A new 'virility pact' for the eurozone?
Credit where it's due. The European Commission is usually considered a lumbering bureaucratic animal, but in devising a system for preventing future fiscal crises in the Eurozone, it's moving pretty fast. There are only two problems: European governments are unlikely to sign up to the proposals, and the current fiscal crisis still has a long way to run.
You'll remember the dramatic events of early May? (That's the events in the eurozone I'm talking about, not the small matter of a new coalition government in the UK.) Rather late in the day, eurozone governments recognised the need for a massive show of financial force to persuade the doubters that the euro wasn't going to disintegrate and countries weren't going to be allowed to go bust, even though the rules had always said they could.
Olli Rehn, Brussels, 13 September 2010
In the wake of the Greek crisis, the Economic Affairs Commissioner Olli Rehn promised to beef up the old Growth and Stability Pact - dubbed the "virility pact" by Willem Buiter when it first came in - to make sure countries never got into such a mess again. Next Wednesday, we will hear his initial proposals, which sound suitably Germanic. There would be fines in the region of 0.2% of GDP for countries who borrow too much, and also smaller financial penalties for countries that don't try hard enough to improve their competitiveness.
I'm told that competitiveness would be measured by a "persistent current account imbalance". But as this blog has pointed out many times, it takes two to create a current account gap: if one country has a deficit, someone else must have a surplus.
In fact, all the signs are that the new system will have the same asymmetry that we see in the global economy more generally. Countries with deficits are pressured to reform, but the countries with surpluses are under no pressure to change their policies at all.
That is almost certainly the only system that Germany would accept. Because they just don't see anything wrong in having a surplus. In their mind, it's something for other countries to aspire to - not something to be demonised. But it's not a recipe for a stable eurozone economy. Sooner or later, all the old imbalances will appear again.
Happily, the European governments are a long way from agreeing on any new plan, whether Mr Rehn's or anyone else's. This has been evident in the negotiations over the task force on European economic governance being led by the council president, Herman Van Rompuy. (The rule in Brussels is: why have one task force when you can have two?)
The Financial Times outlines today some of the key differences between governments [subscription required]. Suffice to say there is more than enough for governments to battle over in the coming months and years, and more than enough scope - in the debate about whether and how to change the Lisbon Treaty - for headlines here about Britain's sovereignty being under threat.
But strip away the legal niceties - which are anything but nice - and these are the central issues which will determine whether this new system actually works:
First, is it all about sticks and financial punishment - or are there some carrots involved as well, to give countries a stronger incentive to play by the rules? If not, the risk is that the new rules will be no more credible than the old ones, because whenever Europe actually imposed a fine on a country with budget problems, it would always be making a bad situation even worse.
Some have suggested allowing "well-behaved" countries to borrow at cheap rates under the auspices of the new European Financial Stability Fund. There are some problems with this - not least the fact that the fund as currently designed is only supposed to be for emergencies, and it's supposed to disappear in three years. But it's worth debating.
Second, does the system consider only fiscal imbalances, or macroeconomic imbalances more generally? There is some agreement now that questions of competitiveness have to come into the mix, but very little consensus on how on Earth to do it.
For example, It's all very well saying that governments with large current-account deficits need to reduce them, but in market economies with free capital markets and no exchange controls this is easier said than done. It seems a bit harsh to fine governments for a balance of payments position they cannot control.
I'm told that Europe-level surveillance would consider whether governments had made "good faith" efforts to tackle the root cause of such imbalances. But as Thailand - or Spain - will tell you, this isn't a matter of turning a few switches. In both cases, a domestic credit bubble was a large part of the explanation. So, would the new scheme monitor domestic financial regulation and supervision as well - and if so, how? (Yes, this imbalances business is a lot more complicated than it looks.)
Finally, and related to my earlier comments, are the new rules symmetric, or do they only apply to those with current account deficits?
Put it another way: is the end goal of the reform effort a more balanced eurozone economy, or merely one in which every government is instructed to be more like Germany? This will be the question at the heart of these negotiations. It will also be the hardest to resolve.
~RS~q~RS~~RS~z~RS~07~RS~)
I'm 
© MMXI
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Either there has to supra-national decision making on economic policy over some or all of the EU states or there should be an easy option to leave the eurozone (or even the EU). Why is it right that Greece (or Turkey/Albania in the future) should be saddled with monetary and fiscal policy that suits the Germans or even the British?
Is having complicated stick and carrot rules actually going to improve matters - more like to be the opposite.
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After each depression and recession the governments propose new rules to prevent it from happening again and surprise of surprise..it does. First, the rules are always watered-down..enforcement agencies are not given any authority and finally financial services and banking make sure their people are placed in positions of oversight. Same pattern as before. This is about convincing the people that things will be better although there is no real plan for that to happen. The taxpayers remain in the position of funding the bad debts of the banks and the banks charge interests on their zero interest funds from the taxpayers and increase the debt. The banks are running this show, as they always have. Has anyone actually been held accountable for the mess the banks created? Cuts in services...higher taxes....to be followed by banking bonuses....seems like everything is in order.
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The underlying problem, of course, is that the economies of the northern European members of the EU are quite different culturally and structurally from those of the southern countries. Germany wanted the euro to be as strong as their deutchmark, but this assumed that the other countries in the eurozone would adopt Germanic economic policies. In fact, the "natural" value of the euro should more-or-less reflect the average strength of its members' economies, not that of its strongest member.
Perhaps the eurozone should split into two areas: the northern countries (perhaps less Ireland) would keep the euro whilst the southern countries would adopt another, "softer" currency - the "Peso"?
But these matters are not ruled by economic logic; they are governed by politicians hungry for their place in history.
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All currency unions involve compromise.
The most successful currency union is USA. Like the EU it is comprised of a number of states (countries) each of which can run different social and economic policies and individual states can get into severe financial difficulties.
But there is a big difference between EU and USA and that relates to freedom of movement of labour. EU has lots of laws about freedom of movement, the USA has lots of actual movement.
Of course in the USA the language is all the same which makes it easier for people to move. So when one state in the US runs a crazy borrowing policy which inevitably results in taxes going higher than people will bear and social protection being cut beyond what people will accept - lots of people move to a different state.
Just cannot see this happening in the EU - which not only does not have a common language but not even a common culture (admittedly UK and Ireland are the odd ones out in the culture issue)
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*I'm told that competitiveness would be measured by a "persistent current account imbalance".*
I have long wondered what EU policymakers mean when they advocate national competitiveness. Is it the quality that allows more exports than imports? In which case a country whose growth derives from large flows of inward investment would be uncompetitive while a country whose poor credit rating restircted capital flows could appear competitive.
The search for national competitiveness begins to look like the pre-modern theory debunked by the classical economists.
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'and the current fiscal crisis still has a long way to run'
And it looks like it 'running' Ireland into insolvency.
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Stephanie wrote:
"There are only two problems: European governments are unlikely to sign up to the proposals, and the current fiscal crisis still has a long way to run."
The second point that you make is I believe quite correct, but I do find it curious that most economists and business commentators seem to be acting as through everything in the garden if perfection once again - including the bonus awarding banks.
If most rational commentators can see that the crisis not only has a long way to run but is only just beginning why is the media ignore this reality? The catalyst fro change in the fiscal position is austerity as indeed it was in the 30s and before.
