In his investment letter this week, Tim Price points to a book by David Deutsch (The Beginning of Infinity). Deutsch makes the obvious point that as humankind progresses, problems of all sorts are inevitable. But he goes on to say that “since the human ability to transform nature is limited only by the laws of physics, none of the endless stream of problems will ever constitute an impassable barrier. So a complementary and equally important truth about people and the physical world is that problems are solvable.”
By this he means they can be sorted with the “right knowledge”. It is not, of course, “that we can possess knowledge just by wishing for it; but it is in principle accessible to us.” Deutsch is a computational physicist. So he isn’t referring to finance in any way. But, as Tim says, “just because the scale of his landscape is cosmic” rather than financial or economic doesn’t mean that problems involving the latter can’t be identified, observed, studied and resolved in a similarly rational way.
Lord Wolfson, Next’s chief executive, clearly agrees. Last October he identified the core problem with the eurozone – that it can’t possibly survive – and threw it out to the rest of us to be studied and solved. He asked: “If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?”
He put up £250,000 as a prize and the nation’s thinkers got to work. This week we got the results: Wolfson announced a five-entry shortlist (plus one commendation). If you read summaries of the five, you may end up thinking that the end of the euro isn’t that big a deal.
The papers cover all the issues of devaluations and defaults. They deal with the legal issues of which debt ends up being denominated in which currency and how nations will cut their debts to acceptable levels. They take into account capital flight and deal with what happens to the European Central Bank when it has no member countries left to destroy. They’re good.
But while the ideas most definitely prove that all problems are solvable, they also have an implementation problem: they rely on secrecy. “Preparations must be made in secret by a small group of officials and then acted on more or less straightaway,” says one.
Another says that “exits must be done by surprise” over a weekend “with perhaps a couple of extra bank holidays” to make time for old notes and coins to be stamped while new currencies are printed. And that Germany and France must set up a “secret taskforce” to deal with exits.
So there we are. All the difficulties of the end of the euro can be overcome as long as Europe’s leaders can maintain an extraordinary level of secrecy, co-operation and political goodwill. I’m not expecting an orderly exit this year. You?