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Consign the euro to the dust of history

by afew Fri Mar 7th, 2014 at 05:44:34 AM EST

On Pieria, Frances Coppola posts a clear and cogent denunciation of the single currency and calls for its immediate demise.

After analysing money supply stats and concluding that the ECB is in no position to do anything useful to stave off the tendency to deflation and long-term depression, she lets rip on the euro.

The ECB is irrelevant and the Euro is a failure

The history of Europe is long and blood-spattered. It is nothing like the United States, which is a young country with a common language, clear boundaries and a single political structure. Yes, the USA fought a civil war to achieve its current degree of political unity, and there are no doubt still stresses and strains. But Europe - if you must regard it as one entity, which is problematic in itself - has fought HUNDREDS of civil wars. We do not have a single language, we still cannot agree where our boundaries should fall and national interests always trump "European" politics. You can't overturn tribal and cultural identities that go back thousands of years at the stroke of a few politicians' pens.

My objections to the single currency, therefore, are historical and cultural, rather than economic. I have read Mundell.  I understand the benefits of a single currency, where there is economic convergence. I know that the founders of the Euro project expected that the discipline of a single currency would force European countries to implement reforms that would over time create the necessary economic convergence. I know that this is STILL what politicians and Eurocrats are trying to achieve with measures such as the fiscal compact. But call me Cassandra if you like: I do not think any of this will work.


Rather than economic convergence, the appalling management of the eurozone since 2008 is creating divergence:

The ECB is irrelevant and the Euro is a failure

Economic convergence is an impossible dream while there is no political or fiscal union. It cannot be achieved through wholesale economic destruction in weaker countries in the name of "structural reform" while stronger ones benefit in the form of lower borrowing costs, capital inflows and immigration of skilled workers. This creates economic DIVERGENCE, not convergence. The fact is that weaker countries in the Eurozone are diverging from stronger ones. Unemployment is at 5% in Germany, 12.8% in Italy and 25% in Spain. And as for Greece - if this report in The Lancet is to be believed, health outcomes there are heading for third world standards.  Even France is now on the downwards path, helped by a shockingly inept government.  How can any of this be considered progress?

I suppose it can be seen as progress by countries who share the self-congratulatory delusion that they are doing all right. But Coppola goes on:

The ECB is irrelevant and the Euro is a failure

The combination of a common currency with national politics is poisonous.  Without closer political and fiscal union, including a proper banking union, pooling of debt and sharing of risk, the benefits of currency union are a chimera. The reality will be debt deflation and depression without end.

Well, not quite without end, actually - it is all too easy to see how this could end. The Euro is the biggest threat to peace in Western Europe that I have seen in my lifetime.

Certainly, at some point the French drowning man (Sarkozy or Hollande, same difference) will have to give up the straw of the Franco-German axis. Much better that should happen sooner rather than later.

Display:

h/t Migeru RT

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 7th, 2014 at 10:19:07 AM EST
My objections to the single currency, therefore, are historical and cultural, rather than economic. I have read Mundell. I understand the benefits of a single currency, where there is economic convergence.

I think that's an incorrect interpretation of Mundell.  If memory serves (haven't read it in years), the cultural and historical elements, at least to a degree, are implicit in Mundell's view.  They're important to issues like labor mobility, similarity of business cycles, risk-sharing, etc.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 7th, 2014 at 10:25:00 AM EST
I didn't read Coppola as saying there was direct opposition between her view and that of Mundell, just that she was citing Mundell as the major proponent of the single currency on economic grounds. Which did in fact make up most of his argument (from memory of the later papers and a quick re-read of the 1961 article, A Theory of Optimum Currency Areas (pdf)).

At one point in this article he considers opposition to a single European currency from JA Meade, and qualified support from Tibor Scitovsky.

...Meade believes that the necessary factor mobility does not exist, while Scitovsky argues that labor mobility must be improved and that the creation of a common currency would itself stimulate capital mobility. In other words neither writer disputes that the optimum currency area is the region-defined in terms of internal factor mobility and external factor immobility-but there is an implicit difference in views on the precise degree of factor mobility required to delineate a region. The question thus reduces to whether or not Western Europe can be considered a single region, and this is essentially an empirical problem.

