than it takes in state spending.)
In other words, a monetary union requires a fiscal and political union. To push the cynicism levels to “weapons grade”, the people who built the euro must have known there was no desire for people to give up their national identity and governments entirely.
But people would give their currencies up, without realising that giving up control of your money ultimately means giving up a hell of a lot more than that. The shared currency was launched as a half-finished project, with those in power knowing that the inevitable crisis would require the fiscal and political union they wanted all along. Government to the rescue!
I’m not sure I’ll ever be able to prove that version of history is correct. But it’s a compelling narrative.
We’re on the road to synarachy – the opposite of anarchy, which is effectively total government. Ironically, synarchy emerges out of anarchy. Perhaps that’s what we’ll see this autumn, when the Italian government launches its “nationalist” budget, triggering a chain reaction across Europe.
Nick O’Connor
Publisher, Southbank Investment Research
Category: The End of Europe