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.

[MadIvan]

I'm having difficulty not gloating.

Regards, Ivan

[MadIvan]

Ping!

[Dundee]

Gloat away, my friend.

[SAJ]

You would have enjoyed some of the threads on marketforum.com (if you haven't seen them), in 2001-2003 (WIFKED grin, m'friend).

Don't know who said it first, but the wogs STILL begin at Calais.

Happy Christmas to you!

[MadIvan]

I was angrily against the Euro, I didn't want Britain to be part of it - fortunately, we didn't join. And now we're sitting pretty for having kept the pound.

Yes, I'm happy.

Regards, Ivan

[bruinbirdman]

As goes the euro, so goes the European Union: DOOMED.

Capitalism wins one way or another even in socialist states.

Seems like the euro has always been "stealth capitalism".

yitbos

[decal]

"How can you govern a country which has 246 varieties of cheese?" -- Charles de Gaulle

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

It's a wonder the Euro has lasted this long.

MI, do the Tories still have Europhile and Euroskeptic wings? I always was of the impression that that split did more than anything else to bring in Labour.

Blast John Major.

[Echo Talon]

West Sussex, England, UK

Hows the dental care? I saw another brit on O'Reilly tonight and she had some gnarled looking teeth...(pretty girl, but some nasty looking teeth and I bet some really bad breath too)

[nopardons]

bttt

[sully777]

Ponzi scheme that is kept afloat because so many very powerful clients are in up to their foreheads. No constitution just a enormous shell game hosted by die hard socialists, fascist, statist, and communists.

[stefan10]

Why are you happy and i mean that very serious.



"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. "

The main argument of the article is not only old but simply not true. Following this argumentation the US should not have a single currency given the fact that the diversity in the US is bigger as within the euro zone. Every study shows that. So i doubt that many people or companies in the US want 50 currencies with all the negative effects because of the economic diversity within the US.

germany should not have a single currency because in the middle of the 19th century the same arguments (sovereignty and diversity) were used to keep the huge numbers of currencies existing in the different german states.

A single currency makes trade cheaper, easier and less risky and not only the history of the US or germany shows that but also the trade growth numbers within the euro zone.

To believe the euro will fail might be a wonderful dream for EU skeptics ( especially in the UK) but as always in the last decades it will remain just that a dream because the facts will not be in favor of the EU critics and as you joined the EU ( despite all your wining and anger) you will join the Euro or you will pack your currency to the Euro as the french and all the others did with the german mark.

It is just a question of time. The british companies and the economic elite will guide the way and you should be happy about that if you use your brain and not just showing irrational fears.

[The Duke]

Unified currency leads to unified laws. Unified laws lead to unified government. Unified government leads, over time, to ... well ... to what monopolies always lead to.

And it ain't pleasant.

[driftless2]

All my Brit in-laws hate the idea of the Euro replacing the pound sterling and are somewhat less than fond of the EEC to put it mildly. They regard the anonymous bureaucrats who set the union's various screwball standards as a bunch of petty tyrants. Which they certainly appear to be. The dictate about bananas having to be perfectly straight was the one that cracked me up the most.

[Eva]

France's problem with the Euro is that there are regional ups and downs with a single currency and France wants to always be on the up side of the EU. That just isn't going to happen for the long haul. France is just not as strong as it would like others to believe.

[Mrs Ivan]

I am so very glad we didn't go for the Euro - and even more glad that today is the last day that I have to use the excuse for a currency regularly.

Still, the Germans seem to like it, and that should be an message to us all.

[Vigilanteman]

I'd like to get your take on why the Euro hasn't plunged yet. It does seem long overdue. Is Soros money propping it up? Or more likely, Soros owned politicians at the expense of the Eurozone taxpayers?

[PAR35]

I was angrily against the Euro

The fight should have begun when they decimalized the pound.

[stefan10]

France problem with the ECB is that they had a different culture until they packed their currency to the german mark.

The political influence was huge in France while the ECB is like the german bundesbank was independent (more or less as always in the real world).

The development of the france ( and other currencies) showed that political influence is not very helpful here and they changed the policy and decided to join the D-mark block. After that the france was a reasonable and stable currency.

the french government and french politicians ( by the way not only the french) still want to influence the ECB and that´s understandable from their point of view but more or less only hot air.

decisions of the ECB or the FED have huge influence on the economy and so politicians always interested to win the next election ( as at the moment in france) simply do their job with comments like this.

[MadIvan]

Blah blah blah. The point is that a one-size fits all monetary policy doesn't work, particularly given how the economies of the Euro nations have varying methods of how they are run. This is why France and Italy are in deep trouble. I am not interested in hearing this nonsensical mantra about how wonderful it is, when it is proven to be problematic. I am bloody happy we avoided it and bloody happy that we didn't listen to this nonsense that we have to be part of some other larger group in order to be a successful nation.

Ivan

[gridlock]

The coming failure of Airbus is going to be a tremendous strain on the European Union. I don't know if they can survive it.

And Airbus is going to fail. Have no doubt. It is only a question of how many taxpayer Euros are going to be flushed down the toilet before they are allowed to expire.