Wednesday, 13 June 2012

The Economic consequences of peace; Keynes and the Eurozone crisis

In 1919 John Maynard Keynes wrote the Economic consequences of peace, a tirade against overzealous yet political expedient WW1 repatriation claims on Germany which he argued would lead to;

 "the absolute falling off, for the time being in Europe's internal productivity, second, the breakdown of transport and exchange by means of which its products could be conveyed where they were most wanted; and third, the inability of Europe to purchase its usual supplies from overseas"

The only answer was to make repatriations far less harsh, and interest free; a cancellation of inter-ally indebtedness and passing over English debt claims to Belgium, Serbia and France.

"By fixing the repatriation payments well within Germany's ability to pay, we make possible the renewal of enterprise and hope in her territory"

Keynes argued that the future of European nations was entwined with one another, now was a time for politicians of creditor countries to realise this and aim for the prosperity of all nations.

Today, with a single currency, single market and open borders the European relationship is positively symbiotic.  Germany is far better off with a strong Greece, Italy and Spain (GIS) than a weak GIS. This is incredibly simple. So why do our leaders not act with this in mind?  

If this means jointly backed Eurobonds so be it. If this means debt forgiveness so be it, if this means a massive loan at 0% interest so be it.  This may be harmful in the short run economically and politically for creditors nations but it is the right thing to do in the long run for the good of every single European. If you have a blister, sometimes it is painful to take it out, but it is better than cutting your finger off.

The ability to believe that the way the world is now, is how it always will be, is one of the fundamental errors of humanity. It is possible such an inability to conceive of a future so very different from the present is what stops us from acting now.

We have an unerring belief that the problems of war, famine, instability, political extermism are behind us, but so did they in 1919. Then the First World War was known as "the war to end all wars". It is always worth remembering that there are far worse evils than cancelling a bit of paper, or earning slightly less interest.

There needs to be a shift into the argument. We need to talk about what we can do to help these countries in trouble. Not merely what we can do to help get our own money back.

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