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I don't see a road to a Seuro, and I see no reason for it. But I am glad you wrote this up, because I think it highlights how our views diverge on the topic.

European Tribune - A Two Monetary Union Solution to Problems in the EMU

I believe that the monetary policy of any monetary union of which Germany is a part will have to be similar to the present situation - unless and until it massively fails.

I don't think Germany is the problem, just the main symptom. Yes, Germany runs an unsustainable strategy for current account surpluses and fixed exchange rate. But absent cooperation from ECB and political leaders all across Europe they would have been forced to recycle their surpluses or see their claims written of.

The main problem is instead that all of the elite politcal class and the ECB are acting in collusion (based on belief or interest) to apply Shock Doctrine to the European economies, starting from the periphery.

Now say that Syriza wins the next Greek election and manages to pull together a majority in parliament to roll back austerity and replace it with prosperity. Then either the ECB backs down or it forces Greece to leave the euro. If it backs down Greece has no reason to propose a Seuro. But perhaps more importantly if Greece is forced out it has no reason to enter into a new monetary union with other rejects.

Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union. With a Seuro, two arguments in favor of the euro would be gone, a Seuro grants neither European unity nor sooths insecure emotions by being a symbol of being accepted into Europe proper. There would be a simple reason against, the failures of EMU showing the risks and no arguments in favor.

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by A swedish kind of death on Fri Sep 20th, 2013 at 06:03:30 AM EST
A swedish kind of death:
living wages, renewable energy and full employment. None of those needs a monetary union.

ding ding... nutshelled to perfection.

'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 Sep 20th, 2013 at 06:42:00 AM EST
[ Parent ]
I don't think Germany is the problem, just the main symptom. Yes, Germany runs an unsustainable strategy for current account surpluses and fixed exchange rate. But absent cooperation from ECB and political leaders all across Europe they would have been forced to recycle their surpluses or see their claims written of.

The main problem is instead that all of the elite politcal class and the ECB are acting in collusion (based on belief or interest) to apply Shock Doctrine to the European economies, starting from the periphery.


I agree that 'all of the elite political class and the  ECB are acting in collusion' and this is obvious NOW. It was a different world in 1990 when the process began. But Germany is the chief national beneficiary of the status quo and the lead defender. So long as it plays this role it remains difficult to expose the role that elites in all countries are playing in this process and impossible to counter that policy.

The 'cooperation from the ECB' was baked into the cake when the EMU was established as a part of the price for Germany entering. And the interests being advanced were obviously those of the elites considering that the first step was removal of controls on capital flows. This should have only followed implementation of effective prudential regulation and establishment of Euro Zone wide bank resolution policies financed by a Euro Zone wide source of funding.

A significant incentive to German elites for joining was that debtors in other countries could no longer devalue their debts. The consequences of these factors were much cleared to interested party elites than to most citizens. 'Most citizens' were convinced that the EMU would IMPROVE their condition, which was one of enjoying the benefits of social welfare policies, not DEGRADE their condition by stripping away those benefits to the enrichment of the elites.

 Had those citizens believed that such changes as have come about since would indeed happen I cannot believe they would have favored joining. I would argue that there was no true 'meeting of the minds' on the part of citizens of future EMU nations. The citizens were duped.

Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union. With a Seuro, two arguments in favor of the euro would be gone, a Seuro grants neither European unity nor sooths insecure emotions by being a symbol of being accepted into Europe proper. There would be a simple reason against, the failures of EMU showing the risks and no arguments in favor.

Governments that could support living wages, renewable energy and full employment might concievably be elected, but if these countries are not of significant economic and political weight they are much less likely to be able to sustain these policies in the face of predictable sabotage by those remaining in the EMU. That is one major benefit of a Seuro union.

Also a Seuro union, especially were it to include Italy, would give greater weight and power to insure reasonable treatment by the EMU due to its new found ability to renegotiate or default on debt held by EMU entities. They could, for instance, declare that the gratuitous damage done by Troika policies be deducted from the debt owed. And the ability of an SCB to employ creation of endogenous money for self liquidating investments could quickly turn around the economies of peripheral countries, providing a clear example of practical alternatives to austerity while shooting TINA in the head.

But the biggest benefit that the creation of a Seuro Union would have would be to break the control that conservative interests currently have over policy. As for soothing 'insecure emotions by being a symbol of being accepted into Europe proper' I would say that this is best accomplished by said citizens learning to stand up for their own self interest rather than being addicted to meaningless lies and delusions. Being 'accepted into Europe proper' may be the post modern version of Marx's 'opiate of the people'.      

