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The UK's Unheralded Prophet of the Euro Crisis

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Those who kept the United Kingdom out of the European monetary union deserve the gratitude of their people.

The UK is running, and is expected to run, much higher levels of debt than Spain. But bondholders are not freaking out about the UK defaulting.

Why not?

As Paul Krugman argues, it is the UK's monetary independence that is saving it from a crisis. The UK is a currency creator with its own central bank. The Bank of England can act as a lender of last resort in a crisis. It need not rely on the permission of Germany or France to avoid a default.

The recent events in Greece, Italy and Spain are a terrific vindication of all the euroskeptics who warned the euro would be a threat to the UK's sovereignty. At the time, the euroskeptics were jeered at, described as "fear-mongering." After all, the euro-zone nations would maintain independence on everything except monetary policy. The austerity plans now being imposed across Europe's periphery have shown that this idea was foolishness or a lie.

Iain Duncan Smith, the Conservative Party leader who took over after Conservatives lost control of Parliament in 2001, was at the forefront of warning about the dangers of a more unified Europe. Specifically, he predicted that centralized monetary policy would undermine sovereignty.

From a speech he gave in 2003:

Despite endless talk about economic reform, most of Europe's economies still suffer from rigid labor markets and high external trade barriers.

They have not been helped by the euro. Many of the euro zone's economies have been crippled by a combination of supply-side rigidity and monetary inflexibility.

Does anyone seriously believe that an interest rate manufactured in Frankfurt will ever be right for Copenhagen, London, Madrid and Warsaw at the same time?

Well, yes. A great many people believed that back in 2003. Enough that IDS, as he was known, lost his leadership position in October 2003.

I suspect far fewer people would agree with the idea that Frankfurt's control of Europe's money supply has worked out well for everyone.

Somebody owes IDS an apology, and the euroskeptics a hearty thanks.

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