On Thursday night I took part in a Spectator debate. The motion: Britain’s future lies outside Europe. You’ll not be surprised that I was speaking for (with Nigel Farage and economist Prof Patrick Minford) rather than against (with Valery Giscard D’Estaing; Richard Ottaway MP and Steve Richards, the Independent journalist).
The most interesting part of the evening was the dinner afterwards, when the unstoppable force of Farage met the immovable object of Giscard. Giscard – architect of the European Constitution, later renamed the Lisbon Treaty so as not to give the game away – was adamant that the Euro had been a huge success and poured scorn on all those of us, me included, who had imagined last year that the whole shebang was going to collapse in an Armageddon of rioting and capital controls and hyperinflation.
Give it time, was Farage’s response. He drew everyone’s attention to TARGET2– a glitch of which hardly anyone around the table, not even the well-informed Fraser Nelson and Andrew Neil, was aware but which does explain an awful lot.
Put very, very simply, it has to do with the clearing process within the Eurozone banking system. It’s complicated. I’m not even going to try to explain it here, not even after a conversation with John Whittaker, the former UKIP MEP turned Professor of Economics at Lancaster University, who’s the greatest expert on the subject. You’ll find an introduction to TARGET2 – plus links to his papers here.
Instead let’s just cut to the chase and explain why it matters. Under TARGET2, Germany is liable for many of the debts of the Eurozone periphery. If they actually leave the Eurozone, Germany will have to fork out billions. For Greece alone it is liable for 27 per cent of a debt of around Euros 100 billion. If you include Spain, Italy and Portugal follow Germany will be stung for getting on for Euros 1 trillion.
This is why you don’t hear Angela Merkel threatening very often these days that if Greece doesn’t behave itself she’ll chuck it out of the Eurozone. Germany would be the bigger loser.
So what’s going to happen, I asked Professor Whittaker. He didn’t particularly want to look into his crystal ball, but he reckoned that this whole wretched business is going to crawl along, unresolved, for much, much longer yet. Worse, he fears that such is the complacency which has arisen from the Eurozone’s surprise failure to implode last year, that there will be a certain loosening in the austerity programme in order to prevent civil unrest in countries like Greece and Spain.
Not only is the can being kicked further down the road, then. But more high explosives are being inserted into that can so that when it does finally go off it won’t just take the kicker’s leg off but emasculate, eviscerate and decapitate him, just like one of those Bouncing Betty mines they had in the ‘Nam.
Ah. Happy Days. Don’t you feel glad to be living in the here and now rather than in a more stable, peaceful, anxiety-free era, like maybe Europe in the 1340s just as the Black Death was starting to make itself known…