Why is Europe in this mess?

First monetary union, as implemented without political union, was a reckless gamble:

- single interest rate

- single exchange rate

- single inflation target

was meant to cement together 17 countries with utterly different economic performance!

Single interest rate

Some countries found that the cost of borrowing fell even when there was the risk of the economy overheating, but could do nothing about it. E.g Ireland when the 2009 boom was driven by reckless lending of banks.

Single exchange rate

Italy, Greece, Spain, Portugal, etc found that they could not match Germany's efficiency, and over time their exports became less and less competitive.

No way to deal with problems

The euro had no way to deal with different country's performance. There are three ways countries could handle this…

1 Unemployed workers move to where there are jobs. But language barriers and housing/social problems prevent this in Europe

2 Money can move to where the unemployed workers are. But sovereign states with no federal control didn't do this.

3 Workers take pay cuts until the goods they produce become competitive.

So number 3 was the only way out, and you can see the problems this is causing in cuts in living standards across Europe. Even UK is not unaffected.

Issues

Europe has no finance minister with tax and spending powers to move resources around. It needs to change the political and institutional structures towards a fiscal union. UK fears this as it would be on the outside… Also voters do not want this, but contradictorily they do not want the euro breakup.

So the policy makers have wasted 4 years kicking the can down the road.

Long term?

There are 27 members in the EU. Long term the only solution is for them ALL to adopt a common currency and have a common fiscal policy. Like the USA. History shows that monetary unions either develop into political unions or they collapse.

We have a fledgling European parliament, now is the time to focus on this at the expense of local parliaments. In UK Westminster HAS to turn its attention to Strasburg, and get more involved, even conceding more powers, quite the opposite of the current political feelings.

So what I advocate is a merger of the people in politics, the same people should be elected by us and sit in both Westminster AND Strasburg to develop a EU-wide governance.