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The collapse of the euro can still be averted, according to Andrew Lilico, but only if some of the weakest members leave and the remaining countries take immediate steps to promote growth.
Speaking at Citywire's 2012 Montreux conference, Lilico, director of research bureau European Economics, said that a partial break-up is now a necessity. 'I don't believe that the Greeks can be in, and because the Greeks can't be in neither can the Cypriots,' he said.
The remaining countries then need to focus on raising the growth rates of the weaker members, particularly Portugal and Italy, Lilico said, so that they are able to service their own debts.
Proposals that would see economically prudent Northern European nations such as France and Germany assume the trillions of pounds worth of debt from the likes of Italy and Spain that was created before the euro was even created must be avoided, Lilco said.
He branded debt-pooling proposals 'monstrously unfair', and said the possibility of richer countries effectively bailing out the poorer ones is the main threat to the euro at present.
The current austerity drive in force throughout the region is doomed to fail, Lilico said. 'Austerity on the scale which is required for the eurozone at the moment can't possibly work, because for some of the member states the amount of the spending cuts involved... are completely beyond anything that's ever been achieved before in a developed country.'
If there's one lesson to be learnt from the crisis, Lilico said, it's don't be Ireland. The country's decision to jeopardise its credit rating and ability to borrow by bailing out its banks was 'about as crazy a thing to do at the level of fiscal policy as you can possibly imagine', he said.
Comments (48)
"He branded debt-pooling proposals 'monstrously unfair', and said the possibility of richer countries effectively bailing out the poorer ones is the main threat to the euro at present."
The VERY REASON why in the long term a single european currency was NEVER going to work.
Unless you are prepared to go DOWN to the level of your weakest partner it was never going to work, trouble is PRIDE forced them (France , Germany etc) to kid themselves that they could drag the ecomies of Ireland , Italy, Portugal, Greece and Spain etc UP to thier levels. NO HOPE!
14:10 on 15 May 2012
The Euro is an albatross/ millstone that must be got rid of by Europe putting aside the unattainable goal of political unity and leaving each country to self-develop along their own hsitorical paths. Peace is a tremendous aim but once France and Germany decided to continue again where the Second World War left off, it was always going to end in tears.
14:13 on 15 May 2012
We cannot and should not support a country full of people who expect to live on loans which they have clearly no wish to pay back!
Roll on the cheap Greek holidays, once again!
14:19 on 15 May 2012
Private banks purchased Greek government debt to take the interest payments. When it all started going pair shaped the ECB set up a separate account to provide funds to pay off the Greek debt direct to the private banks without even letting the Greeks get their hands on the debt. So we have another instance of socialism being used to save capitalism. The tax payer ends up taking the risk that the private banks supposedly took.
14:20 on 15 May 2012
It would be interesting to get a comment from say Kenneth Clarke,(Conservative Justice Secretary) or one of the many in the Liberal Democrat Party who argued the case for British membership of the Euro.
The BBC is also one of the guilty parties.For almost 10 years, our National Broadcaster peddled a remorsless barrage of propaganda,with the sole aim of to pushing Britain into one of the most ill conceived enterprises in the history of Europe.
Shame on them all.
14:41 on 15 May 2012
Right Jon
Socialism never did recognise accountability whether it be personal or sovereign.
It was always we're all in this together lads but, of course, the conscientious support the parasitic hangers on, as ever.
Same in Europe now.
14:44 on 15 May 2012
Socialism allegedly only save capitalism because the socialist wish it and to suit their vested interest. The rules of capitalism are quite simple and tend to follow nature and at times in its most brutal form.
Socialism is just wealth stealing by envy.
14:46 on 15 May 2012
Nothing wrong with the Euro concept but, of course, it needed a competent control & monitoring mechanism with review process to steer it and slap hands when member states start to display "iffy" economic parameters.
14:54 on 15 May 2012
A common currency without political union never worked any where. There is only one solvent country in the EU, Germany. The rest are basket cases and UK printing money is no different from Greece defaulting,
Let us not put on airs of superiority, we too are bust too and only our pretensions of ruling the world remain.
