THE FUTURE OF THE EUROZONE: LORD KING'S PREDICTION

Mervyn King, the former governor of the Bank of England, predicts the collapse of the eurozone in a book published this week, going further than his well-known private scepticism for the European single currency. In extracts from The end of alchemy: banking, the global economy and the future of money, he says the burden of debts between nations in the eurozone “may become too great to remain consistent with political stability”. Highlighting the need for the eurozone to integrate more fully, including significant debt write-offs, he says the process will probably exceed the willingness of the European people to bailout other countries. “Monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other. This is extraordinarily dangerous,” the former governor says. Lord King has expressed similar views before and railed against the requirement, only for debtor nations to adjust policies while in office. In 2013 he told the FT that the requirements on Greece and other eurozone periphery countries were best described as hell. “Instead of mere hell, it’s real hell,” he said. Coming to the end of his 10 years in office, the then governor said it was “astonishing” that eurozone authorities had not realised the bloc needed higher inflation in Germany, permanent transfers from countries such as Germany to nations such as Greece, or to break up. At the time he said: “I don’t know what the right answer is”, a view he has toughened in his book to say that attempts to find a middle way, in which Greece is offered concessional loans on lax terms by the rest of the eurozone, will not work. “The attempt to find a middle course is not working. One day, German voters may rebel against the losses imposed on them by the need to support their weaker brethren, and undoubtedly the easiest way to divide the euro area would be for Germany itself to exit,” Lord King says.

Chris Giles, "Former BoE chief King predicts collapse of the Eurozone". The Financial Times. 29 February 2016, in www.ft.com

One does not have to be either very pessimistic nor very anti-EU in order to readily agree with the prediction set-out in the former Head of the Bank of England, Lord King's just released book. One simply has to recognize the fact that: the single currency has singularly failed to do what it was originally set-up to do: improve Europe's competitiveness and strengthen its economic performance. Au contraire! The very opposite has in fact occurred. At least based upon the overall performance of the Eurozone countries from the base year of 2000 to the present. With both the United Kingdom and the United States easily outpacing the Eurozone in terms of economic growth as well as jobs growth. And as Lord King notes(among many others and for a good number of years now going back to 2008-2009), the single currency has for most of its members, especially its southern core, turned into the economic equivalent of a straitjacket: making the possibility of countries such as Greece, Spain, Portugal and Italy being able to depreciate their way out of stagnation (if not worse or much worse in the case of Greece) impossible. With Brunning-like austerity seemingly being the only mooted means of over-coming the current depressed conditions in these wretched countries. Au fond, Lord King is of course correct in stating that:

"If the alternative is crushing austerity, continuing mass unemployment, and no end in sight to the burden of debt, then leaving the euro area may be the only way to plot a route back to economic growth and full employment. The long-term benefits outweigh the short-term costs."