01 June 2011

IPE: ‘Thinking the unthinkable’ – an important contribution to the euro debate by Graham Bishop

Writing for IPE, Christopher Walker says that the ‘Anglo-Saxon high priests of finance’ have been universally critical and ‘frankly ridiculed’ the euro’s chances of survival. And yet the euro not only refuses to die, but goes from strength to strength against the dollar.

Enter the economist Graham Bishop. An independent thinker whose pedigree encompasses Phillips & Drew, Warburg’s and Solomon’s, he is particularly qualified to opine on this subject, having advised the European Commission, the European parliament and the UK Treasury. In his weighty pamphlet, Bishop chooses to think the unthinkable. The recent economic crisis has forced the creation of a financial framework that doesn’t just strengthen the currency’s fortunes, but makes likely “a volcanic eruption…. from which a loose political federation called ‘Eurozone’ may well crystalise”.

 

Bishop forensically examines progress towards the single market for financial services, and concludes that irreversible achievements have been made. The first of these, the creation of SEPA (the single euro payments area) is the most important in sealing the impossibility of a euro break-up; some 32 European countries now participate in SEPA, 4,400 banks have joined the credit transfer scheme, and 3,000 are in the direct debit scheme. By the end of 2012 all credit transfers, and by the end of 2013 all direct debits, will take place via SEPA.

 

This entanglement of each European banking system with the others makes euro breakup unthinkable, Bishop argues, and reinforces the magnificent fait accompli of the introduction of the single currency itself.

 

Bishop contends that a crucial shift took place last September, when “macro-economic surveillance was added to the stability and growth pact”. It constitutes “a huge step towards a more collective form of economic governance”, where ‘examination’ by the commission “will flow into every aspect of a state’s economic life if imbalances begin to appear”.

 

And imbalances will appear. Bishop argues that crisis after crisis will unfold as the weaker bond issuers are deserted, justifying further collective European intervention in the economic affairs of individual countries. “At the end of the crisis, Eurozone will have emerged as a political federation – loose in some respects, but with tightly centralised economic governance at its heart. The proven commitment to fiscal probity may even make it attractive relative to alternative investments around the world.”

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Click for details and to purchase Graham's book mentioned in this article: 'The EU Fiscal Crisis: Forcing Eurozone Political Union in 2011?'

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