Margaret Thatcher’s prophetic prediction of the Euro’s sorry state

Margaret Thatcher’s prophetic prediction of the Euro’s sorry state
Magaret Thatcher

A spectre is haunting Europe: the euro-scepticism of late Magaret Thatcher (Drawing by Mikala Sørensen)

Margaret Thatcher’s prediction about the prospects of the Euro appears to be ringing true, as Euroskepticism sweeps the Continent.

Thatcherism spread like wildfire as the dominant macroeconomic doctrine through the 90’s after the world had witnessed the far-reaching privatisation that characterized the development of Britain’s economy during Maggie’s reign. From British Aerospace and British Airways, British Gas, British Steel and British Coal to British Telecom, large companies were privatised on a grand scale with the Conservative government led by Thatcher. The sell-off rose over £29 bn (see Andrew Marr, A History of Modern Britain). Apart from causing (exacerbating) deep divisions within the UK, Thatcher’s privatization also attracted the attention of political and economic authorities outside of Britain.

It was not until after Thatcher left office that Thatcherism really caught on beyond British borders, but it inspired what appeared to be a success of improved efficiency and public finances. Nations as diverse as Poland, Russia, India and Vietnam took the new macroeconomic consensus to heart. Indeed, the trend of selling off public assets experienced a brief era of undisputed allegiance and agreement. Of course, there is no need to highlight the preposterousness of the presumed convergence on Western liberal democracy. Neither will I elaborate on the several ways in which enthusiastic shedding of public assets proved less successful for some economies. However, it is worth pointing out how another of Thatcher’s hallmarks may shape the world going forward,  in a fashion comparable to Thatcherism shaping macroeconomic policy after the fall of the Berlin Wall – namely Euroskepticism, which has recently become one of the most debated topics.

Just as Maggie left office, her macroeconomic –ism was adopted by numerous other nations. Similarly, as she leaves for good, her views on Europe and the common currency union are vindicated. Anti-Euro parties are mushrooming all over Europe. Polls show voter shares for British UKIP, Greek SYRIZA, German AfD, and Italy’s M5S heading North, edging closer and closer to significant political influence. According to Thatcher, a close European federation would be unnecessary, unworkable, and dangerous. The nation-state should remain at the heart of the international system, and a federated Europe would threaten the sovereignty of individual nations.

Furthermore, Thatcher was rather disillusioned with the accomplishments, potential and realised, of the Continent. “During my lifetime,” she reminisced, “most of the problems the world has faced have come, in one form or another, from mainland Europe, and the solutions — from outside it.” (Amotz Asa-El, MarketWatch, Wall Street journal)

Therefore, she was a staunch opponent of European integration, and in 2002 she wrote: “The European single currency is bound to fail — economically, politically, and indeed socially.” However, her motivation was not grounded in ideology, but in monetarism. She held that there can be no such thing as a united currency without a united budget. This is a tenet of the macroeconomic theory of optimum currency areas, which was pioneered by Robert Mundell (Mundell, R. A. 1961,”A Theory of Optimum Currency Areas”).

Aside from a common budget, the criteria are: labour mobility, capital mobility, price and wage flexibility, similarity of business cycles and risk sharing by means of fiscal redistribution internally (as an example, imagine Germans transferring – not lending – money to Greeks). Thatcher argued for the demise of the Eurozone at a time when it was undiplomatic to even suggest that the members of the historic European venture for mutual cooperation would soon accuse each other of theft, deceit, laziness, imperialism and oppression.

By the look of previously mentioned political trends of rising popularity to anti-Euro parties, a lot of nations, if given the choice to adopt the Euro today would echo Maggie: “No! no! no!”. But alas, the European Union is not for turning. At least, not without a significant amount of socioeconomic stress. This week the British put one of the arguably most controversial politicians of post-World War West to rest in Saint Paul’s Cathedral. It might be that European leaders must let the common currency die soon, as well.

Categories: Economics, Europe

About Author

Mikala Sorenson

Mikala Sorensen is an Economist with regional expertise in Europe. She holds a first class honours degree in Philosophy, Politics and Economics from the University of York and a Masters in Economics from the University of Copenhagen. Having interned at the Danish OECD-delegation in Paris and currently working at the Danish Ministry of Finance, she specialises in politics and macroeconomics. Analysis for GRI is an expression of her own views.