Margaret Thatcher Iron Lady
Image from Britain’s Iron Lady, Former Prime Minister Thatcher, Dies April 8, 2013.
Visionary Speech of Thatcher
Please consider the remarkable visionary speech of Margaret Thatcher to CNN World Economic Development Conference.
Thatcher spoke of the failure of the ERM, the Exchange Rate Mechanism, a predecessor to the Euro, then warned about the Euro.
The ERM required the British Pound to trade at a certain level. George Soros made a billion pounds betting against the ERM in a correct bet that the British Pound was overvalued.
The debacle is known as “Black Wednesday“.
At the conference, just three days following Black Wednesday, Thatcher admitted her mistake in joining the ERM, then with prophetic vision, correctly predicted a sequence of events regarding the Eurozone.
Black Wednesday and Admission of Error Speech Snips
The stability which fixed rates offered was a false one. It prevented currencies for adjusting gradually to market realities, and in the end it produced wild swings of instability. There’s nothing new about fixed exchange rates collapsing. What might be new is to finally learn the lesson that fixed rates don’t — and can’t — work in free markets.
It may be embarrassing to go back on a pledge to defend a particular exchange rate come hell or high water. But if the pledge was — like this one — misguided in the first place, the act of breaking it should provoke a round of applause, not condemnation.
Since countries differ in their level of economic development and potential, their fiscal policies and their rates of inflation, the most flexible and realistic method of economic adjustment is a system of floating exchange rates. Each country can then order its monetary policy to suit its domestic conditions — and then there is no need for any ministerial shouting across the exchanges.
Limited government, small government, honest government: these are themes not just for reforming the post-communist states but for getting our own economies back on track.
Prophetic Vision Regarding the Eurozone
If the divergence between different European economies is so great that even the ERM cannot contain them, how would those economies react to a single European currency? The answer is that there would be chaos of the sort which would make the difficulties of recent days pale by comparison.
Hugh sums would have to be transferred from richer to poorer countries and regions to allow them to take the strain. Even then unemployment and mass migration across now open frontiers would follow. And a full-fledged Single currency would allow no escape hatch.
The political consequences can already be glimpsed: the growth of extremist parties, battening on fears about mass immigration and unemployment, offering a real — if thoroughly unwelcome — alternative to the Euro-centrist political establishment.
If in addition you were to create a supra-national European federation, and the people could no longer hold their national parliaments to account, extremism could only grow further.
It is time for the European politicians to sit up and take note. Time to stop their endless rounds of summits — summitry is fast becoming a substitute for decision-making — and observe the reality around them.
There is a growing sense of remoteness, an alienation of people from their institutions of government and their political leaders. There is a fear that the European train will thunder forward, laden with its customary cargo of gravy, towards a destination neither wished nor understood by electorates. But the train can be stopped.
Tomorrow, the French people will vote on the future of Europe. It is not for me to instruct them on French interest. But I must stress that the referendum is not a vote on whether we should have a European Community — but on what kind of European Community it should be.
Thatcher Video
The video is 17 minutes long. The snips above start at the 9:12 mark.
Instead, I heartily endorse watching the entire video.
How often does a politician go on stage, admit a mistake, describe the correct solution, then give a prophetic warning with uncanny accuracy?
Mike “Mish” Shedlock
She was a neoliberal
“Do not the same arguments about scale and uneven pressures to adjust even where adjustment is not possible not apply equally to the 50 States (Alabama and New York represent vastly different cost of living, employment perspectives, fiscal policy and trade configurations).”
In a word – No
Two words: Obviously Not
Paragraph: The US is a country. The EU is not a country.
That was easy
That said, I believe in a free market in currencies. People would choose gold in about 1 second flat.
The EU as a trading block without a common currency would work, but not without flaws. There would be countries with poor economy, and they would suffer out-migration, since the EU would supposedly be free movement zone. The solution was to create socially similar zones with common currencies: Germany+Switzerland+Austria+Nordic countries would make a lot of sense, as well as others.
The vainglorious apparatchiks of EU empire never thought of economy first, it is rather a socio-political project where every country must toe the line, and pay its dues.
Should each nation have their own (floating) currency to prevent strains? Should Iceland and Montenegro have a currency just like the US and China? Do not the same arguments about scale and uneven pressures to adjust even where adjustment is not possible not apply equally to the 50 States (Alabama and New York represent vastly different cost of living, employment perspectives, fiscal policy and trade configurations). Catalonia obviously should never have been in a monetary union with the rest of Spain. Should Sicily or Abruzzo be in the same monetary union as Lombardy or Piedmont? Wouldn’t it be more logical to have separate currencies for urban agglomerations such as Tokyo or New York with their own economic dynamic? And why should city-states (much more common throughout civilization, named after civitas, city) cede all the decision making to governments of nation states who have completely difference interests than the citizens?
There is nothing prescient about predicting tension and strain about devolving mandates from local or regional or national units to larger ones. The tensions and strains will re-iterate at every level no matter the scale … there is no ideal solution to the tug of war between smaller and larger political units. Thatcher may point to the strains in the EU, but the UK itself is about to fall apart with Scotland and Ireland reclaiming sovereignty and opting for a different currency. And will California forever abide being ruled by senators from Wyoming?
