by Jerome a Paris
Sat Apr 12th, 2008 at 12:31:34 PM EST
The Demise of the Euro (Forbes)
Tensions between inflation-obsessed Germany and growth-hungry Latin countries will spell its end.
It is only a matter of time, probably less than three years, until the euro experiment meets its end. The financial crisis in the U.S. is hastening the process, as investors flee the dollar, pushing the euro to a price of $1.59. But it will not stay high for long. Countries like Spain and Italy will withdraw and return to their old currencies. Once that happens, get ready for the return of the deutsche mark and the French franc.
What will undo the euro: the mounting tension between the inflation-obsessed German bloc (including Austria, Luxembourg and the Netherlands) and the Latin bloc of France, Italy and Spain.
ECB hawks defiant as storm gathers (Ambrose Evans-Pritchard, Daily Telegraph)
The European Central Bank has again refused to join Anglo-Saxon peers in cutting interest rates, defying ever-louder calls for action as the economic storm clouds gather over Europe.
The ECB faces a near impossible task squaring the needs of two camps pulling ever further apart. So far, it has bent to the will of its German governors, perhaps because its own credibility derives from the Bundesbank.
The euro was launched under an implicit contract with the German people that EMU would not lead to inflation, or to an easy-money bail-out for improvident Club Med debtors. Harsh realities of politics are likely to intrude before long.
Europe risks a replay of the ERM crisis in the early 1990s when Germany raised rates to fight inflation, causing mayhem in those parts of the ERM bloc that were already in a downturn - Britain, Italy, Sweden.
There is no escape valve this time.
Danger ahead for the mighty euro (The Economist's Charlemagne column)
Euro-zone economies face external woes and internal tensions
In truth, as the euro approaches its tenth birthday celebrations, it is facing the biggest test of its short life. If Europe follows America into recession, which is quite possible, the pain will be a lot greater in the Mediterranean countries than in Germany and northern Europe. Not surprisingly, the political response from the two regions will also be quite different. Even as it prepares to expand once more to take in Slovakia and later other countries from eastern Europe, the euro is about to show the world that it is not yet an optimal currency area--and the demonstration may not be a pretty one.
Because it is not acceptable that the eurozone not suffer as well from the Anglo Disease, of course:
The ECB must get off its hands (Damian Reece, Daily Telegraph)
We remember the complacency of the ECB during the onset of the dotcom crash, when Wim Duisenberg and his staff in the ivory Eurotower insisted against all evidence that Europe would shrug off US troubles, taking over as the locomotive of the global economy. The illusion lasted about six months. In the end Europe came down harder than the US, just as it did in 1931.
(From the Charlemagne column))
AT THE World Economic Forum in Davos in January 2001, the mood was sombre. The dotcom bubble had burst spectacularly, the Nasdaq stockmarket had crashed, and the American economy was tipping into recession. Yet most continental Europeans were breezily optimistic. The long years of being lectured about their inadequacies by the Anglo-Saxons were over. Europe had wisely skipped the dotcom mania, and its new currency, the euro, was giving the continent a boost. Some Europeans even dreamed of taking over as the motor of the world economy. But it was not to be, as Europe promptly fell into a deeper recession even than America.
Seven years on, the parallels are uncanny.
Uncanny indeed. But where will a new bubble to hide the Anglo Disease yet once more come from?
But nothing is more revealing of Anglo-Saxon attitudes to the EU than that permanent desire to see the Germans and the Club Med torn apart. It's a combination of several things:
- the historical British policy of "divide-and-rule" in Europe just makes it natural to try to pit one part of the eurozone against the other. It's almost atavistic;
- similarly, the "we're from Mars" mindset of the Atlanticist crowd cannot imagine that there might be any solidarity between sub-parts of Europe nowadays. Why on earth would the Germans make any effort to prop up the Italians or Spaniards? It's costly to do so and the proper selfish thing would be to let them drop dead. Selfishness is good. See how Mexico is doing so much better than Poland - or Spain - these days...
- and, of course, add the now traditional tactic of accusing others of what you're doing. Talk up the Spanish housing meltdown. Underline how German banks are suffering from the subprime crisis. Lower the eurozone growth prospects. Existential threats, all, to the eurozone economy, while the US and UK are just going through a cyclical, temporary, shallow and short cleansing ("creative destruction") process which only underlines yet again their dynamism. Crises are inevitable, and this one is already discounted - and it even has allowed the Fed to demonstrate its amazing flexibility and creativity, whereas the ECB and the EU are totally inadapted to the challenge.
It does not matter that this is all irrelevant. It occupies territory, distracts from the real issues and fits within the narrative in place.
[editor's note, by Migeru] This article is part of the Anglo Disease series.