PIGS CAN EVEN SWIM IN A GLASS OF WATER

Commentators are speculating that the eurogulf will fall apart.

The economies of the PIGS countries (Portugal, Italy, Greece, Spain) would no longer be able to fly with the euro.

On 13 May 2008, Professor Andrew Clare of City University, in a research note for Fathom Consulting, entitled Pigs Might Fly, said that the economic evidence that he had at that moment suggested that the ‘one-size-fits-all’ approach to monetary policy has benefited some economies and punished others. (Last Saturday, the note was still available on the web. Google couldn’t find it for me this Tuesday morning.)

This led David Smith to argue on 25 May 2008 in the London Sunday Times that the Pigs might fly from euroland. (1, links do no longer work)

A “Pigs in muck” Lex-column in the 01 September 2008 Financial Times argues that in the early 1990s when it was shackled to Europe’s exchange rate mechanism, Britain was facing problems similar to the problems the Pigs are now facing and that by withdrawing sterling from the ERM and devaluating sterling, Britain saved its sausage. The column was therefore wondering if the Pigs, as part of the euro, risk turning into bacon. (2)

Have ‘our’ commentators  forgotten that on 9 May 2002, the late Wim Duisenberg, President of the European Central Bank, said in his acceptance speech of the International Charlemagne Prize of Aachen for 2002 that the euro is the first currency to have not only severed its link to gold but also its link to the nation state? (3)

Maybe the nation states came before the euro. But since the day that the euro has been established, the nation states do no longer matter for European Monetary Union policy.

It is true that one of the corner stones of the Eurozone’s birth was a pre-launch convergence in fiscal positions and a pre-launch commitment to ongoing fiscal prudence. But as Duisenberg also said in his Charlemagne speech, because money is an economic instrument for each of its users, it is also a political and cultural bond between them.

Does this political and cultural bond not equal and thus replace convergence?

Contrast this to the Common Agricultural Policy of what was originally called the EEC.

In the early nineteen-sixties, the first EEC agriculture commissioner, Sicco Mansholt, intended the CAP to be a tool for achieving … convergence. But without a common currency, Mansholt’s common-pricing policy was of course impossible. (The EEC Treaty did not, and the EC Treaty does not, mandate a common-pricing policy.)

The currency, not the mad-pig disease, should come first.

What will the Bank of England’s monetary policy committee decide this week?

The dollar is getting stronger as it is inflating. This is causing a storm in the glass of water of the euro-dollar exchange rate. This should slow the pace at which the Bank of England can lower rates to head off the looming recession.

The chancellor of the exchequer rejoiced in 1992 when George Soros forced Britain to leave the ERM.

Why could his successor not rejoice in the fact that the present storm in a glass of water is forcing Britain to leave the dollar regime and switch to Honest Money, instead of riding to the rescue of economic growth?

He’s thinking the Pigs cannot swim?

When British Prime Minister Edward Heath visited French President Georges Pompidou, he was told that Britain had to sever its link to (its cheap food imports from) the Commonwealth and embrace the CAP before France could lift de Gaulle’s veto against Britain joining the EEC. (4)

The euro came first as the currency having severed not only its link to gold, but also its link to the nation state.

Hans Redeker, from the London office of BNP Paribas, is being quoted this Tuesday morning by the Financial Times as saying that the Bank of England is unlikely to deliver a cut at its policy meeting on Thursday. (5)

Is this the first step towards … nirvana?

Ivo Cerckel

ivocerckel AT siquijor DOT ws

NOTES

(1)
Pigs might fly from euroland
05-25-2008
David Smith  www.economicsuk.com
http://www.propertyinvesting.net/cgi-script/csNews/csNews.cgi?database=default.db11840&command=viewonex
http://www.economicsuk.com/blog/2008_05.html

(2)
Pigs in muck
Published: August 31 2008 19:35 | Last updated: September 1 2008 09:09
http://www.ft.com/cms/s/1/5faf0b0a-778a-11dd-be24-0000779fd18c.html

(3)
International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002.
http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

(4)
Richard Cottrell, “The Sacred Cow – The Folly of Europe’s Food Mountains”, London, Grafton books, 1987, p. 42

(5)
Sterling drops to record low against euro
By Peter Garnham and George Parker in London
Published: September 1 2008 10:40 | Last updated: September 1 2008 22:04
http://www.ft.com/cms/s/0/75677c7c-7805-11dd-acc3-0000779fd18c.html
SNIPS
The pound dropped to a record low against the euro on Monday, as money markets digested warnings from [chancellor of the exchequer] Alistair Darling that the economic times the UK faces “are arguably the worst they’ve been in 60 years”.
+
Hans Redeker, at BNP Paribas, said that with the government unable to deliver a fiscal stimulus, monetary policy would have to bear the main burden of the reviving the UK economy.
He said that since domestic inflation rates were above the Bank of England’s 2 per cent target and still rising, the central bank would cut rates only reluctantly and was unlikely to deliver a cut at its policy meeting on Thursday.
“Accordingly, the exchange rate will have to bear the burden of monetary policy adjustment,” said Mr Redeker. “Sterling will remain under pressure.”