15:11 on 15 May 2012
A weak Euro is in the interest of Germany which has benefited enormously and lets be realistic the subsidies we are talking about wrt to the Southern partners is peanuts when compared to the trillions it cost to integrate Wets and East Germany. More to the point I believe is that there is nothing in the Euro Charter to cover a Euro break- up it was just not considered relevant so it was not drawn up. end of. Greece may well end up being thrown out if they don't tow the line to some extent but I would not be surprised to see some flexibility emerge from the Euro senior partners when dealng with the likes of Greece.
15:19 on 15 May 2012
Nice to see another post from Franco,even if the content was predictable.
No matter what the subject,the message is almost always the same.
15:37 on 15 May 2012
The lie being peddled around now by opposition parties to incumbent governments, and the UK Labour party is a prime example, is that there is a simple choice between growth or austerity. For the simple minded, this is a straightforward choice. However, the real and difficult quandary is how to get sustainable growth and balance the books in the long term. Apart from the known structural deficit, there is also the off-book public sector pensions black hole and the PFI debt. The country can not invest for the future while money is poured into these black holes. Politicians looking for a short term political gain can con the gullible into thinking that the deficit can be cleared without pain. Honest politicians, such as Alistair Darling, know that this is dangerous nonsense.
15:53 on 15 May 2012
The trouble with the European dream is political ego. As a young export salesman when the UK joined the EEC in 1973, I was (and still am) enthusiastic about free trade in Europe. But now the Euro-politicians have taken total control and everybody wants to be the first President of Europe. So to back down now and eject Greece, Ireland, Spain etc would mean an admission that the dream has failed and they will never become President. It's all about Euro-politicians not wishing to lose face. They just need to be honest and admit that monetary union does not work - and neither will political union.
16:17 on 15 May 2012
A single currency for a wide range of economys with different political systems. Yeh that will work fine.
16:23 on 15 May 2012
I don't see why Greece can't go bust AND retain the Euro.
Some recent examples:
- California, State of New York and Orange County all stayed within the $ zone
- Zimbabwe actually dollarised to stabilise the economy
Of course that would require Greece to balance its books. There's a novel thought!
18:08 on 15 May 2012
Lilico is trying to hide his mediocre performance at his job, by preaching his prejudices.
The EU is not doing any favours to Greece by imposing the harshest possible austerity on its people. It is Greece who is doing favour favour to the EU by trying to stay in and prevent losses to the German banks. She has the legal right to default any time she wants and to tell the EU what we have told it: We are doing what is good for our selves and you go take a jump. As for Cyprus having to leave the EU if Greece does, it is sheer racism. Cyprus finances are in better shape the EU average and those of the US as well...
18:18 on 15 May 2012
Ah I see the quality of the debate is as high as ever and it is good to see people thinking for themselves and not towing the line like the newspapers do
The problem with this currency union has been that the central government of the EU has no money to spend. In the States it all works very well and the govet=rnment there is forever baling out failing states in the unin, but then it collects taxes on a massive scale.
You might ask why should gvernments do this kind of thing at all, and instead they should not just let the failed and zombie banks go to the wall. Why should governments want to buy their toxic assets, incurring the most terrible debts, that are then to paid by collecting taxes of ordinary people like thou and me?
You may also wonder at why, in the course of a business cycle, if the government is there to smooth things out and spend when the private sector isn't and take on people when the private is firing the "socialist" phase of the political cycle) ; then why can't this government (the conservative phase) fix these holes in the roof when the sun is shining (ie austerity)?
At any rate, failures in this political system I would lay at the door of government, being part of a framework where the rich are protected from downside risk and can enrich themelves, where ordinary people take all the knocks.
18:55 on 15 May 2012
A successful Euro requires the following conditions:
- Greece should be able to go bust without bringing down the whole house of cards. That is not possible at the moment because 1) capital markets failed for ages to price Greek debt correctly (thanks in part to obfuscating tactics by the likes of GS) 2) Greek banks would also go bust and bring down Euro Banking system and 3) contagion (ie Greece is not the only problem).
- a strong redistribution of tax from core to periphery (such as we do with Scotland in the UK). This is not acceptable to the scale required in Europe to most free market thinkers.
- Euro governments to run fiscal policy in opposition to monetary policy. Thus when monetary conditions too loose (as now for Germany) they should run a v tight fiscal policy and redistribute the surpluses. In retrospect thats what Ireland and Spain should have done when their economies were overheating.
