The euro is currently under intense scrutiny. Why? Because the reputation of the single currency – originally based largely on that of the Bundesbank for its (relatively) sound money policy – is under threat, alongside that of the EU’s Stability and Growth Pact (SGP).
The most recent danger has come from the near-certainty that Greece will be bailed out by the EU, despite its fudging of the books for its adoption of the euro and its blatant disregard of the SGP ever since, where it is not alone.
Last month, the basic issue was well put by Liam Halligan in the Sunday Telegraph:
“How can you enforce collective fiscal discipline in a currency union of individual sovereign states, each answerable to its own electorate? The truthful answer is that you can’t – not unless you subjugate the autonomy of democratically elected politicians and, by proxy, their voters.”
Most recently, this question has been tested in Iceland, whose voters gave a resounding no to the idea that the criminal carelessness of many UK local authorities in putting money in Icesave should be made good by the ordinary people of Iceland. (Were the UK in the same situation, there would have been no similar referendum; such is the power of the UK government’s executive which permits breathtaking theft from its people for whatever purpose it likes.)
In fact, the UK may well be in a similar situation in that it will surely get caught up in bailouts for Greece and others (PIGS can’t fly!), even though it is not part of the eurozone. More generally, the importance of fiscal policy to monetary union suggests that members of the eurozone will eventually become part of a de facto single state unless they abandon the single currency.