Margaret Thatcher's Amazing Prophecy on the EU

Mish

On Sep 19, 1992 Margaret Thatcher gave a visionary speech at the World Economic Development Conference regarding the EU.

Margaret Thatcher Iron Lady

Image from Britain's Iron Lady, Former Prime Minister Thatcher, Dies April 8, 2013.

Visionary Speech of Thatcher

Please consider the remarkable visionary speech of Margaret Thatcher to CNN World Economic Development Conference.

Thatcher spoke of the failure of the ERM, the Exchange Rate Mechanism, a predecessor to the Euro, then warned about the Euro.

The ERM required the British Pound to trade at a certain level. George Soros made a billion pounds betting against the ERM in a correct bet that the British Pound was overvalued.

The debacle is known as "Black Wednesday".

At the conference, just three days following Black Wednesday, Thatcher admitted her mistake in joining the ERM, then with prophetic vision, correctly predicted a sequence of events regarding the Eurozone.

Black Wednesday and Admission of Error Speech Snips

The stability which fixed rates offered was a false one. It prevented currencies for adjusting gradually to market realities, and in the end it produced wild swings of instability. There's nothing new about fixed exchange rates collapsing. What might be new is to finally learn the lesson that fixed rates don't — and can't — work in free markets.

It may be embarrassing to go back on a pledge to defend a particular exchange rate come hell or high water. But if the pledge was — like this one — misguided in the first place, the act of breaking it should provoke a round of applause, not condemnation.

Since countries differ in their level of economic development and potential, their fiscal policies and their rates of inflation, the most flexible and realistic method of economic adjustment is a system of floating exchange rates. Each country can then order its monetary policy to suit its domestic conditions — and then there is no need for any ministerial shouting across the exchanges.

Limited government, small government, honest government: these are themes not just for reforming the post-communist states but for getting our own economies back on track.

Prophetic Vision Regarding the Eurozone

If the divergence between different European economies is so great that even the ERM cannot contain them, how would those economies react to a single European currency? The answer is that there would be chaos of the sort which would make the difficulties of recent days pale by comparison.

Hugh sums would have to be transferred from richer to poorer countries and regions to allow them to take the strain. Even then unemployment and mass migration across now open frontiers would follow. And a full-fledged Single currency would allow no escape hatch.

The political consequences can already be glimpsed: the growth of extremist parties, battening on fears about mass immigration and unemployment, offering a real — if thoroughly unwelcome — alternative to the Euro-centrist political establishment.

If in addition you were to create a supra-national European federation, and the people could no longer hold their national parliaments to account, extremism could only grow further.

It is time for the European politicians to sit up and take note. Time to stop their endless rounds of summits — summitry is fast becoming a substitute for decision-making — and observe the reality around them.

There is a growing sense of remoteness, an alienation of people from their institutions of government and their political leaders. There is a fear that the European train will thunder forward, laden with its customary cargo of gravy, towards a destination neither wished nor understood by electorates. But the train can be stopped.

Tomorrow, the French people will vote on the future of Europe. It is not for me to instruct them on French interest. But I must stress that the referendum is not a vote on whether we should have a European Community — but on what kind of European Community it should be.

Thatcher Video

The video is 17 minutes long. The snips above start at the 9:12 mark.

Instead, I heartily endorse watching the entire video.

How often does a politician go on stage, admit a mistake, describe the correct solution, then give a prophetic warning with uncanny accuracy?

Mike "Mish" Shedlock

Comments (32)
caradoc-again
caradoc-again

None so deaf as those that will not hear, none so blind as those that will not see.

Only purging the current EU elite will get this back on track as they will not admit mistakes nor go quietly.

