THE EURO: A doomed currency

The Daily Telegraph ^ | December 13, 2006 | Staff

[MadIvan]

The achievement of economic and monetary union by 11 European countries in 1999 was based on a deal: Germany, the strongest member, gave up the Deutschemark on the understanding that the others would not debauch the new common currency, the euro. Nearly eight years on, that inherently doomed project is coming apart at the seams.

The fundamental problem is that the economies of the "Germanic" members have diverged so far from those of the "Latin" bloc that the single interest rate set by the European Central Bank (ECB) is becoming a huge political liability.

An inkling of this came last year, when Italy's Northern League called for a return to the lira. It has now been taken up by the French prime minister, Dominique de Villepin, who has said that members must regain control over exchange-rate policy. Since that would give them indirect leverage over interest rates, it would strike a mortal blow at the ECB's independence.

The threat to the cohesion of the eurozone is best illustrated by comparing France and Germany. The second, having established a competitive advantage over the southern bloc of about 30 per cent over the past decade, is facing incipient inflation and favours a tight monetary policy. The first, devastated by the strength of the euro against the yen, dollar and renminbi, would like a halt to interest-rate rises. While the French political establishment has already turned against present policy, its abandonment would undermine support for the EU in Germany. The two "motors" of Europe are pulling in opposite directions.

What was once seen as a giant step towards "ever-closer union", as prescribed by the Treaty of Rome, is becoming an intolerable straitjacket. Common sense would suggest loosening the sleeves, but it may well be ignored as each of the camps cries foul. Britain found itself in a similar quandary before it left the ERM in 1992. For the eurozone members, there is, unfortunately, no immediate way out.

[the invisib1e hand]

did they ever ratify the constitution that excluded God? There's your clue. If they did, baby, start buying dollars and sterling for the long haul.

[Mi-kha-el]

"we need an edit feature!"
It's right there, in your head.

[Moonman62]

And how many varieties do Germany and the other EU countries have combined?

I don't know, but I'm sure it's specified by government regulation.

[Moonman62]

That's because the ECB is going to keep raising rates. I'm with the French on this one.

[napscoordinator]

I don't know what this article means, but if you compare the dollar to the euro, the euro is stronger. You should see the exchange rate that must be done. You give 210 dollars and get about 140 Euros back. Terrible!!!

[stefan10]

Sorry but your argumentation does not fit to the topic.

The simple fact is that in a system as the EU with a single market, common economic laws ( and that´s the reality we live in) a single currency is a natural and positive development and the arguments are clear and the examples are easy to find.

You can have the opinion that the UK should leave the EU or that the EU is a "bad" thing in general because as a british nationalist you prefer to remain sovereign and completely independent but that´s a different topic and discussion.

The UK has every right to leave the EU for whatever reason but you will not find a supreme economic argument about the euro within the structure of the EU because in the end there is more to gain than to loose and that´s the reason no country will leave the euro.

[bert]

......The main argument of the article is not only old but simply not true.....

For once, I read the thread before commenting. Your analysis reflects my thoughts but probably with greater eloquence. In America we somehow get by even though there is uneven pain. The current political unrest in Ohio and Michigan and California are examples. Loss of industry and fantastic housing inflation are both being muddled through.


If we view history, especially economic history, as a flow or ongoing process, the current French pain must be accomodated by the union with some favorable adjustment. Trashing the system makes good campaign rhetoric but is not really a solution. The question is political will. Should the politics be short or long term when considering a solution. That will be determined by the character of the leaders.

Meanwhile here in America, we'll be working overtime with full employment enjoying the Dollar Euro disparity.

[M. Espinola]

One of the main reasons the Conservatives cowardly turned against Prime Minister Margaret Thatcher is she publicly warned, for the UK to surrender the Pound (to them - Germany's central bank) it would be tantamount to surrendering national sovereignty. She was right.

Historic Euro chart

Since the introduction of the Euro in 1999, should the question be why has the Euro been so bullish since 2002, or, why has the US Dollar been so bearish in the same currency trending time frame?

[stefan10]

Very good point. The euro is not the cause of Europe's problems. As I recall, many on the pre-euro national currencies (especially the lira) were essentially worthless next to the mark and dollar.

Yes because several central banks were not independent and the politicians preferred the easy and not so painful way of devaluation than economic reforms but that has only if at all short term positive effects while the negative longterm impacts as higher rates and the lack of reforms become bigger and bigger.

