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Vaclav Klaus and the future of European monetary union

madsen:klaus:dearlove

I had the pleasure of dining on Wednesday with Vaclav Klaus, who stepped down last month as President of the Czech Republic, and Sir Richard Dearlove, former head of Britain’s Security Service MI6.  The occasion was the annual Adam Smith Lecture at Pembroke College, where Sir Richard is now Master.  President Klaus was the distinguished visiting lecturer who gave this year’s address.  It was a tour de force, ranging across the emergence of Central Europe from central planning into market economies, to the development of today’s European Union.

Among the many nuggets was President Klaus’s view that the euro had been a tragic mistake.  A single currency had been created in order to promote closer union, but without fiscal and legislative union it would be an endless source of problems and strains.  Since the people of Europe show no signs of either wanting to become a United States of Europe, or of tolerating such a creation by unrepresentative apparatchiks and politicians, the euro’s problems will continue.

In a rational world the euro might shrink to a viable core, but in the non-rational world of European politics, President Klaus thought it would be kept limping along simply because those in power did not bear the costs of their folly; the European taxpayers would do that.  As for the difficulties to be faced if some countries had to leave, President Klaus told how he had presided over the break-up of Czechoslovakia.  Slovakia had constituted about 30-35% of the joint economy, yet the split had been done smoothly and without any serious dislocation.  By contrast the Greek economy today represents only 2% of the Eurozone total.

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