A question he does not go on to consider. (It's empirical, and he's writing theory). Though even the definition of the question excludes historical and cultural aspects.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 7th, 2014 at 11:34:55 AM EST
[ Parent ]
Mundell:
unemployment could be avoided in the world economy if central banks agreed that the burden of international adjustment should fall on surplus countries, which would then inflate until unemployment in deficit countries is eliminated;

I see Francis Coppola cites what I assume is the cannonical presentation of Mundel's currency area views. I read a different bit by Mundell as part of Perry Mehrling's Money and Banking course, A Reconsideration of the 20th Century from American Economic Review, June, 2000, in which several things seem to appear. Mundell formed his views during the Bretton Woods era, was quite happy with a gold reference standard and thought is still workable if only nations would agree to properly adjust the value of gold, and was quite optimistic about the prospects for the Euro. Unfortunately, the reading is no longer accessible from the course site and is now available thorough JSTOR.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 11:47:31 AM EST
[ Parent ]
Try using the above quote from Mundell in Germany!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 11:49:16 AM EST
[ Parent ]
Here is a link to Mundell, 2000 paper, A reconsideration of the 20th Century that may work. It is a 14 page summary of 20th Century monetary economics history from his point of view. From that point of view we started the 20th Century with a working system of international exchange based on the gold standard. In 2000 he saw the US$, the Euro and the Japanese Yen as currencies that formed three islands of stability in the chaos that had followed the abandonment of the gold standard in 1971 and hoped that these islands would expand. He did not account for the effects of financialization of the world economy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 07:52:05 PM EST
[ Parent ]
Certainly, at some point the French drowning man (Sarkozy or Hollande, same difference) will have to give up the straw of the Franco-German axis. Much better that should happen sooner rather than later.
I never thought I'd see that on ET.

Where's Jerome?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Mar 7th, 2014 at 10:40:14 AM EST
Heh.

But there's no need to be a "declinologist", or to join the choir of competitiveness capitalists who want to pay less into redistribution, to consider that the euro as managed by Germany (in other words, the euro) will slowly stifle the French economy.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 7th, 2014 at 11:38:15 AM EST
[ Parent ]
Of course not. But the allure of the Franc Fort is strong, and moreover the political will to maintain the Franco-German axis is the lynchpin of the EU.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Mar 7th, 2014 at 11:41:51 AM EST
[ Parent ]
'Franc Fort' reminds me of the misadventures of Bush Sec Treas. Paul O'Neil. He apparently had not grasped what Junker indescretely made clear later in his famous dictum and let go with an unfortunate burst of candor:
``When I was Secretary of the Treasury I was not supposed to say anything but `strong dollar, strong dollar,''' O'Neill said today. ``I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.''

The U.S. currency today fell to a record low against the euro, and has declined 15 percent against its European counterpart in the past year.

``The markets actually have control over those relationships. When people say strong dollar, if they don't mean that `we believe intervention can work and we're prepared to intervene,' then `strong dollar' is ridiculous.''



"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 12:05:21 PM EST
[ Parent ]
ARGeezer:
then `strong dollar' is ridiculous.''

well it makes sense when you de-newspeak it. strong dollar then means 'trades low against the euro'.

strong for american domination of world markets.

the penny's dropping...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 01:21:12 PM EST
[ Parent ]
Actually Robert Rubin, former CEO of Goldman Sachs, was concerned that foreign deposits keep flowing in to Wall Street for the benefit of the Financial Sector - too feed what Yanis Varoufakis dubbed 'The Global Minotaur'. Rubin was totally indifferent to the fate of US manufacturers, who were faced with an overvalued dollar in export markets, as Wall Street was making money out of buying them up, liquidating their physical assets, firing their workers and sending the machine tools to China where they would grind out products at a lower labor cost. Regardless of the actual value of the dollar Rubin wanted the financial sector, but especially their US customers, to think that the dollar was as strong as possible to keep the confidence fairy exuberantly fluttering over them. That was what all of the trade agreements were about.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 02:11:49 PM EST
[ Parent ]
thanks ARG, good synopsis

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 02:47:21 PM EST
[ Parent ]
which means france has to crash before germany has to accept reality.

they're all crazy except you and me, but you're acting weird lately!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 12:31:10 PM EST
[ Parent ]
Migeru:
But the allure of the Franc Fort is strong, and moreover the political will to maintain the Franco-German axis is the lynchpin of the EU.

