Posted on 06/03/2005 3:05:36 PM PDT by Cornpone
AMSTERDAM — Doom scenarios about the future of the euro are being heard in France and the Netherlands after both nations rejected the EU Constitution in recent referendums.
The president of the Dutch reserve bank DNB, Nout Wellink, has dismissed the speculation as "nonsense", while German Finance Minister Hans Eichel claims such talk is "irresponsible".
But the word is out: after two 'no' votes and a persistent economic malaise, doom and gloom scenarios are being heard about the future of the euro, Dutch newspaper 'De Volkskrant' reported on Friday.
"It is no longer unthinkable that the euro will bust," Leuven University international economics professor Paul de Grauwe said.
Underpinning his assertions, a professor with the European University in Florence, Rick van der Ploeg, said the present political reality could lead to the end of the euro.
Opponents to the euro, including Amsterdam University economics professor Sweder van Wijnbergen, warned in the 1990s Europe could not have a single currency because the economies of the various countries were so different. A single currency would also require a political union, he said.
Supporters of the currency said a political union would arise naturally due to the introduction of a joint currency.
However, De Grauwe said political integration appears to be dead after the no votes in the Netherlands and France, despite the fact "a political union is necessary for a healthy euro".
Van Wijnbergen says the growth rates of European economies are still widely different and it is no longer possible for individual nations to maintain different monetary policy or exchange rates to buffer economic imbalances.
If EU workers relocated to regions with good economic growth, economic differences would level out. But labour mobility does not and will never exist, Van Wijnbergen claimed.
However, he rejected the overnight dismantling of the euro due to the high costs involved and Van der Ploeg said the joint currency can still be rescued. This would depend on France and Germany reforming their labour markets, he said.
"Now to protect his money he has no choice but to buy back the USD to avoid loosing too much."
No choice? LOL! Like the USD is the only currency in the world. There are others that are stronger you know.
I agree... The dollar still has more things waiting it down for the moment. But the volatility doesn't hurt the US very much, just gives a little better rate to secure some Euro assets for the time being.
That is a possibility. There will be no single State behind the currency, but the original EEC is still operating and within that the $EU will remain as it was. As long as the EC exists in treaties, the currency will be viable. It's not a classical currency, but as long as it has some backing of several States it will be functional.
I highly doubt the Euro will ride back up again, when it's in Europe's best interest to keep it more competitive with other world currencies. Somewhere in the neighborhood of 75 cents to the USD. Europe has to become more competitive, it's just not possible with an over-valued product.
No, I agree. However, the problem of a single currency for such diverse countries/economies doesn't go away. The big countries like Germany and France are already cheating on the constraints needed.
LOL (and very true)
Where did you read that -- in the W. Post?
It's certainly irresponsible to talk of it even if you're going to do it. Got to be careful and not crash the currency.
It's fairly amazing the Euro zone countries have shared a currency for so long without much more centralized control. I can't think of any other examples. There was the Central French African franc zone, but one power, France, controlled the strings. France used the CFAF to finance its deficit spending, but in return the African countries got a stable currency.
In the Eurozone, France uses its power to avoid penalties for exceeding deficit standards, which insofar other countries are so penalized France benefits by relatively larger domestic deficit spending, the ill effects not limited domestically but shared with other Eurozone nations.
"Europe has to become more competitive, it's just not possible with an over-valued product."
The product isn't the currency, unless you're specifically speaking of currency trading. The actual products are not overvalued, they're overpriced, which is due to very uncompetitive labor costs.
True. but not as stable. He could buy Cunuck bucks and drive their value up, THEN trade to USD's. He is a money trader after all. Eventually he has to park in a secure stable place while the instability he causes settles down. Frankly, I think players like him should be resricted.
Anything that doesn't come in a bottle is doomed if it depends on the French or the Germans
"Frankly, I think players like him should be resricted."
LOL. Appealing as that thought might be, just how would you be planning to pull that one off?
Eventually, the EU with many nations will fail, to be replaced, somehow, with a successful, smaller group of 10 nations...I don't know how or when. John talked about it a couple of thousand years ago.
The fall of the euro after the French vote against the EU Constitution lasted about a day or so. But the euro is still climbing, and the USD has been falling again for days. Economics researchers are predicting that sooner or later, for a few months, the dollar will fall much more.
I agree very much with our fed policy on the dollar. It will equalize much more with certain foreign currencies as per better free market, conservative policy, or the trade deficit will be corrected with a backlash (tariffs) from the dark side.
"The big countries like Germany and France are already cheating on the constraints needed."
It's an interesting system. It is economically rational to cheat within the currency. If one country proportionately has a higher deficit than others the negative effects of the deficit spending are spread among the others. Indeed, at certain calculations one profits from deficit spending in a scenario like this.
The EU has set up a system of monitoring and penalties to avoid this scenario. However, if one can avoid the penalties, or make the penalties to equal less than the benefits, it remains an economically rational standard. I understand the French, and maybe the Germans, have avoided deficit spending penalties by force of their claims how important their large economies are to the Eurozone as a whole.
It's not unlike a mild example of a metropole-colony relationship where the colony subsidizes the colonizer.
The unity mentality isn't going to solve any problems in Europe; it's what's at the root of them. Individual nations who want to be unified, but only under each individual nation's rules, is why Europeans have been killing each other for thousands of years. Just because they drive cars instead of ride horses doesn't mean that anything substantive has changed. Competing socialist systems will never co-exist peacefully.
I have three important comments on this topic: Ha,Ha,and Ha.
yes, and their product price is based on the Euro.
Lets say I make a product in Canada, which costs me one canuck buck per unit/hr to produce in Canada.
That cost is about 70 cents USD.
Making the same product in the USA cost's me one USD/hr.
which is $1.30 in canuck bucks.
Making that product in Europe cost's me one Euro/hr per unit.
which is $1.22 USD today.
Which one would you as an American importer and reseller import to make max profit?
The Euro has to fall to be more competitive, which as we see it already has. That isn't really a bad thing.
Mr. Bush is helping plenty with his massive deficit spending.
A concern about the fall of the Euro must be whether it makes the dollar more attractive and inspires Washington to commit even higher levels of deficit spending.
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