The UK have the Barnet formula which helps to compensate for the trade imbalances between England & Scotland 🙂 Scotland will lose that if they leave the UK although I don’t think they will.
Scotland will impose substantial austerity upon itself.
Another interesting experiment.
Regional differences within a country exist as they should. Poorer regional economy means, you can have a more affordable livestyle or more living space. Also, seniors don’t need or desire the buzz of the city. That does not warrant to have a different currency. The rational for different currency are cultural, such as attitude to life and work.
Excellent questions. Maybe they need answering case by case, and then try to extrapolate guiding principles, ’cause this issue of centralized versus local sovereignty is painfully unresolved all the way from Hong Kong to Glasgow.
I’m still grappling with it, but I tend to agree with Margaret Thatcher on the question of variable exchange rates as a more flexible means of promoting competitiveness and avoiding gross economic imbalance and disruption. If the southern European states had kept their own currencies, for example, Germany would not have benefitted from a massively undervalued Euro ; the Fiats of the world might have enjoyed a powerful price advantage, and southern industry might have generated enough jobs. The unleashing of the UK’s economic potential after we crashed out of the ERM is another stark example.
The US states ? Well yes, your point is valid, but 3 factors are relevant here, I think. Firstly, the USA is a fully-fledged political union, born of the same ethos, sharing the same language and culture, and welded together through fighting side by side in the same wars. As such, Americans are ready to accept the necessity for major – maybe chronic – financial transfers to the poorer states. This is not the case in the Eurozone : theoretically, the transfers are loans to be repaid ; there is no pan-European national solidarity, and the partial political union that exists has often been bought at the price of democracy.
The second factor concerns the consequences of the way that the American union was maintained by force of arms in the Civil War. Mississippi would be symptomatic : it went from being one of the richest to becoming perhaps the poorest of the states. It’s conceivable that if the southern states had had greater economic and political autonomy, including their own currency, the massive disparity in living standards might not have happened. As it was, these states were subsumed into the union on the victorious North’s terms. I wonder if a more flexible, less aggressively centralizing approach might have been better.
And, of course, the fact that the kaleidoscope of European states mostly comprise largely homogeneous ethno-linguistically united peoples, each with their own unique millennium-old history, contrasts totally with the reality of US history, where a brand new nation had, by necesiity to be born “E pluribus unum” in order to survive and colonize the continent.
I guess you need a critical mass of commonality to justify establishing a separate state, together with some unifying vision. Given flexibility, there’s no intrinsic reason why it should fail. Slovakia seems to work fine without Czechoslovakia ; Croatia without Yugoslavia ; etc, etc. If Scotland chooses to leave the UK, I’m sure it’ll be for the best, as long as it’s done fairly and in good faith. I certainly would not call it a “falling” apart.
Ireland is a far more complicated situation. It would be misleading to call it simply a regaining of sovereignty. In the case of Scotland, choosing independence democratically would merely subject the Scottish minority to the will of the Scottish majority ; for the Protestant Loyalists of Northern Ireland, they would see themselves subjected to the will of a foreign, Roman Catholic country ; for them it would be a loss of sovereignty, not a gain.
Thanks again for your questions. As you see, I have no answers. Dylan says formulating the question correctly should provide most of the answer, so let’s stay honest and humble. After all, “what is concluded that we should draw conclusions”?!
I’m also wondering if the EU started on its path at the wrong time and counter cyclical with decentralization as the prevailing movement since before the fall of the Berlin Wall.
These cycles could be of 100+ years in length. Fighting them is a losing battle. Adapting to and co-operating with them, less stressful.
Perhaps they are facing the wrong way vs tide of history.
Fiat is synonymous with national policy, so really the question reduces to if any peoples are so much in disacord with national policy as to justify their own secession. The fault lines can be various – cultural expectations, ideology, level of representation, historic allegiance and so forth.
With EU it is an odd construct, you have nations ceding monetary sovereignty and so part of their political sovereignty, which is also accompanied by open adherence to centralised policy guidance and centralised legal jurisdiction. However there is not a full political or fiscal union, nor a complete centralised territorial definition. In turn, among other the EU concentrates on individual rights and a form of societal equalisation, that includes a political regionalisation that plays into the direction of disassembly of national power in return for forms of compensation. This creates a paradigm of eventual submission by the original national identity and new loyalty of its regions to EU.
UK did not join that full framework, it kept its own monetary sovereignty, so it is much less subject to EU influence. So UK did not have to secede from EU, it left. Other nations in EU would not have to secede either, but the levels of influence are such now that to leave EU for many would be close to secession in terms of the political responsibilities that would land back on their leadership, as well as the societal conflict that would ensue. So EU is a very subtle trap in many ways, and it is working towards the opposite of truly independent national identity.
So for other countries in the world, well you just have to look at feasibility and sincerity, working out just how credible any initiative is. Just as EU has influence in Europe, there are other global powers who hold influence in various countries looking to help format those countries to their favour – this is also the backing that builds on local differences to achieve certain outcomes, but a hypothetical own currency comes after the political independence, unlike EU which is something of a reverse approach to it all.