No. 1-13
Scooot
Scooot

Unfortunately European politicians will try and hold the Euro together come what may for as long as possible. The next country to exit will have to exit the Euro as well, that will make Brexit look a walk in the park

ZZR600
ZZR600

Is this more about the Euro than the EU per se? You can still have a trade mechanism with no common currency

numike
numike

Margaret Thatcher on global warming https://www.youtube.com/watch?time_continue=20&v=Fys5Z63xCvA

Stuki
Stuki

"the most flexible and realistic method of economic adjustment is a system of floating exchange rates. Each country can then order its monetary policy to suit its domestic conditions"

Problem is, there is exactly zero benefit to physics from having a "flexible" meter. Governance can only be good, and beneficial, to the extent it is heavily constrained. Not "flexible."

The ERM, and Euro, like all Fiats, were/are already way too flexible. The well connected classes, can simply print up more of them. The last thing anyone needs, is even more flexibility, Zimbabwe/US style.

Pater_Tenebrarum
Pater_Tenebrarum

While the euro sucks, as it is a fiat currency that can be inflated at will (and note: the rates of monetary inflation contributed by the commercial banking systems of the euro area member nations are wildly different), the world had absolutely no problem with the "inflexibility" of the gold standard - at least not before governments decided to sabotage it in order to be able to surreptitiously fund wars and welfare spending through monetary inflation.

Carl_R
Carl_R

The most significant comment, in my mind, was this one: "Hugh sums would have to be transferred from richer to poorer countries...". Of course, since the EU is an economic union, and not a political union, such transfers can't, and won't happen. Thus, the poorer, less productive countries get crushed.

Casual_Observer
Casual_Observer

The EU was always an experiment. I have newsletters as far back as 1995 stating so and that it would eventually fail.

Harry-Ireland
Harry-Ireland

No leader is all-knowing and all-wise. But few have the qualities of leadership, authority, charisma and intelligence as Thatcher. Mind you, she wasn't flawless and I'm not one to idolize. I think I'm mostly nostalgic to different times, a time where there were no hysterical social media mobs, insane political division, an unparalleled fraudulent financial system and where the definitions of biology still applied to men and women.

Webej
Webej

Should each nation have their own (floating) currency to prevent strains? Should Iceland and Montenegro have a currency just like the US and China? Do not the same arguments about scale and uneven pressures to adjust even where adjustment is not possible not apply equally to the 50 States (Alabama and New York represent vastly different cost of living, employment perspectives, fiscal policy and trade configurations). Catalonia obviously should never have been in a monetary union with the rest of Spain. Should Sicily or Abruzzo be in the same monetary union as Lombardy or Piedmont? Wouldn't it be more logical to have separate currencies for urban agglomerations such as Tokyo or New York with their own economic dynamic? And why should city-states (much more common throughout civilization, named after civitas, city) cede all the decision making to governments of nation states who have completely difference interests than the citizens?

There is nothing prescient about predicting tension and strain about devolving mandates from local or regional or national units to larger ones. The tensions and strains will re-iterate at every level no matter the scale ... there is no ideal solution to the tug of war between smaller and larger political units. Thatcher may point to the strains in the EU, but the UK itself is about to fall apart with Scotland and Ireland reclaiming sovereignty and opting for a different currency. And will California forever abide being ruled by senators from Wyoming?

Maximus_Minimus
Maximus_Minimus

The EU as a trading block without a common currency would work, but not without flaws. There would be countries with poor economy, and they would suffer out-migration, since the EU would supposedly be free movement zone. The solution was to create socially similar zones with common currencies: Germany+Switzerland+Austria+Nordic countries would make a lot of sense, as well as others.

The vainglorious apparatchiks of EU empire never thought of economy first, it is rather a socio-political project where every country must toe the line, and pay its dues.

Mish
Mish

Editor

"Do not the same arguments about scale and uneven pressures to adjust even where adjustment is not possible not apply equally to the 50 States (Alabama and New York represent vastly different cost of living, employment perspectives, fiscal policy and trade configurations)."

In a word - No

Two words: Obviously Not

Paragraph: The US is a country. The EU is not a country.

That was easy

That said, I believe in a free market in currencies. People would choose gold in about 1 second flat.

mike09
mike09

She was a neoliberal


Global Economics

FEATURED
COMMUNITY