Monday 4 July 2011

Hate to say we told you so...

As someone who favours greater European integration (for example, taking down trade barriers and maximising freedom of movement), but thought the single currency was a disaster waiting to happen, it was quite satisfying to read this column piece by Mary Ann Sieghart in The Independent. It emphasises the economic illiteracy of fiscal union without political union, or as I like to style it, the Frankfurt arm without either the Strasbourg or Brussels arms of Europe. As long as countries have no control over their interest rates, but continue to have debt attributed to them and conduct socio-economic policy through their national governments, monetary union simply doesn't work. The disparity in economic structures would always lead to an artificial boom, a huge bust, and bailouts which throw good money after bad.

I'm probably in a minority of my own party on this issue, but unfortunately a lot of Lib Dems hold the Keynesian responses to crises in higher regard than my own Austrian perspective. For me even the British situation shows us the huge limitations of central banking and supports the assertion that simply boosting aggregate demand does not make an economy any stronger. The bigger the scale of central banking, the poorer the cost of borrowing reflects the real risk.

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