When the austerity measures start to bite then the fiscal position rapidly deteriorates and will do so. We can already see this in the case of Ireland, fro example - but somehow the dissemblers in the media still preach the untruths of the powers that be and come out with lines such as the private sector will expand to take up the cuts in the public sector. Why do the media let the politicians, Bank of England and the Treasury mandarins get away with this nonsense?
I am still very much of the opinion the unless and until debt deflation has diminished the poor quality debt that is still dominating the market there will be no real recovery. Debt deflation has barely started and will take a decade because the Bank and Treasury are doing their best to put off the evil day. My reading of history is that this denial will prolong and deepen the crisis and that what will shorten and lessen the crisis is to force through debt deflation.
I do concede that history also shows us that those in power always do the wrong thing at this time in the economic cycle as they did in the noughties boom, but with all of the means at our disposal in information management (and blogging) this should not still be the case.
We need to raise interest rates now to precipitate that which should have happened by 2005 that is a de-leveraging of debt and a re-establishment of rational pricing for money. Going on as we are is just digging the hole deeper.
What is likely to happen is that imported primary inflation will push the Bank into raising interest rates by early 2011 and because they are late and slow rates will have to rise further and faster than if the rise had taken place now. This will be far more destructive than it should have been, indeed it could have been - hence my position on Mervyn King, the MPC, Nick Macpherson etc. Gutless wimps when courageous action will serve the Nation far far better.
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#4. Justin150 wrote:
Précis: The Euro will fail...
No I disagree - the Euro is the salvation of all Europeans, Trade and business and we must join to gain the benefits of the home market that it presents.
I disagree with nearly every negative statement you make on the subject of the Euro. We are all Europeans - most of us speak English to some degree (even the French!) We are all closely related and totally interdependent. We swim together or we sink and join the ever growing third world.
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It is hard for a mushroom to understand why anybody would want a half-way house between monetary union and political union.
It leads to unbearable tension and an awful lot of smokescreening, spin and doublespeak.
If the advantages to being "in" the club are the larger internal market, then any trade between member states is not supposed to be competitive anyway?
And if the EU runs a balance of trade surplus with the rest of the world, then the resultant profits (and thus tax income) are there to be spread around the whole of the European Economic Area, surely?
If we all (French/Germans/Polish/Greeks) vote for politicians to represent our interests at a Europe-wide level, then regional differences in income and expenditure should all be added together in the same big pot.
I mean, why not amalgamate the exports of Peugeot/Citroen/Renault with Daimler/Benz/Porsche, Fiat/Ferrari etc. etc. to the rest of the world and consider the sum as a cntribution to the "balance of trade" for the Eurozone as a whole?
Can a Greek have an account at the Bundesbank or Credit Lyonnais? If he/she gets a loan and buys a Ferrari instead of a Porsche, would that be a bad thing for the Euro? If an Arab does the same, isn't that a good thing for the Euro?
Isn't that the great advantage of being "In" the Eurozone? Europhiles don't worry about the balance of trade in migrant workers, or about the balance of payments from net contributors to the Euro-melting-pot. So why do they get so het up about member states needing to be competitive?
Vive la difference?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
For an alternative viewpoint, a historian once said to me that we will look back on the 20th Century as the new hundred years war in which Germany had several attempts at ruling Europe, and finally succeeded.
mushroom is tired now.
bye bye.
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If every country is ‘more like Germany,’ with a strong manufacturing industry and positive balance of payments, it’s easy. But, exactly how do you achieve that? And at that point, would Germany still be Germany?
The only way for Greece et al to pay for their imports is, ultimately, to print or borrow money and then devalue. They are not allowed to print it or, from now on, to borrow it and cannot devalue. Italy will soon have to borrow a fortune just to pay the interest on what it already owes and it owes big.
There are a few options for the Euro Zone to continue:
1. The ‘weaker’ countries become ‘more like Germany’
2. The populations of the ‘weaker’ countries live in poverty
3. The richer country pays the debts of the poorer ones
4. The Euro Zone makes a complete political union (just option 3 again)
5. Everyone goes back to printing and devaluing their own money
I’ve probably missed several, but none politically easy roads to take even if they are possible.
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"Credit where it's due. The European Commission is usually considered a lumbering bureaucratic animal, but in devising a system for preventing future fiscal crises in the Eurozone, it's moving pretty fast."
I am not sure that this is true as the crisis started a lot earlier this year and officials and politicians dithered and there has been over four months now since the May tenth annoucements. That is hardly pretty fast.
From the point of view of Ireland events are now rather grim.According to notayesmanseconomics blog.
"However the day ended with Irish ten-year bond yields rising to 6.53% leaving the spread to Germany’s equivalent bunds at 4.23%. Just to add to the pressure the cost to insure Irish debt jumped to $461,000 for $10m of debt for a five year term."
So things are now worse in Ireland than they were at the height of the crisis. I would supect that they do not agree with the idea that the EU is moving pretty fast.
http://notayesmanseconomics.wordpress.com
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I often wonder if the EU Commissioners (and Barroso in particular) live in a bubble. Here is another idealistic plan that will never get beyond that. This working group comprises people who represent only the EU, not individual member states: ie it seems they are not to be concerned by practicalities like getting any ensuing legislation passed.
At least van Rompuy is working with Finance Ministers from member states: so I would expect a more pragmatic plan from his working group. If any Finance Minister is not keeping his PM informed on what the group are considering, I would be surprised. So, the vR plan looks to be more acceptable, so far. (NB I haven't read of any leaks from this group - what about you, Stephanie?).
It happens that the vR group gets to present their findings on Monday, but Barroso's lot has to wait until Wednesday. Hence the leaks from this latter group? We'll see.
NB @ Justin150 #4: the key difference between the EU and the US is not movement of labour, but the ability of the Federal Government to raise taxes (they raise, perhaps 80% of all US taxes). Thus, they have the ability (theoretically at least) to affect change and control through the taxation system. Since the EU is not a federation (nor likely to be for a very long time, I judge), there can be little hope of member states giving up control of their taxation system. This is why some other mechanism is necessary - and how!
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Stephanie,
This will always be a battle between the German 'pragmatic' approach, and the French 'laissez-faire'. Germany will always win on economic policy simply because Germany is funding the EU now (and they know it).
The European Commission and the Parliament does not want to make any economic decision which will upset any of the member states. There are 2 reasons for this: 1) the EU in Brussels is still in a state of shock and denial that they are having to face the harsh realities of economic life; 2) they are dependent on France and Germany to save the European Union from collapse and to keep the Euro as a viable currency.
Many commentors do not understand the mentality of Brussels.
The European Union is run by and on behalf of the French. That is well known.
The economy of the EU is based on the French-Socialist model. Again a known fact.
There is nothing in the current dilema that will change this thinking in Brussels.
So the commision can make suitable noises to the end of their days. The simple matter is that nothing will change in the EU because no-one wants it to change.
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EU Economic Affairs Commissioner Olli Rehn: "The enforcement of future budget discipline rules must "leave no room for slippage."
The debate over economic reforms was launched in the midst of the Greek debt crisis. Since then, it has rather deadlocked about sanctions. What sanctions to apply when countries break budget discipline.
Budget Discipline, of course, rests within the Stability and Growth Pact.
Rehn is drawing up proposals to revise the pact. He says that he wants the sanctions to be more "automatic" as in a football game where one does not stop the game to change the rules. The rules apply and that’s that.
