Countries outside ‘magic circle’ never stood a chance

Listen to this article


From Mr Patrick J.d’A. Willis.

Sir, A simple lesson in geography explains why periphery states could never compete in the euro.

Take an approximately 1,000km circle round Cologne. Such a circle will reach as far north as Dundee and Oslo, as far east as Warsaw and Dubrovnik, as far south as Naples, and as far west as Dublin; 1,080km will get you to the Spanish border. That’s what a truck or van driver could achieve in a day’s intensive driving from the Rhine valley, if the regulations allowed it.

Take a similar distance from Lisbon and you get as far as Bordeaux. You wouldn’t make it to Barcelona.

From Athens and you won’t even get as far as Belgrade.

Now think for a moment how many people live in each of these circles, the market available for a salesperson to jump in his car from his factory in Düsseldorf or Cologne, compared with that available to an entrepreneur in Lisbon, Madrid or Athens. Hermann has a market on his doorstep of more than 350m people within a 12-hour drive. Alfonso can reach out to only 57m, if he’s lucky, unless he flies. Spiro, on the other hand ...

Perhaps one can now understand why it is that Spain, Portugal, Greece and Italy, unblessed with natural resources such as oil and gas, could only ever compete against the centre by regular, indeed annual, devaluation of their currencies. Even the UK, encompassing as does far-flung Scotland, Northern Ireland and Wales, has had to periodically devalue to remain competitive against Germany and the Benelux countries.

The result of the periphery states joining the euro has been catastrophic for them (though not for Germany). For them, just as for American states such as Mississippi and Alabama, far from centres of population and stuck in the US dollar currency union, the result is now relative poverty, depressed wages and uncompetitive industry.

Having lost their overseas empires (where access to the sea once gave them a comparative advantage), the periphery states of Europe are now confined and circumscribed by their geographical limitations and doomed, like the periphery regions of the UK, to depend on handouts from the centre.

Patrick J.d’A. Willis, Director, Loans Trading, Exotix, London W1, UK

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.