Wynne Godley on the Euro in 1992

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I men­tioned Wynne God­ley’s pre­scient obser­va­tions about the Euro back in 1992 in a debate on the Mind Your Busi­ness pro­gram on Ire­land’s RTE Radio 1 about half an hour ago. God­ley’s remarks–no doubt seen as extrem­ist when he uttered them–have proven to be utter­ly prophet­ic:

Some writ­ers (such as Samuel Brit­tan and Sir Dou­glas Hague) have seri­ous­ly sug­gest­ed that EMU, by abol­ish­ing the bal­ance of pay­ments prob­lem in its present form, would indeed abol­ish the prob­lem, where it exists, of per­sis­tent fail­ure to com­pete suc­cess­ful­ly in world mar­kets. But as Pro­fes­sor Mar­tin Feld­stein point­ed out in a major arti­cle in the Econ­o­mist (13 June), this argu­ment is very dan­ger­ous­ly mis­tak­en. If a coun­try or region has no pow­er to deval­ue, and if it is not the ben­e­fi­cia­ry of a sys­tem of fis­cal equal­i­sa­tion, then there is noth­ing to stop it suf­fer­ing a process of cumu­la­tive and ter­mi­nal decline lead­ing, in the end, to emi­gra­tion as the only alter­na­tive to pover­ty or star­va­tion.

The entire arti­cle can be read here:

http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that

I also wrote a fea­ture on it for Busi­ness Spec­ta­tor:

Leav­ing the Hotel Euro?

If you liked this post, go check out my sub­scrip­tion site, Debunk­ing Eco­nom­ics, where I go into this in more detail. SK.