Until now, sanctions for excessive deficit have always been blocked just as soon as they reach the approval stage in the EU's Council of Ministers; the EU Council of Ministers is made up of representatives from the Union's 27 member states.
Rehn: "Specifically, we foresee the adoption of a 'reverse majority voting' procedure, whereby the proposals by the Commission for the application of the Excessive Deficit Procedure (EDP) should be considered adopted unless the Council rejects them within a certain deadline".
Another aspect will be to widen economic surveillance to macro-economic "indicators" e.g. productivity, unit labour costs, employment, etc. in order to identify and tackle imbalances.
Rehn: "Where necessary we will issue country-specific recommendations. We foresee also an enforcement mechanism for Euro Area Member States in case of serious non-compliance with the recommendations."
I can’t really comment on the proposals, which are only due out September 29, 2010, at which time they will be submitted for approval to EU member states and the European Parliament. Addressing MEPs, Rehn challenged them to adopt the Commission's upcoming proposals swiftly. "Time is of essence here," he said, urging Parliament to "set the target for adoption of these proposals before summer break next year".
Things seem to be moving along at a quick pace. It was only September 7, 2010 when EU finance ministers agreed that, from the start of next year, they will submit their annual budgetary plans for EU-level review six months before they are adopted. Member states and the Commission believe that the review process will make it possible to steer EU countries away from irresponsible economic policies that endanger growth or financial stability; therefore, avoiding any repeat of the eurozone debt crisis.
Rehn: “This is a major improvement of our economic governance architecture. This cycle of reinforced at EU level will help us to correct imbalances and prevent deviations in due time....”.
As for the UK, it expressed concerns earlier this year that the EU would require it to submit budgetary plans to the Commission before the budget was to its national parliament, something it said was unacceptable. Member states agreed to include a provision in today's agreement which states explicitly that the UK will not have to do this.
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There are few issues that need to be addressed by the EU and the Eurozone.
Firstly there needs to be some credibility with the EU itself. So it must get its own house in order before it can lecture the member states. Let us not forget that it has not managed to get its own accounts signed of for fifteen years so far and it is looking more than likely that this year will be the sixteenth. How can any institution be aloud to carry on in such a slap hazard way. No organisation let alone a country could manage its accounts in such a manner. Even Greece and the other PIIGS have a better handle on their finances than the EU itself does.
Secondly the Eurozone has to stand by its own constitution, something it appears unable or unwilling to do. The Greece bail out was contrary to this and so have been many other transactions. It also along with the ECB turns a blind eye when member states break these rules. Until they stand by what has been agreed the Euro will have little if any credibility on the global market and will continue to be a target for the hawks.
On a broader topic it is good to see that all is well in Euro land. As was predicted by the ECB, I think not, the recovery is now faltering and the nations who were predicting growth are now forecasting the possibility of a double dip......
Until the issue of the PIIGS is addressed there is little these guys can predict that will hold water other than doom and gloom. The Hawks are circling waiting to pounce. Ireland is still my bet to falter first as they are in such a bad way. Although the others are not far behind them. The thing that interests me is how far will the German politicians go before there is a revolt from their voters. Not much further if the reports are to believed. So if one of the PIIGS needs bailing out as was the case with Greece (I am not saying it could not be Greece) who is going to back them. The IMF can't and neither will the ECB as both of these are currently underfunded. So will this the time for the first country to leave the Euro? It may well be.
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Like so many European Commission proposals, this one is very well wide of the mark.
Recall that the worldwide recession was caused by too much saving in Asia feeding US Banks with an enormous flood of very cheap long-term loans.
As Alan Greenspan confessed in 2009, US Banks used that cheap money to sell mortgages to US families that they knew many borrowers were unlikely to re-pay. Alan - a deeply honest gent - boldly took the blame for that mistaken judgement, and which we all shared in.
Everything that followed was founded on that cheap money and millions of dodgy loans.
Wall St banks bundled up their dodgy loans into Bonds that they ‘persuaded’ US ratings agencies to classify as triple-A. Those Bonds were sold on to Banks and financial institutions all over the world including London.
'Lehman Brothers' was the intermediary in those inter-bank transactions and AIG (sponsors of Manchester United, by the way) insured the counter-parties against loan defaults. Allowing Lehman to go bankrupt will remain controversial as it destroyed bank assets worldwide. Saving AIG instead may just have reduced the impact of that bankruptcy a little.
The European Commission addresses none of these US issues. Not because they don't know - or even disagree with this analysis - but because their puny powers are irrelevant to the real causes of this second Wall Street crash. [The first such crash was in 1929]. And just as irrelevant to preventing another similar disaster.
Politicking is the EC’s game. It’s a control-freak like so many putative governments.
What’s needed is a worldwide consensus amongst governments to each take similar actions to avoid either savings or lending gluts. And to find ways of avoiding the sorts of asset bubbles that feed on excessive savings.
As for the Greek crisis, that was caused by a lack of integrity of Greek national statistics. Their right-wing government had fiddled their stats to hide from voters the huge deficit they were growing. What’s needed is to protect democracy by allowing voters and businesses to know what’s really going on. Inspection by Euro-Stat would possibly help that, and as the EC knows very well.
Let’s not give credibility to the irrelevant posturing of the control freaks in Brussels (or Strasbourg & Berlin) and insist on ensuring banks and their seniors are not protected from the consequences of their reckless lending.
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8. At 4:15pm on 24 Sep 2010, John_from_Hendon wrote:
#4. Justin150 wrote:
Précis: The Euro will fail...
No I disagree - the Euro is the salvation of all Europeans, Trade and business and we must join to gain the benefits of the home market that it presents.
I disagree with nearly every negative statement you make on the subject of the Euro. We are all Europeans - most of us speak English to some degree (even the French!) We are all closely related and totally interdependent. We swim together or we sink and join the ever growing third world.
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Of course your precis depends on what you mean by "fail"
It may be the case that some countries decide to leave the Euro - is that a fail?
The simple fact is that a one size fits all policy (which is what any currency union is) does not work when economies within the currency union do not re-act the same way. In very small currency unions it may be the case that the individual economies are so similar that it really makes no difference. In a larger currency union you need to have mechanisms such that the problems of the one size policy can be lessened.
There are two obvious mechanism which can be shown to work historical - one is large scale movement of labour, the other is large scale transfers of wealth by govt. Of the two the movement of labour works best if (and this is a vital if) the economic problems are purely temporary not permanent - temporary in this context could be 20 years.
Ultimately large scale transfers of wealth by govt from rich areas to poor areas also tend to be ineffective in the long term but can be very effective in the short term. If the transfer of wealth props up a poor area long enough for it to become attractive again to people to move to (sometimes because it is less populated and therefore more attractive) then the govt wealth transfer achieves the necessary result.
Going back to the EU, large scale wealth transfers from rich countries to poor is a possible way of dealing with short term problems, but it is clearly difficult to achieve the necessary political will (not impossible, after all Germany did bail out greece eventually, just difficult). But it will only work if the problem is short term. I am not convinced that the problems in the club med countries are short term - but that is probably a different debate.
What is undeniably the case is that the EU has much lower movement of labour across country boundaries than US has across state lines. Again this does not mean it is impossible to happen (look at the Poles) it is just very difficult.
So I am not saying the Euro will fail, it is just that the obvious solutions to evening out problems do not work as well for the EU than for the US.