but who is so removed from reality to think that's a viable proposition, and will this make us focus on a europe where the lynchpin could be something other than the franco-german axis? that rift is healed by now, surely, no need to keep bandaging it at the expense of the periphery?

with greece in ruins, italy teetering towards the same fate, how long can the reality of the euro's massive fail (as presently mismanaged) be denied? no PR is that good...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 12:37:04 PM EST
[ Parent ]
If all the French entrepreneurs who complain that taxes are too high had been trading with a lower euro, there wouldn't be much of a price-competitiveness problem.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 7th, 2014 at 12:54:11 PM EST
[ Parent ]
European Tribune - Consign the euro to the dust of history
Certainly, at some point the French drowning man (Sarkozy or Hollande, same difference) will have to give up the straw of the Franco-German axis.

agreed. there's no 'special relationship' there that bodes well for the rest of europe.

it's either a totally re-organised currency union or fold it, as coppola says. an aspiration people were not mature enough to live up to, history shows us.

once france peels off the tragi-farce will be over, or germany will get a major clue. perhaps higher gas prices through ukraine will stop them lording it too much over the rest of europe.

italy is at snapping point.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 12:44:55 PM EST
The Eurozone's efficacy for Germany is about gone anyway.  No one left for Germany to externalize its costs to.  Germany stays the course due to inertia, which it has plenty of.
by rifek on Wed Mar 12th, 2014 at 09:35:03 PM EST
[ Parent ]
rifek:
No one left for Germany to externalize its costs to.

France might beg to differ, if it dared.

But obviously it isn't big enough for the export machine that is Germany.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Mar 13th, 2014 at 02:56:52 AM EST
[ Parent ]
basically france is enabling germany to stay in denial...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 12:46:27 PM EST
By no doubt wishfully thinking that this will keep France's head above water.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 7th, 2014 at 12:52:05 PM EST
[ Parent ]
vichy redux

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 02:40:14 PM EST
[ Parent ]
I don't think anyone is going to volunteer to end the Euro. Our leaders don't have that kind of bravery in them. So I think the question is:

What kind of crisis will it take to end the system as it stands?

It's not 25% unemployment in the periphery.

I'd guess another round of bank crashes - but even there, the system has been re-arranged to largely protect non-periphery banks?

by Metatone (metatone [a|t] gmail (dot) com) on Fri Mar 7th, 2014 at 02:37:26 PM EST
another year of the periphery hitting the skids while the unelected select few become proportionately wealthier may create so much social unrest our rulers will decide to end it gracefully rather than being chased down to their warrens.

or fucking sort it out...

the italians were promised that the euro would bring increased prosperity, now they have ollie rehn saying our austerity is not austere enough.

as they emigrate, starve or commit suicide in droves.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Mar 7th, 2014 at 02:45:28 PM EST
[ Parent ]
One political leader in any member country who would vigorously speak the truth about the economic system and then take their country out of the Euro and default on unpayable debt is what it would take. If multiple countries could do so together it would be easier. If France were to lead it could create a properly run monetary union of Latin states that could have a chance. The longer the existing situation prevails the worse the breakup will be. Why should any assume that the current situation will be satisfactorily resolved within the current framework?

And what a disaster Hollande is for France and Europe. France is the logical leader of a sane monetary union of Latin states - France, Italy, Spain, Portugal and any others who would we willing to join. Are there any who might emerge as such leaders?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 03:02:40 PM EST
[ Parent ]
One political leader in any member country who would vigorously speak the truth about the economic system and then take their country out of the Euro and default on unpayable debt is what it would take.
Even better, a German leader could take their country out of the Euro and no default would be necessary.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Mar 7th, 2014 at 03:07:30 PM EST
[ Parent ]
Countries will leave the Euro. Unfortunately, given the political climate, the leader who does so is most likely to be a fascist.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 7th, 2014 at 03:30:33 PM EST
[ Parent ]
It's been about 18 months since Germany essentially blocked all policy solutions to the Euro crisis with red lines. So, the only possible resolution is an uncontrolled breakup.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Mar 7th, 2014 at 03:45:20 PM EST
[ Parent ]
What about no resolution? I mean, the continuing of the status quo with the continuous rotting of the South?