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 11:55:32 AM EST
[ Parent ]
ARGeezer:
Governments that could support living wages, renewable energy and full employment might concievably be elected, but if these countries are not of significant economic and political weight they are much less likely to be able to sustain these policies in the face of predictable sabotage by those remaining in the EMU. That is one major benefit of a Seuro union.

But they don't need a Seuro union to cooperate. If a couple of peripheral countries got their act together they could easily gum up the works in the EU.

Thinking about it, if they are in practise removed from the euro zone - but through ECBs grabbed power rather then any legal procedure - then I think they would retain their seats at the ECB Governing Council. And they would in any case have their seats in the Council of the European Union, which appoints - by a qualified majority - the executive board of the ECB.

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

by A swedish kind of death on Fri Sep 20th, 2013 at 03:00:09 PM EST
[ Parent ]
Say that several countries are forced out after electing governments that would support living wages, renewable energy and full employment. None of those needs a monetary union.
But much of it would benefit from a properly constructed monetary union. Exchange rate unions do hold benefits for small economies, because they reduce the fluctuations in the cost of importing strategic necessaries. It's just that most historical exchange rate unions have been designed by people who need to be fitted for helmets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 12:44:40 PM EST
[ Parent ]
But much of it would benefit from a properly constructed monetary union.

My point exactly! Members of a Seuro MU would go from being the victims of Euro zone policies to being the beneficiaries of Seruo zone policies. And this would have the beneficial effect of showing all that better alternatives are a practical possibility - but that would have to be discerned through the smoke screen that existing Euro zone incumbents would be generating.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 01:58:59 PM EST
[ Parent ]
In this case with membership of Cyprus in a Seuro zone the possibilities of gas production off the southern shore of Cyprus could get interesting, especially were Greece and Cyprus to be able to resolve disputes with Turkey. At least there would be an incentive to do so.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 02:07:07 PM EST
[ Parent ]
Ok, but would a full blown Seuro with a common central bank serve any economic purposes that are not served by fixing the exchange rates and backing that up with a willingness from all central banks to make fondue of speculators?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Sep 20th, 2013 at 02:28:15 PM EST
[ Parent ]
Yes! As noted in the second and third paragraphs below the break in the diary:
It would only be worth doing were the Seuro Central Bank (to) be prepared to be a lender of last resort for banks in the union and if sufficient monetary union was accepted by the members to allow for the creation of a Seuro Treasury and development bonds with liability shared by all member states. Full fiscal union would not be required, but it must be accepted that basic monetary policy must be directed according to the needs of all of the members, not just the largest. The effects of an interest rate that is too low for the needs of some members could be (partly) compensated by increased prudential regulation, for instance.

Proceeds from such bonds or money created by the SCB should primarily be used for projects that would both clearly be self liquidating and that would provide employment within the Seuro zone and it would have to be agreed that trade surpluses within the zone would have to be recycled through investment in deficit countries so as to produce balanced trade within the bloc.


Many of these policies could be implemented by a European Investment Bank and financed through Euro bonds were they not blocked by Germany. And then there is this in the next to last paragraph:
Countries in the Seuro could agree to mutual policies that allow for the level of social solidarity that existed prior to the crisis, as they could maintain the value of their currency via the exchange rate mechanism. If all countries within the union agree to certain standards of wages and benefits and agree, if necessary, to protect their economies by both capital controls and tariffs they could, to a considerable degree, opt out of global wage arbitrage. Citizens, I believe, would gladly trade higher prices for some consumer goods for a higher degree of social cohesion and stability. Living wages, renewable energy and full employment instead of 'Always low prices'.

Plus this from my first comment to your response:
And the interests being advanced were obviously those of the elites considering that the first step was removal of controls on capital flows. This should have only followed implementation of effective prudential regulation and establishment of Euro Zone wide bank resolution policies financed by a Euro Zone wide source of funding.

The establishment of an SCB would also have had to include, in addition to a Seuro Treasury and Seuro Bonds, a Financial Stability Regulator with the power to resolve illiquid/insolvent banks with funds generated from within the Seuro zone.

None of these things exist currently in the Euro zone and the attitudes of Germany and the other elites for which Germany fronts seem to be: : Let it bleed!"    


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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 02:54:38 PM EST
[ Parent ]
But could they not as well finance the goodies with their own CBs and treasuries?

I have seen the need for European Investment Bank investments and bank liquidification etc as a result of the current mess with a ECB without a proper sovereign.  A hack to fix the EMU without breaking it up.