THE TROUBLE IS NONE OF THIS WILL HAPPEN IN THE REAL WORLD AND SO THE EURO WAS DOOMED FROM THE START.
19:14 on 15 May 2012
The european union is based on a well peddled socialist myth. We are all equal. And to protect this grandiose theory the founder members allowed totally incompetent governments and countries to become members and to get on the gravey train.Nudge nudge wink wink fiddle here fiddle there, dont pay taxes retire at 35 dont contribute to the system but take everything. They then created the next greatest myth the euro market area. A totally non competetive trading area freed from the real world of commerce. High wages low productivity and everyone living of service industries. Behind the scenes Germany and France are lending huge amounts of money to these new member states. By the time that Germany and France realise how much they are indebted to these other countries, it is too late. Last week on a business trip to a far east country this was the scenario. German, Japanese, Chinese owned factories employing millions of people in car manufacturing engineering and high quality industrial production. The factories have state of the art facilities and employ intelligent hard workin g peo[ple, who want to work and turn up to do so. Our guide was pleased to announce to us al that the government had raised the minimum wage to £6.00 per day. Our competition is the world and the sooner europe wakes up to tha the quicker we will have an economic recovery. The world does not owe anyone including Europe a free lunch. Work harder work longer, work for less bonus and pay, sell product cheaper with lower profit margin take down the barriers to trade.
19:18 on 15 May 2012
I bet no-one can remember to thank Norman Lamont for 'Black Wednesday' it might have cost a lot at the time but look what it's saved us from!
21:20 on 15 May 2012
If European politicians in the past had been honest there would never have been a EU in the first place. This is the year of reckoning for Greeks who have been living the high life ever since the political crooks there and in the EU included it in the race to create a political and commercial union as a barrier against the increasing influence of the U.S.A. in European affairs. The likes of Germany, France and the UK, each with its own share of criminal politicians and their representatives with their snouts in the EU gravy train for countless years, have spent billions of taxpayers money on politically biased EU projects without ever insisting on the books being properly audited.
Here in the UK Blair's PFI of building hospitals without their costs showing up in the audited budget will continue to be paid for even if they lie disused.
Blair's decision to take the UK into two wars( already lost) at the bidding of the leader of a foreign power has cost this country billions of pounds and hundreds of British lives , Then we have Gordon Brown , as a political sop to voters committing this country to two white elephant aircraft carriers costing £20bn ,with one being mothballed after completion in 2025. Most of the UK financial woes stems from 12 years of Labour governments spending money to keep the voters and benefits cheats happy, until the coffers were empty. Anyone in the UK today out of a job and wondering why, need only look back over the past 10 years when the wrting was already on the wall for all to see. Without austerity measures now,, we would end up like Greece is today -bankrupt.
07:47 on 16 May 2012
@ Graham,
Totally agree, the number of times a day I read the news and bang my head on my desk, as the majoirty of people dont understand the UK has no money, we are in debit, and the debit is rising!
Everyone talks about kick starting the economy? How without getting in even more debit? Each time getting closer and closer to bankrupting ourselves. Only way is cut and cut again, once some of debit has been repaid, we can borrow some of it back again to then kick start things (just not too much borrowing).
Greece is the thin side of the wedge, if they leave and stick 2 fingers up to their creditors, which other countries are going to follow?
08:46 on 16 May 2012
SG
How can we reduce our deficit when we have to borrow more to pay the bill for unemployment?
The more people unemployed, the higher the social benefit bill - that even a primary school child may understand but this government cannot because their ideology has always been to reduce the roll of the state, which I completely agree with but how do you get the message to people who have been informed that they will be cared for from the cradle to the grave that their sugar daddy the state is not able to assist with their lifestyle anymore?
We see an increase in spending on the NHS for items like IVF; our social care funding for looking after children abandoned to the state by both parents, our bill for looking after old people in hospitals because their is no care in the community - these are all ways in which the state has provided funding even if people were able to afford to pay for their care - we need to educate people that it is not government's duty (except to provide assistance in the short term) to provide funding for people's lifestyle choices.
The recent case of the father with 16 children (probably funded by the state) demonstrates how the state has taken over people's responsibility for their families - I do not know of any other country where single mums get paid by the state so that the father's are given the freedom to have children with whom they please. The CSA was never able to do the job of collecting monies due from father's who used as many loopholes allowed them as possible to reduce their income so that they paid as little as possible.
