If I got a pound - even the current rather devalued pound - every time an English eurosceptic (it's almost always an English eurosceptic, hardly ever a Scottish, Welsh or Northern Irish one) utters something utterly insane and hilariously wrong about the EU, the euro area or the euro, I would by now be rich enough to count Peter Mandelson among the regular visitors to my yacht.
Unfortunately, if complete nonsense or an outright falsehood is repeated often enough, it tends to become part of the mental furniture of the public. This would be unfortunate, because now more than ever, it is essential that the UK give up its opt out from the third stage of Economic and Monetary Union and join the euro area as soon as possible. I have therefore decided to use this blog to expose and denounce the half-truths, outright lies and nonsense promulgated by the eurosceptic media in the UK. This is the first of what could become a long series of remedial education classes for eurosceptics.
My target today is Neil Collins' column in the November 6, 2008 Evening Standard, London's only remaining evening paper (not counting the two free rags). I will quote him at length so he can do himself an injustice:
"IS BOND MARKET TELLING ITALY ITS NUMBER'S UP?
If you're thinking of tucking away a few euro notes in case the pound melts down and you can't afford to cross the Channel, look at the numbers on the notes first. If they start with an X, and the digits of the serial number add up to a number ending in two, hang on to them. These are good, solid German euro notes, worth their face value. If they begin with S, with digits that add up to a number ending in seven, spend these first. They're Italian euros, and with luck they won't stand at a discount in Europe's shops, or at least not yet.
If you think this is fanciful, look at the chart above. It shows the yield on 10-year Italian and Greek debt, less the return on the equivalent German government bond. I wrote last year that the risk of Italy falling out of the euro was underpriced at around 32 basis points (0.32 percent a year) and now the markets are waking up to the danger."
The chart, not reproduced here, does indeed show the widening spreads of 10-year Italian and Greek government debt over German government debt (Bunds). On Friday, November 7, these spreads were 1.40% for Greece, 0.92% for Italy and 1.04% for Ireland. As the government securities in question are denominated in the same currency (the euro) and are very similar in all respects except for the identity of the issuer, these spreads reflect differential sovereign default risk and differences in liquidity vis-a-vis Germany.