If it is a larger matter of needing European regulators because EU rules has defanged national regulators, then those problems are not solved by instituting South European regulators. Unless the idea is that the South European countries should leave not only the EMU but also the EU and form their own union, the SEU.

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

by A swedish kind of death on Fri Sep 20th, 2013 at 03:11:07 PM EST
[ Parent ]
Formally speaking, it is true that a bloc of Spain, Italy and Greece will have no more leeway to regulate than Spain, Italy and Greece individually.

Practically speaking, if a bloc of Spain, Italy and Greece decide to do it anyway, that's a totally different animal from doing it individually.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 03:20:04 PM EST
[ Parent ]
I don't see that there are any insuperable obstacles to Portugal Spain Italy, Greece and Cyprus simply acting under their own sovereign powers to form such a union. I am of the impression that there is not a lot of formal legitimation of the EMU from the EU. All of the real action is between heads of state who, by now, are largely representing the leading financial interests of their countries. Were the above countries to coordinate withdrawal from the EMU and form a Seuro Monetary Union, especially one that included elected representatives from each member to an economic coordination policy board or some such which had mandated approval power over general SMU and SCB policy it would likely have more democratic legitimacy than does the EMU at present - but that is not a high bar.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:34:39 PM EST
[ Parent ]
A hack to fix the EMU without breaking it up.

I don't see this happening without an existential threat to the EMU, which the creation of an SMU run on lines I have described would credibly provide.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:48:43 PM EST
[ Parent ]
Ok, but would a full blown Seuro with a common central bank serve any economic purposes that are not served by fixing the exchange rates and backing that up with a willingness from all central banks to make fondue of speculators?

Given the premise that the national central banks are committed to defending their currencies against appreciation against any other member of the bloc, then no, there is no value added from having a supernational central bank with a mandate to recycle CA surpluses.

Because the point of a supernational central bank with a mandate to recycle CA surpluses is to make sure that national central banks stick to a policy of defending against appreciation. Even in the face of the temptation to revalue and ride a bubble of fake prosperity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 20th, 2013 at 03:17:35 PM EST
[ Parent ]
Because the point of a supernational central bank with a mandate to recycle CA surpluses is to make sure that national central banks stick to a policy of defending against appreciation. Even in the face of the temptation to revalue and ride a bubble of fake prosperity.

And following such a policy would powerfully benefit the economic stability and growth prospects of member states, aside from the effects of Seuro bonds. The rump EU, deprived of lucrative southern peripheral targets for its manufacturer's vendor finance schemes, would likely turn on the weakest state remaining in the Euro. This would increase the centrifugal forces inside the Euro zone and promote additional flight out, if not to the Seuro zone.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 03:45:20 PM EST
[ Parent ]
... reason for the currency union is to eliminate foreign exchange rate uncertainty from cross-EU production chains, a SEuro would require production chains primarily passing between SEuro countries.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Sep 20th, 2013 at 01:14:41 PM EST
[ Parent ]
The initial reason for creating the Seuro would be to protect its citizens from the ill effects of the Euro. I think a lot of Greeks and Portuguese would understand that reasoning. Being part of a single union that entails being raped daily somehow does not seem attractive to me. The initial countries would be those for whom the current Euro policies are the least optimal. IMO they would benefit merely from being in a union that had policies far closer to their individual needs. Production chains could follow. Meanwhile existing, beneficial (to Seuro zone members) production chains could be given special treatment.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 01:54:19 PM EST
[ Parent ]
But what is the benefit of the SEuro over having their own currency?

Their core problem is the relegation of their national governments to subsovereign status while retaining responsibility for stabilizing fiscal policy. Going back to a sovereign national currency directly fixes that problem. So why does establishing a SEuro fix it better?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 20th, 2013 at 07:52:59 PM EST
[ Parent ]
So why does establishing a SEuro fix it better?

By providing greater size and weight and thus more resilience to the pressures originating from the other monetary union and by being able to demonstrate the benefits of a Monetary Union run on lines designed to raise all member economies while providing some of those benefits to its members. If a group of nations are being pillaged and smothered by the strongest members of their present monetary union and are then likely to be ejected they would be better off to join together and preempt such ejection by leaving together. And, in the beginning, they are likely to very closely resemble an optimal currency area in the new union. But these benefits depend strongly on the new union being run and continuing to be run on the basis of the principles outlined above.      