The society we live in allows men to get away with not fulfilling their responsibility & this is seen in nearly all other areas of our lives, starting out with those at the top - they too get subsidised by government in reduced corporation rates etc.
Governments & bankers caused the financial crisis. Governments bailed out the bankers who bank roll their supporters so they can get into government, so this is bound to happen time & again! Private sector benefits from profits & the state & public pay for the losses - that is how capitalism has been allowed to flourish with state interference.
09:50 on 16 May 2012
SG&RG
It's very simple - we cut the overheads as you would in any organisation!
Start squeezing the non-genuine parasites who bleed our well intended welfare state to death.
Stop paying out of tax revenue those who are taking 2 slices of the cake ie the early retirers who carry on doing the same or similar jobs in HMG, LA's and Quangos. Retired MoD staff who are now MP's etc!
Start getting MoD, Fire & Police service staff to carry on in training, audit roles etc after completing active service, instead of opting out of UK plc!
Start taking a much harder line with people who don't make their proper contribution to UK coffers.
Start penalising eg footballers' financial advisers for promoting tax dodges.
Start SHOUTING instead of wingeing! etc, etc
10:34 on 16 May 2012
Rose
I totally agree with your comments, I did think when I posted the comment I should have explained it better. The issue is the only way to get growth, is to make it cheaper for firms to do business, and for people to have more money to spend. To do this the only way is to reduce taxes. However we can not reduce taxes because our borrowing is too high and unstainable. The public sector needs to thinning out in the middle and at the top. However the people making are the decisions are the people that need to go! They are not going to do themselves out of a job, so front line staff is hammered instead.
Then there is the whole warefare issue to sort.
What I am saying once these cuts have been made, and money saved, our borrowing will become under control, once that happens and we have reduced it, we will then be able to borrow a little more (still within a reasonable level) this will allow the government some breathing room to lower taxes. Once this happens the economy can pick up. When I say borrow, I dont mean borrow like the labour governement did, I mean strategic affordable borrowing. Once the economy picks up this will then drive down the borrowing, then you do the same again borrow a little bit which would be less then last time, decrease taxs increase production further. This is not a quick fix and each cycle will take 3 to 5 years.
With regards to Philmo comments about retiring, i totally agree, if you can no longer do your job, you change jobs just like everyone else. Be this a completely new carear or a new role!
Tax avoidence and dodging needs to be rulled out, so no one can get out of paying tax.
But this is going to take years to fix and a lot of joe public dont understand this!!
10:45 on 16 May 2012
Seriously, I simply don't understang how a basketcase small country like Greece can screw up the world economy or was even allowed to join in the first place.
No checks and balances carried out there obviously.
I've often stated my opinion that I would not wish to join a "club" with a bunch of losers, and Europe and the Euro represent exactly that - a disparate group of countries which was destined to fail once we veered away from the original group of free trading nations with thyeir own currencies.
I'm sure the europhiles out there will be quick to knock me down, but I strongly feel that the europolitical elite are on an ego trip on a gravy train which, if not already, will soon hit the buffers.
Nevertheless, I am always open to education on the issue, and would really appreciate advice (come on Ken Clarke!) on how UKPLC has benefitted in any way from being part of the "European" experiment, and how we have lost out (in any way) from not adopting the common currency.
Please, however, do not respond by claiming that had the UK not joined "Europe" things would have been worse - I would only laugh.
11:10 on 16 May 2012
We were not allowed a referendum on joining the EU because those who are benefiting from the EU (mainly MEPs) & the heads of the organisation.
It is mostly bureacratic, takes upon itself roles it was never designed to take on & the list is endless - it is similar to expecting us to pay for our politicians to get their gold plated pots of money to take home for making us the most poor but 100 x worse.
If I were given the choice, I can firmly say no to the EU - how can nations who murdered each other believe that they can get on with each other if they share the same currency?
The Germans may have seen the light & determined that everybody has equal rights (which I do not believe they actually do) but they are the ones who are in charge & together with their previous enemy (France)are happy to take credit for their ability to dictate to other nations - the only thing that has changed from the previous WWs is that they are not using the guns or the concentration camps but other financial restraints to get the nations who signed up for the EU to do their will - they may have lost the last world war but are not doing too badly!
