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Friday, Apr 26, 2024

Thatcher was completely right about the Euro

Thatcher was completely right about the Euro

It was a ‘rush of blood to the head’. Its central bank would prove to be hopelessly ineffective. And cultural differences would remain too deeply ingrained for an internal market to ever work as it should.
We learned this week from papers released in Dublin that Mrs Thatcher was completely damning about the idea of a single currency for the European Union. Looked at with the benefit of 30 years of hindsight, however, it is clear that the most remarkable point about her views is not just how intransigent she was but that she was completely right. The Euro has been a comprehensive failure, just as she said it would be.

Rewind three decades to the fading months of the Thatcher premiership and she was facing what turned out to be terminal trouble over her views on Europe. The Irish government has just released transcripts of talks between the British Prime Minister and the Irish Taoiseach Charles Haughey, who, it later turned out, had amassed huge sums of money in offshore bank accounts (a surprisingly common pastime among enthusiasts for EU integration) and had to pay millions in settlement of taxes.

The EU’s then-President, France’s Jacques Delors, was pushing a plan for a single European currency, and winning more and more support for it. Mrs Thatcher, alone among EU leaders at the time, was horrified.

It was she told Haughey a ‘rush of blood to the head’ by Delors. As well as arguing that the powers of unelected Commissioners needed to be curbed she insisted that that a common currency could never work. She was not right on all the details. For Mrs Thatcher, the real risk was that it would be inflationary, when in fact it has turned out to be deflationary instead (although in fairness she was scarred by the raging price rises she inherited on taking office in 1979, and of course inflation and deflation are equally damaging).

But she was completely accurate in forecasting that its central bank would not be able to manage monetary policy for such a large region, that economies would remain too different to synchronise their business cycles, and that the sacrifice of sovereignty would be immense. ‘We are not going to have a single currency,’ she told the Irish premier. She was wrong about that. The Euro was launched anyway, a decade later, although the British secured an opt-out, and the Swedes somehow managed to never quite get around to joining.

Since the Euro was adopted, it has left a trail of economic catastrophes in its wake. Greece has suffered the worst depression since records began, with a massive drop in output. Italy has barely grown for 30 years. Haughey’s Ireland witnessed an out-of-control property bubble fuelled by cheap money and had to be bailed out on punitive terms, from which its banking industry has never recovered.

The German trade surplus has grown to the largest ever seen, sucking demand out its neighbours. Overall, far from accelerating, growth in the Eurozone has recently declined, and so has trade between the countries sharing the same money. Mrs Thatcher might have been unable to stop the launch of the Euro. Yet 30 years later we can surely see that she was completely right to view it as a disaster in the making – and one that would cripple the continent for a generation or more.
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