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 20th, 2013 at 08:20:03 PM EST
[ Parent ]
... risk that the demonstration will fail ~ after all, the demonstration is needed because it hasn't yet been done successfully.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sat Sep 21st, 2013 at 03:08:57 PM EST
[ Parent ]
South America might turn out to provide a test. Many countries there are trying to protect themselves from the depredations of Dollarworld. Or, if the Euro continues on its present course an opportunity to try a union based on better foundations and principles may emerge. But, of course, the biggest danger any society or group of societies face with their monetary system is having control of it hijacked by financial elites and the use of it perverted from the development of the society or societies to the enrichment of the few. That, effectively is what has happened in the USA, the UK and in the Eurozone.  

The Latin Monetary Union lasted for more than 50 years despite having a bi-metalic standard for the first 13 years and having the problem of some countries issuing bank notes based on union standard coins. World War I effectively ended the union but there were reasons it endured so long as it did. Having standards of weight and purity of coins amongst numerous countries was seen as facilitating trade, at a minimum.

The USA at its founding was a collection of sovereign states somewhat comparable in size and economic diversity to the states of the Latin Monetary Union but it became a de facto monetary union with the adoption of the US Constitution and had two national banks over different periods until 1836. I suppose we could have continued with just the National Bank system established during the Civil War, augmented by private clearinghouses, but the creation of the Federal Reserve System on the eve of WWI greatly aided the US in financing that war. Despite the actions of the Fed from 1928 until the appointment of Marriner Eccles, I shudder to think of managing such recovery as we had during the Great Depression under the old National Bank system, let alone trying to finance WWII without the Fed.

Under current policies in the EMU I don't see the peripheral countries enjoying ANY net benefits from the union and it seems that more and more members will fall into the status of Ireland, Greece and Portugal. But I don't see any of them as having sufficient weight to thrive alone, though I may be wrong. Hence my proposal. I just wish I could see even as good a potential solution to the problems the USA faces.    

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 21st, 2013 at 10:17:22 PM EST
[ Parent ]
... neither of them encouraging to the SEuro organized around a group with no fiscal authority. The Latin American example is advancing a monetary union in support of governments pursuing the interests of a wealthy few and a misery for the majority, and of course the US Federal government was a federation with fiscal authority, even if only light used, after a confederation more along EU lines had previously failed.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sat Sep 21st, 2013 at 11:07:29 PM EST
[ Parent ]
I wasn't proposing a Seuro organized around a group with no fiscal authority. I was proposing a Seuro organized with a fiscal authority consisting of an SCB, a treasury and an elected board of governors to oversee policy for both, including the issue of bonds of joint liability and the uses to which the funds so generated would be used. I am not really familiar with the details of Mercousur, though the 'free movement of capital' is worrying. I was expressing a hope with regard to the possible future development of a monetary union in South America, but would be concerned about one that is set off on the wrong path already. Dilma Rousseff had an interesting background and is encountering push back from the population with regard to elite excesses surrounding the Olympics and World Cup. There are at least some hopeful possibilities there.

As I have noted I think my proposed plan could work, IF PROPERLY IMPLEMENTED, but proper implementation is rather improbable, especially as such a large portion of the population has no idea of what is required for a system to work in their favor and most seem inclined to trust the thieves currently looting them while thinking 'they would never do something like that.'

As the song said:

Here I stand, ticket in my hand,
waiting on the train to the promised land.
Waiting for EVERYMAN.

A better system is possible, but perhaps not with the people we have.  Yet.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 22nd, 2013 at 12:35:57 AM EST
[ Parent ]
Do you see a substantial likelihood that the existing EMU will, on its own or through EU institutions, evolve into a union that will promote the interests of all members to a reasonable degree? Is that more probable than developing a separate union along lines I have proposed?  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 22nd, 2013 at 12:45:25 AM EST
[ Parent ]
Not very much, but more so than the SEuro. In either case, it requires closing the democracy deficit. For the EU as a whole there is the European Parliament, but an egregious degree of indirect representation with all of its anti-democratic tendencies. For the SEuro, it wouldn't even have that much direct representation.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Sep 24th, 2013 at 02:09:37 PM EST
[ Parent ]
For the SEuro, it wouldn't even have that much direct representation.

That is why I proposed an elected board of economic governors to set economic policy for the overall Seuro zone and the SCB. That would include interest rates, prudential regulation, Seuro bond issuance, purpose and oversight and recommendations for uniform legislation to be adopted in each member state. They would be selected by popular vote in each country. Perhaps the head of an executive could be elected by popular vote amongst all zone members. Such a structure could, if found beneficial by the member populations, move quickly towards greater political unity.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 24th, 2013 at 02:28:53 PM EST
[ Parent ]

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