Countries 'face euro disaster' 16 December 2001, Mail on Sunday http://www.thisismoney.com/20011216/nm41840.html
FIVE countries in the eurozone face the threat of severe economic problems as a direct result of their membership of the single currency, according to a damning official report by the European Commission. In a frank admission that the single currency's critics in Britain and elsewhere were right all along, the report warns that Ireland, Finland, Spain, Portugal and Holland are trapped in a policy straitjacket they cannot escape. Over the past two years, eurozone interest rates have been kept low to meet the needs of big economies such as France and Germany. But the low rates, combined with the weak single currency, have given the five a huge extra economic boost at precisely the wrong time - just when they were already booming. Because the countries had joined the euro bloc, they could not put up their own interest rates to calm their economies. Now they face a crash, says the report. Government deficits are likely to soar, unemployment will rise and their banking systems will be threatened with crisis. [And the crash will include other EU countries too, as was predicted by German economists as early as 1992! --CR] The report admits that the five joined the euro at the wrong exchange rates. Having given up control of their own currencies and interest rates, they cannot use monetary policy to fend off disaster. 'Monetary conditions in a single member state can be inappropriate, as the single euro-area interest rate may not be in line with the individual country's needs,' the report continues. The admissions come in the end-of-year report of the EC's directorate for economic affairs, in the section 'Macroeconomic Developments In The Euro Area'. It states: 'The real exchange rate at which countries entered the third phase of economic and monetary union might not have fully reflected the competitive position of some member states.' The report says Ireland is particularly vulnerable to any rise in the value of the euro because its exports would become uncompetitive, given recent strong wage inflation in the Republic. Gerard Lyons, chief economist of Standard Chartered bank, added: 'This report effectively concedes that the single currency is a completely unstable system. 'It highlights the problems of a one-sizefitsall interest rate and exchange rate. There are no shock absorbers.' Peter Dixon of Commerzbank said: 'The project is flawed. I cannot think of any good economic reasons why you need a single currency.'
