Time to break up the eurozone?
14 September 2011
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Writing an article on the fate of the eurozone in recent times has been something of a fool’s errand. No sooner has the ink dried on the page, or the printer whirred into life, than a news bulletin will sound out, announcing another fall in the markets, another eurozone member to be downgraded, another political statement aimed at restoring confidence. It is hard sometimes to keep up.
The irony, though, is that any number of people predicted this exact scenario over two decades ago, when the euro was little more than a dream for the most ardent of Europhiles. Even while the rules for the euro were being created, they were simultaneously being broken. The Treaty of Maastricht set out five requirements for member states wishing to join the euro – of the 11 countries to join; only Luxembourg passed all five. Then came the stability and growth pact, soon jettisoned when it got in the way. And the no bail-out clause? Well, it almost seems comical in light of recent events. It is exactly this kind of fiscal indiscipline that has led us to our present parlous state. A political project, powered by political will, to achieve political ends. If the economics get in the way, dump the economics.
What the eurozone doomsayers knew when they were making their predictions back in the nineties was that a “one-size-fits-all” monetary policy was totally impractical for a group of such diverging economies. Take Ireland, for example, whose economy was already booming when it adopted the euro. With accession to the eurozone came low interest rates and a flood of cheap money, a housing and construction boom, and the eventual catastrophic bust. High interest rates would have made money more expensive and would have cooled the overheating property market, averting disaster – but the Irish exchequer had given up all control of its monetary policy in order to dance to the tune of the Germany-focused European Central Bank.
Read the rest of the article on the Public Service Europe website.
The irony, though, is that any number of people predicted this exact scenario over two decades ago, when the euro was little more than a dream for the most ardent of Europhiles. Even while the rules for the euro were being created, they were simultaneously being broken. The Treaty of Maastricht set out five requirements for member states wishing to join the euro – of the 11 countries to join; only Luxembourg passed all five. Then came the stability and growth pact, soon jettisoned when it got in the way. And the no bail-out clause? Well, it almost seems comical in light of recent events. It is exactly this kind of fiscal indiscipline that has led us to our present parlous state. A political project, powered by political will, to achieve political ends. If the economics get in the way, dump the economics.
What the eurozone doomsayers knew when they were making their predictions back in the nineties was that a “one-size-fits-all” monetary policy was totally impractical for a group of such diverging economies. Take Ireland, for example, whose economy was already booming when it adopted the euro. With accession to the eurozone came low interest rates and a flood of cheap money, a housing and construction boom, and the eventual catastrophic bust. High interest rates would have made money more expensive and would have cooled the overheating property market, averting disaster – but the Irish exchequer had given up all control of its monetary policy in order to dance to the tune of the Germany-focused European Central Bank.
Read the rest of the article on the Public Service Europe website.
3 thoughts on “Time to break up the eurozone?”
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Well put. Not for the first time, the continental Europeans are running their affairs in a way that is likely to cause us in this island a huge amount of inconvenience and upset. The key point in the article concerns the need to recognise economic reality. The whole eurozone mess is really an example of what happens when you let the political system dominate the market system. And we ain’t seen nothing yet!
The Global mess is not all about the politicians or even the Euro Zone, although its a simple fact that they ignored the rules they created. Its about the simple greed of the global manufacturing and banking giants who used the trade unions greed of the 60s and 70’s to allow them to move production to the more ameniable and safe countries now known as BRICS. Governbments keen to attract the jobs for a small percentage of their populations and happy to ignore health, safety and keen to fill their own bank accounts. The world is now out of financial balance with the European and North American countries no longer providing work for an ever increasing number of less well educated people; Britain for example has reduced its manufacturing to mainly high end expensive items that dont employ thousands of people and more often than not employs cheaper graduate talent from the BRICS countries. While what is left of the trade unions, mostly earning income from the public purse, renew their war against the tories and the general public; the media continue to follow the political line of ignoring the truth and pretend that the financial model which has created a super elite, richer than sin on the back of slave labour, has failed completely and that a new model is needed. One that will prevent money being hoarded in off shore banks and put to use creating equally paid employment; after all whats the point in being a well paid doctor if no one clears the rubbish, both are equally needed yet are so far apart in financial reward. Britain is fast becoming a second hand nation, living on the technology that was shelved 40 years ago while China develops the mag lev train invented by a Brit and built by the Germans because this country was already bankrupt.
How can you build a reliable business with a CEO ignorant to almost anything known about how costs effect return? How can you build a reliable business when you put together workers from different countries who are paid different wages for what is essentially the same work, but being treated equally when it comes to purchasing goods? How can you expect a closed economy to function, when one member (Germany) reaps the benefits of the economy, while others borrow up to their noses in order to keep their living standards afloat without not worrying too much about a pay back?
Too me the Eurozone looks like the home of a bunch of cheating and deeply opportunistic egomaniacs each of whom have been trying for some time to live at the expense of the others, and it worked, as long as roll-over borrowing worked. However, since someone had the gutts to look under the carpet of the harmonized common market ugly bugs turned up in legion and now, what’s needed is pest control – but how can you control pests you’ve nurtured for so long without removing the carpet and having a clean sweep, which means: remove all those economically illiterate politicians who see the main purpose of their existence in not telling people what they will have to pay for in order to promote their never-never land, which of course secured re-election in the past?