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One has to admire the single minded determination of the German state in its pursuit of economic pre-eminence. In the midst of the current economic crisis, Germany achieved a phenomenal growth in the last quarter of 2.2%. How did they achieve such a feat when the rest of the industrial world is still finding its feet?
The trick is an utterly focussed, some might say ruthless, drive to increase exports, and thus generate a positive balance of payments. Now, as highlighted above, one countries surplus is another countries deficit. One might think this has been achieved through exports to non-EU countries - but no, this success has been achieved, in no small part, by increasing exports to those EU countries currently facing the worst of the current crisis, amongst them Greece and Spain - and by extension, increasing their BoP deficit. The attitude from the Germans seems to be "we are just fulfilling an economic demand" - much like a drug pusher who justifies selling drugs to addicts, it's their fault, and nothing to do with them.
So, on the one hand we (the rest of the industrial world) are on the receiving end of German lectures on the benefits financial rectitude, on the other, unseen and unremarked, is an unforgiving and unremitting exploitation of other Eurozone partners in the pursuit German economic glory. With friends like that, who needs enemies!
As for the "Stability and Growth Pact", the mechanism designed at the inception of the Eurozone to keep members honest, one only needs to see who was the worst offender in terms of adherence to its precepts - here's a clue, the name of the country starts with "Ger" and ends in "many". So much much for the Eurozone being a partnership of equals.
See: http://en.wikipedia.org/wiki/Stability_and_Growth_Pact
Frankly, I'm fed up listening to Germanic attempts to dictate the terms of economic management within the Eurozone (and probably, beyond); their primary objective being to make "us" more like "them".
The European Union, and the creation of the Eurozone, was only ever designed for the benefit of its major economies. The smaller members hoped that by jumping onto their coat tails, and following close behind, they would benefit, by association, the advantages and benefits of its major players.
The whole thing is a stitch up by the unelected, and unaccountable, EU economic axis that is Germany and France. We, the UK, are culturally, economically, and politically different, and I have no desire to be homogenized into a Franco/Grrman modge. Long may we stay on the EU periphery, and NEVER join the Eurozone.
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How can countries like Greece ever compete with Germany with its huge chemical and manufacturing industry.
What does Greece produce aside from olives and nice beaches ?
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8. At 4:15pm on 24 Sep 2010, John_from_Hendon wrote:
#4. Justin150 wrote:
Précis: The Euro will fail...
No I disagree - the Euro is the salvation of all Europeans, Trade and business and we must join to gain the benefits of the home market that it presents.
The Euro is a success story, despite it being a work in progress. It is surviving the economic equivalent of a 'meteorite shower' very well.
The pros of joining for the UK, given that we need to rebalance as an exporting nation again, far outweigh the cons, and UK membership is inevitable; the wording of any referendum will need some care though I would prefer strong government rather the 'cop out' of a vote on a single issue.
The Little Englanders (always gets reaction that one) should raise their horizons and stop living in the past.
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#18
"One has to admire the single minded determination of the German state in its pursuit of economic pre-eminence."
Job done I would say.
"The European Union, and the creation of the Eurozone, was only ever designed for the benefit of its major economies. The smaller members hoped that by jumping onto their coat tails, and following close behind, they would benefit, by association, the advantages and benefits of its major players."
All the smaller countries in the Eurozone, despite the 'current hiccup', have benefitted hugely from membership and none of them seek to leave. In fact the queue of 'small countries' wishing to join is rather long.
Think how much better things would be if the country beginning with 'Ger' supplied both the management and ideas for both our economy and our national footbal team. :)
Euro membership PDQ.
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#20 the Euro is the salvation of all Europeans
Maybe - although I think salvation is too strong.
The Euro will be beneficial for some countries more than others and may be worse for some.
There are undeniable economic benefits in joining but there are costs as well. For some countries the costs will outweigh the benefits and yes I do think UK is one of those countries. In the end I suspect it is as likely that UK will leave the EU as joining the Euro
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#17
"The simple fact is that a one size fits all policy (which is what any currency union is) does not work when economies within the currency union do not re-act the same way. "
This has long been accepted by philes and phobes alike and is being addressed (the work in progress bit).
It also misses the point. The Euro is as much a poltical construct as an economic one; therein lies its strength and weaknesses. The same applies to the EU as a whole. The EU is not a free trade area though I realise that is what a lot of people on this blog.
It will never be just a free trade area and to not grasp that misunderstands the game being played. The end goal is a European state.
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#4
"But there is a big difference between EU and USA and that relates to freedom of movement of labour. EU has lots of laws about freedom of movement, the USA has lots of actual movement."
Good point but remember the context - 'work in progress'.
If this blog and everyone on it was back in 1950 and someone suggested Europe would be where it is now imagine the derision; even Herr Dinkel would have to take cover.
An awful lot of progress in, historically, a short time.
Job done. No - still more work to do.
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#18
" and I have no desire to be homogenized into a Franco/Grrman modge"
Which 'modge' dont you like - the Dordogne or Bavaria. Last time I looked I saw no homogenisation.
'Modge' ? Will try that one at Scrabble.
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Richard I agree.
The sooner we stop hanging on to the coat-tails of the Americans, who only ever do what's in their perceived and very short-term interest, and throw our lot in with our very near neighbours the better.
Europe gives us attainable sustainability, whereas Little Englander isolation doesn't. The Americans are consumption short-term junkies they have the furthest to fall by miles in the world economy. Let's not hang on to the sinking ship and get sucked down with them.
Europe has always tried to resist the short-term US-UK economics of the post war era, and have been wise to do so. Not that they too won't have problems in the coming few years but their longer term attitude and social values are far more appealing than the dog eat dog American model.
No much sooner an equal partner than a dog relying on scraps from the masters table. Especially when the master is a consumption junkie desperate for his next fix and won't be pleasant to be around when he's forced to go cold turkey.
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#21
Funnily enough, though a Brit(English) through and through, I do admire the German football teams skills and determination, and think we would do well to learn some lessons from them.
What I object to is their "enthusiasm" for exploiting foreign markets in ways I think, if someone shone "a harsh light into the murky world of corporate [German] behaviour." would give one pause for thought.
Hence my concern over their recent export successes in Greece and Spain.
I, for one, would like to think we could retain an ethical dimension in our overseas dealings - something I worry will be lost in the rush for economic revival by the coalition.
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#25
Modge - vb tr (Midland English) dialect to do shoddily; make a mess of
http://dictionary.reverso.net/english-definition/modge
Moving on from the content of your disingenuous post - perhaps you would care to comment on the collective revulsion that our continental cousins of the ancien-regime have for the Anglo Saxon economic model.
I, for one, have no desire to move to a form of government involving rampant elitism at the highest level; where the administration of government is the responsibility of small and exclusive coterie of politicians who reagrd themselves above the lot of the hoi polloi; and where decisions are taken behind closed doors, away from the gaze of the electorate, because of the need to do the type of deals and make the sort of compromises, that in all probability, would not be tolerated here. Where corruption is regarded as the norm, and the benefits it brings regarded as a right (eg - Chancellor Kohl and some dodgy use of party funds; President Chirac's little earners whilst mayor of Paris; the general acceptance that French ministers close to the national oil company ELF seemed to end their political careers vastly more wealthy than before they started.
Is this the type of politics/economics you are proposing for the UK?
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#28
perhaps you would care to comment on the collective revulsion that our continental cousins of the ancien-regime have for the Anglo Saxon economic model.
'Collective revulsion', contempt, who can blame them.