I actually do not see a narrative of "leaving the Euro" taking shape. For example large unemployment is blamed on the lack of "structural reform" and I do not see big resistance to such narrative. Do not underestimate the power of wacky narratives being in control...

Is it a prolonged rotting a sustainable perspective?

Or will be Northern European countries getting fed up with Latin emigration forcing some change (Nigel Farage has been venting about this instead of Romanian and Bulgarian scare...)

by cagatacos on Sat Mar 8th, 2014 at 01:59:57 PM EST
[ Parent ]
Read an interview with some Roumanian beggars in Sweden (which is remarkable in itself). They were roma and unable to maek ends meet in the winter in Roumania. In Sweden, begging is legal and they faced less persecution. Darn cold, though. Anyway, before the crisis struck the South they had usually spent the winters there, warmer and could do some metal trading for income. So to generalise, the crisis in the South is driving migrants north not only from the south but also form the east.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Mar 8th, 2014 at 02:14:30 PM EST
[ Parent ]
Missed a question mark at the end, sorry. The idea was to phrase it as a question.

It just seems to me that things are rotting in the South without said South to consider the idea that the Euro might be to blame...

by cagatacos on Sat Mar 8th, 2014 at 02:32:17 PM EST
[ Parent ]
A prolonged rotting is not a sustainable perspective, because the prolonged rotting is a two-man con: It requires a delusional or suborned center-left. And the center-left is shedding membership and popular support to both the left and the far right.

There's a couple of ways that movie can play out, but "business as usual" is not one of them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Mar 8th, 2014 at 02:42:36 PM EST
[ Parent ]
The Center-Left looks like it might win the European Parliament elections, so we will need at least another election cycle. But in the national parliaments the process is furhter along. Italy has the M5S and a resurgent Berlusconi now on full-on Euro-exit mode. Give it year for Renzi to fizzle out. Marine Le Pen is surging in France, and in Spain the centre-left is failing to pick up any support while the centre-right leaks. 2015 should be an interesting year.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Mar 9th, 2014 at 07:29:50 AM EST
[ Parent ]
What is the potential solution in Spain? I am a bit distanced from all this, but it seems that there is some votes going for nationalists, for a federal centrist (UPyD), but is does not seem to be a coherent alternative regarding Europe (either left, right or center).

A bit like Portugal where the Euro is still not a real topic of discussion (people talk about it, but there is still no political representation for a €-sceptic party)

by cagatacos on Mon Mar 10th, 2014 at 06:35:22 PM EST
[ Parent ]
Consign Spain to the dust of history too: Zapatero is advocating a PP/PSOE Grand Coalition after the next election.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Mar 11th, 2014 at 05:38:40 AM EST
[ Parent ]
The last time Europe answered that question, the answer was a major shooting war.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Mar 7th, 2014 at 05:26:29 PM EST
[ Parent ]
And that's Frances Coppola's answer, too.
Well, not quite without end, actually - it is all too easy to see how this could end. The Euro is the biggest threat to peace in Western Europe that I have seen in my lifetime.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Mar 8th, 2014 at 03:09:51 AM EST
[ Parent ]
Metatone:
What kind of crisis will it take to end the system as it stands?

That's a wide-ranging question, and the answer could come from a range of possibilities, including a shooting war. But it's so wide-ranging that it's deceptively easy to map on to previous shooting wars.

The threat to peace (cf Coppola) is all the same clearly there.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Mar 9th, 2014 at 04:58:54 AM EST
[ Parent ]
There is the Third Way.

Use the Baltic and Central European apprehension about Russian expansionism to build your very own Military-Industrial Complex.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Mar 21st, 2014 at 12:22:46 PM EST
[ Parent ]
The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest.

- Kalecki (bold mine)

Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Mar 21st, 2014 at 06:24:04 PM EST
[ Parent ]
The Swedish Pirate Party has come out for a permanent exception for Sweden from the euro and for placing both the Commission and the ECB under EP control.

Pity the Pirates are the only ones in Sweden right now treating the EP-election as an election about Europe rather then as a warm-up match for the national elections in september. Media and big parties are only focused on september.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Mar 21st, 2014 at 06:17:34 PM EST
There is also Junilistan (The June List), which I'm considering voting for...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Mar 25th, 2014 at 11:58:30 AM EST
[ Parent ]


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