“It is extraordinary that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse their interest,” wrote John Maynard Keynes in his polemical classic, The Economic Consequences of the Peace. Keynes was referring to “the big four”, the leaders of main allied powers that had defeated Kaiser Wilhelm’s Germany during World War One – including British Prime Minister David Lloyd George. A Treasury official at the negotiation of the 1919 Treaty of Versailles, a 36-year old Keynes then resigned in disgust, to rapidly write one of the most influential books of the 20th century.
The terms of the Treaty were far too harsh on Germany, Keynes argued. The leaders of America, Britain, France and Italy were imposing massive financial penalties to appease their compatriots, he said, that crushed Germany’s ability to recover. “Reparation was their main excursion into the economic field,” Keynes boomed, in a work that became an instant bestseller. “They settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the state whose destiny they were handling”.
QE – IT’S NO JOKE
A Western central banker is ordering a pizza over the telephone.
“Should I cut your pizza cut into six slices or eight slices, sir?” asks the youthful restaurant staffer.
The central banker pauses and scratches his chin. “Hmmm, now let me see,” he says slowly, weighing every word.
“I’m feeling hungry tonight … so cut my pizza into eight slices, please”.
The central banker then pauses again, asks for a moment and then gives his final instruction.
“Actually, I really am quite famished. Could you slice it into ten?”
I distinctly remember the day I decided the UK should never join the European single currency. I couldn’t tell you the precise date, and am not absolutely sure what year it was – probably 1990. But I vividly remember sitting in my student digs – jostick burning, posters on the wall – surrounded by books and articles. It was one of those moments when, after intensive reading, the penny almost audibly dropped.
As an economics undergraduate, I had to study a lot of complex mathematical modeling. Rebelling against the arid pointlessness of pretending economics is a science, I immersed myself in economic history too. It was while learning about the failed monetary unions of the past – particularly those of the mid- and late-nineteenth century, in Latin America, Scandinavia and the nascent United States – that I instinctively realized the euro, still then not a reality but almost certainly coming, was in for a bumpy ride.