We can take it as a given that the 'Anglo Saxon economic model' has failed.
I believe in 'private property and competition' as essential dynamics in a successful economic system but within a framework that pays heed to the requirements of all the stakeholders. In this the continental approach, French or German flavour, has I feel won the argument hands down.
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Always intrigued by the issue of countries that want to run a perpetual balance of trade surplus and those that frankly, can't, due to entrenched consumerist tendencies (us and USA).
At the end of the day, it has to be corrected. Eg a fall in value of our own currency, making those lovely Audis, BMWs and Mercs some of us are addicted to importing, more pricey. For the Greeks et al in the Euro, same effect's achieved by falling incomes. But isn't there a more proactive option - giving medicine rather than taking it? Oh yes, protectionism! And there's even the bonus of income from the duty, for governments on the lookout for dosh.
OK so it's a million miles from happening between UK and Europe, but how about USA and China..?
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#4 Justin150
Do you think there is any cultural affinity between Dutch and Flemish speakers? How about Austrians and Germans or Luxemburgish, French and Walloons.
Have we not all assimilated Lego bricks, across the whole world? What about Stig Larsson's trilogy, has that not be read across the world? I think Tintin's books and comic strips have been widely translated, read and appreciated too; the author was of course Belgian. What about the appreciation of fine arts and music; opera etc? European royal families have married across cultural and linguistic frontiers for over five centuries now.
On freedom of movement. How many people from Poland and other EU countries currently live and work in the UK? - Less, than about three years ago, but a minority in the millions.
The question of freedom of movement as you describe it, is one viewed through the narrow prism of English people that fail to master or even bother to try to learn another language.
Like King Canute, who was not English either, the sanctity of the shores are defended, like the doomed attempt to push back the tide. The reality is there has been a fixed transport link joining the UK with the continent for well over a decade now.
Like King Canute some continue to believe in the power of their own belief to wish, keep and command the world was as they want it to be rather than as it actually is.
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1. At 2:02pm on 24 Sep 2010, watriler wrote:
... Why is it right that Greece (or Turkey/Albania in the future) should be saddled with monetary and fiscal policy that suits the Germans or even the British? ..."
EUpris: Like, because we pay for this rubbish, = so we have some sort of right to say how are money is spent! "Spent?"!! Sorry, I meant "thrown away."
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THE "eu" IS
FILTH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
filth!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
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Europe reminds me of a group people trying to agree......and that we all understand is an impossible situation.
Therefore.....Europe will in time shrink to a size which is SUSTAINABLE , leaving weaker members to sink
to a level they can sustain naturally ..without artificial support.
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Dear Ms. Flanders,
you wrote: "There are only two problems: European governments are unlikely to sign up to the proposals, and the current fiscal crisis still has a long way to run."
I was wondering whether the intervention of the EU so far in restructuring European banks, such as the quite radical restructuring to which they subjected ING, is not a sign that the EU has the means to bypass local governments in Europe even prior to any legislation concerning a new system.
In effect, extreme measures such as were imposed by the EU on ING, which is for all purposes, the Netherlands main or 'national' bank, have a more direct influence on the Dutch economy than any new regulations imposed on local governments by the Eu could achieve.
As you can see, I am having some difficulty understanding the distinction between the quite fierce intervention the EU had practiced over the past year with some local 'national' banks, and the suggested new system referred to in your article. Would it simply be a distinction between 'short term' and 'long term',or perhaps between 'symptomatic' therapy and long term prevention?
And if that is the case, why have some banks (and possibly some national governments) been singled out?
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Bancor.Keynes.
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No:20
Oh and I thought we should go back to Pounds, Shillings and Pence!
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25. At 9:11pm on 24 Sep 2010, Richard Dingle wrote:
#18
" and I have no desire to be homogenized into a Franco/Grrman modge"
Which 'modge' dont you like - the Dordogne or Bavaria. Last time I looked I saw no homogenisation.
'Modge' ? Will try that one at Scrabble.
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Interesting mix, Led Zeppelin and ... Scrabble.
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So the US wants to put trade sanctions on China because of it's perception that China unfairly fixes its currency.
This will be extremely hilarious if this happens. I think I will buy Euro and gold in bulk if it does.
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A currency union where there is autonomy of the component countries in terms of their taxtation, public spending and level of government involvement in the private sector is always going to have major issues, let alone the nature of each economy and its historical level of development that underlies their trading relationships.
The legacy of history and geography is evident in German manufacturing, Spanish tourism, Irish race horses, the City of London - the list is endless and thiese differences define the level of competitiveness between the member states.
Therefore the art of the possible is always going to be the issue in setting a currency union up - do you try and be as all-inlcusive as possible, allowing countries to join that are clearly going to struggle to stay within the rules, or should the union consist of only those whose economies are so similar and interlinked that the strains will be minimal?
If, as EuroLand has done, the decision is to be as open as possible, then how far should the functioning of the union be supported by additional interventions? A Euro version of the IMF is now in place to provide liquidity, the EU's structural funding has a very powerful story to tell of how it has helped depressed regions develop and go from being a drain on the system to become net contributors to it, so easing the risk of strains over the long term.
There is also the strategic gain that being part of a large currency block has delivered to countries who would have suffered downward - ( on in Germany's case upward) - pressure on their exchange rates that would have made it much harder to trade with their neighbours, having to have higher interest rates and import-led inflationary pressures from exchange rate falls. Also there is the purely mechanical saving for all the countries and businesses in not having to change currencies to trade, so removing cost and issues like currency hedging from doing business in EuroLand.
Clearly EuroLand has to set bounds on its members to protect the currency - the issue is how far this should go. Clearly lying about your stats as the Greeks did is beyond the pale - but surrendering the ability to set taxes and decide on public spending has have a large degree of autonomy, otherwise national democracy is meaningless.
However the gains in terms of stability at all levels from an effective currency union are clear, that's why there is such a broad concensus in mainland European politics for the EU and the Euro.
In the UK the issue of joining the Euro is so unpopular because those on the politcal right AND on the hard left both oppose joining the Euro because it shuts off their respective radical policy options and redefines the scope for policy options by setting limits both on state control of the economy for the Left - and deregulation and shrinking the state on the Right.
For the ordinary Joe & Joanna, if the UK had joined the Euro when it started, our interest rates would have been a lot lower for many years, our imports of oil, food and manufactured goods would have been a lot cheaper and our GDP would have been several points higher simply because it is much more efficient to do business with and invest in a country with the same currency as you use - ie your mortgage would have cost a lot less.
The downside is well illustrated by Eire - they rode the Euro bandwagon and did very well out of the EU & CAP, but now are between a rock and a hard place because they can't devalue and cutting their public spending has so damaged their GDP that their ability to service their debt is now in question, plus the risk of another huge banking crash from the collapse in property prices, etc. Then there's Greece -and the rest along the Med.
Does the UK need the ability to do a large devaluation if our economy goes the same way? UKIP etc bang on about how vital it is to have currency independence - but how real is the devaluation option? OK, it would have a big impact on our terms of trade - exports cheaper, imports more expensive, but what exactly does the UK export these days? And what do we import? Food, energy, manufactured goods - that would be very inflationary... Plus a big devaluation would undermine confidence in our currency, so driving up international interest rates and therefore the cost of servicing our debts - public and private. We are talking about a sharp fall in living standards and a trade off between trade and inflation - and doing the very thing that the impending spending cuts are supposed to prevent - loss of confidence in UK PLC by the money markets.
