Eurozone doomed whether Greece leaves or stays, study shows
The single currency is forcing its members further apart and cannot survive in its current form, new analysis shows
The Eurozone is doomed and cannot survive in its current form, regardless of what happens to Greece, a major new study shows.
New research demonstrates that members of the single European currency are becoming more economically divergent, making a single rate of interest increasingly unsuitable for the bloc.
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Political, social and cultural differences will also make it increasingly hard for the euro members to share a currency. Eventually, the Eurozone will have to either “integrate or disintegrate”, the analysis says.
The research, by economic consultants from the ECU Group, is part of Change, or Go, a wide-ranging study of Britain’s European Union membership and future prospects.
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Ipsos MORIThe study is being serialised in The Telegraph at the start of a potentially decisive week for the EU and its currency, with Greece once again facing a potential exit from the Eurozone.
However, the report concludes that whether or not Greece is forced out of the single currency, the Eurozone will still face deep-seated problems that must be resolved by either breaking up or full-blown political integration.
When the single currency was created in 1999, its advocates argued that common economic rules would help its members converge economically, making a single rate of interest more and more suitable to all.
However, analysis by the ECU Group for the Change or Go report shows that the opposite has happened: the countries using the euro have diverged economically, experiencing shifts in supply and demand at different times and under different circumstances.
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While many of the countries that joined the Euro were indeed converging before 1999, the study suggests, they began to diverge afterwards. By some measures, the Eurozone economies are now more divergent than at any time since 1982.
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That, the report says, raises doubts about the viability of the Eurozone in its current form. A single interest rate will be increasingly unsuitable for members, amplifying downturns in weaker members and over-stimulating demand in stronger economies.
The report concludes that the fundamental imbalances in the Eurozone will be more significant in deciding its fate than what happens to Greece.
“The real political crisis will arise when Eurozone leaders are forced to confront the dilemma of the single currency’s inflexibility: integrate or disintegrate. What has happened in Greece is one example of how the situation in Europe is degenerating. No one should believe that Greece will be the only member country that struggles to remain in the Eurozone,” the report says.
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The study also highlights persistent structural differences between the Eurozone member countries, identifying big variations not just in economic behaviour but social habits and political policies.
For example, the report cites lower savings rates in Portugal and Greece, for example, compared to Finland and the Netherlands.
Separate education, research and technology indicators also show significant divergence between the 11 Eurozone countries examined.
For example, Finland, Austria and Germany all show significantly higher scores for educational attainment and research and development expenditure as a percentage of GDP than countries such as Italy, Spain, Portugal and Greece.
Political differences including how closely governments adhere to their own rules also widen the gap between Eurozone members, the report says. On the rule of law, levels of corruption and the quality of domestic regulation, northern European countries such as Germany, Finland and the Netherlands scored significantly better than southern European countries.
Such differences will make it harder for the Eurozone to make the changes that would be needed to make the single currency sustainable, the analysts suggest.
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They also suggest that the questions facing the single currency will also raise doubts about the future of the EU as a whole.
It adds: “If the present Eurozone is diverging and has become unstable, it raises questions not just about the viability of enlargement for the Eurozone, but also about the durability of the wider EU itself. Once the Eurozone reaches a point where it must either integrate or disintegrate, then either outcome will have profoundly destabilising consequences for the EU as it is presently constructed.”
The editorial board that oversaw the report was chaired by Jon Moynihan, the former executive chairman at PA Consulting Group. Other members include Andrew Allum of LEK Consulting, Luke Johnson, a leading venture capitalist, and Helena Morrissey, one of the City’s most prominent fund managers.
The document is published by Business for Britain, a campaign group seeking radical changes in Britain’s relationship with the EU. Telegraph Media Group, which owns the Daily Telegraph, helped fund the project.