The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
The euro was designed from the start to be a "strong" currency (call it an Austrian, goldbug currency if you will) and the Germans made it clear that it would be managed that way, and they were openly skeptical that the Southern countries' economies could cope. There was a spurt of policies to meet the criteria in the 90s, and then the windfall of suddenly lower interest rates came along in these countries, giving them a 10-year easy ride.
Now, they're back to paying the interest rates they were paying before the euro came along - except that they are no longer used to such a burden, and have been spending the money on other stuff in the meantime (and such spending was largely unfair or bubbly).
And they never made the case for a political union in the meantime. After 10 years of saying "we're in" and behaving as if they were "normal" members of the zone despite being less competitive in terms-of-trade.
Sure, Germany should have worried about that unsustainability, but, again, they have an easier exit from the current crisis than the weaker countries, and they have, in today's Europe, no compelling political reason to make an effort.
The euro does not behave differently than the DM did. The only difference is that instead of one big crisis, you had smaller crisis every few years,
Even if that were true, it would still be significant. Recessions are not additive - a 20 % drop in output every twenty years does a lot more damage than a 2 % drop every other year.
But it is not, in fact, true. There was no compulsion under the old system to devalue from one fixed exchange rate to another (a move which is almost always stupid). You had the option to float your currency instead (as the British did when they got tired of subsidising BuBa irresponsibility), which relieves the need for AusterityTM after depreciation, because you are not committing to defending the new exchange rate - if "the markets" want to bet that they can crash your currency, they'll have to find some other sucker than your central bank.
Now, they're back to paying the interest rates they were paying before the euro came along
Before the Euro, they only had to pay that interest on their foreign debt (in a floating rate regime, the central bank has complete control of the domestic policy rate). Now they have to pay it on both foreign and domestic debt. Which means that interest rate movements to close the foreign deficit depresses domestic economic activity, and therewith the ability to generate the wealth required to close the foreign deficit.
Friends come and go. Enemies accumulate.
So, let's review:
"The Euro does not behave differently than the DM did."
(A truly marvelous subtlety is there; the Euro itself may behave similarly to the DM, but it produces very important disadvantages--which are different, that is, "not (necessarily) there," under the DM) So: nope.
"Now, they're back to paying the interest rates they were paying before the euro came along"
Needless extra interest rates with, to boot, a punishing double-whammy effect if steps are taken to reduce one. So: nope.
Jake, whatever you're earning, it's less than you deserve.
"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge
by Frank Schnittger - Jul 8 23 comments
by Frank Schnittger - Jul 10 18 comments
by Oui - Jul 12 2 comments
by Oui - Jul 7 20 comments
by gmoke - Jul 8
by Frank Schnittger - Jul 3 28 comments
by eurogreen - Jun 28 24 comments
by gmoke - Jun 28
by Bernard - Jul 15
by Oui - Jul 122 comments
by Oui - Jul 1122 comments
by Frank Schnittger - Jul 1018 comments
by gmoke - Jul 8
by Frank Schnittger - Jul 823 comments
by Oui - Jul 720 comments
by Oui - Jul 7
by Oui - Jul 512 comments
by Frank Schnittger - Jul 328 comments
by gmoke - Jun 29
by eurogreen - Jun 2824 comments
by gmoke - Jun 28
by Oui - Jun 2719 comments
by Frank Schnittger - Jun 271 comment
by Oui - Jun 2519 comments
by Oui - Jun 1784 comments
by Frank Schnittger - Jun 1610 comments
by Oui - Jun 158 comments
by Oui - Jun 1213 comments