The Eurozone Crisis - A British Perspective

It all sounds a bit complicated, doesn't it? There's a lot of money floating around. The trouble is, everyone owes it to everyone else. Some of the economies on mainland Europe are in big trouble, with colossal debts, especially Greece. The taxpayers of wealthier economies have a big problem with helping out debt-ridden economies, again and again. And it's been rumbling on for ages.

For me, the Eurozone crisis is very simple. Fixed exchange rates don't work, and the ultimate in fixing your exchange rate is to have the same money as someone else, it's one unit of your money to one unit of theirs.

Historically, fixed exchange rate systems have never worked, even when rates are fixed within limits. Look at the Gold Standard of the 1920's and 30's. Look at the Bretton Woods system, in the post-war period. Look at 'the snake', in the 1970's.

Eventually, they all fell apart. They were introduced in the interests of creating economic stability, but couldn't be maintained, despite rescue efforts, because a significant disparity will eventually arise in the performance of one or more of the economies involved, against the others.

Does that sound like a familiar story to you, based on news coverage from the recent past? Just ask yourself a question. If you loaned a lot of money to a friend, and discovered they couldn't pay you back, would you lend them money again? And if you did lend them a lot of money for a second time, and they couldn't pay you back, would you do it on a third occasion?

You wouldn't, would you? If you did, you would be very unwise. Eventually, the friend walks away, and is forced to go it alone, after running out of people who are willing to chase a lost cause. And the money is gone.

Eventually, the Eurozone will break up, in monetary terms. The Euro was launched in pursuance of the dream of a united Europe. From a British perspective, thank goodness we stayed away from a united currency, and I do admire David Cameron's stance on no more bailouts. His stance is also correct on Britain's membership of the EU, and the proposed referendum. It would be insanity for Britain to pull out, it's about the advantages of open trade, not the money you use.

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