11:41 on 16 May 2012
RG
Agree your first three paras.
The Germans are banging the drum because they are the largest Euro shareholder by far and their holding is under threat! Nothing to do with history or national differences!
Also haven't you noticed that all the weak euro-economies have a Mediterranean coast? The climate is simply not conducive to good work ethic - has always been the case according to my recent ancestors!
All the euro-countries with good work ethic have Baltic coast.
UK and the Benelux waver in the middle! The landlocked euro-countries vary.
It's my belief that the socialists are largely reponsible for degradation of work-ethic in this country!
12:54 on 16 May 2012
For far too long the UK has been punching way above its international political weight as the result of its long standing nuclear capability ad associated membership of the 5 member Security Council Given the dire financial straits this country will face for 10 years plus, the next Strategic Defence Review- 2015), will need to base future defence policies on what we can afford, the two aircraft carriers are classic examples of what we cannot afford and more over, do not need, but cannot cancel, thanks to the way Gordon Brown arranged the contracts To that end, I would include, the phasing out of our current nuclear deterrent submarine force, whilst maintaining if not increasing our attack submarine force armed with nuclear cruise missiles and torpedoes. A hugely controversial proposal I know, but I think a workable one. Whether the USA would have a veto on that proposal I do not know.
13:07 on 16 May 2012
Philmo
To some extent I would agree that the countries with Mediterranean coast do have a more relaxed attitude to work - they have good weather & enjoy it whereas in the colder countries, people concentrate on doing their job because of the atrocious weather outside!
When countries with such disparate attitudes to work & money making, how on earth can we expect one currency to work for all - it works for Germany because we know that vorsprung durk technique!
Just look at all the IT systems Siemens has been awarded contracts for in UK hospitals - Radiology voice recognition amongst the others - where are our IT innovations? & how many of our IT or other services would the Germans buy?
We recently travelled through Spain on our way to South AFrica & vowed never to ever go to mainland Spain ever again - most of the workers we spoke to went no Anglais, so we had noway to find our way out from their satellite terminal except by our own ingenuity, to find the coach to take us to our hotel for the night, seeing as the baggage handlers were on strike & our plane was still in SA.
On the plane to SA from Madrid, we had the oldest cabin crew ever seen in my history, who had absolutely no intention of providing any service.
The Spaniards do have the motto of manyana, why do something today, when it can be done tomorrow (my own translation)! They also have siesta which I think is quite cool.
The terminal building was of the finest quality, but the customer service was nil rated. The decor of the building & architectectural delights many, but the numbers using the terminal did not justify the expense of this huge building - somehow the Spaniards are in love with building, building, building, even desecrating their coastline, just to accommodate the sunseekers going there, I expect, but what a shame, coastlines of huge hotel complexes, when natural coastlines, like the Welsh coast are so beautiful in their natural state!
Over in Ireland huge numbers of building projects lie idle & in ruins from not being completed - why on earth is it so important to compete with other nations to destroy some of the most beautiful landscapes? I understand that there is a need for some growth in the economy, but economic growth to the extreme results in poorer conditions for those who live in the areas, higher prices for housing etc, so it makes little sense to destroy landscapes just for more profit.
13:34 on 16 May 2012
Could somebody explain, once the deficits are gone and all the debt has been paid off were will the money come from it will all be gone, don't get all this at all.
11:05 on 19 May 2012
Georoy, money never disappears. When you buy something the money goes to the person you bought the stuff from. So they have the money. It can never disappear, unless you burn it or flush it down the lavatory. Also, central banks are always printing lots more money which is why we always have inflation.
11:25 on 19 May 2012
Money never disappears once it has been issued (unless someone burns/destroys it) it merely exchanges hands.
11:54 on 19 May 2012
I'm puzzled - where does the ECB get all its trillions from to bail out countries, banks etc?
Yours naively ...
12:29 on 19 May 2012
Jonathan
Yes but, at the moment paying down the debt is costing me extra on VAT, fuel, drink, everything and it's hardly made a dent if we pay it all down I'll have nothing left AND who get all my money that's being used to pay down this debt?