As I have said in other posts, my assessment of the current crisis is that its root cause lies in trade imbalances and the collapse of manufacturing in the UK and some other western economies caused by the export of jobs to low wage, low regulation regions wih no welfare provision particularly China & India, and that because we have to import so much and bear the coost of domestic unemployment, this situation is unsustainable because it can only be funded by borrowing - personal, corporate and public.
If the EU moved to implement a policy of economic, social and environmental trade sustainability, this would allow its member nations to establish an equitable common market within the EU where large trade imbalances between members would be ironed out over time through long term development initiatives, regional structural investment and the market equalisation mechanism within the EU itself.
If this approach was on offer, then the economic, social and environmental case of UK membership of the Euro becomes totally compelling.
Why won't this happen? What makes the UK different from most of Europe? We live on islands - and we are xenophobic, insular and the "little Englander" mindset is deeply ingained in our psyches - (apologies to the Scots, Welsh & N.Irish).
The unholy alliance of libertarian ideology and leftwing/radical anti-capitalism conspire to distract the people from a rational, pragmatic view of the Euro and how the advantages outweigh the restrictions it requires to be a member of the club.
Imagine an EU committed to sustainability - engaged in global development and environmental protection - committed to renewable energy, recycling, reducing pollution, creating full employment, addressing depressed regions, building our economy for the long term through equity in employment and leading the way on social justice.
An impossible dream? We may have no choice - look what happened to the Icelandic economy when its banking system imploded - if the ConDems cause a second recession as has happened in Eire with their spending cuts and this leads to another UK banking crisis, it will be impossible for the UK to bail the banks out a second time - and there will be a run on trhe pound that will make all previous economic crises look minor issues.
With our uncompetitive, denuded industrial base, our high level of private and public borrowing and our dependence on imported food, energy and manufactured goods, the impact of a collapse in the pound would be so severe joining the Euro would probably be the only option.
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#40. richard bunning :
"...the economic, social and environmental case of UK membership of the Euro becomes totally compelling...."
I agree with the thrust and common-sense of your argument.
"if the ConDems cause a second recession"
'if' is as history shows us not the right word - it has to be 'when' as all austerities lead to a dip in output - otherwise they are not austerity!
I have consistently argued that the Euro is right for the UK and right for Europe and if we ever recover from this austerity (sorry 'when' - see above!) it will be because of our membership of the EU and after joining with our friends in the Euro zone.
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#40 Unusual - you are listing both the upsides and downsides of the Euro, not sure that is allowed on this site!
As it happens I do not agree with Euro entry for UK for economic reasons - I do not expect many to agree with my rationale.
I do worry that the Euro will lead to parts of Europe becoming permanently uncompetitive with other parts. We see this in the UK (which is a smaller currency union)- parts of Scotland such as the highlands have been in the economic slow lane for a couple of centuries, despite large transfers of govt funding.
As for the UK I do believe that joining the Euro would result in an interest rate policy that was permanently wrong for our economy which would make our economy much more volatile and ultimately we would be poorer as a result
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#42. Justin150 wrote:
"As it happens I do not agree with Euro entry for UK for economic reasons - I do not expect many to agree with my rationale."
Quite right - I don't agree with you rationale!
Think about the global world we live in. The successful countries in the current economy are those with huge home market and relatively small export markets, just as we used to be when we had an Empire. One of the main characteristics of a home market are a single uniform price/cost system with a single currency. We are most fortunate to have lost an Empire and if our (false) pride /hubris permits we can become a equal member of another, the European Union. Much like the separate states of India become part of the India state in 1947 at independence - indeed if my memory serves well it took some states quite a time to choose to join.
We are very very lucky to be part of the EU and we must take full advantage of being part of one of the most prosperous super states on the planet. Indeed this is the only way which we can compete with China, India, and soon Brazil and surpass the declining states of the USA and Japan. The Euro is a vital constituent of our future economic success and we will join, otherwise we will continue our decline towards third world status - this is all about home market size and the stability that a single currency brings. A small home market leaves a country very vulnerable and its currency subvertable. We have the opportunity to be part of a 21st century economic superpower and we must grasp it with both hands, hug it our economic arms and make it our own. That is the lesson of economic history!
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#43 wrote "Think about the global world we live in. The successful countries in the current economy are those with huge home market and relatively small export markets"
That is total nonsense which can be shown up in three words: Canada, Taiwan and Australia
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Horse ... stable door ... bolted?
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#44. At 4:56pm on 25 Sep 2010, Justin150 wrote:
"#43 wrote "Think about the global world we live in. The successful countries in the current economy are those with huge home market and relatively small export markets"
That is total nonsense which can be shown up in three words: Canada, Taiwan and Australia"
Sorry you are wrong. Canada has huge natural resources to export and so has Australia. Taiwan has a peculiar political position and the US dollar. None of you cited examples in anyway disproves the historically importance of a huge home market, particularly for us, as we have no huge natural resources to export.
Indeed Taiwan reinforces the point about a fixed stable currency relationship which combined with the USA/China situation to give it a large home market. Please consider your response more carefully. The historic case proves without question that the advantages of a single currency area and a huge home market outweigh everything else when it comes to being a successful trading / business nation - particularly when as we have no large quantity of natural resources to trade with.
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Stephanie
Please don't turn into an autocutie.
Loved the boots though
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47. At 6:17pm on 25 Sep 2010, Morpheus wrote:
Stephanie
Please don't turn into an autocutie.
Loved the boots though
Grrr.
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In responseto those wearing rose tinted spectacles when looking to the east, and continental europe, consider this.
1. The EU has failed to get its accounts certified for 15 years in succession, and nobody believes this position will change anytime soon;
2. There is rampant nationalism walking the streets of our various euopean cousins - we are NOT all in this together, whatever one may imagine, or hope for;
3. Sterling devaluation is not something within the control of the governemnt or the BoE - it is a freely traded currency, and its value against a basket of currencies is set by the market. Thus far, a modest realignmnet has improved our export opportuities, and made imports more expensive - it remains to be seen if this leads to increased inflationanry pressures. In any event, to the assorted "chicken lickens" on this blog, the sky hasn't fallen in!
4. The EU is a fundamentally undemocratic institution that operates, primarily, for the benefit of its biggest economies - not really a recipe for equitable outcomes;
5. There is scant evidence that the assorted Eurozone economies are showing any realistic level of increased convergence. If anything, economic disparities across the Eurozone are at best no different than they were in 1999, if anything greater. National intrests predominate in each member country, and there are no signs this is about to change anytime soon;
6. Germany whinged and whined about the EU rescue package for Greece et al, with bitter resentment of the percieved failure of other Eurozone members to behave responsibly - that was followed by a record level of German exports (and thus a worsenuing BoP) to some of the most vulnerable PIIGS nations. This doesn't quite fit with the ideal, expressed elsewhere, of a union where "we are all in this together" exemplified by a spirit of mutual respect, and shared responsibility.
None of this brings me joy, and I don't think that the UK is in any position, now or in the future, to "go it alone"; nor would I advocate it. For the EU to build its credibility and relevance to each member state in the coming decades, and ensure its not a club that benefits only the "biggest kids in the playground" will require its institutions to improve their democratic accountability, and demonstrate to real people that the EU is a force for good, not just a remote, money grabbing, behemoth.
