Out with the Count — Transylvania fires a silver bullet at the euro
CHRISTOPHER FILDES
It was a mistake, historians will agree, to let Transylvania sign up for the euro. At the time, Ed Balls, the Chancellor's eurosceptical adviser, summed up his objections in a monosyllable: `Bats,' he said. This was an unreconstructed and feudal economy, based on such traditional products as cloaks. dental accessories and the full-bodied 'Maiden's Blood' cordial. It would be hardpressed to comply with the pact about public finances, or to have its money managed from Frankfurt by a central bank which would need to offset Transylvania's needs against Greece's. Events bore out these warnings. The economy stagnated, unemployment soared, and the Transylvanians could do nothing about it, because all the decisions that mattered were made somewhere else. They had been led to suppose that their veteran leader had tapped a new and rich vein. Now they took to the streets, crying 'Out with the Countr, and installed a government formed by the Stakeholder Party and led by Dr Van Helsing. Transylvania, he said, must have a better deal. As for the pact, he would comply with it just as the French did — that is, he would ignore it when he chose to — but the euro presented more difficulty. His country had been hustled into it, he said, prematurely and on the wrong terms, and needed a respite. Look how well, in the days of Europe's exchange rate mechanism, this had worked for sterling — so well, in fact, that Britain had never felt any need to rejoin. He certainly would not rule out Transylvania's rejoining the euro but, for now, it was taking a break.
Blood transfusion
Consternation ensued. Every figure in European authority from Romano Prodi sideways rounded on Dr Van Helsing and told him that he couldn't do it. The euro had been designed with an entrance but no exit. Once you joined, you were in it for ever. Hadn't Transylvania been told that? Oh, well, it was too late now Replying, he drew their attention to Valet), Giscard d'Estaing's draft constitution for Europe. That logical mind had built in a procedure for countries which wanted to leave the European Union. If they could do that, surely they could step back from the euro, which was no more than a by-product? Sorry, guy, said all these euro-jobsworths,
can't be done, you shouldn't have joined if you can't take a joke. Dr Van Helsing went home to find that his country's banks needed a blood transfusion. The market, as markets do, had got wind of his plans, and every depositor with any sense had shifted his money across the border.
The hutch opens
This was a crisis — for the banks, for Transylvania, but also for the euro. What was the European Central Bank supposed to do about it? Pump money back in? The ECB had no authority to act as a lender of last resort — another flaw in its currency's faulty design. Bluff it out? Battle it out? The markets responded to deeds, not to words, and in a straight fight with the central banks they would always have more ammunition. In the end, and with a bad grace, all agreed that Dr Van Helsing should call a bank holiday, and that when the banks reopened. any money in them would be redenominated in Transylvania's new currency, which, as a gesture towards tradition, would be called the Fledermaus. This soon settled down at a slight discount to the euro. Dr Van Helsing relaxed, so did the Transylvanian economy, and so did Jean-Claude Trichet, the ECB's new president — for about ten minutes. He was then told that Portugal wanted a Fledermaus deal, Germany was next in the queue, and the markets had noticed. The door of the euro-hutch, he admitted, was open.
Planting perennials
It can happen. Currencies are human inventions and depend on human promises. (Goodbye to the Yugoslav dinar, to AngloIrish currency union and to last year's models in Latin America.) The greatest force behind them is the force of habit, but Europe's monetary reformers have chosen to grub up the citizens' habits and plant new ones, asserting that these are perennials. That bold claim could recoil on them if European economies, great and small, continue to struggle and are tempted to overrule the rule-book. As Eddie George said about joining the euro: 'If this thing is supposed to be for ever, I don't see what the hurry is.'
A Latin lesson
The last European monetary union which was supposed to be for ever involved the Pope's secular dominions — the Papal States. In 1865 they joined the Latin Monetary Union, along with Belgium, Italy, Switzerland and Greece, all of them agreeing to tie their currencies to the French franc and use it as their common unit of account. Britain and Germany were urged to follow. Then the Papal States were found to be bending the rules — not enough silver in their silver coinage — and then they were invaded and incorporated into Italy, and then Italy began to print money to pay for its wars. The Latin union came under strain, the French refused to underwrite it, and after two decades it collapsed, though it contrived a posthumous existence into the next century. Such are the structural difficulties of sustaining a monetary union where political union has not come first. The euro's proponents — it is, of course, a currency without a country — have not been heard to refer to their Latinist predecessors, but they might like to note that the ERM came apart when Italy could not or would not keep up. Transylvania was never a member.
Van's the man
A stalwart Tory — yes, there are some — this week put in what he regards as a good word for lain Duncan Smith: 'He kept us out of the euro.' How? Well, said the Tory, British politics had two party leaders, in Tony Blair and Charles Kennedy, who were eager to sign up. If the Conservatives, too, had been led by a europhile or a perhapser, it would have been easier for the Prime Minister to call a referendum and expect to win it. Trust in me, he would have said — but that trust has been ebbing away and the chance has been missed. It is now for the Tories to take and make their own chances. If they have to draft in a new leader, who could be better than Dr Van Helsing?
Previous page
