Too Late For The Euro?

Discussion in 'Economy' started by PoliticalChic, Apr 4, 2012.

  1. PoliticalChic
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    PoliticalChic Diamond Member

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    Professor David Beim was interviewed by the Columbia University magazine. He says the 'euro's hour of reckoning is at hand.'

    1. "Columbia Magazine: For more than a year we’ve been reading that the European debt crisis, which began in Greece, has put the survival of the euro in doubt. How likely is the euro to survive 2012?

    David Beim: Not very. It might hit insuperable stress this year. What would crack the euro would be the defection of one or more countries. Greece has elections in April, and the opposition could well turn anti-euro after yet more austerity. Or the opposition in a small northern country — the Netherlands, Austria, Finland — might try to block further “rescue” payments.


    2. [At the Brussels summit] German chancellor Angela Merkel and French president Nicolas Sarkozy agreed to recommend a treaty change that would establish more central control over member states’ budgets. Debts would have to be reduced to below 60 percent of GDP and deficits to below 3 percent of the GDP. These were the original requirements of the Maastricht Treaty, which set up the euro in 1992, but they were never enforced.... Only Finland [meets the requirements].

    a. ...Britain has already balked. Prime minister David Cameron said he would not sign, because the EU was going to give powers to the European Court of Justice and the European Union bureaucracy in Brussels to enforce budget discipline and put sanctions on countries that fell outside of their agreements. Cameron said, in effect, we’re not going to let a bunch of bureaucrats in Brussels tell us how to do our budget.


    3. [The purpose of the EU was] to harmonize not just economic relations but also broader social and military policies, so Europe would feel more like a force in the world, a unified set of powers rather than a bunch of people bickering with one another. But there remained confusion about the endgame. Was the ultimate goal a single country, a United States of Europe? Or was it something less, and, if so, what?...But if the euro becomes divisive, pitting the interests of Northern Europe against those of Southern Europe, then it needs to be rethought.

    4. The ECB is the manager of the currency. It controls the interest rates on short-term euro deposits, and can increase or decrease the supply of euros — it owns the printing press.

    When states give up their separate currencies, they give up having their own monetary policy — they can no longer print money and can no longer devalue their currency. These are important tools for managing an economy, and it is quite serious to lose them. Greece, for example, is now quite dependent on Germany and the other northern countries, and this is uncomfortable on both sides.

    This gets to the heart of the euro crisis. Loss of a separate currency is a partial loss of sovereignty.... most European states are less than enthusiastic about such a fiscal union, now that they look at it more closely. The Finns like being Finnish, the Greeks like being Greek.


    5. There is an economic theory called convergence that says that if you globalize — if you open your borders totally so that goods, services, people, capital, ideas, and money move freely across borders — then we will become more like one another.

    The hope was that the euro would make Europe converge. But it didn’t. Germany exercised wage restraint, liberalized regulations, and opened further to global competition, all of which boosted German productivity. Greece, Portugal, and other southern economies continued to limit competition, supported local monopolies, and left restrictive labor practices in place. Instead, the euro has revealed the lack of real convergence,...


    6. I was teaching a group of about thirty senior Chinese executives who had come to the business school’s executive-education program recently. I gave them my little talk on the euro, and they were visibly angered at the thought that the euro might fail. They said, “We want it to succeed; it must succeed.” They want to have an alternative to the US dollar. That’s their game. But are they going to put money into the euro? I don’t think so.

    7. ...the ECB’s assets are far from risk-free, and if it becomes the lender of last resort to stressed governments, its asset quality will deteriorate rapidly, and people’s trust in the euro will soon fall. You don’t want your currency to be backed by doubtful assets.....I would guess that this scenario would lead fairly soon to the withdrawal of one or more northern countries from the euro. It probably wouldn’t be Germany at first, because they are working so hard to be good citizens in this drama, but it could easily start with the Netherlands or Finland.


    8. But the project is deeply flawed. It includes too many countries too unlike one another. It has no governance system to resolve its many stresses. And the central bank at the center of the system is about to swallow lots of bad assets and pay for them with newly printed money. This would be an ironic end for a currency that was designed to take printing presses away from national governments.

    9. ...the question of exit is now being discussed in public for the first time. An orderly exit needs to be planned for, or a disorderly exit will soon occur. Europe should begin this reversal by creating a pathway for exit, beginning with Greece. The euro was a bold and creative project, but the time to rethink it has arrived."
    Too Late for the Euro? | Winter 2011-12 | Columbia Magazine


    So the dream of Liberalism, like another dream that has been written about, has 'feet of clay'....
     
  2. TakeAStepBack
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    TakeAStepBack Gold Member

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    The dream here is fiat money and central banking as a viable source of maintaining currencies. The Euro isn't the only paper currency in serious trouble.

    China wants out of the dollar, and have lots of trade in europe so the Euro seems appealing. But what is really happening is behind the scenes with russia to align the yuan and the ruble.

    The Euro is a catalyst to watch in the growing end game of the currency wars.
     
    Last edited: Apr 4, 2012
  3. TakeAStepBack
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    TakeAStepBack Gold Member

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    BRICS Challenge to West

    People are aligning against Western country control of international markets. This is exactly what a lot of talk is about amongst many economists. This move is not somehting the US, Europe, the UK or Japan can stop. No military might will change this from what it is becoming.

    The BRIC countries are tired of having to take one (or several) from teh international trade community as the governments and central banks of the Anglo-saxon hegemony continue to push these trade partners into "under the bus" scenarios at the expense of growing western debts, deficits and debasing of currencies for upper handed import/export ratios fixes to keep unsustainable monetary managment appear manageable.

    This is not to be taken lightly. if the US wants to maintain it's reserve power of the world, we need to be the leaders of reform, not the culprits of continued failiing policies. If we miss this signal, and the BRICS draw up the reserves needed to walk away from teh dollar, we're in huge amounts of trouble and a system change could shock the financial world.

    There are a few scenarios that could play out for the US should we lose our stature. The most alarming being strong and intense protectionsim from the federal government. Including another round of gold confiscation, or perhaps even far worse than that. Right to despotism.
     
  4. editec
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    editec Mr. Forgot-it-All

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    Yeah pinning different nations whose approach to economics are so wildly different to the SAME currency does look like a mistake, doesn't it?


    WAs that a LIBERAL idea?

    Beats me.
     
  5. TakeAStepBack
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    TakeAStepBack Gold Member

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    All the approaches changed once the classical gold standard was abandoned. From the early 1800s through around 1930, everyone traded in the same hard money voluntarily and it was a good time for trade, standards of living and stability.
    The approaches varied due to who could do what against the imposed new standards. Some floated, some grabbed the dolar with a hug, some in disdain.

    It's all just coming back around again. But it will be messy for the US and allies should we not see the signals of new currency wars now in progress (and heating up quickly) and react as leaders instead of foolish exceptionalists who believe it wont happen to us.

    My thoughts are on the side of messy for the US. Which could lead us off the "free society" map completely.
     
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