Simon Jenkins: Europe's Terrible Blunder Can Be Rectified. Remember 1931

Simon Jenkins is a British journalist and author.

I write from America, where those who care about Europe ask one question only. What the hell is going on? What is this "euro crisis" that never seems to end? What has happened to Greece, Portugal, Italy, Spain, Holland and now France? Have we all gone insane?

The economist Paul Krugman has one answer. He suggests that Europe is now replicating the 1930s "in ever more faithful detail". Governments, he says, are "committing economic suicide". When every economic tenet cries for treasuries to restore growth, spend, stimulate, inflate and rebuild confidence, they are advocating ever more austerity and balanced budgets, forcing their economies towards recession. They are doing so not because they believe austerity will generate growth. They are doing it because they are imprisoned in a defunct dogma, the propping up of the euro.

Nothing is more eerie than to read accounts of Europe's economy between the world wars, notably the idealistic "Locarnospirit" year of 1925. It was then that the chancellor of the exchequer, Winston Churchill, returned Britain to the gold standard. Wages would be forced down to compete with America, and Europe's prewar economic stability would recover. Keynes pleaded that this was madness. The pound was 10% overvalued against the dollar and the outcome would be "crippled exports, unemployment and strikes".

Churchill was wrong and Keynes was right...