"The French are upset because they realized that the European economic integration they have been pushing for decades means that the French welfare economy will be fully exposed to competition from places such as Poland and Denmark. That is why French voters rejected the EU constitution, and that is why the French are thinking about going back to the franc. "

denmark as a Scandinavian country has still a huge welfare system while they started reforms earlier than other countries in europe. I believe in economic periods and that´s also true for countries because painful reforms are much easier or even possible in a democratic system when the conditions allow these reforms. The UK are a good example for that the reforms of the 70s would not have happened in a successful environment.

"From my point of view in America, it is better for us to deal economically with one big jurisdiction in Europe (one currency, one set of regulations, one set of tariffs, etc) than with 30 smaller separate ones."

That´s more than true

In general it is easier, cheaper and less risky for US companies when they have to deal with a single currency than with 25 different currencies. The same is true for the other examples you gave. everybody with a little knowledge of the export business knows how painful and costly laws and regulations can be.

[stefan10]

That´s also my opinion but it is harder here than it was or is in the US because here you have the problem that we talk about different countries that existed for a very long time at least some of them.

So facts and economic arguments are one thing but emotions are a complete different thing.

But that´s understandable many people fear that they will lose something (their identity, their country,....) and in some countries these fears are bigger than in others which is also a result of the different histories.

[FreedomCalls]

Since the introduction of the Euro in 1999, should the question be why has the Euro been so bullish since 2002, or, why has the US Dollar been so bearish in the same currency trending time frame?

Because Iraq is sucking up our excess capital to the tune of $800 billion and counting so far. Imagine what our economy would look like if that $800 billion stayed here in the US.

[M. Espinola]

"Because Iraq is sucking up our excess capital to the tune of $800 billion and counting so far. Imagine what our economy would look like if that $800 billion stayed here in the US."

Good point. The Iraqi terrorism problem & our troops being murdered could be largely resolved if the two bordering terrorist exporting states, Iran and Syria, had their ruling despots overthrown.

Another reason for the USD decline we import far more goods from Red China then we export.

[Mase]

Here's a read that you'll enjoy. I'm eager to see what chart GGG posts to prove that this author is wrong and that the dollar is going to be supplanted by the Euro. Have at it Gigi.

[Toddsterpatriot]

THE EURO: A doomed currency

But....but....I thought the dollar was doomed? Jerome Corsi said so. LOL!

[cloud8]

The currency in trouble is the dollar, I'm afraid. 1EU = $1.328 this morning.

[expat_panama]

the dollar is going to be supplanted by the Euro

That's right-- all the oil producers are dumping dollars and switching to the Euro because the dollar is now worthless and everyone's buying gold (charts here).

IMHO these reports of the Euro's demise, as with the Dollar, as well as with Mart Twain, greatly exaggerated.

[Toddsterpatriot]

The currency in trouble is the dollar, I'm afraid. 1EU = $1.328 this morning.

Two years ago the Euro was worth $1.36. So what?

[Mase]

all the oil producers are dumping dollars and switching to the Euro because the dollar is now worthless and everyone's buying gold (charts here).

Does anyone else get a headache from looking at that first chart?

[webstersII]

"So take your pan-Europeanism back to Brussels."

To coin a movie line, essentially what stefan10 is saying to you is, "Resistance is futile. You will be assimilated."

It's unbelievable that the socialist utopians can't see anything except collectivism in every aspect of life, whether work, play, gov't programs, education, etc.

If only we could ship our socialist utopians (like Hillary) over to Europe. That would be a win-win for everyone.

[MadIvan]

a single currency is a natural and positive development and the arguments are clear and the examples are easy to find

This is why people want to choke Eurocrats - you just say things like this without providing any actual evidence, and act completely snobbishly, "Of course, daaahling, it's perfectly evident to us nooorrmmaaal people". Christ, it makes me want to throw a Molotov Cocktail through the EU Headquarters and laugh while it burns to the ground.

France and Italy have severe structural problems thanks to the Euro. Both their competitiveness and their employment have suffered. Germany needs higher interest rates, but the ECB can't hike them because of France and Italy - I repeat, one size fits all monetary policy is NOT delivering the goods. But then you come along and arrogantly deny all of this and just say "it's natural" that it should work. What the hell planet are you living on? What kind of drugs do you have to take to fly in the face of empirical experience like this, and not expect to get smacked in the face for it?

This is not some theoretical exercise - genuine working people suffer because of people like you going off some theoretical flight of fancy. Why don't you shut the hell up and listen to the people of France and Holland, who told people like you to stuff it when it came to further European integration. A Europe of diversity, where government, politics, and economic policy reflects the needs of individual nations is what will work - not the binding straightjacket where everyone has to be the same.

Ivan