I’m wondering if waves of centralization are followed by waves of decentralization. The waves occur on long times lines with periods of little apparent change followed by others of intense activity. Prevailing currency just happens to be one indicator in large geographies.
I’m also wondering if the EU started on its path at the wrong time and counter cyclical with decentralization as the prevailing movement since before the fall of the Berlin Wall.
These cycles could be of 100+ years in length. Fighting them is a losing battle. Adapting to and co-operating with them, less stressful.
Perhaps they are facing the wrong way vs history.
Thanks for sharing your analysis – succinct, insightful and clearly articulated.
Of course, hindsight being 20/20 what Thatcher said in 1992 doesn’t appear prescient today. We have to recall the times she said this in. She came to these conclusions from starting points available to everyone, but no one else said this at that time. Very few, if any, even within her own party supported her stance. Today you can say ‘there is nothing prescient about predicting stresses and strains ….’ precisely because this has already happened. Thatcher was an original, brilliant leader. It’s because of her that she hauled the nation back from socialist ruin, that the UK today remains in the top tier of countries economically and politically.
The problems with the Euro were foretold by a number of people. A good example, from the left, was Wynne Godley’s article. What he predicted has come to pass.
Another voice was Bernard Connolly and his book ‘The Rotten Heart of Europe’. More recently there was an interview with him on Dutch TV. During that interview he said that the optimum value of the Euro (using the dollar as a yardstick) for different countries within the Euro ranged from Germany at $2.35 to Greece at 35 cents. Today the Euro is about $1.10 so you cannot square that circle.
I’m wondering if waves of centralization are followed by waves of decentralization. The waves occur on long times lines with periods of little apparent change followed by others of intense activity. Prevailing currency just happens to be one indicator in large geographies.
I’m also wondering if the EU started on its path at the wrong time and counter cyclical with decentralization as the prevailing movement since before the fall of the Berlin Wall.
These cycles could be of 100+ years in length.
Fighting them is a losing battle.
Adapting to and co-operating with them, less stressful.
No leader is all-knowing and all-wise. But few have the qualities of leadership, authority, charisma and intelligence as Thatcher. Mind you, she wasn’t flawless and I’m not one to idolize. I think I’m mostly nostalgic to different times, a time where there were no hysterical social media mobs, insane political division, an unparalleled fraudulent financial system and where the definitions of biology still applied to men and women.
The EU was always an experiment. I have newsletters as far back as 1995 stating so and that it would eventually fail.
The most significant comment, in my mind, was this one: “Hugh sums would have to be transferred from richer to poorer countries…”. Of course, since the EU is an economic union, and not a political union, such transfers can’t, and won’t happen. Thus, the poorer, less productive countries get crushed.
But they already are only no one is supposed to notice. That is what the Target2 balances are. This is beautifully illustrated by a German economist on Youtube via the analogy of a game of Monopoly.
https://www.youtube.com/watch?v=q2QYaJGgtw8
While the euro sucks, as it is a fiat currency that can be inflated at will (and note: the rates of monetary inflation contributed by the commercial banking systems of the euro area member nations are wildly different), the world had absolutely no problem with the “inflexibility” of the gold standard – at least not before governments decided to sabotage it in order to be able to surreptitiously fund wars and welfare spending through monetary inflation.
“the most flexible and realistic method of economic adjustment is a system of floating exchange rates. Each country can then order its monetary policy to suit its domestic conditions”
Problem is, there is exactly zero benefit to physics from having a “flexible” meter. Governance can only be good, and beneficial, to the extent it is heavily constrained. Not “flexible.”
The ERM, and Euro, like all Fiats, were/are already way too flexible. The well connected classes, can simply print up more of them. The last thing anyone needs, is even more flexibility, Zimbabwe/US style.
Margaret Thatcher on global warming https://www.youtube.com/watch?time_continue=20&v=Fys5Z63xCvA
Haven’t seen the vidya as in work – but pretty sure Thatch started the Global Warming (TM) nonsense in order to shut the mines. It was all in The Great Global Warming Swindle
Is this more about the Euro than the EU per se? You can still have a trade mechanism with no common currency
Yes I agree, you can still have a trade mechanism without a common currency as before. However, politically they’ve become intertwined and stresses caused by the trade inbalances will be difficult to resolve. So personally, I think the Euro is putting a great deal of extra stress on the whole European project.
Unfortunately European politicians will try and hold the Euro together come what may for as long as possible. The next country to exit will have to exit the Euro as well, that will make Brexit look a walk in the park
And the ramifications of that departure will be well understood by all parties. In other words, it will happen over the Eurozone’s dead body.
Yes, thats what I was getting at. It will likely be civil unrest that causes it when/if it happens.
That is the reason they will try to make Brexit as painful as possible.
No one else will be allowed to leave. The EU will send in troops.
Does the EU have an army? Nope.
Unless you are talking about the army of bureaucrats they employ.
None so deaf as those that will not hear, none so blind as those that will not see.
Only purging the current EU elite will get this back on track as they will not admit mistakes nor go quietly.