How Gordon Brown saved the Euro

Poor old Gordon Brown; six months ago he was Prime Minister and sometime saviour of the world. Today, he is reduced to writing op ed articles in the FT.

Sadly, there is no link to Gordon's thoughts. The FT operates an impenetrable pay-wall. However, his article can be summarized in two short sentences. First, he was against Britain's participation in the Euro. Second, it is in no one's interest if the euro should collapse.

His second point is certainly debatable. For example, Ireland may well be better off if the Euro were to disintegrate.

On the first point, Gordon is almost certainly telling the truth and he has the track record to prove it. More than anyone else, he deserves the credit for keeping the UK out of the single currency. 

In 1997, He cleverly created those "five economic tests", which provided a technocratic barrier that the Euro-capitulators could never overcome.  That Brown-inspired nonsense was sufficient to keep the UK from the clutches of the ECB and monetary disaster.

Consider, for a moment, the counterfactual. Suppose that Gordon had been unable to persuade Blair, Mandelson and the other Europhiles from bringing the Euro to these fair shores. Suppose Britain had adopted the Euro in 1999 - what would have then happened?

The first 10 years of the Euro were marked by unreasonably low interest rates, which generated massive housing bubbles in the eurozone periphery such as Ireland, Spain, Greece and Portugal. The UK would have suffered a similar fate, which would have made the bubble we did have, look like a minor blip. With exchange rate risk eliminated,  a tidal wave of capital inflows would have drowned our banks.

With cash pouring into the UK, and no independent central bank to hold back the flood, our  reckless and largely unsupervised banks would have gone mad.  They would have given out credits to anyone warm enough to hold a biro in their hand and sign a loan application. House prices would have hit the stratosphere and when it would have all ended, the UK banking system would have crashed as if it were the day before Armageddon.

Bailing out Ireland and Greece is one thing, but covering up the losses of a Euro-driven British housing bubble would have been impossible for EU.  An exit from the Euro would have been the only sensible thing to do. As soon as any sensible government were elected, they would have pulled out immediately. This would have provided the necessary cover for Greece, Ireland, Spain, Portugal, and Italy to leave as well.

By keeping the UK out of the Euro, Gordon gave the single currency a chance of survival.  Keeping the pound was definitely good for Britain and its capacity to absorb the shock of the financial crisis.  But it was also good for the Eurozone. 

Today, there is no one in the UK who would seriously argue that Britain should join the Euro.  Even those Euro-fanatical Lib-Dems have quietly dropped their support for the single currency.  If there were a referendum today, only Peter Mandelson and his Brazilian man-wife would vote yes to Euro membership.

So well done Gordon.  Good call. It is pity that the rest of your time in office wasn't marked by such wisdom and foresight.