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John_from_Hendon, Richard Dingle, Richard Bunning, Fleche_d'or etc........obviously been to Specsavers and bought rose tinted glasses!
Firstly, we are in the EU, with all that entails. Free movement of goods, dictats from Brussels, Human Rights Act, Lisbon Treaty, straight bananas (no pun intended!).
Secondly, imagine if we had joined the Euro. Firstly we wold have had a spectacular housing boom that would have eclipsed the Clown's efforts - see Eire for example.
Thirdly, when sub-prime and the Clown's excesses brought us to our knees, imagine what would have happened to our economy - no QE, no devaluation, no control - Greece would have been a tea party in comparison and the Euro would have been blown sky high. At least we are in control, to some extent.
Gentlemen be realistic. We couldn't hack it in the early 90's and we still can't hack it. Our economy is different from the inner strong Euro group and until we become a Germany, Holland or France we SHOULDN'T enter the Euro.
The Euro Founders are trying to go too fast and as I've said before, it NEEDS political integration, central budgetary control etc before monetary union.
Lest you think I am a little Englander, I hope the Euro succeeds. I have a stake the other side of the pond, which is doing nicely. But interestingly my neighbours loath the Euro. They think it has only brought them inflation and trouble. .... you can put your rose tinted glasses on now....
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#46 you are hilarious. You make a clear statement and when someone gives an example of why the statement is wrong you claim they are exceptions.
So lets try and interpret. You said
"The successful countries in the current economy are those with huge home market and relatively small export markets"
but now you want an exception for those countries which have large natural resources.
Then there is Taiwan which you claim has a large home market because of China. Sorry but that does not stack up.
Of course I can even more examples of countries that do not fit your statement: try South Korea, Singapore and Switzerland.
IN any event if the large home market is critical and a single currency area gives you the equivalent of a large home market (the latter point is something I would agree with) then why has Italy not powered ahead of the UK given that it has the benefit because of the Euro of a much larger home market.
The difference I suspect between you and I is that I am happy to admit that the other side to me of the Euro argument (ie pro Euro) has merit. I am happy to admit that joining the Euro has undeniable economic benefits which result from losing currency risks, it is just that I happen to think that the costs of joining the Euro exceed the benefits.
Pro_Euro fanatics are incapable of accepting that there are any costs to joining the Euro other than the most trivial.
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26. At 9:30pm on 24 Sep 2010, Sage_of_Cromerarrh wrote:
" ... Europe gives us attainable sustainability, whereas Little Englander isolation doesn't. ... "
EUpris:
1) The "EU" is not Europe.
2) Being free of the filth called the "EU" does not mean being isolated.
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The member countries of the Eurozone have got to stop trying to impose conditions on one another. All economic areas have individuals and companies that are perpetual debtors and others who are savers. They complement each other. The savers are rewarded by interest on their savings paid by the debtors. The ECB should like any central bank concentrate on the overall economic health of the eurozone. It should intervene by open market operations to control the interest rates on all member countries sovereign debts, which if the ECB guarantees all government bonds, as it should, would be virtually identical.
The German government might complain that as a result the interest rates on its debts would be higher than they would if its currency were independent. But we should be entering an era when interest rates should be generally lower since it should no longer be necessary to keep them high to counteract the inflationary pressure caused by excessive private bank lending
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'European governments are unlikely to sign up to the proposals, and the current fiscal crisis still has a long way to run.@
...........................
A long way to run? Depends on where those EU members with the sovereign debt have borrowed from ... and in what currency?
European growth slowing ... and the key issue is what happens at the ECB regarding EU currency interest rate(s)... when the ECB increases European interest rates ... this might well be the breaking up of the EU as we know it.
If the ECB has to put up interest rates by more than e.g half a per cent up or down ... this will not suit all EU members ... it looks to me like the global economy is on a holding pattern (for up to a year or so?) to see where main interest rates are increased first ... probably in Euroland or China?
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Re: zygoe #3 idea:
"Perhaps the eurozone should split into two areas: the northern countries (perhaps less Ireland) would keep the euro whilst the southern countries would adopt another, "softer" currency - the "Peso"?"
Sounds good to me except the name for this softer currency should be the "pesto", as 1) the southern countries make so much of the stuff and 2) they will probably be a "pesto" to their northern neighours. :D
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I just realised something. Gold prices will jump in areas where they don't have the electrical infrastructure (surge protectors, smart routing/switching of power) to handle solar flares over the next 10 years.
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The Euro was created for political reasons , to undermine the national democracy of the sovereign member states ; in anticipation of all becoming the Federal State Of Europe .
The economics of the Euro were completely overlooked with a blind assumtion that all member states could perform like Germany .
Despite its apparent initial success , the Euro has been a disaster waiting to happen from day one .
Mediterranean countries are not so industrialised like Germany or north European countries . Tourism is very important to them ; having their own cheap currency drew people to come and holiday in their country .
Many retirees migrated to Spain and bought cheap houses . Spain now has a surpless of houses that nobody wants to buy . These countries are just as expensive as anywhere else and there is no incentive to go there , when you have all the world and other cheaper places to go .
This last weekend there has been a conference in Berlin of Economists and Currency Experts to discuss the future of the Euro . Their general consensus of opinion is that the Euro is doomed , that the longer it lasts the bigger will be the fall when it eventually colapses .
Member states would be well advised to prepare to return to their original currency sooner rather than later .
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Just to continue from my #51 post.
There are many routes to economic success and many routes to failure.
Generally govt cannot create success but can lay the foundations which people then rely on to create success. Sadly govt can far more easily cause failure than people.
It is easy for govt to create failure - stiffling legislation, high taxes, high but inappropriate public spending and simple corruption being the most obvious causes. But, and this is where both politics and economics becomes very difficult, whereas stiffling legislation and corruption will inevitably result in poor economic performance, the same is not necessarily true for high taxation and high public spending. They often do cause poor economic performance but where such levels of taxation and public spending are supported by the overwhelming majority of the people and business (often because of historic or cultural reasons) then there is no clear link between high taxation/public spending and economic failure.
Let me give an example - Sweden. High taxation, high public spending but a relatively successful economy.
Going back to the Euro debate. The very fact that there are many different routes to economic success or failure does cause problems for any currency union. If different parts of the union wish to pursue very different routes to economic success (however they define success) this becomes very difficult for a "one size fits all" monetary policy, one reason being that the different countries pursuing different routes to economic success will react differently to economic shocks.
In the USA the differences between states in terms of their routes to economic success are not that great. All the states share a common culture - the great American dream - so one important source of economic differences is eliminated (not the only source, for example different states have different natural resources). When you couple that with much higher levels of movement of people between states for economic reasons it does provide a reasonable degree of dampening of the economic difficulties that a large currency union will inevitably cause.
Europe has no such common culture. Some parts of Europe (Scandinavia) have far higher levels of social welfare than we think necessary. Germany is utterly paranoid about inflation and that is just some of the uncontroversial differences (I have posted in the past as to why UK is the odd one out which goes back to common law basis of our legal, political and business life). Add to this the fact that whilst EU has laws about freedom of movement of labour, what it does not have is actual large scale movements of labour (except maybe from Poland and other eastern European members) which is partly caused by the different cultures and partly by different languages.
What this means is that the EU is not an ideal common currency area. Someone else suggested that there should be two currency areas: northern Europe and the Club Med countries. That would certainly be an improvement but you can equally argue that there ought to be 3 or 4 (Scandinavia being one possibly eastern Europe being the other) but politically I suspect that would never work.
