Press release: German contraction shows European Central Bank must act

Commenting on Germany’s shock 0.2% economic contraction, Research Director of the Adam Smith Institute, Sam Bowman, said:

“Germany’s contraction might be a wake-up call to the European Central Bank (ECB) that it is driving Europe’s economies into the ground. If it forces the ECB to finally ease policy, it may prove to be a blessing in disguise.

“Tight money is almost entirely to blame for the Eurozone’s current problems: as the rest of the world has slowly recovered from the Great Recession with relatively accommodative monetary policy, Europe has sunk back into deep recession.

“Inflation in the Eurozone has been dangerously low over the past six years. The ECB has a mandate to target 2% inflation, which it has consistently failed to reach in recent years. The result has been a ‘musical chairs’ problem where there is not enough money circulating in the Eurozone to match people’s wage demands. The result has been unprecedentedly high unemployment in many Eurozone countries.

“Once, economists warned that Europe faced a Japan-style ‘lost decade’ of unemployment and economic stagnation. That now seems like wishful thinking: because the ECB has kept money so tight and so much wealth has been lost, the Eurozone is likely to be in extremely bad shape for many years to come.

“If the ECB was really willing to do ‘whatever it takes’ to reach its inflation target, including quantitative easing, it could bring the Eurozone back to growth. The Eurozone has needed easier money for years now; now that Germany does too, it may finally see it.”

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Sam Bowman’s comments on Scotland’s currency debate are featured in City AM

The Research Director of the Adam Smith Institute, Sam Bowman, was quoted in a City AM article that highlighted a poll that found the majority of Scots think an independent Scotland should keep the pound.

If an independent Scotland decided to keep the pound it could follow the example of countries such as Ecuador and Panama, which use the US dollar.

Indeed, as the research director of the Adam Smith Institute, Sam Bowman, points out:

An independent Scotland could flourish either by using the pound sterling without the permission of the UK (or by setting up a “ScotPound” pegged to sterling through a currency board, which would achieve a similar end). This ‘sterlingization’ would emulate a number of Latin American countries that use the US Dollar without an official agreement with the US government.

Read the full article here.

Dr Eamonn Butler is quoted in The Federalist – The BBC Is A Cross Between PBS And The IRS

The Director of the Adam Smith Institute, Dr Eamonn Butler, was interviewed and featured in an article for The Federalist on draconian nature of the BBC.

Of the 180,000 people prosecuted in 2012 for not paying the license fee, two-thirds were women. Those prosecuted are usually poor. “The people who find it most difficult to pay the license fee are people in poor families and single mothers. Of all the people who get prosecuted for not paying the fine, they’re almost all single parents. That cannot be right,” says Eamonn Butler, director of the Adam Smith Institute, a free-market think tank in London.

Read the full article here.

Director of TEN writes for City AM – It’s time to start talking about the British dream

The Director of the Entrepreneur’s Network, Philip Salter, wrote an op-ed for City AM which highlights the need for British business and immigration policy to reflect young people’s drive towards entrepreneurship.

ENTREPRENEURSHIP is all the rage. Research released today by HSBC shows that nearly a quarter of young people starting university this autumn want to work for themselves when they graduate. Banker, lawyer and consultant are no longer the default options.

This news won’t please everyone. Due to the conspicuous wealth of Silicon Valley’s have-yachts and other cultural biases, entrepreneurship is often crudely misrepresented as solely a private good. However, successful entrepreneurs will go on to employ thousands of people and provide goods and services that make all our lives better in a trillion different ways. Even failed entrepreneurs provide feedback for other business founders about what will and won’t work.

Read the full op-ed here.

Dr Eamonn Butler’s Letter to The Herald: Post-Yes, an informal currency union should be plan A, not B

The Director of the Adam Smith Institute, Dr Eamonn Butler, wrote a letter to The Herald arguing that if Scotland votes for independence, there is nothing to stop them from continuing to use the pound:

I HAVE no wish to argue for or against independence, but as an economist I would like to separate the economic realities of the currency issue from the political bluster that obscures them.

The Chancellor has ruled out a formal currency union, though some say this is just negotiating bluff. Either way, there is nothing to stop Scots continuing to use the pound if they choose. A Westminster government with no jurisdiction over an independent Scotland has no power to stop them.

Several independent countries, including Panama, use the US dollar, without seeking the permission of America’s central bank, the Federal Reserve. In the absence of a formal currency union agreement, Panama has no say in the Federal Reserve’s monetary policy, which is conducted solely for the benefit of America. Some argue, by analogy, that if an independent Scotland continued using the pound without a formal currency union, Scotland would have no say in Bank of England policy, which could be potentially damaging for Scotland’s economy.

Nevertheless, as a result of using the dollar, Panama – a country comparable in population to Scotland – has one of the world’s most stable banking sectors. And the economic interdependence between Scotland and the other countries of the present United Kingdom is so deep that the Bank of England would, in reality, have to take Scotland’s welfare into account when setting monetary policy. Not to do so would risk damaging the other UK countries just as much as Scotland.

Another suggestion, from Jim Sillars, is that Scotland should print its own currency and tie it to the pound. There is no substantive difference between this idea and using the pound. As the two are pegged, the only difference is the design on the currency. And why (apart from national pride) go to the expense of printing Scottish notes, exactly equivalent to the pound – but which people south of the Border might be reluctant to accept?

The other option, switching to some other currency such as the euro, would be even more costly and difficult, and would raise huge, business-damaging uncertainties. It would also leave Scotland subject to the monetary policy of a country or agency with a very distant interest, if any, in Scotland’s welfare.

The easiest solution, therefore, would be for Scotland to continue using the pound, with or without a currency union, safe in the knowledge that, as an important part of the sterling economy, the Bank of England would have to take Scotland’s interests into full account when setting policy. The currency problem just isn’t a problem.

Eamonn Butler,

Director, Adam Smith Institute,

23 Great Smith Street,

London.