Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I just don't get the logic behind talk of a SEURO - which I haven't heard many in Europe pushing in any case. Yes, the Euro has been overly dominated by Germany, although less so now with Draghi in charge.

But the argument against the Euro has always been based on the fact that the EU isn't an optimal currency area - it's economies are too diverse - and the fact that there isn't a political Union ensuring that fiscal transfers counter-balance the tendency for capital and wealth to accumulate in the stronger central economies.

A Seuro wouldn't change that much. Italy and Greece (say) don't trade all that much with each other compared to (say) Germany or France. And absent the EU splitting into Northern and southern Unions, the problem of the lack of a central government managing the currency remains.

So for me, there are only too options: the Euro or a return to national currencies.  The Irish experience with the latter is not positive. Smaller currencies are too easy for even a medium size hedge fund to game.  You always end up paying a risk premium for sovereign (and private) debt as well.

The major downsides of the Euro for for a small open economy like Ireland was when Germany needed low interest rates post unification and Ireland needed the opposite to stop the Celtic Tiger running amok. That and the total mismanagement of the Irish Banks crisis by the ECB, mistakes they have partially acknowledged and resolved to correct from now on.

Absent gross incompetence and major regional imbalances like that, the Irish experience of the Euro has been wholly positive: Low risk premia, low interest rates, low transaction costs, currency stability, certainty in trade, budgeting and pricing.

Frankly, hardly anyone in Ireland would trust the Government or Central bank to run a currency effectively. The absence of a devaluation option when a crisis strikes Ireland asymmetrically is a bummer and requires much more careful and longer term planning of the public finances.  Brexit could well become such a crisis as it could hit Ireland much harder than most.

But even then I don't see an outcry to ditch the Euro.  When it didn't happen in the wake of the Housing, banks, and financial crisis it is unlikely to happen at all. Even Greece, which was treated even more shoddily by the EU when the crisis struck gains enormous benefits from remaining in the Euro because of the size of their tourist industry relative to GDP.

Greece probably should have left the Euro given the state of its economy and the need to radically restructure its debt - but it didn't - and now it probably never will.  For all it's structural deficiencies, the Euro is probably here for the long haul, and I'm not convinced total EU GDP growth would be all that much different if everyone returned to national currencies.

What we will see, however, is increased tensions and structural imbalances playing out in the political sphere, and I can't see how those can be resolved without a broadening of the ECB's remit to include unemployment and other measures, together with a much larger EU budget capable of channelling resources to areas of greatest need. Everything else is retrogressive.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 25th, 2016 at 07:04:27 PM EST
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