For people like John-from-Hendon, please note I fully agree that reducing the number of currencies in use in EU was a good idea - it is just that reducing it to one is, economically, a bt dubious. Ultimately of course one issue which has to be addressed is whether the Euro is an economic policy or a political policy. I suspect for most of Europe the political dimension was the critical issue and the fact that the economics might not work was not important. For me, however, currency is firstly an economic issue. If the economics were in favour of the Euro, I would join but I just do not think they are
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3. At 2:11pm on 24 Sep 2010, zygote wrote:
The underlying problem, of course, is that the economies of the northern European members of the EU are quite different culturally and structurally from those of the southern countries.
YES! THAT IS THE POINT!
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http://raceequalitysecretservice.blogspot.com/2010/09/white-power-vs-islam.html
WHO CAN STAND AGAINST WALHALLA?
Think carefully.
Answer intelligently.
What say ye? (What say you all?)
--------------------------------------------
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"What does Greece produce aside from olives and nice beaches ?"
How about the world's largest commercial shipping fleet?
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59. At 10:53am on 27 Sep 2010, U14592213
I love the pretend Scarface quote:
'We gotta get the money first'
'First we gotta get the power then we print the money. Are you stupid?'
Sign of the times that you can get away with the link though
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There are few issues that need to be addressed by the EU and the Eurozone.
Firstly there needs to be some credibility with the EU itself. So it must get its own house in order before it can lecture the member states. Let us not forget that it has not managed to get its own accounts signed of for fifteen years so far and it is looking more than likely that this year will be the sixteenth. How can any institution be aloud to carry on in such a slap hazard way. No organisation let alone a country could manage its accounts in such a manner. Even Greece and the other PIIGS have a better handle on their finances than the EU itself does.
Secondly the Eurozone has to stand by its own constitution, something it appears unable or unwilling to do. The Greece bail out was contrary to this and so have been many other transactions. It also along with the ECB turns a blind eye when member states break these rules. Until they stand by what has been agreed the Euro will have little if any credibility on the global market and will continue to be a target for the hawks.
On a broader topic it is good to see that all is well in Euro land. As was predicted by the ECB, I think not, the recovery is now faltering and the nations who were predicting growth are now forecasting the possibility of a double dip......
Until the issue of the PIIGS is addressed there is little these guys can predict that will hold water other than doom and gloom. The Hawks are circling waiting to pounce. Ireland is still my bet to falter first as they are in such a bad way. Although the others are not far behind them. The thing that interests me is how far will the German politicians go before there is a revolt from their voters. Not much further if the reports are to believed. So if one of the PIIGS needs bailing out as was the case with Greece (I am not saying it could not be Greece) who is going to back them. The IMF can't and neither will the ECB as both of these are currently underfunded. So will this the time for the first country to leave the Euro? It may well be.
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20. At 8:22pm on 24 Sep 2010, Richard Dingle wrote:
"UK membership is inevitable; the wording of any referendum will need some care though I would prefer strong government rather the 'cop out' of a vote on a single issue."
I would like to know if there is a correlation between wanting the UK to join the Euro and believing that the population are too stupid to vote on the issue. Do you honestly think that you know what is better for me more than I do? A referendum is a must on this issue as it will affect people for a long time after the administration that authorises it has gone.
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europe was doing well as the EEc european economic community. what made them to change it into EU ie european union. the EU sounds like a politcal union to stand up to USA and may be china.
this is the cause of EUs trouble. Europes leaders are trying to capture the leadership of the world from USA. there is no need for europe to do that. they can just focus on economic matters. the old EEC was a brilliant idea formed after 2 ghastly wars.other regions such as south asia, east asia, south east asia,africa and south america can take this brilliant idea of EEC and put an end to conflicts and bring devlopment. all that ended when the EEC was changed to EU, a blatant political organisation.
why are european politcians repeating the same old mistakes of the first half of the 20the century?
it is unbelievable. may be just good old EEC will be better for europe.
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Stephanie, what you're saying seems to confuse trade surpluses/deficits and budgetry surpluses/deficits. I agree that with the former, one country's trade surplus must be another's trade deficit. However, there is no reason why every country can't run a budgetry surplus. The Euro rules deal only with budgetry deficits.
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#63
"I would like to know if there is a correlation between wanting the UK to join the Euro and believing that the population are too stupid to vote on the issue. Do you honestly think that you know what is better for me more than I do? A referendum is a must on this issue as it will affect people for a long time after the administration that authorises it has gone"
No correlation. A vote needs to be predicated by an informed debate which in turn needs to be predicated by a supply of balancded information.
Unfortunately too many people in this country 'know and understand' the EU through a rather biased Press owned by a certain gentleman from a country where they still play rather splendid cricket.
Personally I dont like referendae for the reason I gave. They are one issue and carefully framed to give the result the government offering them want.
The population are certainly not too stupid. They are definitely too bigotted.
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#66 Richard Dingle
" Personally I don't like referendae for the reasons I gave . they are one issue and carefully framed to give the result the government offering them want ".
You mean like the referendae held in France and Holland for the EU Constitution ?
I think that any British government thinking to make Britain join the Euro would be well advised to hold a referendum . Even without a referendum " Bigotted or Not ", it is fairly common knowledge that the British people do not want to join the Euro , or to further integrate in the EU . However the Government phrased the question the result would be against joining . I believe that if the British government adopted the Euro without consulting the people , it would result in a nationwide riot and major civil disobedience . Britain is not the only Eurosceptic country in the EU , even if we are the most openly vocal .
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#20 Richard Dingle
Speaking for " Little Englanders " , perhaps even including yourself .
I am English ; I have lived some years in Italy and speak fluent Italian . I was in Italy at the time of the introduction of the Euro and had already predicted the disaster it would be for Italy and the other PIIGS countries . The Euro is not a currency that fits the needs of such vastly varying economies across Europe . Italians were excited by the prospect of having a currency of equal value to neighbouring European countries . I said to enthusiatic friends , yes , but you will pay dearly for it at home . So they have , the prices of every commodity rose 30% in the first year and subsequently 100% . When I arrived in Italy I was getting Lira3000 to the pound . Almost at once a house that might have been offered for Lira370,000 , £123,333 became €370,000 . Countries like Italy depend largely on tourism ; instead of being a cheap destination it became expensive . Many Germans who owned farmhouses in Tuscany struggled to sell them ; Americans too found Italy an expensive destination .
I now live in Thailand which I infinitely prefer , even without the social benefits . As a pensioner I had free medical care and medicines in Italy , a national health service superior to Britain's , especially for preventative medicine .
The argument for Britain joining the Euro is generally that Britain is close to the European mainland and that trade is predominantly within the EU . Britain's trade is about 40 to 50% within the EU , generally at a deficit . Britain's profitable trading , 50 to 60% , is with the rest of the world .
IMO the arguments for joining the Euro are not valid . The Euro is a political construct , an attempt to bond the EU , an attempt to force European states into an European Federal State . Here we are , barely ten years since its introduction , the Euro is in serious danger of colapse .
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All it is just more hocus-pocus fundamentally flawed economic system. No what what is done or what new theories, formulas etc introduced, the cycle will keep repeating itself. The basics of credit Vs debts are ignored and 2+2 just cannot add up to five and set the economists are expecting the addition to be 6.
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