PoliticalChic
Diamond Member
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 weve 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, were 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 didnt. 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 schools 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. Thats their game. But are they going to put money into the euro? I dont think so.
7. ...the ECBs 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 peoples trust in the euro will soon fall. You dont 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 wouldnt 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'....
1. "Columbia Magazine: For more than a year weve 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, were 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 didnt. 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 schools 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. Thats their game. But are they going to put money into the euro? I dont think so.
7. ...the ECBs 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 peoples trust in the euro will soon fall. You dont 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 wouldnt 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'....