Matthew Lynn

We should jump at the chance to pay off the EU in euros

We should jump at the chance to pay off the EU in euros
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Thirty billion? Fifty billion? Eighty billion, and we have to cover the cost of Jean-Claude Juncker’s martinis for the next decades, plus pick up the dry cleaning for every member of the European Parliament. The debate over Britain’s final exit bill for leaving the EU looks set to be among the most acrimonious issues as we negotiate our departure.

But hold on. The first-class brains over in Brussels have made a slip. They are demanding that all the bills be settled in euros, rather than pounds. And yet they seem to have forgotten that their currency remains uniquely vulnerable to a catastrophic collapse. In fact, Philip Hammond should take that deal – because it might turn out to be very good one for the UK.

It sometimes seems as if the EU is basically run to give the Daily Mail something to be cross about. The demand that we settle our bills in euros certainly falls into that category. Its demand for years of payments after we leave is unreasonable enough in itself, and has no basis in law. But slipping in the demand that the payments be made in euros appears designed only to rub some salt into the wound. Predictably enough, hardcore euro-sceptics are outraged, which may have been part of the intention.

And yet, once you pause to think about it, it is obvious we should take that deal. Anyone with any experience in business will tell you that if you have a choice of currencies to be paid in, especially some way into the future, you take the stronger one. If you can get paid in Swiss francs in 2025, for example, then take that like a shot. Or American dollars, or Chinese Yuan for that matter. If you get offered Egyptian pounds, or Venezuelan bolivars, then you'd probably politely decline, and say your own currency will be fine. The Eurocrats are effectively betting that the euro will remain strong against the pound, and indeed strengthen over the next five to ten years

Perhaps they have been following the diehard Remainers on Twitter too closely, or paying too much attention to the FT, and have fallen for the line that the pound - or the Great British Peso as it became known in the markets after the referendum - was set for years of weakness once we were outside the EU. The trouble is, that is not particularly plausible, In fact, the pound has already started clawing back the losses it suffered last June. Even more significantly, the euro remains as flawed as it has ever been.

True, Europe's economy has looked slightly healthier over the last year. Then again, the European Central Bank has just chucked 2.4 trillion euros in freshly printed money at it, and that is enough to paper over a few cracks. It doesn’t mean the cracks are not there, however. Greece is stuck in permanent recession. The Italian banks are wobbly, and so, less noticeably, are the German ones. Germany’s trade surplus grows relentless, exporting deflation and de-industrialisation across the continent. In France this weekend, anti-euro candidates will take at least 40 percent of the vote. They may not take power this time, but it will be their turn next.

The simple fact remains that the euro is dysfunctional currency - a souped-up version of the 1930s gold standard, except not quite as good. It remains hard to predict when the fissures will appear, but sooner or later one or more countries will leave. After all, if all it offers is endless recession and mass unemployment, at some point people will get fed up with it.

When they do, the currency will go into freefall, especially if the break-up is chaotic, as it will be. The fall will be especially hard against the one alternative major European currency, with a solid government, a stable currency and a robustly growing economy – otherwise known as sterling. Measured in pounds, the euros to pay that final EU bill should be very cheap. It is certainly a bet the UK should be willing to take.  By 2022 or 2023, that 60 billion euro bill might be covered by a couple of parking tickets, or at least the stamp duty on a flat in Chelsea – which will make it seem a lot less unfair.