by Ed Moy
Nearly 25 years after Margaret Thatcher’s keep-Great-Britain-free-from-one-government-one-currency-one-Europe sentiment helped force her resignation, the Iron Lady has been proved right yet again.
Most prime ministers are generally forced out of office over failure, like failure to win an election or failure to effectively lead their government. But Mrs. Thatcher won all three of her elections and effectively led the governments she formed. It was not failure that helped do her in, but the fear of her peers that she might win another election and effectively keep England out of the experiment to unify Europe governments.
One of her convictions that got her in trouble was that she believed in the superiority of decentralization over centralization. Nowhere was that more evident than her approach to the European unification movement. While most countries saw an opportunity to create a socialist utopia of centralized government and benevolent decision-making, Mrs. Thatcher saw nations subservient to an ineffective bureaucracy that would redistribute wealth from rich countries to poor countries.
The chief symbol of European centralization was a single European currency, with which Lady Thatcher was not amused. Her convictions on the matter were rooted in the fact that “Every single fixed exchange rate has cracked in the end. We’re all at different levels of development in our economies. Some countries simply couldn’t live up to a single currency…We should each of us be proud to be separate countries cooperating together.” Eloquent and clear.
Further she was concerned that eventually some diametrically-opposed national interests within the European Union would collide without resolution, to the detriment of all members. For example, she shared with John Major, her then Chancellor of the Exchequer, that because Germany believed in strong anti-inflation policies, it would balk when other nations clamored for the need for greater inflation. And that the Euro would be devastating to “their inefficient economies,” forcing weaker countries to eventually be uncompetitive and require bailouts until they stopped when the government lenders had enough.
Lady Thatcher lived long enough to see her convictions become reality. Germany has balked at loosening tough anti-inflation and austerity policies and has used its economic weight (and its creditor status) to dominate bailout discussions. And she saw the financial crisis of inefficient economies like Cyprus, a small country by European standards, bring the Euro to the edge of the abyss. If that were not enough to justify a righteous “I told you so,” the Greek crisis makes her point again.
Greek’s economy is inefficient compared to many of its EU peers and has become increasingly uncompetitive. The Great Recession and structural impediments like high taxes, inefficient government, crushing regulations, and generous social programs have led to shrinking GDP, high unemployment, and crippling debt equal to 29,000 euros for each man, woman, and child in Greece. This brings to mind Lady Thatcher’s quote: “the problem with Socialism is that you eventually run out of other people’s money.”
And run out of money Greece did. Markets had eventually concluded that Greece was too big of a credit risk and charged accordingly before refusing to loan altogether. As a result, the EU’s German-dominated prescription to Greece’s inefficient economy was forcing austerity on the Greeks in exchange for two bailouts from government financial institutions like other EU member central banks, the European Central Bank, and the International Monetary Fund. Eventually Greece became the first developed country to default on an IMF loan payment, which precipitated the current crisis.
The current proposed bailout, the third in four years, buys some time but the math falls short. The last ditch effort was motivated by the EU fear that if Greece exits the euro, it may have to write off their Greek loan portfolio as a complete loss. Other creditors like Spain and Italy, who are also big debtors, might have trouble with their loan payments if Greece does not pay them back. Confidence in the Euro would drop, eventually cracking in the end. This is EXACTLY what Margaret Thatcher predicted would happen.
While the Iron Lady thought poorly of this kind of European centralization, she did have a strong conviction of an alternative. She envisioned a decentralized approach: a free trade zone should be created between North America and Europe. Independent nations would cooperate freely with each other as mutually beneficial to each country. Each country’s voters would elect their governments and hold them accountable for their performance or be voted out at the next elections. Authentic democracy coupled with free markets was her solution.
But in order for this to happen, she said “Europe cannot do in the world without American leadership. There is no substitute for this great land and the clear lead it can give.” Together, America and Europe should live out our principles of democracy and free markets, and in doing so, lead the world to a better place. If her prescription were followed, I believe that to the world’s benefit, Lady Thatcher would be right again.