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The absurd thing is that it all might have worked if there had been some internal capital controls to reduce massive flows of funds from the core to the periphery. But the entire EU project is about the free flow of capital, goods, people and services. So ironically, to create a common currency, we would have had to roll back some of the basic principles of the union.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 06:19:30 AM EST
[ Parent ]
Internal capital controls would be one way. In their absence, you could have had explicit recycling of surplus.

The point is the Euro could not work as designed and is blowing up after encoutering its first (perhaps externally triggered) crisis.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:29:26 AM EST
[ Parent ]
As to the absurdity of using the single market as an excuse for inaction, see this thread, where I argue (on a topic not unrelated to the Euro crisis) that
They saw the build-up of "imbalances" and did nothing because "free movement of capital" prevented them from doing so.

In other words, Market fundamentalism, the belief that "the market knows best" and that intervention should be reactive and not proactive. Also possibly they believed (against all evidence from economic history and dynamical systems theory) that the "imbalances" would resolve themselves smoothly and not catastrophically.

Or they just didn't care.

Saying this

"There is nothing we can do to stop foreign exchange borrowing, and we don't even try. As members of the European Union, we have to respect the free flow of capital," he [Hamezc Istvan, director of Hungary's Central Bank] said.
in unconscionable in any case.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:35:46 AM EST
[ Parent ]
The absurd thing is that it all might have worked if there had been some internal capital controls to reduce massive flows of funds from the core to the periphery.

That is what floating currencies do for you.

Replacing a market system that works with a ForEx rationing board that may or may not work is... perhaps to show an excessive enthusiasm for government solutions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:19:55 AM EST
[ Parent ]

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