14:13 on 19 May 2012
It is all a giant Ponzi scheme and will end in tears for most of us
16:19 on 19 May 2012
We're in the unfortunate spot of having very high cost push inflation as well as the dilution of money due to QE. Oh and lets not forget increased indirect taxes on inelastic products and also increased vat to stay on top of our interest payments and marginally reduce the debt we are in.
And people wonder why the economy is stagnant?
I have no idea who gets the debt payments...i believe it goes to holders of gilts. So basically either companies/countries
16:20 on 19 May 2012
Powerful Pierre, creating money or printing money is something that only central banks are allowed to do. They do it by just printing bank notes or more normally just creating it electronically. This is then used to by stuff. At the moment they are having a heyday with QE buying government debt. This has the effect of reducing the yield on bonds and hence reducing interest rates and also creating high inflation through monetary inflation.
see this: http://www.investopedia.com/video/play/monetary-inflation
16:49 on 19 May 2012
If central banks are the ones who only produce money were did RBS get money to the value of two and half times the GDP of the UK? Nobody would lend RBS that amount of money not even the Bank of England it must have created it off its own balance sheet just as the central banks do.
17:29 on 19 May 2012
Georoy, There is also something called fractional reserve banking. This is when the money you deposit in a bank is then used to lend to someone else the money that is lent to someone else is then used to purchase something which the seller will then put in the bank and the bank will then lend out to someone else etc etc... The overall effect is that there is a lot more money deposited and lent out than actually exists.
19:01 on 19 May 2012
Jonathan
Thank you for that, I think I sort of understand, sounds dodgey though using money that does not exist.
20:24 on 19 May 2012
Powerful Pierre
This might answer your question, there are two sides to any coin, and debt is no different , winners and losers, the losers being those who had money in current accounts that bankers used for dodgy speculation on funding for spiked housing prices.
Remove the interest that goes into the pockets of private wealth, that is generated by banks on money printed from thin air and most countries would be able to cope with their levels of public spending.
http://www.positivemoney.org.uk/2012/05/12-year-old-girl-about-money/
06:11 on 20 May 2012
If Greece cannot form a government after the elections on the 17/6, then there wlll be no democratically elected body who can take responsibility for honouring the austerity agreement signed with Germany and others, or for that matter any new agreement.
07:13 on 20 May 2012
GDC
Don't need politicians to achieve that!
Just need an honest administration with balls, which clearly they don't have - exemplified by their current situation!
09:03 on 20 May 2012
Philmo
If you are going to have an unelected group of individuals form a administration, who is going to decide which ones are honest? The current caretaker administration has no power to decide anything. One might as well bring in the people who laid down the austerity measures in the first place, to govern the country.
07:17 on 21 May 2012
GDC
It's precisely that sort of indecisive wooly perspective which creates the handsitting/cover my ar*e administration, far too many of which we see in our own country, let alone around the Med.
What I was trying to get over is that all it takes is someone at the head with the courage of his convictions and doesn't have to refer to politicians at every turn. Of course he has to be given that mandate and would need authority to mould an honest administration from the current one.
Re-instating the previous government might be good provided they can get the backing of the soft living corrupt populous. Can't see that happening any time soon.
09:48 on 21 May 2012
philmo
You are advocating the impossible in a democracy.where administrations/governments rule by consensus. Only dictators don't have to refer to politicians at every turn; they simply create their own mandate with a like minded bunch of henchmen ready to crush any dissenting voices. No EU member country is going to prop up an economy run by a dictator, who is no more lithe nations debts that the democratically elected government leading an equally crooked population who do not pay their taxes and defraud the taxpayers of the EU(another unelected criminal organisation) by claiming millions in subsidies for non existent olive groves.
What we really want is a self imposed honest dictator ruling the EU, who can carry out suitable punishment for all types of serious transgressions including racial and religious intolerance, beating up a 91 year old lady as she lay in her bed in the middle of the night, drunken thugs who think nothing of glassing a drinker minding his/her own business in a pub,, drug and sex traffickers. rapists, vandals, thieves, paedophiles, murderers cruelty to animals, murders, Find me that person and I will vote for them.
10:50 on 21 May 2012
GDC
Nothing's impossible, though it would be v difficult.
Clearly we have much common ground.
Honesty and self discipline are most definitely key. Oh and control of greed!
12:17 on 21 May 2012
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